REG-Kentz Corp Ltd Final Results - Part 1
Released: 30/03/2009
com:20090330:Rnsd6585P
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RNS Number : 6585P
Kentz Corporation Ltd
30 March 2009
Kentz Corporation Limited Full Year Financial Results 2008
London, 30th March 2009: Kentz Corporation Limited (the "Company"), the holding
company of the Kentz engineering and construction group, today announces its
unaudited group results for year ending 31st December 2008.
Financial Highlights
* Revenue in 2008 increased by 18.1% to US$643.4m (2007: US$544.6m) *
* Profit before tax in 2008 increased by 18.7% to US$40.7m (2007:US$34.3m) **
* Profit before tax margin was maintained at 6.3%, in line with 2007**
* Cash balance at the end of 2008 increased by 24.8% to US$154.4m(2007:
US$123.7m)
* EPS (basic and fully diluted) 25.09*** US$ cents up 10%*** (2007: 22.81US$
cents)
* Backlog at the end of 2008increased by 68.3% to US$1,003.8m(2007: US$596.4m)
* Final dividend of 3.8 US cents per share in line with dividend policy
outlined at the time of IPO.*
* Excluding JV operations
** Before flotation costs of $4.695m in 2008.
*** For the full year 2008 year ended 31st December 2008 stated before
reflecting non-recurring costs arising from the admission of Kentz Corporation
Limited to AIM
Current Trading and Prospects
* Backlog at the end of January 2009 stood at US$1,007.0m
* In addition, we have received letters of intent and orders for new projects
since the end of January in excess of US$200m, which are expected to be
converted to backlog within two months
* Strong visibility of projects with approximately US$520m of backlog to be
executed in 2009 and the remaining US$484m in the following years
* Awardedlarge engineering projects in Saudi Arabia with our partner
RadiconGulf by the Royal Commission for Yanbu and Jubailvalued in excessof
US$60m
* Established a joint venture partnership with GPS Inc., Kentz Global Oil & Gas
Process Systems Ltd.
* Future prospectsfor Kentz exceedUS$2.15bn. Decisions on the award of these
prospects expected within the next six months
Corporate Development and Operational Highlights
* Listed on AIM on 5 February 2008, raising a total of £66.7m (US$ 131.8m)
before costs for the Company and its selling shareholders
* Global expansion of our current three business linesSpecialist EPC,
Construction and Technical Support Services into Global Business Units
(GBUs)during2009
* Participation in the next phase of Sakhalin 1 development with ExxonMobil
Neftegas and Fluor, with contracts valued in excess of US$100m
* Participation in Shell Pearl GTL in Qatar well advanced, with contracts
valued in excess of US$300m
* Continuation of work on the Saudi Aramco Khurais project in Saudi Arabiawith
value in excess of US$60m
* Good progress with Engineering, Procurement, Construction and Maintenance
projects for Sipchem in Saudi Arabia, which are valued at over US$100m,
including new awards.
* Completion of first phase production for Rio Tinto ilmenite project in
Madagascar, valued in excess of US$60m
* Completed another successful turnaround programme with both Sasol and
Petronas Engenin South Africa
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
Chris Sim
Powerscourt (Financial PR advisors)
Tel: +44 (0)20 7250 1446
Elizabeth Rous
Rob Greening
Current Trading and Outlook
Kentz remains well positioned to deliver strong growth in the coming year
despite the challenges presented by the poor state of the global economy. The
strategic developments that we have implemented over the last two years have
created robust and profitable business lines. We have entered 2009 with a
backlog in excess of US$1bn, the largest in the Company's history and a pipeline
of target project prospects with a value in excess of US$2.15bn. Our strategy of
focusing on oil and gas, petrochemicals and energy projects in developing
regions has been highly successful, and we have continued to build on the strong
foundations in our core markets.
We are encouraged by the fact that a large number of International Oil Companies
(IOC's) and National Oil Companies (NOC's) increased their exploration and
production capital spending to record highs in 2008. Whilst capital expenditure
plans for these companies vary considerably for 2009 due to the instability of
the global economy, we are seeing positive capital investment sentiments for
upstream exploration and production projects from important Kentz clients, such
as Shell, ExxonMobil, Chevron, BP, Abu Dhabi National Oil Company and Saudi
Aramco.
We remain comparatively well insulated against the decline in oil prices as our
key regional market, the Middle East, has production costs that are amongst the
lowest in the world. As a result, whilst there have been some delays to projects
there have been very few projects cancelled. For those projects that were
delayed several are now starting to gain momentum again because of the reduced
commodity and equipment prices that are currently available.
