REG-Kentz Corp Ltd Interim Results - Part 1
Released: 15/09/2008
com:20080915:RnsO3937D
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RNS Number : 3937D
Kentz Corporation Ltd
15 September 2008
Press Release
September 15th 2008
Kentz Corporation Limited First Interim Financial Results 2008
London, 15th September 2008: Kentz Corporation Limited (the "Company"), the
holding company of the Kentz Engineering and Construction Group, today announces
its un-audited Group results for the half year ending 30th June 2008.
2008 Interim Financial Highlights
* Revenue in the first half of 2008 increased by 34.4% to US$328.6m (H1 2007:
US$244.5m)
* Profit before tax in the first half of 2008 increased by 52.2% to US$16.8m*
(H1 2007: US$11.1m)
* Profit before tax margins in the first half of 2008increased to 5.1%*(H1
2007: 4.5%)
* Net cash at the end of the first half of 2008increased by 78.8% to
US$195.5m(H1 2007: US$109.3m)
* EPS (basic) 10.99* US$cents up 20.1%* (H1 2007: 9.15US$ cents)
* Backlog as of the end of Juneincreased by 17.1% to US$698.6m(Dec 2007:
US$596.4m)
* For the six month period ended 30 June 2008 stated before reflecting
non-recurring costs arising from the admission of Kentz Corporation Limited to
AIM
Current Trading and Prospects
* Backlog as of end of July 2008 wasUS$894.5m;some of the awards that make up
part of that backlog are listed below
* Award of aUS$208m contract for the design, supply and delivery of the main
electrical systems on the prestigious Sidra Medical and Research Centre in Doha,
Qatarthrough oursubsidiary Qatar Kentz(W.L.L.) announced on the 30th May 2008
* Award ofapproximately US$40m contractto provide site development, piling and
construction services at the Odoptu well site in the north of Sakhalin Island in
Far East Russiathrough KentzSMNM LLC together with our partner
SakhalinMorNetfeMontazh, announced on 26th August 2008
* Award of aUS$250m contract in South Africa for the supply and erection of
plant for the air cooled condensing system at the Medupi Power Station through
our Southern African subsidiary Kentz (Pty) Ltd announced on 28th August 2008
* Pipeline offuture prospectsexceed US$2.0bn up from US$1.5bn as at the end of
December 2007.
Corporate Development and Operational Highlights
* Kentz was 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. At
the placing price of 115p per share the company was valued at £133.8m
* Kentz Canada the operating unit for Kentz in Canadacompleted the signing of a
joint venture agreement with PCL Industrial to jointly pursue oil sands projects
in Fort MacMurray, Alberta announced on 19th August 2008
* Continued participation in Sakhalin 1 & 2 developmentstogether with our
Russian joint venture partners
* Successful phased completion ahead of schedule of the early facilities work
and continued participation in the main process areas for themega Shell Pearl
Gas to Liquids project in Qatar
* Successful completion of the RasGas common off-plots project in Qatar
* Continued participation on the Saudi Aramco Khurais project in Saudi Arabia
* Continued participation on several SipChem projects in Saudi Arabia including
commencement of engineering and procurement services for the new Acetyls
Polishing Plant
* Continued participation in the Rio Tinto Ilmenite project in Madagascar
* Expansion of presenceinprovidingmaintenance and turnaround services on new
facilities with Sasol in South Africa
* Successful completion of three projects with Linde in Qatar and Saudi Arabia
with further projects in the pipeline in the Middle East region.
Commenting on the results Hugh O'Donnell, Chief Executive of Kentz said:
"We are delighted to report an excellent performance for the Group in the first
half of 2008, including notable increases in key financial measures and growth
in our backlog to US$894.5m as at end of July 2008. The outlook remains very
positive for the sectors in which we operate. Our customers continue to develop
significant projects and engage Kentz for participation in these projects,
further strengthening our pipeline of work."
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
Powerscourt (Financial PR advisors) Tel: +44 (0)20 7250 1446
Rory Godson
Elizabeth Rous
Chairman's Report
The 5th of February 2008 marked a historic day in the evolution of Kentz. On
this date, Kentz shares began trading on the London Stock Exchange. With the
infusion of new capital, the Board remains fixed on expanding our position in
the Upstream Oil and Gas market by both organic growth and completing an
acquisition in the near term.
