Monadelphous Group is one of Western Australia’s biggest and most successful engineering construction companies, but it wouldn’t be running today if it hadn’t been rescued by the co-founders of United Construction.
Monadelphous Group is one of Western Australia’s biggest and most successful engineering construction companies, but it wouldn’t be running today if it hadn’t been rescued by the co-founders of United Construction.
Chairman John Rubino rates the rescue and revival of Monadelphous as his biggest achievement.
“It was a much bigger challenge to bring Monadelphous from the position it was to what we are today than it ever was to build United from scratch,” he told WA Business News.
Reflecting on Monadelphous’ darkest days in the early 1990s, Mr Rubino said: “We were six foot under with the dirt on top of us. The only thing missing was the stone on top.”
History shows that Monadelphous was one of the rare examples of an Australian company emerging intact from the hands of receivers.
The recovery has been lucrative for long-term shareholders. Adjusting for share splits, its share price has gone from 7.5 cents in 1991 to about $4 today.
Over the same period, its market capitalisation has gone from $3.6 million to $320 million.
Monadelphous was established in 1978 and operated successfully for nearly a decade before getting into serious financial trouble.
It floated in 1986 and expanded into Queensland and New Zealand, where it incurred big losses.
Mr Rubino said he and his partners in UC Holdings – which then owned United Construction – saw Monadelphous as a good way of diversifying their business interests into the construction of mining plants and maintenance work.
UC Holdings initially acquired a minority shareholding and advanced loans to Monadelphous, before the depth of its problems became apparent.
Monadelphous’ mounting liquidity problems eventually led to the company being placed in receivership, in September 1988.
The UC Holdings’ partners – John Rubino, John Trettel, Charlie Bontempo and Sam Castelli – then had to weigh up options for recovering their investment.
John Rubino spent the next year developing a scheme of arrangement that would satisfy Monadelphous’ creditors and keep the business afloat.
The scheme required UC Holdings to invest more money in Monadelphous, lifting its shareholding to 62 per cent.
Charlie Bontempo was appointed managing director in late 1989 and proceeded to restructure the business.
This included some key staff changes, with Rob Velletri (the current managing director) being lured away from a secure, well-paid job at Alcoa to join the struggling company.
Monadelphous came out of receivership in 1990, but it still wasn’t out of the woods.
“When the company came out of receivership it struggled big time, it struggled for quite a while,” Mr Velletri said.
Mr Rubino took charge of the company in January 1991 and planned to stay for six or 12 months, but found a dire situation.
“It was more difficult than I envis-aged, much more difficult,” he said.
For instance, he discovered that Monadelphous had substantially overdrawn its overdraft facility with Standard Chartered Bank.
“We had to start to build a team and rebuild the reputation of the company, which was the most difficult thing to do because unfortunately no one gave us any trust,” Mr Rubino said.
One of the biggest problems it faced was getting credit from suppliers.
“You live on reputation, it’s as simple as that. If you pay your trade creditors properly you get the best price. We had to pay a premium for everything,” he said.
Mr Rubino remembers trying to lease an $80,000 piece of machinery and being unable to obtain any credit but gradually the trading situation improved.
“We managed slowly, slowly to get suppliers around the table, one by one, and discuss terms,” he said.
United and Monadelphous established close operating links at this time, with United moving some of its people to Monadelphous to help its recovery.
“We were trying to change the culture so we moved some of our good people over there,” Mr Castelli said.
However, the links between the two companies could have been a double-edged sword.
In 1991, United was under severe cash flow pressure of its own, so it was not entirely surprising that Monadelphous’ creditors were wary.
Mr Rubino, who retains a 10 per cent shareholding, said it took him at least 18 months to stabilise the business.
A key step toward normalising the business came in 1994, when UC Holdings’ shares in Monadelphous were split between the four partners.
From 1994 onwards, Monadelphous began a period of strong growth that helped set it up for its current success.