The other area for which we see particular future demand is the building of
Liquid Natural Gas (LNG) liquefaction and re-gasification projects, particularly
in the Pacific Rim. Kentz's strength is its ability to provide engineering,
procurement and construction services to remote and logistically challenging
projects, and we are well placed to service this demand. Our newly organised
Global Business Units will enable us to fully service our clients' needs in
these areas.
Power and Infrastructure projects have also gained momentum for Kentz in 2008,
and our work in this sector in Southern Africa and the Middle East has been
particularly successful. We expect to increase 2009 revenues in this area.
We continue to expand our services in brown field projects, plant upgrades and
expansions, and the provision of maintenance and shutdown services across all
our regional operations. Some of our clients have also made it clear that they
are assessing opportunities for "de-bottlenecking" plants as well as increasing
the product quality, productivity and capacity on existing installations, which
will create further opportunities for Kentz.
In addition to these established areas of expertise, the formation of Kentz
Global Oil and Gas Process Systems Ltd provides us with a vehicle to access
clients in the small and medium sized exploration and production company market
- a new area for the Group.
Chairman's Report
2008 saw Kentz continue its corporate growth and development by meeting and
exceeding all of its financial targets. We finished the year with a strong cash
position and an extremely healthy backlog, both of which give us an extremely
solid foundation from which to prosper during this period of economic
uncertainty.
We have all witnessed the world economy being hit by a number of significant
shocks as a result of the international credit crisis. Our industry has, of
course, been affected by the significant drop in the price of oil and gas, but
we are heartened to note that our key blue chip clients, the international and
national oil companies, have generally maintained their capital expenditure
plans for the markets in which we have our strongest presence. These continuing
investment programmes highlight the inescapable fact that the world's demand for
energy will renew its growth in the near future. Our largest markets, the Middle
East and Africa, continue to be buoyant and as a result the Board of Kentz
remains confident in its outlook for 2009 and beyond.
The formation of Kentz Global Oil & Gas Process Systems Ltd is a particularly
exciting development. The new company is jointly owned by Kentz and Global
Process Systems Inc (GPS), and combines the GPS process engineering expertise
with Kentz's market presence in the Middle East, Arctic and African regions.
The Board is determined to use Kentz's strong balance sheet prudently to build
an even stronger company during this period of world economic stress. To achieve
this, the Board will actively support our CEO, Hugh O'Donnell, and his team to:
Acquire additional resources to further our growth in the upstream oil and gas
market, both on and offshore;
Strengthen the Company's international business development capabilities to seek
out new opportunities;
Reduce significantly, non business critical expenditure to ensure we maintain
healthy margins in a competitive market;
Maintain our total commitment to meeting our clients' needs through the
expansion of our three business lines into Global Business Units: Specialist
Engineering, Procurement and Construction (EPC) services, Construction, and
Technical Support Services and
Invest in new talent and continue to train our current personnel.
The Board is delighted with the Company's achievements over the past 12 months
and firmly believes that, given its unique strengths and the strategic
developments that are underway, there is real cause for optimism around the long
term success and prosperity of Kentz.
Tan Sri Mohd Razali Abdul Rahman
Chairman
Chief Executive Officer's Report
2008 has been an exciting year for Kentz, despite the challenging global
economic environment. During this year, our first as a publicly traded company,
we achieved solid growth in our business. Revenue increased by 18.1% to
US$643.4m, profits before tax increased by 18.7% to US$40.7m, our backlog
increased by 68.3% to US$1,003.8m and our profit before tax margin was
maintained at 6.3%, in line with the 2007 level. Cash balance at the end of 2008
increased by 24.8% to US$154.4m, up from US$123.7m at the end of 2007.
Approximately US$115m of this is Kentz's own cash with the majority of the
balance being customer prepayments on contracts.
The total order intake to backlog of US$1,048.9m during 2008 is the highest in
our history. The second half of the year was particularly successful, with new
orders and natural growth from existing projects increasing by 43% over the
first half of 2008 (H1 US$430.9m and H2 US$618.0m). An important feature of the
order intake is the value of incremental growth from existing contracts. This
was approximately US$230.0m in new orders, a large part of which is expected to
be converted to backlog in 2009.
In line with the policy indicated at the time of the IPO, Kentz expects to have
a dividend payout ratio of 20% to 25% of after tax profits. The final dividend
payment of 3.8 US cents per share represents two thirds of the total payment for
2008 and is scheduled to be paid in June 2009. As a result, the total dividend
payment in respect of 2008 will be 5.7 US cents per share.
