REG-Kentz Corp Ltd Final Results - Part 1
Released: 31/03/2008
RNS Number:1106R
Kentz Corporation Ltd
31 March 2008
Kentz Corporation plc Full Financial Results 2007
London, 31st March 2008: Kentz Corporation plc (the "Company"), the holding
company of the Kentz engineering and construction group, today announces its
unaudited group results for year ending 31st December 2007.
Financial Highlights
- Revenue in 2007 increased by 47.2% to US$544.6m (2006: US$370.1m) *
- Profit before tax in 2007 increased by 36.9% over 2006 to US$34.3m from
US$25.1m. This was an 111.4% increase on a 2005/06 average profit before
tax of US$16.2 million**
- Profit before tax margins in 2007 increased to 6.3% from a 2005/06
average of 4.8% **
- Net cash at the end of 2007 increased by 115.9% to US$123.7m up from
US$57.3m in 2006.
- Backlog at the end of 2007 increased by 9.7% to US$596.4m (2006:
US$543.8m) *
* Excluding JV and discontinued operations
** Based on two year averages during 2005/2006: 2006 earnings were enhanced by a
deferral of profits from 2005 due to our conservative profits recognition
policy. The effect of the deferral of profits produced a lower margin in 2005
than would otherwise have been the case and a correspondingly higher figure in
2006
Current Trading and Prospects
- Backlog as of end of January 2008 has increased to US$682m
- Renewal of a US$90m support services contract with Fluor in Kuwait,
announced on 6 March 2008
- Additional letters of intent for new projects in excess of US$250m
received, which are expected to be converted to backlog within next two
months
- Future prospects exceed US$1 billion
Corporate Development and Operational Highlights
- Listed on AIM on 5 February 2008, raising a total of £66.7m (US$ 131.8m)
before costs for the Company and its selling shareholders
- Group reorganised during 2007 to create four distinct operating regions:
the Middle East; Africa; Australasia, Europe and Caribbean; and the Arctic
Region and new areas
- Completed phase one of Sakhalin 1 development with ExxonMobil Neftegas
and Fluor, with contracts in excess of US$50m
- Participation in Shell Pearl GTL in Qatar well advanced with contracts in
excess of US$200m
- Completion of the US$80m fast track EPC facilities project for RasGas in
Qatar
- Saudi Aramco Khurais contract won in Saudi Arabia in excess of US$50m
- Good progression on SipChem EPC offplots and facilities project (in
excess of US$100m) in Saudi Arabia
- Completion of Kenmare Resources facilities in Mozambique
- Awarded Rio Tinto Ilmenite project in Madagascar, valued in excess of
US$40m
- Completed another successful turnaround program with Sasol in South
Africa
- Kentz established in Calgary, Canada and working on the Suncor and
mobilising onto the Kearl Lake Oil Sands projects
For more information about Kentz please refer to our website www.kentz.com or
contact
Evolution Securities Limited (Nomad) Tel: +44 (0)20 7071 4300
Rob Collins
Tim Redfern
Lloyd Thomas
Powerscourt (Financial PR advisors) Tel: +44 (0)20 7250 1446
Rory Godson
Elizabeth Rous
Outlook
The continued growth of the world economy provides a favourable environment to
underpin demand for Kentz' services in its core markets and sectors of oil, gas,
petrochemical, energy, mining and metals:
Economic drivers
- Brent oil averaged US$72.39/bbl in 2007. In December 2007 it averaged
US$91.40/bbl and at the time of finalising this report the February average
was US$94.28/bbl and trending upwards
- World oil demand in 2007 is estimated to have grown by 1.2 million
barrels of oil equivalent per day (BOEPD) to an average of just under 87
million BOEPD or 1.4% This trend is set to continue in 2008, driven by
growth in emerging markets and developing economies
- Oil companies increased their capital spending by over 10% in 2007, and
expect spending to be around 10-12% in 2008
- Finite reserves have caused capital expenditure budgets to be focussed
on developing existing reserves and maximising the life and production of
current assets. This is driving project costs and scale
Regional factors
- The Middle East region holds over 60% of the world's proven oil reserves.