Demand for Kentz' services in the Oil and Gas and related industries continued
to grow in the first half of 2008, with revenues and profits up by 34% and 52%
respectively. Although the world economy is experiencing some difficulties,
strong growth in our markets is expected to continue for the foreseeable future.
The need for continued development of oil and gas reserves, plus the development
of alternative and renewable energies, continues to dominate the world economy
and Kentz is well positioned, to capitalise on this long term trend.
The Middle East, now and for future years, remains our most important market.
However, we are also focused on increasing our presence in newer, hydrocarbon
rich, markets such as Russia, Canada and South America. This initiative promises
to keep our pipeline of new projects growing at a healthy rate.
We maintain a watchful eye on the US market where there is a growing emphasis on
reducing energy imports. With its vast coal reserves, untapped offshore oil and
gas reserves, and nuclear technology, the US could, in the not too distant
future, become a significant market for Kentz' services.
The Directors of Kentz are optimistic for the future prospects of the Company
and remain fully supportive of the work of our CEO, Hugh O'Donnell, and his
management team.
Tan Sri Mohd Razali Abdul Rahman
Chairman
Chief Executive Officer's Report
The first half of 2008 has been a very exciting and busy six months for Kentz
with positive growth in all of our key business metrics. Measuring our
performance against the same reporting period in 2007 our revenue increased by
34.4%, our profits before tax increased by 52.2%, our net cash increased by
78.8% and our backlog increased by 39.3%.
Profit before tax for H1 2008 is more evenly balanced between the first and
second half in comparison to 2007. This increase can be attributed to the profit
before tax margin increasing from 4.5% in H1 2007 to 5.1% in H1 2008 and the
good spread of projects across all our business lines giving a smoother profile
in earnings.
Coupled with our financial performance we have also delivered over 16.7 million
man-hours of work on our project sites in the first half of 2008 with zero lost
time incidents. During the first half of 2008 the average number of employees
increased by approximately 2,100 across all the regions to support the growth of
projects being implemented by Kentz.
Our focus remains on being recognised as the specialist solutions provider of
choice providing a global reach of service that is valued by our clients. In the
first half of 2008 we have continued to see a strong demand for our services.
Our Technical Support Services revenues increased by 87% to US$85.1m (H1 2007:
US$45.5m). Construction services first half year revenues were up 50% to
US$118.5m (H1 2007: US$79.1m) predominantly in support of several large Middle
East and Southern African projects. Specialist EPC revenues were marginally up
at US$125.0m (H1 2007: US$119.9m). Despite this change in sectoral balance the
profit before tax margin has increased to 5.1%.
The upstream and downstream oil and gas markets, which represent approximately
88% of the Kentz business, continue to grow strongly despite recent reduction in
oil prices. There are several opportunities across all areas of our operations,
including the Middle East, Russia, the Caspian, Southern Africa, Canada, South
America and Australia. Our overall pipeline of future prospects currently stands
in excess of US$2.0bn.
The Middle East region continues to be the strongest area of growth for Kentz. A
significant number of capital investments in both upstream and downstream oil
and gas projects throughout the region are underway or under feasibility study.
Whilst some of these projects are inevitably getting delayed due to industry
capacity constraints there has been sufficient volume to maintain our growth.
The Middle East region revenues for the first half of 2008 were up 23% to
US$221.1m (H1 2007: US$180.2m).
Kentz continues to work with several of the major international and national oil
companies as well as the leading engineering and project management companies in
the Middle East region. Some of the current ongoing work includes critical
projects being delivered for Shell Pearl GTL, Saudi Aramco Khurais, SipChem,
Gasco OGD3, Ras Laffan Qatar Petroluem/ExxonMobil Ras Laffan Refinery and Oryx
GTL projects.
Industry relationships are becoming more vital in all natural resource
development sectors as the number of projects being developed grows.
Relationships that Kentz have developed through a reputation of delivery with
our clients remain very important. We will continue to focus on our blue chip
clients and on managing our growth, balancing margin growth, sales growth and
risk management.
Kentz has continued with its growth plans as laid out at IPO and I am confident
in our ability to continue to deliver specialist solutions for our clients
throughout current and new international locations.
