REG-Kentz Corp Ltd Half Yearly Report - Part 1
Released: 14/09/2009
com:20090914:RnsN9685Y
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RNS Number : 9685Y
Kentz Corporation Ltd
14 September 2009
Press Release
September 14th 2009
Kentz Corporation Limited Interim Financial Results 2009
London, 14th September 2009: Kentz Corporation Limited (the "Company" "Kentz"),
the holding company of the Kentz Engineering and Construction Group, today
announces its unaudited Group results for the six months ending 30th June 2009.
Financial Highlights
* Revenue in the first half of 2009 was marginally up at US$328.8m (H1 2008:
US$328.6m)
* Profit before tax rose by 9.9% to US$18.5m (H1 2008: US$16.8m*)
* Profit before tax margin increased to 5.6% (H1 2008: 5.1%*)
* Cash increased in the first half of 2009 by 7.4% to US$165.7m (FY 2008:
US$154.4m)
* EPS (basic and fully diluted) 11.09 US$ cents up 0.9% (H1 2008: 10.99* US$
cents)
* Backlog as of the end of June 2009 was up by 9.7% to US$1,100.9m (Dec 2008:
US$1,003.8m)
* 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
Operational Highlights
* The re-organisation of the Group into three Global Business Units which
include Specialist EPC, Construction and Technical Support Services continues to
be rolled out across the Group
* Our scope of work has grown on both the Sakhalin I and II developments
together with our Russian joint venture partners where Kentz volume of total
work is forecast to exceed US$100m
* Further involvement in the main process areas for the mega Shell Pearl gas to
liquids project in Qatar where Kentz volume of total work is forecast to exceed
US$300m
* Successful completion of the Saudi Aramco Khurais construction project in
Saudi Arabia in excess of US$60m
* Continued participation on several Sipchem projects in Saudi Arabia including
commencement of engineering and procurement services for the new Acetyls
Polishing Plant with a total value of approximately US$150m
* Successful completion of the approximately US$80m Rio Tinto Ilmenite project
in Madagascar
* Expansion of the provision of maintenance and turnaround services on new
facilities in South Africa and within the Technical Support Services Global
Business Unit with total work on hand in excess of US$30m.
Current Trading and Prospects
* Backlog as at the end of August 2009 increased further to US$1,389.1m. The
order book has grown over 38% since the year end December 2008
* The order intake to the end of August was US$813m, including US$172m of
organic growth
* A substantial part of the growth in the order book has come from new onshore
oil and gas developments in Australasia and the Middle East
* Award of a AUD$500m (approx US$400m) contract from Chevron Australia for the
design, supply and delivery of the construction village on the Gorgon LNG
project in Western Australia through our subsidiary Kentz (Pty) Ltd, as
announced on 18th June 2009. The contract was awarded to the Thiess Decmil Kentz
(TDK) JV. Kentz is a one third shareholder in the TDK JV.
* Award of a further contract from Chevron Australia for approximately AUD$150m
(US$126m) for the engineering, procurement and construction of the telecoms and
electronics systems for the Gorgon LNG project through our subsidiary Kentz
(Pty) Ltd announced on 21st August 2009
* Award of a contract valued at approximately US$146m to Kentz in Yemen for the
engineering, procurement and construction of the utilities, process plant and
infrastructure systems for a new central processing facility project with Global
Process Systems, through our international arm Kentz Overseas Ltd.
* Award of a contract in excess of US$30m to provide engineering, procurement
and construction services for control systems modernisation from ADGAS in Abu
Dhabi on its Das Island LNG facility, announced on 23rd July 2009
* Award of a contract in excess of US$26m with Rio Tinto in Southern Africa to
carry out the supply and fabrication of the structural steelwork and piping,
mechanical erection and the electrical and instrumentation installation for a
tails treatment plant. This project falls under the Construction business unit.
* Award of an EPC contract worth in excess of US$15m by Qatar Petroleum for the
replacement of two existing glycol regeneration trains at its Fahahil Stripping
Plant in Dukhan, Qatar. Announced on the 4th September 2009.
* Award of a contract with AMEC worth approximately US$3.9m for engineering,
design and procurement services on the ExxonMobil Imperial Oil Kearl Lake Oil
Sands project in Alberta Canada.