Whilst the world demand for oil is set to contract during 2009, the long term
view on oil and gas demand remains positive. The view that capacity needs to be
put in place for future demand to keep oil prices from "over-boiling" again is
credible. The sharp fall in commodity prices means that there is also growth
potential for marginal projects to be more viable, as overall capital investment
costs have reduced significantly.
Kentz's client base continues to comprise of well established blue-chip clients,
including international oil, national oil and natural resource companies, along
with leading engineering and project management companies. The current volatile
global economic conditions have naturally had some impact on our industry, but
to date our clients have experienced very few cancellations in the financing of
upcoming developments in the areas in which Kentz operates. In locations where,
for example, hydrocarbon extraction costs are high, many clients are taking a
strategic long term view for future developments in order to grow scarce
reserves. Several of the international oil companies have announced their
intention to maintain 2009 capex plans that are broadly in line with 2008
spending, which would appear to support this view.
The global oil and gas landscape has developed significantly over the last few
years, not least with the significant offshore oil discoveries in Brazil during
2008. These finds have elevated Brazil's petroleum reserves into a new league,
and have also presented Kentz with some potentially interesting project
opportunities through IOC joint development activities. In addition, the recent
comprehensive energy initiatives in the US have meant an increased focus on
domestic US developments such as the large Alaska gas projects aimed at
supporting domestic US energy demands. Kentz is well positioned to service these
opportunities as several of our core clients are involved in developing these
projects.
A number of our major clients are currently assessing significant developments
in the LNG processing plants along with ancillary infrastructure and processes
in locations throughout the Pacific Rim. This is of particular interest to Kentz
because of the remote nature of the locations and our previous experience in
this area.
Our pipeline of prospects for new work is currently in excess of US$2.15bn. This
pipeline, in which bids have a period of up to six months before being awarded,
continues to grow. In assessing new prospects we focus on projects that we
believe have the greatest probability of proceeding and where Kentz can be
successful. To achieve this we maintain a continuous dialogue with our clients
to ensure we understand the project's critical success factors and their
priorities.
The strong relationships that Kentz senior management have with core
international and national clients continue to drive our business forward. These
relationships have been built up on the successful completion of projects across
the 23 countries in which we operate.
Our key priority continues to be the safety and welfare of our workforce. The
total man-hours delivered on Kentz's projects during 2008 was in excess of 35
million. This was achieved with a Lost Time Incident (LTI) ratio of 0.01 - a
total of 2 LTI's (LTI is calculated on the basis of one accident for every
200,000 man-hours worked). We constantly strive to promote safety leadership
throughout our management and supervision structures to create a sustainable
performance and a culture of awareness. During 2008 our workforce has grown to
an average of approximately 10,500 employees worldwide, up from a 2007 average
of 8,100 employees. We maintain an appropriate mix of contract against permanent
employees to provide a flexible approach to our fixed cost base.
Effective risk management remains a governing principle for the management
executive. In the current operating environment there are fluctuations in a
number of the variables that make up our costs, and ensuring these are addressed
at bidding stage is of paramount importance. Kentz maintains its strong focus on
risk management through regular bid proposal and ongoing project reviews.
As part of the continuing growth of our business and in an effort to meet our
clients' demands, we have commenced the global expansion of our current three
business lines into Global Business Units (GBU's). This enhancement to our
organisation will be completed by the year end. The new organisation will unlock
the latent synergy that exists within Kentz's business areas, and will
facilitate the sharing of business unit expertise and resources across the
world.
Projects in remote global locations are where Kentz's skill set can add real
value to clients. The reorganisation into GBUs means we can leverage our well
established regional hubs, to support work in remote locations, with the
potential for greater profitability. While the Middle East remains the highest
area of revenue generation for Kentz, with 63% of the overall revenue in 2008,
we have seen significant growth in other regions.
Kentz is proud to be involved in some of the largest and most prestigious
projects in the world: The Shell Pearl GTL in Qatar; the Khurais water injection
program in Saudi; the development of the Jubail 2 infrastructure in Saudi; the
Sakhalin 1 and 2 developments in Far East Russia; and the 4800MW Medupi Power
Station in South Africa.
Whilst we have a strategy to expand our service offering from acquisitions,
given the current market valuations and clarity on outlook we have adopted a
prudent approach to any acquisition in order to ensure that any strategic
investment will be value enhancing for our shareholders.