Given the underlying volume of projects and the continued demands for our
services, in the markets in which we operate, we remain confident of the future
outlook for Kentz.
Dividend
The Board has declared an interim dividend of 1.9 US$ cents per share which will
be paid on 24th October 2008 to all eligible shareholders on the register as on
26th September 2008. Shareholders who have elected not to receive their dividend
in US$ will receive a sterling equivalent converted at the exchange rate ruling
at that time. The Board will set the final dividend for 2008 following
completion of the accounts for the year ended 31st December 2008.
Outlook
The IEA in September set its world oil demand forecast for 2009 to grow by
40,000 bpd to 890,000 bpd. The IEA predicts that most of the supply will come
from OPEC producing countries with the Middle East providing the largest share.
Whilst the global economy is experiencing slowing demand and rising inflation,
oil prices have remained firmly above the US$100/bbl level. The average Brent
oil price for January was US$92.0/bbl whilst the July average was US$134.9/bbl.
This high level has reflected the sluggish supply response. As part of this
response, many of the major oil companies, which are clients of Kentz, continue
to increase their capital investment in the upstream and downstream markets.
ExxonMobil and Shell together estimate that their 2008 overall capital
expenditure will exceed US$60bn, an increase of over 30% from 2007.
The US Dollar remains the currency of oil contracts and any recent falls in oil
prices have largely been offset by the strengthening of the US Dollar against
the Euro and Sterling. This has been positive for Kentz in keeping sales and
costs matched.
The markets in which we operate remain strong with several large prospects being
pursued in the Middle East, Southern Africa and the Arctic. We anticipate
further growth in project awards in the second half of 2008.
The Middle East:
The region continues to experience rapid expansion, with new projects being
developed by both national and international oil companies. This has been our
strongest growth area in the recent past, and our continued presence throughout
the region provides for a number of new opportunities in the future.
Qatar: We are currently working with our clients on several gas development
projects delivering EPC, construction and technical support services. There are
considerable opportunities for the future in Qatar.
Saudi Arabia: There are strong signs of increasing capital spending in the
downstream oil and gas sectors in Saudi Arabia, with Saudi Aramco developing
three mega refinery projects at the Jubail, Yanbu and Rastanura sites. Two of
these are being developed in a joint venture with Total and Conoco Philips
respectively and the third by Saudi Aramco alone to service the domestic market.
In addition, Saudi Aramco is moving ahead in a joint venture with Dow to
upgrade and integrate the existing Rastanura refinery with a large scale
petrochemical complex through a projected spend of $26bn. It also has a Clean
Fuels programme to upgrade its existing refineries to meet US and European
emission standards in future years. Kentz is well-positioned to participate in
these upcoming mega-projects. This coupled with maintaining focus on our three
core business lines within Saudi will see this area set for growth.
Kuwait: Kuwait is now set, after some delays, to start its fourth Refinery
project with a projected spend of $14bn. It is also proceeding with its Clean
Fuels programme, to upgrade its existing refineries to meet US and European
standards in future, with a projected spend of $10bn. These projects provide
opportunities for Kentz given our presence there since the mid eighties.
Abu Dhabi: In the upstream sector there are a number of significant projects
under development including: The ADCO SAS (Shah, Asab and Sahil) oilfield
development, a 400,000 barrel per day expansion to a 1.8m barrel per day
development programme across three oil fields; and GASCO's IGD (Integrated Gas
Development), with combined project values close to $20bn.
Arctic and New Areas:
Sakhalin: Both Sakhalin 1 and 2 developments are going through extended phases
that are being developed under their original license agreements and provide
continued activity for Kentz in Sakhalin.
Canada: Some of the oil sands projects under consideration for Alberta are
reaching the financial investment decision stage, which will provide prospective
opportunities for Kentz. The efforts of our Canadian operations is starting to
gain momentum with the completion of the joint venture (JV) agreement with PCL.
Kentz' role in the JV will be to deliver specifically on the electrical,
instrumentation, automation and telecommunications scopes of projects as well as
the provision of support in foreign management and labour from its international
sources of operation. PCL is the largest construction contractor in Canada and
the seventh largest in North America. It specialises in civil and mechanical
disciplines and is headquartered in Edmonton, Alberta.