* Pipeline of future prospects is currently in excess of US$2.84bn, compared to
US$2.15bn as at December 2008. Trading since 30th June, continues to be line
with market expectations
Commenting on the results Hugh O'Donnell, Chief Executive of Kentz said:
"We are delighted to report a strong performance for the Group in the first half
of 2009. In particular, we are pleased to have grown the backlog substantially
through our global capabilities and network of strong client relationships. The
outlook remains positive for projects in the onshore oil and gas sector across a
number of regions. Australasia and the Middle East are the largest growth areas
and Kentz has achieved some noteworthy contract awards in both locations during
the past six months."
For more information about Kentz please refer to our website www.kentz.com or
contact:
Evolution Securities Limited (Nomad and Broker) Tel: +44 (0)20 7071 4300
Rob Collins
Chris Sim
Tim Redfern
Powerscourt (Financial PR advisors) Tel: +44 (0)20 7250 1446
Elizabeth Rous
Rob Greening
Chairman's Report
I am delighted to report that, despite operating in the most severe recession
since the 1930s, Kentz's financial performance has continued to go from strength
to strength. Considering the extraordinary drop in energy prices with oil
declining by approximately 50% from the peak of US$147 per barrel just prior to
this reporting period, it is a great achievement for the Group to have
maintained revenue, produced a 9.9% increase in profit before tax and - even
more significantly - increased backlog by 9.7%.
Last year, the Board of Kentz reported to its shareholders that it would
undertake a five point programme focused on investing in the company's future.
This included strengthening our resources, broadening our Business Development
function, maintaining a close control of our overheads, expanding our Global
Business Units to meet client needs and investing in new talent. I am pleased to
announce that this programme is well underway. As a result, we now have a firm
foundation in place that will enable us to emerge from the downturn as a
stronger, more dynamic company.
Our international presence continues to expand with new and significant project
awards in Australia and Yemen along with undertaking specialty assignments in
Italy, Indonesia and the UK. This diversification is matched by the ever
increasing range of our service offerings, and we continue to focus on providing
high quality specialty solutions to our blue chip client base.
Following the steady recovery of energy prices over the past few months we
anticipate an increase in project activity for Kentz, and we have already seen
an improvement in client confidence across our Global Business Units. Following
Kentz's strong performance in adverse market conditions, we remain optimistic
that Kentz will continue to prosper in the future.
Tan Sri Mohd Razali Abdul Rahman
Chief Executive Officer's Report
During the first half of 2009, we have delivered growth in our key financial
numbers in a highly challenging environment. The Group's revenue performance
against that of the first half of 2008 has remained relatively flat, yet profits
before tax have increased by 9.9%. In addition, cash is up by 7.4% and backlog
has increased by 9.7% since the year end.
Certain large project awards have fallen outside of this reporting period and,
as a result, we anticipate a stronger revenue weighting for the second half of
the year. The increase in H1 profit before tax can be attributed primarily to a
stronger performance from our construction division - leading to the profit
before tax margin increasing from 5.1% in H1 2008 to 5.6% in H1 2009 - and the
good spread of projects across all of our business lines gives us a smoother
earnings profile.
Backlog
The Group's backlog of work at the end of June 2009 was US$1,100.9m, up from
US$698.6m for the same period in 2008. It had increased further at the end of
August 2009 to US$1,389.1m. There are also a number of additional letters of
intent that are waiting to be converted to contracts and the Company is working
on bids and proposals for prospects for key projects that are under development,
valued in excess of US$2.8bn. In addition, we are participating in certain
strategic prospects which have longer development terms - typically 12 to 18
months - or are being developed by our clients and are in pre-investment stage.
The profile of the Group's backlog at August 31st consists of Specialist EPC at
54% (H1 2008 46%), Construction at 38% (H1 2008 32%) and Technical Support
Services at 8.0% (H1 2008 22%).
NB: Backlog reflects the value of future work load on Kentz's books for the
Specialist EPC, Construction and Technical Support Services business units. It
comprises the value of work in contracts in progress, yet to be completed and
confirmed new orders received. Backlog is not an audited measure and other
companies may calculate the measure differently.