Earlier this year we announced the formation of Kentz Global Oil and Gas Process
Systems Ltd; a joint venture company with our partner GPS Inc., to deliver
turnkey onshore early and interim production systems. The target clients for
this venture include our current large IOC's as well as medium to smaller E&P
companies, which will be new clients for Kentz. This initiative provides an
effective entry into the provision of onshore turnkey oil and gas process plants
in the upstream market with mutual benefits for both Kentz and GPS.
The management of Kentz believes that the Company's outlook for 2009 and 2010
remains positive. We are confident that the expected long term increase in
demand for oil will drive the expansion of both the onshore and offshore oil and
gas markets. At the same time, the recent fall in the cost of raw materials
should mean that there is more appetite for downstream oil and gas developments
as well as the replenishment and modernisation of existing projects. Given the
diversity of the sectors in which we are involved and our strong track record of
operating in over 20 countries, we are well positioned to capitalise on these
opportunities.
Hugh O'Donnell
Chief Executive Officer
Our markets and sector focus
Economic drivers
* Brent oil averaged US$97.26/bbl in 2008 - approximately twice the February
2009 average of US$44.13/bbl.
* The International Energy Agency (IEA) noted in February that while short term
demand for oil is weaker, the medium to longer term picture indicates continued
energy demand growth alongside investment needed for the future. The agency has
predicted that world energy demand will continue to expand by 45% between 2007
and 2030. This equates to an average rate of increase of 1.6% per year,
approximately 64mbpd of new gross capacity.
* The IEA predicts that an energy supply infrastructure investment of US$26,000
billion, or over US$1,000 billion per year to 2030, is needed. This figure
includes US$13,600billion in power projects, US$6,300billion in oil projects
(80% of which (US$5,000 billion) will be targeted at exploration and
development), and US$5,500billion in gas orientated projects (61% of which will
be targeted at exploration and development). These are all key industries for
Kentz.
Regional factors
* The Middle East region holds over 60% of the world's proven oil reserves. The
Middle East Economic Digest (MEED) calculated in February 2009 that US$1,327bn
worth of industrial projects are planned or underway in the Gulf Coast Countries
(GCC), which include Kuwait, Qatar, Saudi Arabia and the UAE. Of this total,
US$368bn are oil, gas, petrochemicals, power, industrial and water projects.
Revenues from the Middle East region made up 63% of total Kentz revenues in
2008.
Overview
Kentz is a fully integrated services solution provider delivering specialist EPC
solutions, construction and technical support services for projects involving
oil and gas upstream developments (both offshore and onshore), LNG, Gas to
Liquid (GTL), refining, petrochemicals, power, metals and mining and
infrastructure. Our core clients include international oil companies, national
oil companies and leading engineering and project management companies. In 2008,
over 10,500 Kentz employees worked in excess of 35,000,000 man-hours on our
projects. Our Middle East operation is our largest, generating 63% of Group
revenues.
New Initiatives
We have begun a reorganisation of the business which will entail a move from the
current regional set-up to a structure comprising three Global Business Units
across all regions. As part of this transition, our regional engineering,
procurement and construction (EPC) business units were moved into a single
Global Business Unit during 2008. In addition, we aligned our Southern Africa
and Middle East construction business units together. The full roll-out of this
reorganisation is expected to be completed during 2009.
We were also pleased to announce the recent formation of Kentz Global Oil and
Gas Process Systems Ltd., a joint venture with GPS Inc. This was created to
deliver turnkey onshore oil and gas early and interim production systems. The
partnership creates cost effective opportunities to provide oil and gas process
plants as well as all balance of plant services in the upstream oil and gas
market. The venture gives Kentz access to a new client base in the form of small
to medium sized exploration and production companies.
Oil and Gas Market
Qatar
Shell Pearl Gas to Liquids Project: Kentz continues to be involved in this
prestigious project, providing a number of specialist EPC services. These
include temporary power, telecommunications, waste water treatment, temporary
buildings and permanent construction packages. Kentz's share of the first phase
(common facilities and train 1) totalled in excess of US $320.0m. The project
entails the development of upstream gas production facilities and an onshore GTL
plant that will produce 140,000 barrels per day (bpd) of GTL products and around
120,000 bpd of associated condensate and liquefied petroleum gas. The project
will be developed in two phases, with the first due to be operational at the end
of the decade and the second expected to be completed 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.
Kentz's focus has now turned to delivering the construction of utilities
packages during 2009 and 2010 which will enable the commencement of critically
important process utilities commissioning, a precursor to plant-wide systems
completion. In addition, Kentz has a general services contract to support
project completion activities. In 2009 we expect to reach a peak of over 2,000
specialist personnel working on the project.