US$358 billion of industrial projects have been recently completed and
US$1,100 billion of industrial projects are planned by the Gulf Coast
Countries (GCC) over the next five years. Of the GCC projects planned or
underway, US$344 billion are oil, gas and petrochemicals projects
- The IMF has projected world growth to be 4.1% in 2008. Within the
emerging markets and developing economies, China's projected growth in 2008
is 10% and Middle East 5.9%.
- Industrial and economic growth in developing countries, particularly the
growing economies of Brazil, Russia, India and China (BRIC), is driving the
price of raw materials. For example world steel consumption grew by 7% in
2007 and is forecasted to grow by another 12.8% versus the BRIC countries
where consumption is set to increase by 11.1% in 2008.
These trends should continue to benefit oil service companies providing project
services to the end user oil companies, such as Kentz. The board believes
commodity prices will remain strong and Kentz is well placed to benefit from
continued growth in the mining and metals sector. In addition we are not seeing
any slowdown in the development of projects, either in upstream oil and gas or
in refinery and petrochemicals expansion projects.
Kentz continues to focus on delivering specialised services for blue chip
clients, as well as the leading engineering and project management companies, in
key areas such as the Middle East, Canada, the Caspian region, Russia, South
Africa and Australia. These are all areas where Kentz Group already has a
presence.
Chairman's Report
2007 was a remarkable and rewarding year for Kentz. The ever-increasing demand
for engineering and construction services, especially in the oil and gas
industries, has underpinned the growth of Kentz. The board expects this current
buoyant market for oil and gas services to continue for the foreseeable future,
particularly in regions that are rich in hydrocarbons such as the Middle East,
Russia and Canada.
In 2007 Kentz took a number of strategic decisions to prepare the company to
take advantage of the significant increase in activity in our industry. We have
positioned Kentz to capitalise on the growth in the market, while increasing the
scope and regional reach of services to our clients.
In 2007, the board implemented a reorganisation of the Middle Eastern Kentz
companies, from a confederation of subsidiaries, to a region operating through a
single Middle East holding company. As a result Kentz now has four distinct
regions of operation each with a regional manager reporting to our CEO, Hugh
O'Donnell. There are now also three focused business lines namely Specialist
EPC, Construction, and Technical Support Services. The transition from a group
of small subsidiaries to a multi-national corporation operating through four
regions tied together by a strategically orientated corporate management has now
been completed.
During 2007 the board took the decision to list Kentz on the AIM market of the
London Stock Exchange. Preparations for listing were completed in early 2008 and
the shares started trading on 5 February 2008. This was an historic milestone
for Kentz, affording it access to capital markets to help facilitate further
expansion and growth. A key part of the listing process was to incentivise
senior management who now hold approximately 24% of the company.
The capital raised from the listing, will allow Kentz to identify acquisitions
with the aim of enhancing our technology and expertise within the upstream oil
and gas industry. A number of targets have been identified and are being
explored with a view to completing a strategic acquisition. The board is also
looking to add to the company's construction assets and engineering services in
South Africa.
Another significant accomplishment during 2007 was to increase our blue-chip
client base. This has led to a number of new opportunities and our
relationship-driven model has allowed us to follow core clients from one
continent to another.
Canada is a particularly exciting and relatively new market for Kentz which is
driven by the significant expansion of new Canadian tar sands projects. Kentz
plans further expansion in North and South America through organic growth,
strategic acquisitions and alliances. In particular, the vast coal reserves in
the United States represent a huge market for oil from coal technology. Because
of our expertise, Kentz is exceptionally well placed to target this market and
to take advantage of growth.