Global Business Units
Kentz continues to roll out its three global business units during the first
half of 2009: Specialist Engineering, Procurement and Construction (EPC)
services; Construction; and Technical Support Services. Each of our global
business units is benefiting from increased exposure across the extended Kentz
global network. Prior to 2009 each of the business units had a limited global
reach with the focus very much on the regions in which each business units had
traditionally excelled. This internal reorganisation has provided a significant
number of additional opportunities for Kentz.
In the first half of 2009, specialist EPC revenue was US$66.2m (H1 2008:
US$125.0m), Construction services was US$168.6m (H1 2008: US$118.5m); and
Technical Support Services was US$94.0m (H1 2008: US$85.1m). Recent project
values range between: US$50m to US$250m for specialist EPC; US$30m to US$260m
for Construction; and US$3m to US$50m for Services projects.
Our main aim is to be recognised across the globe as the preferred specialist
solutions provider for all our clients, and we have continued to see strong
demand for Kentz's services across our Business Units.
Specialist Engineering, Procurement and Construction (EPC)
We have seen considerable benefits within the newly formed Global Specialist EPC
business unit with new contract awards from within existing and new areas
boosting our backlog to a record high of US$752m as of the end of August. The
Middle East and Africa regions have continued to experience sustained growth in
backlog and this has been supported by two large new EPC wins in the Australasia
region. There continues to be strong demand for onshore oil and gas process
facilities and infrastructure in these particular regions. EPC revenues have
decreased in H1 2009 due to some delays in the award of new projects in the
latter half of 2008. However, there have been a number of new large EPC
contracts awarded that have increased our EPC backlog by over 30% since the year
end. These include the new central processing facilities in Yemen (US$146m) and
over US$250m worth of contracts on the Gorgon LNG project in Australia.
The award of the US$146m contract for EPC services on the onshore 30,000 bpd oil
production facility in Yemen follows the formation of Kentz Global Oil and Gas
Process Systems Ltd., a joint venture with GPS Inc. This project is a
significant step forward in upstream onshore oil and gas production facilities
business for Kentz. It also demonstrates the ongoing demand for medium sized
speciality EPC contractors with the ability to execute remote and logistically
challenging projects.
The Gorgon LNG project holds around 40 trillion cubic feet of gas reserves and
is set to be one of the largest ever onshore oil and gas developments, with a
planned capital spend in the region of AUD$50 billion (approx US$40 billion). A
joint venture between the Australian subsidiaries of Chevron (Operator),
ExxonMobil and Shell is developing the Greater Gorgon gas fields, located
between 130km and 200km off the north-west coast of Western Australia. Kentz
has been awarded two early works projects providing construction infrastructure,
camp accommodation and telecommunications, with a combined contract value of
US$250m.
In the UAE, we continue to be involved with a number of major EPC projects. We
are completing the construction and installation services for Bechtel on the
GASCO OGDIII gas development programme. This is designed to: produce 125,000 bpd
of condensate; produce 12,000 tpd of NLG's, including about 3,200 tonnes per day
of ethane; and recycle an equal volume of produced gas into a reservoir via a
high pressure gas injection system.
In Qatar, the prestigious Shell Pearl Gas to Liquids (GTL) project is going
well, and we have provided specialist EPC services on the first phase with
contracts in excess of US$320m. The second phase process and utilities will be
completed in 2009 and 2010 and Kentz is providing construction and commissioning
services for a number of process plants. These services will enable the
commencement of critically important process utilities commissioning, a
precursor to plant-wide systems completion and start-up. In addition, Kentz has
a general services contract to support project completion activities.
Work has also commenced on the Qatargas Operating Company's phase six liquefied
natural gas (LNG) storage and loading facility in Ras Laffan Industrial City
(RLIC), which is located on the Northeast coast of Qatar. Kentz is providing
electrical, instrumentation and telecommunications services.
Engineering and procurement has started on the Sidra project, where Kentz is
executing a US$208m contract for the design, supply and delivery of the main
electrical and telecommunications systems on the Qatar Foundation and Qatar
Petroleum supported Sidra Medical and Research Centre in Doha. This project
will take around three years to complete and will be one of the top medical
facilities in the world.