Sidra Project: Engineering and procurement has commenced on the Sidra project,
where Kentz is carrying out a US$208.0m contract for the design, supply and
delivery of the main electrical systems on the Sidra Medical and Research
Centre, which is supported by both the Qatar Foundation and Qatar Petroleum.
Kuwait
During 2008, Kentz provided technical support services to Fluor in Kuwait as
part of its five year PMC support services contract. The scope includes the
provision of engineering and consultancy resources and services to manage
national oil and gas projects. The programme will help the national oil company,
which manages the oil exploration of the world's 7th largest oil exporter, to
increase production capacity and improve production reliability.
Saudi Arabia
Khurais: Kentz continued its participation on Saudi Aramco's Khurais project,
which entails supporting the completion of the plant-wide electrical, controls
and automation systems, as well as preparing for start-up. This is the largest
crude oil increment program undertaken in Saudi Aramco's history and is one of
the largest industrial projects being executed in the world today. This
processing plant and water injection facility will produce 1.2mbpd of
high-quality Arabian light crude for Saudi Arabia's export facility. The Khurais
program will also increase the capacity of the Qurayyah seawater injection
system by 4.5 million bpd of treated water for injection at Khurais and South
Ghawar fields.
Jubail and Yanbu: We have recently been awarded two additional engineering and
consultancy packages in partnership with Radicon Gulf for the further
development of the Royal Commission's Jubail and Yanbu industrial parks. In
December, we started the development of approximately 2,000 hectares of land to
the West of Jubail 2. The US$26m contract includes engineering, studies and
assessments in order to develop the civil and structural infrastructure works,
main roads and highways, drainage, material handling systems, mechanical,
electrical and telecommunications power and transmission, fuel and feedstock
systems.
In addition, we have been awarded in partnership with Radicon Gulf, a new 5 year
US$35m contract to develop a further 1,000 hectares of development to the north
side of Jubail 2. This contract includes engineering, studies and assessments
for the design of urban planning, design site development of Mutrafiah, Jalmudah
and Regga, and infrastructure, landscaping, schools, universities, sports
facilities, community buildings, clinics and power systems. Once complete,
Jubail Industrial City will be the largest of its kind in the world.
Abu Dhabi
Kentz provides construction services to Bechtel for the GASCO OGDIII
development. The project is designed to produce 125,000 bpd of condensate (which
represents 12,000 tonnes of NLG per day, including approximately 3,200 tonnes of
ethane per day) and to recycle an equal volume of produced gas into the
reservoir via a high pressure gas injection system.
Kentz have also provided EPC services on a number of projects at existing
facilities for Gasco, Zadco and Adgas.
Russia/Sakhalin
We are providing technical support and construction services, including
commissioning and project management services, to Exxon Neftegas Limited (an
affiliate of ExxonMobil, the operator of the Sakhalin-1 project), on 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 is one of the most ambitious and
successful projects being undertaken by the international oil and gas industry
today, with phase I delivering 250,000 bpd of oil. We have largely completed our
services at the Chayvo location and have now mobilised the second phase of this
development with our partner SakhalinMorNetfeMontazh at Odoptu. The US$40.0m
contract to provide site development, piling and construction services as well
as the relocation of the Yasreb drill rig at the Odoptu well site, is nearing
completion. There is only minor work left to be done, including the completion
of drilling rig utility piping systems and services for the modular based
interim production facility.
We have also provided multi-discipline construction, completions, commissioning
and start up support for Sakhalin Energy (SEIC) Sakhalin 2 project in order to
support the commissioning and start up of the onshore production facilities.
Africa
Kentz is working on the Sasol Secunda project in South Africa, providing
maintenance, shutdown and turnaround services. We have been involved since 2002,
when we were awarded contracts on the Sasol 2&3 developments, and have performed
all synthol reactor train shutdowns since 2003. During 2008 Kentz also provided
shutdown and turnaround services to PetroSA, Engen and Natref.
Trinidad & Tobago
Kentz provided construction services to Fluor for the Petrotrin Isomerisation
project and to Techint for Alkylation Acid project, which is part of the
Gasoline Optimisation Programme. The Isomerisation unit will produce Isomerate
that improves the octane rating of light gasoline, thus enabling Petrotrin to
provide a better supply to the premium markets.