Prior to the listing of Kentz we have expanded and strengthened our Board of
Directors. Brendan Lyons and Hans Kraus join David Beldotti as the independent
non executive directors. Ed Power, the Kentz CFO, has also joined the board as
an executive director. The Board is pleased with the accomplishments of 2007 and
remains confident for the future outlook for Kentz.
Tan Sri Mohd Razali Abdul Rahman
Chairman
Chief Executive Officer's Report
2007 was an exciting and prosperous year for Kentz with strong growth in all of
our key business metrics; our revenue increased by 47.2% year-on-year, our
profits before tax increased by 36.9% year-on-year and our backlog has increased
to US$596.4m up from US$543.8m in 2006.
Focus on our core strengths and differentiators means we are now recognised as
the specialist solutions provider of choice, with the ability to deliver
projects for clients anywhere in the world. In 2007 we have continued to focus
on delivering growth in our margin-enhancing business lines, specifically
Specialist EPC (revenues increased by 82% to US$263.7m from US$145.1m in 2006)
and Technical Support Services (revenues increased by 139% to US$133.5m from
US$55.9m in 2006). This significant revenue increase has underpinned the growth
in our bottom line profit before tax margin, which has increased to 6.3%
compared with the 2005/06 average of 4.8%.
Geographically, the strongest growth for Kentz in 2007 occurred in the Middle
East, with significant capital investments in both upstream and downstream
projects in Qatar, Saudi Arabia, Kuwait and Abu Dhabi. Kentz works with most of
the major oil companies in the region and the volume and size of the projects
continues to grow. Recent work includes critical EPC packages for Shell Pearl
GTL, RasGas COP and QatarGas 2 projects.
Our Technical Support Services business has developed very successfully
throughout the Middle East, Far East Russia, Kazakhstan and in Canada. We have
already built up a reputation for successfully supporting integration and
managing interfaces throughout the lifetime of projects.
The oil, gas and petrochemical markets, which represent approximately 89% of the
Kentz business, have reached new heights with a continued uptrend in the oil
price. The upturn has prompted recent project investment decisions such as the
US$20bn Suncor Tar Sands Programme in Canada, where Kentz is delivering
construction management services. Opportunities abound for sustained growth in
the company's other areas - Russia, the Caspian, Southern Africa and Australia.
We will continue to focus on our blue chip clients and on managing our growth,
balancing margin growth, sales growth and risk management. We have a great track
record in all of these areas over the last three years.
The oil and gas industry has experienced significant developments over the last
number of years. In 2007 a huge offshore oil discovery in Brazil boosted its
petroleum reserves by almost 40% and pushed Brazil into the ranks of the world's
top ten major exporters. There has also been a resurgence in Alaska's gas
projects to support the United States' long term energy demands. Kentz is
well-positioned to service these opportunities as several of our core clients
are involved in developing these projects.
During 2007 we successfully deployed approximately 3,000 new staff across all
the regions, which is a significant achievement in an industry which often lacks
sufficient human resources. Our success in hiring and retaining employees is in
a very large part due to the culture of the Group, where the average length of
service of our top 100 managers is more than 18 years.
The deep and far-reaching relationships held by Kentz senior management with our
core international clients drive our business. These relationships are
underpinned by performance and delivery of solutions for worldwide projects over
the past 30 years. More profitable business in remote locations is where the
skills of Kentz are tested to the full, and where we bring most value to our
clients. The recent listing of the Kentz Group on the AIM market of the London
Stock Exchange will provide us with the financing to develop further and to
ensure we continue delivering for our clients.
Kentz has achieved a considerable amount to date and we believe that the
industries in which our clients operate are now set for significant and
continuing growth. I am confident that our ability to deliver expert solutions
anywhere in the world, coupled with our increasing blue-chip client base, means
that Kentz' employees and shareholders can look to the future with real
optimism.