In Abu Dhabi, our ADGAS (an ADNOC company) project team has now commenced
mobilisation on the specialist EPC services to replace the existing control
systems and associated electrical and instrumentation equipment on Das Island.
In Saudi Arabia, capital spending on some of the mega oil and gas projects was
delayed during the latter half of 2008. However, projects on export refineries
in Jubail and Yanbu are now proceeding, and in June Saudi Aramco requested the
relaunch of bids for the Yanbu facility prior to the final investment decision
in 2010. Saudi Aramco also continues to move 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 US$26bn. Separately, Saudi
Aramco has a Clean Fuels programme to upgrade its existing refineries to meet US
and European emission standards in future years and Kentz is well-positioned to
participate in these upcoming mega-projects. Our track record in Saudi Arabia
over the last 32 years coupled with Saudi Aramco's stated intention to increase
both onshore and offshore oil and gas production suggests this is an area set
for growth.
A key project for the EPC Business Unit is the infrastructure layout of the new
Jubail petrochemicals phased development for the Saudi Arabian Royal Commission.
As part of the overall oil and gas production, refining and petrochemicals
development in Saudi Arabia, we are providing engineering and consultancy
services for the further development of the Royal Commission's Jubail and Yanbu
industrial park. In December, we started the development of approximately 2,000
hectares of land to the West of Jubail 2 where our contract includes
engineering, studies and assessments 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. Additionally, we have been awarded a five year
US$35m contract to develop a further 1,000 hectares development to the north
side of Jubail 2. When completed, Jubail Industrial City will be the largest of
its kind in the world.
In addition, we continue to provide EPC services to Sipchem, one of the largest,
fully-integrated, petrochemical companies in the Middle East, owned and operated
by the private sector. Kentz is executing EPC projects for the product
pipelines, port expansion and some buildings on the new major Acetyls complex.
The Acetyls complex consists of an Acetic Acid, Vinyl Acetate Monomer and a
Carbon Monoxide plant. Kentz is also contracted to provide EPC services on
several smaller upgrade projects in the region.
Elsewhere across the Global Business Unit, Kentz has continued its design work
on the Gautrain Tunnel Ventilation systems and has been awarded an additional
EPC contract for the tunnel control systems in South Africa. And in Ireland we
continue to provide specialist EPC services to the medical industry as well as
the Aviva Sports Stadium, where we are providing construction management and
installation for the electrical systems and EPC services for the
telecommunications systems. This is expected to be completed in 2010.
Construction services
Our Construction business unit continues to go from strength to strength in both
revenue and backlog. Kentz has consistently demonstrated its capacity to
participate in large scale construction projects with leading resource clients
particularly in oil and gas, metals and mining and power sectors. Project
activity across these sectors remains strong for Kentz, witnessed by the volume
of both natural growth and new awards during the first half of 2009. The
business unit has experienced an increase of 42% in revenues during the first
half of the year. This is due to several large construction projects - notably
the Khurais and Sharq projects in Saudi Arabia, and the Pearl GTL project in
Qatar for Shell and Qatar Petroleum. We have also continued to supply
significant construction services on industrial related projects to Fluor,
Technip and Linde in Qatar.
Kentz has a long track record of successfully providing construction services
for the mining and metals sector in Sub-Saharan Africa and is well positioned
for future construction projects that are being developed in the region.
In South Africa alone there is estimated to be over US$98bn of infrastructure
projects over the next three years. Last year Kentz was awarded the Medupi power
contract worth in excess of US$250m. Medupi 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 over 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.
Elsewhere in Sub-Saharan Africa, Kentz is supporting the maintenance and
operation phase for the Kenmare Resources Moma Mineral Sands project in
Mozambique, a 700,000 tonnes titanium minerals facility. In Madagascar, we
continue to provide maintenance services on the Rio Tinto mineral sands QMM
ilmenite titanium dioxide project, which has initial production of 750,000
tonnes of iImenite per annum.