Petrochemicals Market
Saudi Arabia
Kentz continues to provide Engineering, Procurement, Construction and
Maintenance Services for Sipchem, currently developing one of the largest fully
integrated petrochemical complexes in the Middle East. Projects include the
off-plot Pipelines & Port Facilities EPC project, the Construction of Sipchem's
new Acetyls Complex, including Acetic Acid (460kmtpa), Vinyl Acetate Monomer
(330kmtpa) and Carbon Monoxide (345 kmtpa) plants, and the upgrade of Sipchem's
operational Butanediol plant, for which Kentz has recently been awarded the
engineering, procurement and construction (EPC) contract for a new Acetyls
Polishing Unit. Kentz will execute this project entirely within Saudi Arabia.
EPC work on JCP, a Jubail Chevron Phillips Company has been successfully
completed. This included product pipelines (from the integrated styrene
facility), distribution and export facilities (port expansion) for this project
located in the Al Jubail Industrial Complex.
Construction services to Linde/Linarco for two air separation units (ASU) at gas
complexes in Jubail and Yanbu industrial cities are ongoing. These two new ASUs,
each of which has a capacity of 3,000 metric tonnes of oxygen per day, are part
of SABIC's expansion plans to bring the total annual production capacity to 60m
tonnes over the next two years.
In addition, Kentz continues to provide construction and technical support
services for the Sharq petrochemicals complex.
Kuwait
Completion and commissioning services are being provided for the massive Equate
II Petrochemicals Complex to support plant transition from construction through
to completion, start-up and production.
Mining, Metals and Power Market
Africa
The Medupi power project has a contract value to Kentz of over US$250.0m. The
power plant has six units of 800 mega watts each and is part of Eskom's US$12bn
investment programme for the next six years. The supercritical plant design is a
first for Eskom, and the result will be a more efficient use of natural
resources, namely coal and water.
Alstom Power is responsible for the turbine/power island, and GEA Energy
Technology is responsible for the overall technology package for the air cooled
condensing system. Kentz is working on the project management, supervision, and
installation of the air cooled condensers and associated equipment.
Kentz assisted in the recent start up and production of the Rio Tinto QMM
Ilmenite titanium dioxide mineral sands plant. We provided structural,
mechanical, electrical and instrumentation construction services including the
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. As part of our contract, Kentz provided in excess of 6,000
tonnes of steel, including pontoons, 1,000 tonnes of plate and 200km of cabling.
The plant will produce a 90% (TiO2) chloride slag, which is suitable for global
titanium feedstock markets for use in the manufacturing of pigments for paint
and the plastics industries. The floating dredge and wet plant was successfully
launched in November and, along with the dry mill, started initial production in
December of 750,000 tonnes of iImenite per annum.
In South Africa, Kentz Integrated Solutions is providing electrical, controls
and instrumentation services on an EPC basis for Xstrata's Goedgevonden Coal
Cleaning plant, and for Highveld Steel's slag crushing and milling plant in
Witbank. In Sierra Leone, Kentz Integrated Solutions is providing EPC services
for the Sierra Rutile 25MW Power Plant.
Kentz Integrated Solutions was recently awarded the infrastructure control
systems for the Gautrain Project, currently the largest metro rail project in
the world, at a cost of approximately E1.8bn. The scope includes the Station and
Tunnel Management Systems (STMS), the Station Access Management Systems (SAMS),
and a 15km tunnel section (from ORTIA to Hatfield in Pretoria) with three
stations, seven emergency evacuation shafts and seven above ground stations. The
ventilation control systems are also part of our scope.
Other Markets
Australia
Kentz is working on the construction of numerous power, mining and
infrastructure projects across both the East and West of Australia. We are
providing construction services to Anglo Coal Australia for the Dawson mine, one
of Queensland's leading export coal operations. It produces over 7 Mt of coking,
soft coking and thermal coal annually by 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.
Ireland
Kentz is providing specialist EPC services for the telecommunications and design
construction services for the electrical systems on the new Aviva Sports Stadium
in Dublin. The stadium will have a capacity of 50,000 and will encompass state
of the art stadium security, crowd controls, CCTV, public address systems
(including systems to aid the hearing impaired), voice and data networks,
television and outside broadcasting systems.
Kentz provides specialist EPC services for the Hermitage Medical Clinic and
Waterford Regional Hospital where our responsibilities are for the selected
mechanical, electrical and telecommunications systems.
Areas of Operation and Regional Management Focus
Kentz currently operates in 23 countries worldwide and as part of the continuing
growth of our business we are undertaking a global expansion of our three
business lines; Specialist EPC, Construction and Technical Support Services into
Global Business Units (GBU's). Once complete, this new structure will facilitate
the sharing of Business Unit expertise across the world to fulfil our clients'
demands. It will also unlock the latent synergies that exist within Kentz's
business areas and ensure the sharing of skills and services across the Group is
much more efficient.