Africa:
Having successfully provided construction services for the mining and metals
sector within several Sub-Saharan African countries, Kentz is in a good position
for future participation in similar projects being developed in this region.
Our operation is also well placed to find new opportunities in the region's
power sector developments. Maintenance and turnaround service programmes with
several of the oil companies in coal to liquid facilities, refineries and
petrochemical plants are enjoying continued growth for our services in these
areas.
Australia:
In Australia there are six 'mega' LNG processing facilities either under
development or in implementation, all of a global size and complexity. Kentz is
well positioned to participate in some of these new projects, given our track
record of delivering projects throughout Australia and our international
experience of working on LNG projects.
The Caribbean and South America:
Developments in the Caribbean remain small but existing projects allow us to
maintain a presence there. Our activities in this region support the potential
to develop in new areas such as Brazil, where the national oil company announced
in July it plans to spend in the order of US$138bn over the next five years. The
expenditure will be split between offshore development in drilling and
production and onshore downstream green-field and brown-field upgrade projects.
This investment plan, which is separate to any international oil company or
pre-salt investment, represents a significant growth and a requirement for
international execution support in a number of areas.
Operational Review within our markets and sectors
Over the past reporting period, we have increased our project execution capacity
in our core markets, especially within the Middle East where our revenues
increased to US$221.1m (H1 2007: US$180.2m) making up 67% of Group revenues. We
have continued to provide a wide range of engineering and construction services,
principally to our core clients, which include international oil companies,
national oil companies and leading engineering and project management
contractors with projects in over 22 countries. This has been supported by a
growing workforce that has risen from a 2007 average of 8,100 employees to a
current first half year average of approximately 10,200 employees worldwide, an
increase of over 26% for the period. This increase has been resourced
predominantly by short term duration contracts.
88% of our business in H1 2008 (H1 2007: 91%) was derived from oil, gas and
petrochemicals projects primarily in the Middle East, Russia and Sub Saharan
Africa. The remaining business has come from our metals and mining (7%)
operations in Sub Saharan Africa and from other businesses such as power,
infrastructure, medical and sporting arenas (5%). Revenues from our Thiess-Kentz
joint venture, which predominantly executes projects within the metals and
mining industry, are excluded from these revenue totals as this is consolidated
on an equity basis.
Oil and Gas and Petrochemicals
Our services to the oil, gas and petrochemicals market sectors totalled
US$288.9m in revenues for H1 2008, (H1 2007: US$221.3m).
In Qatar, we have made good progress on the Shell Pearl GTL project where we are
completing the final phases of the infrastructure facilities and there is now a
transition emphasis onto the construction of all electrical and instrumentation
within the process and utilities section. We are also supporting the operation
and start-up phase on the Dolphin Gas Plant and Rasgas Common Off-plot project.
Kentz has commenced engineering and procurement on our new US$208m contract for
the electrical and telecommunication systems for the new Qatar Petroleum Sidra
Medical facility in Doha, Qatar. This project will take around three years to
complete and will be one of the top medical facilities in the world.
The Kuwaiti operations moves into the second year of a five year technical
support services contract to Fluor, providing consultancy services to manage
multiple projects as part of its activities. The programme will help the
national oil company, which manages oil exploration and production for the
world's seventh-largest oil exporter, to increase production capacity and
improve production reliability.
In UAE and Saudi Arabia, we continue with major construction and EPC projects.
We are providing construction and installation services on Saudi Aramco's
Khurais project for the development of a 1.2m barrel-per-day Khurais increment
programme, to Bechtel for the GASCO OGDIII gas development programme and to
Linde for a process and air separation plants. We are also continuing with our
EPC projects with SipChem, one of the largest, fully-integrated, petrochemical
companies in the Middle East. Kentz is executing projects for the product
pipelines, port expansion and some buildings on the new Acetyls complex as well
as several smaller EPC upgrade projects in the region.