In terms of other regions, we have mobilised on three new construction projects
for the Petrotrin Refinery in Trinidad & Tobago. Kentz is providing construction
services to Fluor for the Petrotrin Isomerisation project as well as the
Techint's Acid Alkylation project - part of the Gasoline Optimisation Programme,
and to ABBLG (now CB&I) to support its scope on the Acid Alkylation project. The
isomerisation unit will produce isomerate which improves the octane rating of
light gasoline, thus enabling Petrotrin to increase supplies to premium
markets.
Technical Support Services
The Technical Support Services business unit has performed extremely well with
growth of approximately 10% in the first half of 2009. Demand for technical
services for remote based projects has been a specific feature of new and
ongoing awards. We have also seen continued growth for technical support
services on projects where Kentz is also executing either Specialist EPC or
Construction services.
We have recently received a number of Technical Support Service contracts with
core clients for commissioning services on re-gasification facilities and early
production systems. Many LNG developments are expected to come on stream during
2009 - including projects in Russia (Sakhalin), Qatar, Indonesia and Europe -
all of which will provide opportunities for Kentz to utilise our significant
commissioning and start-up expertise.
In Sakhalin, both Sakhalin I and II developments are going through extended
phases that are being developed under their original license agreements. On
Sakhalin I Kentz is working on ExxonNeftegas's second (Odoptu) and third
(Arkutun-Dagi) phase developments. We have now started providing support and
construction services on Odoptu and some preliminary engineering support
services on Arkutun-Dagi. We are also providing technical support and
construction services, including commissioning and project management personnel
to Sakhalin Energy (SEIC) on the Sakhalin II onshore production and LNG
facilities.
Elsewhere in our Arctic region, some of the Oil Sands projects under
consideration in Alberta, Canada, are reaching final investment decision stage,
which will provide opportunities for Kentz. We have received our first contract
on the Kearl Oil Sands project, where our scope of work includes the provision
of engineering and procurement services for the industrial telecommunications
systems and systems integration for the plant.
In South Africa, we continue to provide construction and maintenance, shutdown
and turnaround services to Sasol facilities, including Natref, Engen, Hosef
Fibres and Petro SA. We have been working on these projects since 2002 when we
were awarded contracts on the Sasol 2 and 3 facilities.
In Kuwait Kentz has a five year PMC support services contract with Fluor, which
includes the provision of engineering and consultancy resources and services to
manage national oil and gas projects. Kentz is also providing completion and
commissioning services for the massive Equate II Petrochemicals Complex to
support plant transition from construction through completions and to start-up
and production.
In Europe we are providing commissioning support services for LNG
re-gasification facilities at South Hook LNG in the UK and for Adriatic LNG,
Italy. In Norway we continue to support Aker Kvaerner offshore modular barge
works for the Kashagan Project in Kazakhstan.
Geographical review
Over the past reporting period, we have increased our project execution capacity
in our core markets, especially in the Middle East where our revenues increased
to US$231.9m (H1 2008: US$221.1), making up 70% of Group revenues. We have
expanded our footprint and we are in the process of delivering projects with
core clients in three new countries - Italy, Indonesia and Yemen. Kentz is now
established and operating in 26 countries worldwide, including the Middle East,
Southern Africa, Australia, Far East Russia, the Caribbean, South East Asia,
USA, Canada and Europe.
The Middle East has been our strongest growth area in the recent past, and is
still showing signs of significant future expansion. New projects are being
developed by both national and international oil companies, especially in the
UAE and Saudi Arabia for oil and gas production and refining industries.
In Qatar, we are currently working on a number of upstream and midstream
projects with a workforce of over 3,800 delivering EPC, Construction and
Technical Support Services. Our largest project in the country is on the Shell
Pearl Gas to Liquid project.
In Abu Dhabi, there are a number of significant projects under development in
the upstream sector. These include 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 US$20bn. Given Kentz's
history of working in this region for over 20 years and the fact that we have
current projects with the same clients, we feel well positioned to participate
in these upcoming programmes.
In Australia, we expect considerable investment in LNG liquefaction to take
place in the Pacific Rim over the mid to longer term. Six 'mega' LNG processing
facilities are either under development or in implementation, all of which are
significant in size and complexity. The fact that these projects are all located
in remote areas will play to Kentz's ability to carry out work of this kind, and
our international experience of working on LNG projects will also stand us in
good stead. We have been awarded two early works projects on the Gorgon LNG
providing construction infrastructure, camp accommodation and telecommunications
with a total value of over US$250m.