Hugh O'Donnell
Chief Executive Officer
Our markets and sector focus
Review
The Kentz Group provides a wide range of engineering and construction services,
principally in the oil services sector. Our core clients include international
oil companies, national oil companies and leading engineering and project
management companies with projects in over 20 countries supported by
approximately 8,100 employees on average during 2007. Our Middle East operation
is our largest, generating almost 70% of group revenues. Kentz is a fully
integrated services solution provider delivering specialist EPC solutions,
construction and technical support services for projects involving offshore
platforms and FPSO, onshore oil and gas collection and processing facilities,
gas oil separation, LNG, GTL and refinery units. We provide similar services to
the petrochemicals and metal and mining sectors; the latter services being
principally provided in Sub-Saharan Africa and Australia.
Oil and Gas Market:
66% of our revenues in 2007 came from oil and gas projects, primarily in the
Middle East, Russia and Sub-Saharan Africa. Current major ongoing contracts
include:
Qatar: Specialist EPC services for the temporary power, telecommunications,
waste water treatment, temporary buildings and permanent electrical and
instrumentation services on the Shell Pearl GTL project. The Pearl GTL project
comprises the development of upstream gas production facilities, an onshore GTL
plant that will produce 140,000 barrels per day (bpd) of GTL products, as well
as approximately 120,000 bpd of associated condensate and liquefied petroleum
gas. The project will be developed in two phases with the first phase
operational around the end of the decade. The second phase will be completed
around one year later. The project includes the development of a block within
Qatar's vast North Field gas reserves, which will produce 1.6 billion cubic feet
per day of natural gas.
Kuwait: Technical support services to Fluor in Kuwait, providing consultancy
services to manage projects and parts of its activities in the next five years,
extending a previous agreement. The program will help the national oil company,
which manages oil exploration in the world's seventh-largest oil exporter, to
increase production capacity and improve production reliability.
Saudi Arabia: Construction management and installation services on Saudi
Aramco's Khurais project for the development of a 1.2 million bpd Khurais
Increment Programme. This is the largest crude increment undertaken in Saudi
Aramco's history and is one of the largest industrial projects being executed in
the world today. The programme is due for completion by mid-2009.
Abu Dhabi: Construction services to Bechtel for the GASCO ODGIII development.
The project is designed to produce 125,000 bpd of condensate: 12,000 tonnes per
day of NLG's which include about 3,200 tonnes per day of ethane; and recycle an
equal volume of produced gas into the reservoir via a high pressure gas
injection system.
Russia/Sakhalin: Technical support and construction services, including
commissioning and project management support for Exxon Neftegas Limited, an
affiliate of ExxonMobil, the operator of the Sakhalin-1 project; and an oil and
gas development on the northeast shelf of Sakhalin Island. The Project area
comprises the Chayvo, Odoptu and Arkutun-Dagi fields where total recoverable
reserves are estimated to be 2.3 billion barrels of oil and 17.1 trillion cubic
feet of natural gas. The Sakhalin-1 Project has been one of the most ambitious
and successful projects faced by international oil and gas industry today with
phase I delivering 250,000 bpd of oil.
Sub-Saharan Africa: Maintenance, shutdown and turnaround services for Sasol
Secunda, South Africa. To date, Kentz has performed many shutdowns and in
Secunda we have been providing maintenance and shutdown services since 2002 when
we were awarded contracts on the Sasol 2&3. Kentz have performed all synthol
reactor train shutdowns since 2003.
Trinidad & Tobago: Construction services to Fluor for the Petrotrin
Isomerization project which is part of the Gasoline Optimization Programme. The
Isomerization unit will produce Isomerate that improves the octane rating of
light gasoline, thus enabling Petrotrin to supply premium markets better.
Petrochemicals Market
23% of our business is derived from petrochemical projects, primarily in the
Middle East.
Saudi Arabia: EPC services to JCP, a Jubail ChevronPhillips Company, for the
product pipelines (from the integrated styrene facility), distribution and
export facilities (port expansion) project located in the Al Jubail Industrial
Complex, Saudi Arabia. The styrene facility includes feed fractionation, olefins
cracker, ethylbenzene, styrene monomer process units and the associated
utilities and infrastructure.