In Far East Russia Sakhalin Island, services being performed by Kentz continue
on the two major oil and gas developments. The next phase of the ExxonNeftegas
Sakhalin 1 project includes the new Odoptu field development on the north east
coast of Sakhalin Island. Fluor Daniel Eurasia Incorporated has engaged with
KentzSMNM, the Kentz led Sakhalin based company comprising of Kentz Russia and
SakhalinMorNetfeMontazh (SMNM). The contract includes site clearance and
development works, in preparation for the relocation of both the Chayvo based
drill rig and modular based interim production facility (IPF), and the
construction of a new fifteen kilometre road to service the well site associated
with the Odoptu development. We have also expanded our site management support
services to Shell on the Sakhalin 2 onshore production facilities project as it
nears completion. We are currently preparing to support Shell through the
deployment of key management support services at their 'Lun A' offshore
platform.
Our Sub-Sahara Africa operations continue with construction and maintenance,
shutdown and turnaround services at Sasol Secunda and the Sasol 2&3 and now also
at the Natref facility.
In Trinidad & Tobago, we have mobilised on two new construction projects for
Petrotrin Refinery.
In Brazil we continue to support SBM Offshore in commissioning technical
services for two FPSO mooring buoys in Angra.
In Norway we continue to support Aker Kvaerner offshore modular barge works for
the Kashagan Project in Kazakhstan.
Mining and Metals Markets
7% of our business is derived from mining and metals projects primarily in
Southern Africa (H1 2007: 8%). In addition, we have a joint venture business
with Thiess Pty Ltd of Australia, where a majority of the business is for mining
and metals clients, which generated an additional US$16.1m in our share of
revenues.
In Sub-Saharan Africa, Kentz is supporting the post start-up phase of operations
for the Kenmare Resources Moma Mineral Sands project in Mozambique, a 700,000
tonnes titanium minerals facility. We also continue to provide construction
services on the Rio Tinto mineral sands QMM ilmenite titanium dioxide project in
Madagascar, which has initial production of 750,000 tonnes of iImenite per
annum.
Kentz integrated solutions division in South Africa is continuing on two EPC
service projects for Sierra Rutile in Sierra Leone and Xstrata in South Africa.
Other markets
5% of Kentz' business is derived from other businesses including governmental,
infrastructure and sporting arenas (H1 2007: 1%).
Key projects include the infrastructure layout of the new Jubail petrochemicals
phased development for the Saudi Arabian Royal Commission. Detail engineering
includes provision of full infrastructure for the complex. In Ireland we
continue delivering specialist EPC services for the medical industry as well as
the Lansdowne Sports Stadium where Kentz is providing construction management
and installation for the electrical systems and EPC services for the
telecommunications systems.
In South Africa Kentz has commenced participation in the new Medupi power
project. This is a Greenfield 6 x 740MW Coal Fired Power Station that forms part
of a US$12bn investment programme by the South African Power Supply and Utility
Group Eskom, which will span six years. Our contract is with GEA Energy, the
German technology house whose responsibility includes the turnkey delivery of
the overall air cooled condensing system for Medupi. The Kentz work scope
includes the procurement , detailing, shop fabrication and installation of
approximately 36,000 tonnes of steel structure and plate work, 40,000 tonnes of
mechanical equipment and 1,800 tonnes of piping over a four and half year
period. The close on thirty year history that Kentz has in the engineering and
construction sector across Southern Africa means it is ideally placed to deliver
this contract. Also, in South Africa Kentz has commenced design work on the
Gautrain Tunnel Ventilation System on an EPC contract basis.
Client Revenue Source
Kentz continues to maintain a good balance and mix of clients with 51% of
revenues in the first half of 2008 coming from end user international and
national oil companies (FY 2007: 53%), 43% of revenues coming from leading
engineering and project management companies (FY 2007: 40%), and 6% of revenues
coming from other sources (FY 2007: 7%).
Areas of Operation and Regional Management Focus
Kentz is established and operating in 22 countries worldwide delivering projects
for core clients. This ranges from the Middle East countries, 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 distinct regions: the Middle East; Africa; the Arctic Region
(containing Russia, FSU, the Caspian region and Canada) and New Areas; and
Australasia, Europe and the Caribbean.
Business Line Services
The Kentz business lines remain focused on three distinct areas: specialist
engineering, procurement and construction (EPC) services; construction; and
technical support services. Recent project values range between: US$50m to
U$250m for specialist EPC; U$30m to US$60m for contruction; and US$5m to U$50m
for technical support projects.