Elsewhere, 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 we have now mobilised a
small office as we focus on oil and gas production for both the onshore and
offshore developments. Petrobras has announced its 2009 to 2013 business
investment plan of US$174.4bn, which includes US$165.4bn for upstream
development, refining, gas, energy and petrochemicals projects.
Operational review
In the first half of 2009 82% of our revenue was derived from oil, gas and
petrochemicals projects (H1 2008: 88%), 10% from our mining, metals and power
operations and 8% from other businesses including governmental, infrastructure
and sporting arenas (H1 2008: 5%). In addition, we have a joint venture business
with Thiess Pty Ltd of Australia, where a majority of the business is for
mining, minerals and metals clients, and our share of revenue accounted for an
additional US$13.9m during the period.
Kentz continues to maintain a good balance and mix of clients with 50% of
revenues in the first half of 2009 coming from end user international and
national oil companies (FY 2008: 48%), 41% of revenues coming from leading
engineering and project management companies (FY 2008: 45%), and 9% of revenues
derived from other sources (FY 2008: 7%).
To accommodate the significant growth in our core operations we have increased
the average number of employees by approximately 200 across all the regions,
giving us a total average workforce of 10,700. This increase has been resourced
predominantly by short term duration contracts.
Health & Safety and Environment (HSE) Report
Our key priority continues to be the safety and welfare of our workforce. 83% of
projects were completed without a lost time accident for the first half of
2009.The Total Recordable Incident Ratio (TRIR) for the first half of 2009 is
0.20 compared to 0.11 for H1 of 2008. We continue to monitor and report near
misses, which helps to maintain focus and vigilance on continually improving our
safety record. The number of man-hours completed in the first half of 2009
increased from 16.7 million to 16.9 million.
During the first half of 2009 we completed over 85,000 HSE training hours with
an average attendance of 611 at the 74 training modules presented on our
projects. In February of 2009 we rolled out our Safety Observation Card System
programme. The programme allows us to focus on areas of unsafe behaviour and
implement the necessary corrective actions thus helping to ensure we continue to
maintain our excellect HSE record.
Growth Strategy including Acquisitions and Business Opportunities
Through our Global Business Units we are able to provide more complete services
across the globe and we expect to benefit from the increased capital spending
currently taking place in the oil and gas markets.
We still plan to complete an acquisition in the near term within the upstream
oil and gas industry. We are in discussions with potential targets, and our
priority is finding an entity that will provide a good strategic fit as well as
creating value for our shareholders.
Outlook
Kentz's well diversified portfolio of clients and geographies has helped
generate a record backlog and some major new contract awards in the first half
of 2009. Key highlights have been our entry into the recent Australian LNG
market, the growth of infrastructure projects in Southern Africa, and new
project awards in the Middle East.
The slowdown in mega projects in the Middle East that we witnessed during H2
2008 and H1 2009 appears to be at an end, and they are now gaining capital
expenditure momentum. We therefore expect to deliver strong growth in the region
in 2010 and beyond, especially as these projects can take two to four years to
build and start up.
Over the past three months, oil prices have steadied at around US$65 to US$72 a
barrel, and global economies are starting to report a return in confidence. We
therefore anticipate that investment will continue at high levels and support
our growth in 2009 and 2010.
Our strategy of focusing on oil and gas, petrochemicals and energy in developing
regions has proved to be successful. A large number of International and
National oil companies increased their exploration and production capital
spending to historical highs in 2008 and, whilst capital expenditure plans for
these companies varies considerably for 2009 due to the present global economic
conditions, we are seeing continued positive capital investment sentiments for
upstream exploration and production projects from important Kentz clients. These
include Shell, ExxonMobil, Chevron, BP, and National Oil Companies such as
Petrobras, Abu Dhabi National Oil Company and Kuwait Oil Company.
Industry relationships continue to be vital in all natural resource development
sectors as the number of projects being developed grows. The client
relationships that Kentz has developed through our excellent performance track
record are stronger than ever, and we will continue to focus on serving the
needs of our blue chip clients on a global basis.