EPC services to SipChem, one of the largest, fully-integrated, petrochemical
companies in the Middle East, owned and operated by the private sector, for the
product pipelines, port expansion and some buildings on the new major Acetyls
complex. The Acetyls complex consists of an Acetic Acid plant (460 thousand
mtpa), Vinyl Acetate Monomer plant (330 thousand mtpa) and a Carbon Monoxide
plant (345 thousand mtpa).
Construction services to Linde/Linarco for two air separation units at gas
complexes in Jubail and Yanbu industrial cities. These two new ASUs, each having
capacity of 3,000metric tons of oxygen per day, are part of expansion plans in
line with SABIC's strategic growth to meet its future production plans, bringing
the total annual production capacity to 60 m tons during the next two years.
Mining, Metals and Power Market
10% of our business is derived from mining and metals projects, primarily in
Southern Africa. In addition, we have a joint venture business with Thiess of
Australia, where a majority of the business is for mining and metals clients.
This generated an additional US$54.9m in revenue. Including the Kentz share of
joint venture revenue in our industry split, metals and mining would total 17%
of revenues.
Sub-Sahara Africa: Construction services to Rio Tinto and Fluor/Hatch for the
mineral sands QMM ilmenite titanium dioxide project for Rio Tinto in Madagascar.
Final production from the operation in the Fort-Dauphin region is expected in
late 2008 with initial production of 750,000 tonnes of iImenite per annum.
Construction services to Kenmare resources for the Moma Mineral Sands project in
Mozambique, 700,000 tons titanium minerals project, which included installation
of a floating concentrator plant, separation plant, roaster, dredgers, barge
accommodation village and related infrastructure. The main processing plant was
relocated from a former BHP Billiton plant in Western Australia.
Australia: Construction services to Anglo Coal Australia for the Dawson mine,
one of Queensland's leading export coal operations producing over 7 Mt of
coking, soft coking and thermal coal annually using open cut and highwall mining
methods. The mine also has the capacity to produce 6.5 petajoules annually of
coal seam methane gas, which is sold to industrial customers throughout
Queensland.
Other markets
1% of our business is derived from other business including governmental and
infrastructure.
Ireland: Specialist EPC services for the Hermitage and Waterford General
hospital where our responsibilities are for the design, procurement and
construction of specialist mechanical, electrical and telecommunications
systems.
Areas of Operation and Regional Management Focus
Kentz is currently established and operating in over 20 countries worldwide
delivering projects for our core clients in the Middle East, Southern Africa,
Australia, Far East Russia, the Caribbean, South East Asia, USA, Canada and
Europe. For operational purposes the Group divides its operational management
centres into four regions:
- Middle East;
- Africa;
- Arctic Region and New Areas (containing FSU/Russia, the Caspian region and
Canada); and
- Australasia, Europe and the Caribbean.
Client Focus
During the past 4 years, our client base has evolved to a large proportion of
end user clients with 53% of our revenues coming directly from end user oil and
gas companies. In 2007, 37% of total revenues came from International oil
companies such as Shell, ExxonMobil, ChevronPhillips, Sasol, Marathon, Hess, BP
and AIOC. We work closely with national oil and petrochemical companies such as
Saudi Aramco, SipChem, Qatar Petroleum, Gasco and KNPC, which represented 16% of
total revenues in 2007.
Kentz works with most of the leading engineering and project management
companies within the USA, Europe and Asia. Fluor, with its strong presence in
most of Kentz's markets, continued to lead the way in the oil and gas sector,
followed by others such as Bechtel and Foster Wheeler. With the continuing rapid
expansion of the petrochemical sector in the Middle East and Southern Africa,
Linde and Krupp Udhe continue as significant clients. 40% of total revenue in
2007 came from leading engineering and project management companies.
Within the mining and metals sector, Mittal Steel and Anglo Coal are key end
users.