In the first half of 2008 specialist EPC revenues have increased to US$125.0m
(H1 2007: US$119.9m); Construction services US$118.5m (H1 2007: US$79.1m); and
Technical Support Services US$85.1m (H1 2007: US$45.5m). The construction
business line has experienced an increase of 50% which is due to several large
construction projects in Saudi Arabia (predominantly the Khurais and Sharq
projects), Qatar (Pearl GTL, Shell/QP) and UAE (OGDIII).
Backlog
Backlog reflects the value of future work load on Kentz' books for the
Specialist EPC, Construction and Technical Support Services business lines. It
comprises the value of work in contracts in progress, yet to be completed
contracts 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 H1 2008 was US$698.6m, up from US$501.4m for
the same period in 2007 and at end of July 2008 was US$894.5m. Visibility of
future work stretches beyond backlog where there are a number of additional
letters of intent, which are waiting to be converted to contracts. Across Kentz'
offices we have a number of prospects of key projects that are under development
in bidding and proposals, presently this sits in the order of US$970m. In
addition we are also participating in certain strategic prospects. These include
projects which are longer term in development, typically 12-18 months, or are
being developed by our clients and are in pre-investment stage, where Kentz have
been pre-selected by the client to participate subject to the project going
ahead. Our strategic prospects are in excess of US$1bn. The combined total of
our current prospects and strategic prospects exceeds US$2bn.
The profile of the backlog going forward (2008 to 2011) following the reporting
period to June 2008 is made up from Specialist EPC 46%, Construction 32% and
Technical Support Services 22%.
Growth Strategy including Acquisitions and Business Opportunities
We are investigating expansion of our regional presence to new areas with our
core clients. Through our regional structures, we are able to provide more
complete services locally and would expect to benefit from the increased capital
spending currently taking place within the oil, gas and minerals.
We are continuing to develop regional capabilities in order to target projects
with larger contract values. Kentz anticipates that these contract values will
exceed the most recent project values observed with major international and
national oil companies.
We are continuing on our strategy to complete an acquisition in the near term
within the upstream oil and gas industry and are conducting due diligence on a
potential target. If completed this acquisition will allow Kentz to provide a
number of new services. These include early production process facilities for
onshore markets, FPSO topsides for offshore markets, and ultimately mid-size
process plants, both onshore and offshore. It is anticipated that funding for
this acquisition will predominantly come from current cash flow.
Health & Safety and Environment (HSE) Report
Highlights
100% of projects were completed without a lost time accident for the first half
of 2008.
33% increase in man-hours worked to 16.7 million in first half of 2008 (H1 2007:
12.5 million man-hours).
72% reduction in Total Incident Rate to 0.11 in first half of 2008 (H1 2007:
0.39)
The first half of 2008 has been an exemplary period of HSE standards for Kentz.
We completed the first half of 2008 without a lost time accident, a decrease of
300% compared to the first half of 2007.
We held our second annual HSE conference in Ireland in April with over 80
attendees from Kentz and our top international clients. The theme of the 2008
conference was "Working Safety from the ground up - Rationalising differences
between Risk Tolerance and Mitigation". As a result of the conference feedback
and breakout sessions we have embarked on our best practices programme. This
programme will be used throughout the Group to highlight the best practices in
taking safety leadership to the work force.
We have increased our reporting of near misses by 344%. The increased focus on
the near miss reporting has contributed to the reduction in recordable
incidents.
We have completed over 67% of our 2007 man-hours during the first 6 months of
2008.
Update on our 2008 HSE Objectives
We continue to focus on our back to basics (B2B) HSE training programme and over
54 courses have been held with an average of 272 attendees per course. This
equates to over 14,000 people attending courses. Keeping our families in mind,
we once again initiated the HSE calendar competition, with the winners expected
to be announced in September.
Hugh O'Donnell
Chief Executive Officer
Chief Financial Officer's Report
Summary of Key Financial Indicators
2008 2007 %
For the six months ended 30 June: (US$M) (US$M) Change
Sales Revenue 328.6 244.5 +34.4%
EBITDA * 17.7 12.1 +46.3%
Profit before tax * 16.8 11.1 +52.2%
Profit after tax * 12.9 8.9 +44.7%
Profit after tax attributable to shareholders * 12.4 9.2 +35.9%
Net Cash from operating activity 40.1 63.1 -36.4%
Cash and equivalents at period end 195.5 109.3 +78.8%
Basic earnings per share (US$ cents) * 10.99 9.15 +20.1%
Backlog 698.6 501.4 +39.3%
* Results for the six months ended 30 June 2008 are before costs associated with
the AIM listing of US$4.6m which were expensed during the period.