We have strong foundations in all the markets in which we operate and this,
along with the underlying volume of projects and the continued demand for our
numerous services, gives us significant optimism for the future success and
prosperity of Kentz.
Hugh O'Donnell
Chief Executive Officer
Chief Financial Officer's Report
Summary of Key Financial Indicators (values and percentage changes)
2009 2008 %
For the six months ended 30 June: (US$M) (US$M) Change
Sales Revenue 328.8 328.6 -
EBITDA * 22.1 17.7 +25.0%
Profit before tax * 18.5 16.8 +9.9%
Profit after tax * 13.8 12.9 +6.9%
Profit after tax attributable to shareholders * 12.9 12.4 +3.8%
Net Cash from operating activity 32.2 40.1 -19.8%
Cash and equivalents at period end 165.7 195.5 -15.2%
Basic earnings per share (US$ cents) * 11.09 10.99 +0.9%
Backlog 1,100.9 698.6 +57.6%
* For comparison purposes, results shown for the six months ended 30 June 2008
are before costs associated with the AIM listing of US$4.6m which were expensed
during that period.
Overview of Trends (values and percent of sales)
Six months ended 30 June Year ended 31 Dec
Continuing Operations
2009 2008
(Values in US$ millions) 2008
Sales Revenue 328.8 328.6 643.4
Gross Profit 43.8 40.2 87.6
% of sales 13.3% 12.2% 13.6%
S.G. & A. expenses 26.2 24.8 51.4
% of sales 8.0% 7.6% 8.0%
EBITDA * 22.1 17.7 42.2
% of sales 6.7% 5.4% 6.6%
Profit before tax * 18.5 16.8 40.7
% of sales 5.6% 5.1% 6.3%
Profit for the year - continuing operations * 13.8 12.9
30.9
% of sales 4.2% 3.9% 4.8%
ROCE * 12.3% 12.7% 27.5%
Cash and equivalents (period end) 165.7 195.5 154.4
The Group condensed interim financial statements are prepared in accordance with
IFRS
Summary of Group Income Statement Highlights
Revenue
Sales revenues from continuing operations for the six months to 30 June 2009 at
US$328.8m were in line with prior year (30 June 2008: US$328.6m). During the
period we have achieved steady growth in the Middle East, Africa and Australia,
Europe and the Caribbean regions - this progress was however offset by delays to
anticipated projects in Russia and Canada.
The breakdown of revenue by business line for the current period shows a change
in the split from that reported for full year 2008. Specialist EPC represents
20% of Group revenue (FY 2008: 29%), Construction 51% (FY 2008: 43%) and
Technical Support Services 29% (FY 2008: 28%).
A review of the composition of our order backlog (US$1,100.9m) at June 2009
covering projects extending over the period from 2009 through to 2011 shows that
42% of this total or US$466m consists of Specialist EPC projects. This indicates
that the apparent shift in composition we are seeing during the first half 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 2009 totalled US$270.9m
or 82% of Group revenues, (H1 2008: 88%). Our remaining revenues have come from
the mining and metals sector (5%) (H1 2008: 7%) and from other sectors (13%) (H1
2008: 5%).
Gross Profit
Gross profits of US$43.8m or 13.3% of sales were recorded in the six months to
30 June 2009, an increase of US$3.6m or 8.9% on the 30 June 2008 figure of
US$40.2m or 12.2% of sales.
Selling, General & Administrative Expenses (SG&A)
SG&A expenses in the six months to 30 June 2009 increased by US$1.4m to US$26.2m
in absolute terms (30 June 2008: US$24.8m). In relative terms compared to full
year 2008, as a percentage of sales the number has remained unchanged at 8.0%.
Other operating income
Net other operating income of US$0.2m for the period relates to miscellaneous
income from discounts received, sale of scrap and third party management fees.
Operating Profit before finance costs
Operating profit before finance costs for the period increased by US$2.1m
overall or by 13.1% to US$17.8m or 5.4% of sales (H1 08: US$15.8m or 4.8% of
sales excluding non-recurring AIM listing costs expensed during the prior
period).
Geographically, the main increase occurred in the Middle East (up US$3.0m to
US$16.6m) due to stronger performance in the Construction and Technical Support
Services business segments which helped to compensate for weaker performance in
the EPC segment, primarily caused by delays in award of some anticipated
projects.