Business Line Services
Kentz business lines are divided into three areas, providing specialist
engineering, procurement and construction (EPC) services, construction and
technical support services.
Specialist EPC Services: Manage, engineer and design, procure, construct and
commission projects. Our focus in specialist EPC is in those areas referenced
above where we have built up a credible track record within this niche area with
several of our core clients. Our task force approach comprises of experienced
personnel with proven capabilities seconded from our local subsidiaries
throughout the Group. Project methodologies and execution strategies are
designed by the team in accordance with client specifications and requirements.
Our engineers and constructors are spead throughout the regions, whilst systems
and tools are developed by the Group and centrally led. Our global procurement
capability enables us to bring the strength of an international purchasing
organization to any project. Recent specialist EPC project values range
approximately within the US$50m to US$145m band.
Construction Services: Managing and executing multi-discipline construction
projects, including inter alia, construction and site management, field
engineering and procurement, HSE and testing for our clients. We also specialise
in the provision of commissioning and startup services in conjunction with, or
independent of, project construction activities. The Group's workforce has the
experience in the commissioning and start-up of large, often complex, plant
facilities in remote locations. Recent construction project values are in the US
$30m to US$60m band.
Technical Support Services: Working in the early stages of project development
at the front end engineering and design phase (FEED) before EPC works comence.
We perform specific FEED study programs and we have teams of specialist
personnel engaged with the client delivering validation and budgeting. Typically
a team then works as part of an integrated project management group once the
project gets the go ahead, providing specialist services and systems to support
the management of the project.
We also provide maintenance, shutdown and turnaround management services for
clients on an international basis. Typical scope of work includes management and
execution services including shutdowns and turnarounds. In addition to
maintenance, shutdowns and turnarounds, we provide commissioning services for
the upstream (offshore and onshore), refining, petrochemicals, metals and mining
industries. Recent technical support project values are within the US$5m to US
$50m band.
As is clear from the full year 2006 and 2007 revenue splits by business line we
have a definitive strategy to focus on growing our margin enhancing business
lines of Specialist EPC and Technical Support Services. Our Technical Support
Services revenue was up in relative revenue terms from 15% in 2006 to 25% in
2007. Specialist EPC revenue in 2007 was up in relative revenue terms from 39%
in 2006 to 48% in 2007.
In general our specialist EPC contracts are fixed price, lump sum and are often
competitively bid; construction contracts are based on a re-measurable work unit
rate; and our technical support services are usually on a fully reimbursable
basis. Any lump sum fixed price contracts undergo rigorous risk assessment
through a board risk committee prior to submission.
Backlog and revenue visibility
Backlog is defined as the future work load on our books for the EPC,
construction and technical support services business lines, comprising current
contracts work not yet completed and new orders received. Backlog is not an
audited measure and other companies may calculate the measure differently.
The Group's backlog of work as of December 31, 2007 was US$596.4m, up from US
$543.8m as of December 31, 2006. Our projection of future work stretches beyond
our backlog; we typically have at any one time a number of additional letters of
intent that are waiting to be converted to contracts. Across our offices we have
a number of prospects of key projects that are under development in bidding and
proposals. Presently, these are in excess of US$1billion. We are also
participating in certain projects which we see as strategic prospects which are
being developed by our clients and are in pre-investment stage. Overall our
visibility of future work has several layers and this gives us confidence in the
future forecasts that have been set.
Revenues
The Middle East continues to be the single largest area for Kentz with revenues
of US$380m in 2007, a growth of US$133m from 2006 to 2007. Of note though is the
50% increase in our African revenues between 2006 and 2007. Our Arctic and new
areas region slightly increased revenue to US$45m and it enters 2008 with a
backlog of US$39m.