Group Income Statement - Overview of Trends and Highlights
Six months ended 30 June Year ended 31 Dec
Continuing Operations
2008 2007
(Values in US$m's) 2007
Sales Revenue 328.6 244.5 544.6
Gross Profit 40.2 25.4 68.2
% of sales 12.2% 10.4% 12.5%
S.G. & A. expenses 24.8 15.9 39.7
% of sales 7.6% 6.5% 7.3%
EBITDA * 17.7 12.1 35.2
% of sales 5.4% 4.9% 6.5%
Profit before tax * 16.8 11.1 34.3
% of sales 5.1% 4.5% 6.3%
Profit for the year - continuing operations * 12.9 8.9
26.3
% of sales 3.9% 3.6% 4.8%
ROCE * 12.7% 14.8% 41.4%
The Group condensed interim financial statements are prepared in accordance with
IFRS
Summary of Group Income Statement Highlights
Revenue
Sales revenues from continuing operations increased by 34.4% in the six months
to 30 June 2008 to US$328.6m (30 June 2007: US$244.5m) 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 for the current period shows a change
in the split that was reported for full year 2007. Specialist EPC represents 38%
of Group revenue (FY 2007: 48%), Construction 36% (FY 2007: 27%) and Technical
Support Services 26% (FY 2007: 25%). A review of the composition of our order
backlog (US$698.6m) at June 2008 covering projects extending over the period
from 2008 through to 2011 indicates that 46% of this total, or US$322m, consists
of Specialist EPC projects. This confirms that the apparent shift in composition
we are seeing this year is a temporary one, caused by delays in award of certain
EPC contracts, during which time Construction projects have increased to fill
the gap prior to the commencement of major new EPC projects.
Sales to the oil and gas and petrochemicals market in H1 2008 totalled US$288.9m
or 88% of Group revenues (H1 2007: 91%). Our remaining revenues have come from
the mining and metals sector (7%) and from other sectors (5%).
Gross Profit
Gross profits of US$40.2m or 12.2% of sales were recorded in the six months to
30 June 2008, an increase of US$14.9m or 58.7% on the 30 June 2007 figure of
US$25.4m or 10.4% of sales.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses in the six months to 30 June 2008 increased by US$8.9m to US$24.8m
in absolute terms (30 June 2007: US$15.9m). In relative terms compared to full
year 2007, as a percentage of sales the number has increased to 7.6% (2007:
7.3%). This increase from full year 2007 relates to the increase in costs
associated with being a listed company coupled with exchange impacts arising on
translation of certain euro based costs due to the weaker US$ during the first
half of the year.
Other operating costs
Net other operating costs of US$4.2m for the period are predominantly costs
associated with the listing on AIM and initial set-up costs for the Management
Incentivisation Arrangement expensed during the period.
Net finance income
Net finance income for the period was up US$0.7m or by 64.3% to US$1.8m and
relates mainly to positive project cash flows and higher Group cash balances
held on deposit, including cash proceeds from the listing of the Company
completed during the period.
Share of joint ventures' (loss)/profit
Loss for the period from our joint venture operation was US$0.8m (2007: profit
of US$0.2m). This has been brought about by a combination of delays in award of
anticipated orders in Australia, coupled with lower than expected margins on
some projects which together have resulted in contribution generated not being
sufficient to cover overheads for the period. We expect this result will improve
during the second half of the year as projects that had been delayed are awarded
and activity picks up.
Profit before tax
Profit before tax for the period is up 52.2% to US$16.8m or 5.1% of sales. This
represents an increase of US$5.8m on the six months to 30 June 2007 figure
(US$11.1m or 4.5% of sales).
Taxation
The tax charge for the period is US$3.9m which is an effective tax rate of
23.4%. This compares with an effective rate of 19.4% for the same period in
2007, and is in line with the effective rate reported for the full year 2007.