The Group continues to be divided into four regions, namely:
* Middle East
* Africa
* Arctic Region and New Areas, incorporating Russia, former soviet union
states, the Caspian region, Canada, offshore Brazil and Malaysia
* Australasia, Europe and the Caribbean
These regions will become management support centres for the newly formed Global
Business Units.
Client Focus
During 2008, 30% of our revenue came from major international oil companies such
as Shell, ExxonMobil, ChevronPhillips, Sasol, Marathon, Hess and BP, and 18%
came from national oil and petrochemical companies such as Saudi Aramco, Kuwait
Oil Company, Sipchem, Qatar Petroleum, Gasco and KNPC.
Kentz also works closely with most of the leading engineering and project
management companies in the USA, Europe and Asia, with 52% of our total revenue
coming from this sector. Fluor has a strong presence in most of Kentz's markets
and therefore remains a leading client, along with the likes of Linde, Foster
Wheeler, Snamprogetti, Udhe and Bechtel.
In the mining and metals sector, Mittal Steel, Rio Tinto, Kenmare Resources,
Xstrata and Anglo Coal are all key Kentz clients
Global Business Units
The Kentz Global Business Units are divided into the following three service
offerings:
Specialist Engineering, Procurement and Construction (EPC) Services
Construction
Technical Support Services
Specialist EPC Services: Manage, engineer, design, procure, construct and
commission projects, including:
Onshore modular production facilities
Turnkey temporary facilities
Turnkey utilities and offsite facilities
Small capital project solutions
Controls & automation (total systems integration)
Telecommunications systems
Power projects and services
Turnkey port facilities
We have built up a credible track record in this niche area with several of our
core clients. We take a task-force approach to all projects, which involves
experienced personnel with proven capabilities being seconded from our local
subsidiaries throughout the Group. Project methodologies and execution
strategies are designed by the team on a bespoke basis in accordance with our
clients' specifications and requirements. Our engineers and constructors are
spread 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 organisation to any project. Recent
specialist EPC project values range from US$50m to US$210m.
Construction Services: Kentz manages and executes 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 start-up services in conjunction with, or
independent of, project construction activities. The Group's workforce has wide
experience in the commissioning and start-up of large and often complex plant
facilities in remote locations. Recent construction project values range from
US$30m to US$260m.
Technical Support Services: Working in the early stages of project development
at the front-end engineering and design phase (FEED) before EPC works commence.
We perform specific FEED study programmes and have teams of specialist personnel
engaged with the client delivering validation and budgeting. Once the project
receives the go-ahead, a team typically works as part of an integrated project
management group, 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. In addition, we provide commissioning
services for the upstream (offshore and onshore), refining, petrochemicals,
metals and mining industries. Recent technical support project values range from
US$5m to US$50m.
As a general rule, 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. Our lump sum fixed price contracts meeting specified
criteria undergo risk assessment by the Risk Review 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 31 December 2008 was US$1,003.8m, up 68% from
US$596.4m as of 31 December 2007. Of this backlog, approximately US$520m is
expected to be executed in 2009 and the remaining US$484m in the following
years. This represents the largest order book in the Company's history.
During 2008 our total order intake to backlog was US$1,048.9m. The second half
of 2008 was highly successful, with new orders and natural growth from existing
projects increasing by 43% (H1 US$430.9m and H2 $618.0m) over the first half of
2008. An important part of Kentz's success has been its ability not just to win
new business, but to achieve growth from its existing contracts. Approximately
US$230.0m of new orders were generated from current contracts during 2008, most
of which converts to backlog for 2009. The EBIT and PBT margin expectations for
2009 from this backlog are expected to be generally in line with the margins we
delivered in both 2007 and 2008.
All business units have entered 2009 with an increased backlog over the previous
year. Of the backlog at 31 December 2008, 31.5% came from EPC projects (31
December 2007: 33.7%), 51.5% came from construction projects (31 December 2007;
50.8%) and 17% came from technical support services (31 December 2007; 15.5%).
However, it is important to note that our projection of future work stretches
beyond our backlog. At any given time we typically have a number of additional
letters of intent and new orders that are waiting to be converted to contracts.
The combined value of these currently sits in excess of US$200m.
Across all our regions we have a number of prospective projects that are under
development in bidding and proposals. As of January 2009, Kentz's pipeline for
new work is valued in excess of US$2.15bn. 58.4% of these prospects are EPC
projects, 32.6% are construction projects and 9% are technical support projects.