Middle East
Management of Kentz Middle East activities is based in Bahrain with operating
companies in Qatar, Saudi Arabia, UAE and Kuwait. It is our largest region by
revenue with 69.7% of the 2007 revenues coming from this region. Leading oil,
gas and petrochemical end users have rolled out large scale developments and
given the projected expansion and spending plans within the region, the Middle
East is expected to continue as the largest revenue generating region for the
Group. Our manpower within the Middle East region is now at an historic high and
with oil and gas expected to remain as the number one source of energy, we are
in a strong position in this market.
Africa
The Africa region represents 17.4% of revenue for 2007. Within this region
investment remains strong in the mining and metals sectors and large investment
by the energy sector has moved into the implementation phase. This is a long
term growth market with increasing global demand for natural resources and with
spending on power generation and distribution set to grow in South Africa in the
coming years.
Arctic & New Areas Region
Our Arctic & New Areas region, which consists of Russia, Caspian region and
Canada represents 8.3% of revenues for 2007. In this region, investment in oil
and gas projects remains strong, especially with major projects announced in
Kazakhstan, Sakhalin and Canada. During 2007, we participated in two oil sands
project developments in Canada; the KEARL Lake project with Imperial Oil and the
Suncor Voyageur project. There are many similarities between these projects and
other projects with the same climatic weather conditions, challenges and work
methods, where Kentz has experience. We have established a good entry position
in this growth market which has high demand for project management and
construction services.
Australia and other
In June 2004 Kentz Group entered into a joint venture agreement with Thiess Pty
Ltd for an unincorporated joint venture trading as "Thiess Kentz Engineers and
Constructors". Under the joint venture Kentz Group provided E&I experience
enabling Thiess to offer single point, multidiscipline services. In October
2006, Thiess Pty Limited and Kentz incorporated a joint venture company, Thiess
Kentz Pty Ltd, which will replace the unincorporated joint venture.
Thiess Kentz has offices in Queensland and Western Australia and its sales
revenues do not form part of our consolidated financial statements. For
information, 2007 sales revenue (Kentz 50% share of the joint venture) was US
$54.9m against US$30.0m in 2006.
The Group also has minor operations in Europe, South East Asia and the Americas.
Ireland and the UK remain important sources of management personnel for the
Group.
Growth Strategy including Acquisitions and Business Opportunities
Our regionalisation strategy for the Middle East was very successful in 2007, as
the strength of our engineering and construction services in the region
increased revenues to US$379.6m in 2007 from US$246.5m in 2006. We continually
monitor trends within our industries and evaluate their potential impact on our
regions and industries. By understanding the ever changing industrial
environment and its potential impact on our business, we are prepared to deliver
enhanced services to our clients, both end users and leading engineering and
project management companies. The recent mega oil and gas field discoveries,
such as in Brazil, and multibillion dollar developments, such as the Shell Pearl
GTL, all require solution providers who are prepared to deliver EPC and
construction solutions under difficult conditions and this creates great
opportunities for Kentz. Kentz close relationships with core end users help us
to develop opportunities for strategic growth.
The three main growth strategies for Kentz are:
- Expanding our regional involvement with core clients, including
international oil companies, national oil companies and leading engineering
and project management companies. Through our regional structures, we are
able to provide more complete services locally and we expect to benefit
from the increasing capital spending in the oil, gas, mining and minerals
sectors.
- Developing key strategic projects through our regional capacity to target
large multi-million projects with major international and national oil
companies.
- Completing a strategic acquisition in the oil and gas upstream industry
and leveraging this acquisition with the Kentz global footprint and client
base. We intend to use such new capacity to deliver solutions in three new
areas;
+ marginal field developments, including complete early production
process plants;
+ offshore deepwater solutions in delivering FPSO topsides; and
+ complete small to mid-size process plants both onshore and offshore.
The execution of these strategies will enable Kentz to provide a more
diversified service to our core clients and to and to develop new businesses
with them. We also intend to enter into further joint ventures and alliances
with other industry participants to reduce and diversify risks, to increase the
number of opportunities that can be pursued; to capitalise on the client
relationships of each party; and to realise cost efficiencies.