Net Profit for the period
Profit for the period from continuing operations was US$12.9m, up 44.7% on the
same period in 2007. Net profit for the period represents 3.9% of revenue,
compared to 3.6% for 2007.
Discontinued operation
The discontinued operation in the 2007 result refers to a non-core
Telecommunications business which traded mainly in West Africa. Following an
internal review the Board decided not to continue with this business and it sold
its interest in the business in June 2007 for a consideration of US$1.0m. This
resulted in a gain on disposal of US$0.8m.
Earnings per share (Basic)
Basic earnings per share for the six months were 10.99 US$ cents before
flotation costs, up 20.1% (2007: 9.15 US$ cents). This calculation is based on
113,206,000 weighted average ordinary shares in issue in 2008 and 100,000,000
ordinary shares in issue in 2007.
Summary of Group Balance Sheet Highlights
Working Capital
Working capital at the period end was US$99.1m, up 79.7% from 31 December 2007
year end (US$55.2m).
Current assets at 30 June 2008 were US$328.5m, up 29.5% from 31 December 2007.
This growth is mainly due to increased cash (up by US$72.4m) reflecting the cash
proceeds from the listing and the general growth in the business.
Current liabilities at 30 June 2008 were US$229.4m, up 15.5% from 31 December
2007. The rise was mainly due to increased levels of trade and other payables,
advance payments received and accruals and deferred income, reflecting the
continued growth achieved during the period.
Equity
Shareholders' equity at 30 June 2008 was US$100.6m, up 61.4% on 31 December 2007
(US$62.3m). The growth is mainly due to a net increase of US$34.0m from the
issue of new shares when the company was admitted to trading on AIM in February
2008.
Summary of Group Cash Flow Highlights
Cash flow from operations
Net cash flow from operating activities for the six months was US$40.1m, down
36.4% or US$23.0m compared to US$63.1m on 30 June 2007. The cash inflow in the
first six months of 2007 reflected a significant increase in creditors during
this period. While creditors have continued to increase in the first six months
of 2008, the level of increase has slowed.
Cash flow used in investing activities
Net cash used in investing activities was US$2.8m, down 58.8% on the same period
in 2007. This relates to net returns from the joint venture in the current
period, together with the receipt from the disposal of the discontinued
operation and the higher interest received.
Cash flow from financing activities
Net cash from financing activities for the period was US$34.4m, up US$38.5m on
the six month period to 30 June 2007 which recorded a net outflow of US$4.2m.
The difference mainly relates to the current period including an inflow of
US$34.2m net of expenses from the new share issue.
Net cash and equivalents.
Net cash and cash equivalents amounted to US$195.5m at 30 June 2008, up US$86.2m
or 78.8% on the June 2007 figure of US$109.3m reflecting a combination of the
continuing strong trading performance, the net proceeds raised from the new
share issue and a further improvement in cash flow across our operations
generally. We have set aside a portion of this cash to fund our acquisition
strategy.
Ed Power
Chief Financial Officer
Independent Review Report to Kentz Corporation Limited
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2008 which comprises of the Consolidated Income
Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement,
the Statement of Recognised Income and Expenses and the related notes. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the Company, in accordance with the International
Standard on Review Engagements, 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity". Our work has been
undertaken so that we might state to the Company those matters we are required
to state to them in an independent review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this report, or for
the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the AIM, a market operated by the London Stock Exchange which requires
that the accounting policies and presentation applied to the interim figures
should be consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in ISRE 2410
issued by the International Auditing & Assurance Standards Board for use in
Ireland and the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
control and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2008.
12 September 2008
BDO Simpson Xavier
Registered Auditors
Kentz Corporation Limited
Condensed consolidated income statement for the period ended 30 June 2008
Six months ended 30 June Year ended
31 Dec
In thousands of USD Notes 2008 2007 2007
Before flotation costs Flotation costs Total Total
(Note 4)
Total
Continuing Operations
Revenue 2 328,650 - 328,650 244,537 544,650
Cost of sales (288,410) - (288,410) (219,180) (476,490)
Gross profit 40,240 - 40,240 25,357 68,160
Administration expenses (23,648) - (23,648) (15,283) (38,104)
Distribution & selling costs (1,174) - (1,174) (645) (1,654)
Other operating income/(cost) 344 (4,565) (4,221) 300 1,512
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