In addition to the above, we are also involved in a number of strategic
prospects that 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 for the future.
Revenue and Backlog Performance over past 5 years
Revenues
Our revenues in 2008 grew by 18.1% despite an industry-wide slowdown in projects
coming on stream, and this is testament to the diversity of Kentz's business
lines and its involvement in projects at numerous different levels.
The Middle East continued to be the single largest area for Kentz in 2008, with
revenues of US$405.9m, a growth of US$26m from 2007. Also of note is the 100%
increase in our Arctic and New Areas regional revenues, up from US$45.3m in 2007
to US$90.6m in 2008. Our African region increased revenue to US$131.1m, up from
US$94.9m in 2007, and it enters 2009 with a backlog of US$326m.
Kentz's manpower level increased by over 30% in 2008 in order to support
multiple large scale construction projects. These projects accounted for 43% of
Group revenues, up from 27% in 2007. However, we have also seen some delays in
final investment decisions on new projects from some of our clients, and this is
reflected by a drop in our EPC revenues during 2008.
Middle East
Management of Kentz's Middle East activities is based in Bahrain with operating
companies in Qatar, Saudi Arabia, UAE and Kuwait. It is our largest region by
revenue, making up 63% of the Group's 2008 revenues. Leading oil, gas and
petrochemical end users have rolled out large scale developments, and whilst
some projects have been delayed, the pipeline of opportunities remains
considerable.
The Middle East is expected to continue as the largest revenue generating region
for the Group. It has a backlog that represents 57.4% of the Group's total
backlog, and includes 48% of the total Kentz pipeline of projects for future
work. The number of Kentz employees in the region is at an historic high, and
our regionalisation programme has been successful in enabling us to maximise
strategic opportunities whilst removing operational bottlenecks.
EPC projects make up 39% of regional revenues, construction projects make up 43%
and technical support accounts for 18%. Oil and gas projects make up 60% of
revenues in the region, with petrochemicals accounting for 37%. The Middle East
is one of the lowest cost areas for the production of oil and gas, and Kentz
remains in a strong position to capitalise on this.
Africa
Africa represents 20.4% of revenue for 2008. Investment in the region remains
strong - especially within the power and infrastructure industries, as
highlighted by the large investments being made by Eskom and Sasol. The backlog
represents 32.6% of the total Group backlog and includes 20% of the total Kentz
pipeline of projects for future work.
Several large oil and gas and refining projects have recently been announced in
both South Africa as well as in the Sub Sahara region. This is a long-term
growth market, and investment in power generation and distribution is set to
grow in South Africa in the coming years.
Arctic and New Areas Region
Our Arctic and New Areas region, which consists of Russia, the Caspian region,
Canada and offshore projects in Malaysia, Norway and Brazil, represents 14.1% of
revenues for 2008. Investment in oil and gas projects in the region remains
strong, particularly in Sakhalin and the Caspian region.
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 provides E&I expertise which
enabled Thiess to offer single point, multi-discipline services. In October
2006, Thiess Pty Ltd and Kentz incorporated a joint venture company, Thiess
Kentz Pty Ltd, which replaced 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. 2008 sales
revenue was US$33.1m (Kentz has a 50% share of the joint venture). Thiess Kentz
has had an improved performance during H2 2008 as previously indicated.
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
We continually monitor trends within our industry and evaluate their potential
impact on our regions and sectors. Our understanding of the ever changing
industrial environment means that we are able to enhance and improve the
services that we offer to our clients on an ongoing basis.
One such emerging trend is the floating production storage and off-take (FPSO)
market serving large oil and gas developments. Accordingly, Kentz continues to
look for a suitable acquisition to enable the Company to provide total solutions
for the supply, hook-up and commissioning of FPSO topside modules where a
combination of process, compression and utility type modules is required. This
would add another key offering to Kentz's portfolio of services as well as
providing shareholder value through earnings enhancement. Whilst we have a
strategy to expand our service offering from acquisitions, given the current
market valuations and clarity on outlook we have adopted a prudent approach to
any acquisition in order to ensure that any strategic investment will be value
enhancing for our shareholders.
We will continue to evaluate further joint venture and alliance opportunities
with other industry participants where we perceive such partnerships can reduce
and diversify risks, provide greater cost efficiency, increase the number of
opportunities that can be pursued, and capitalise on the client relationships of
each party.
Chief Financial Officer's Report
More to follow, for following part double-click [nRn2d6585P]