Chief Financial Officer's Report
Summary of Key Financial Indicators
For the year ended 31 December: 2007 2006 %
(US$M) (US$M) Change
Sales Revenue 544.6 370.1 +47.2%
EBITDA 35.2 27.2 +29.2%
Profit before tax 34.3 25.1 +36.9%
Profit after tax 26.3 21.4 +22.6%
Profit after tax attributable to shareholders 26.2 19.0 +37.7%
Net Cash from operating activity 87.5 52.1 +67.8%
Cash and equivalents at year end 123.7 57.3 +115.9%
Basic earnings per share (US cents) 26.19 19.01 +37.8%
Backlog 596.4 543.8 +9.7%
Group Income Statement - Overview of Trends and Highlights
Continuing Operations For the year ended 31 December
(Values in US$ millions) 2007 Average 2006 2005
2005/6
Sales Revenue 544.6 341.5 370.1 312.8
Gross Profit 68.2 44.6 56.0 33.2
% of sales 12.5% 13.1% 15.1% 10.6%
S.G. & A. expenses 39.7 30.0 33.0 26.9
% of sales 7.3% 8.8% 8.9% 8.6%
EBITDA 35.2 18.1 27.2 8.9
% of sales 6.5% 5.3% 7.4% 2.8%
Profit before tax 34.3 16.2 25.1 7.4
% of sales 6.3% 4.8% 6.8% 2.4%
Profit for the year - continuing operations 26.3 12.6 21.4 3.9
% of sales 4.8% 3.7% 5.8% 1.2%
ROCE 41.4% 29.8% 40.4% 15.8%
The group accounts are prepared in accordance with IFRS
Summary of Group Income Statement Highlights
Revenue
Sales revenues from continuing operations increased by 47.2% in 2007 to US
$544.6m (2006: US$370.1m) reflecting continued strong growth across our
geographical business regions in general, but particularly in the Middle East
region, primarily in Qatar and Saudi Arabia.
The breakdown of revenue by business line shows a significant shift taking place
towards our Specialist EPC and Technical Support Services segments which grew to
48% of Group revenue (2006: 39%) and 25% (2006: 15%) respectively at the expense
of the Construction Services segment which declined to 27% (2006: 46%) of the
total. This shift is in line with our strategy to pursue higher margin work and
achieve a more consistent flow of profitability between periods.
Sales to the oil and gas and petrochemicals market in 2007 totalled US$484m or
89% of Group revenues, up from US$315m or 85% of Group revenues in 2006. Our
mining and metals revenues were constant at 10% of our overall revenues for both
2006 & 2007 and our other sectors in 2007 decreased to 1% from 5% in 2006.
Gross Profit
Gross profits of US$68.2m or 12.5% of sales were recorded in 2007, an increase
of US$12.2m on the 2006 figure of US$56.0m or 15.1% of sales.
It should be noted that 2006 earnings were enhanced by deferral of profits from
2005 to 2006, particularly on two large lump sum EPC projects which commenced in
2005. In compliance with the conservative profit recognition policy we apply to
lump sum projects, sales revenues had been recorded in 2005 in line with
progress achieved and properly invoiced to clients but no associated profits
were taken on these sales until the required profit recognition threshold
(typically 40% on such projects) had been reached and we were comfortable that
the expected profitability would be achieved. The profit recognition thresholds
were reached on these projects in 2006 and thereafter, profits were recognised
using the percentage of completion method. The effect of the deferral of profits
on these projects produced a lower margin percentage in 2005 than would
otherwise have been the case and a correspondingly higher figure in 2006. In
order to facilitate a more meaningful comparison of trends with prior year
results, an average calculation of the results for 2005 and 2006 has been
included in the table above. We believe this comparison provides a better trend
indication as our 2007 results have not been affected by this issue to any
material degree.
More to follow, for following part double-click [nRN1e1106R]