The Africa region also recorded an improved profit performance, (up US$1.0m to
US$4.2m again, primarily in the Construction and Technical Support Services
divisions.
Australasia, Europe and Caribbean recorded an operating loss of US$3.9m during
the period which was up US$0.8m due to the combined effects of weaker
Construction performance in Europe coupled with the fact that the group
administration costs are mostly incurred in this region.
The Arctic and New Areas region recorded a reduced profit of US$0.5m, down from
US$1.8m in the corresponding period last year, primarily due to lower activity
caused by delays in award of anticipated orders in Russia and Canada in the
Technical Support Services and Construction segments. We expect this situation
to improve over the second half as a number of new orders are now set to move
ahead.
Net finance income
Net finance income for the period was down US$1.4m or by 77.7% on H1 2008 to
US$0.4m. The reduction is due to lower interest rates earned on cash balances
held on deposit.
Share of joint ventures' profit/(loss)
Profit for the period from our joint venture operation was US$0.3m (2008: loss
of US$0.8m). This improvement is attributable to an increase in activity levels
and improved margins.
Profit before tax
Profit before tax for the period is up 9.9% to US$18.5m or 5.6% of sales. This
represents an increase of US$1.7m on the six months to 30 June 2008 figure
(US$16.8m or 5.1% of sales excluding AIM listing costs).
Taxation
The tax charge for the period is US$4.7m which is an effective tax rate of
25.4%. This compares with an effective rate of 23.4% for the same period in
2008. The slightly higher percentage this period is attributable to a higher
portion of profits earned in the Middle East on taxable projects.
Net Profit for the period
Profit for the period from continuing operations was US$13.8m, up 6.9% on the
same period in 2008. Net profit for the period represents 4.2% of revenue,
compared to 3.9% for the six months to 30 June 2008, excluding listing costs.
Minority Interest
Minority interest for the period is US$0.9m up US$0.4m or 91.4% on the same
period last year. The minority interest relates to our Black Economic
Empowerment partner in Africa and the higher figure reflects the fact that a
higher proportion of our after tax profits were earned in Africa in H1 2009.
Earnings per share (Basic)
Basic earnings per share for the six months were 11.09 US$ cents, up 0.9% (H1
2008: 10.99 US$ cents). This calculation is based on 116,371,470 ordinary shares
in issue in 2009 and 113,206,000 weighted average ordinary shares in issue for
H1 2008.
Dividend
The group reports its financial results in US dollars and accordingly declares
its dividends in US dollars. Dividends are paid in Sterling using an exchange
rate calculated at the record date and shareholders have the option of electing
to have their dividend paid in another currency. The Board has approved an
interim dividend based on the interim results of 2.0 US$ cents per share to be
paid on 16th October 2009, to all eligible shareholders on the register as on
25th September 2009. The interim dividend approved represents an increase of
5.3% on the corresponding period last year (H1 2008: 1.9 US$ cents). This is in
line with the Company's progressive dividend policy, paying out between 20% and
25% of profits after tax, paid on an interim (one third) and final (two thirds)
basis.
A final dividend payment based on the final results to December 2009 is expected
to be made around mid 2010.
Summary of Group Balance Sheet Highlights
Working Capital
Working capital at the period end was US$99.1m, in line with H1 2008 and down
3.3% from 31 December 2008 year end (US$102.5m).
Current assets at 30 June 2009 were US$330.1m, similar to H1 2008 and up 17.4%
from 31 December 2008. This growth is mainly due to increased receivables (up by
US$58.8m) and increased cash (up by US$11.6m).
Current liabilities at 30 June 2009 were US$231.0m, again similar to H1 2008 and
up 29.3% from 31 December 2008. The rise since year end is mainly attributable
to additional trade and other payables reflecting strong activity in H1 2009.
Equity
Shareholders' equity at 30 June 2009 was US$124.3m, up 9.0% on 31 December 2008
(US$114.1m), reflecting the growth in the Group's profit performance.
Summary of Group Cash Flow Highlights
Cash flow from operations
Net cash flow from operating activities for the six months was US$32.2m, down
19.8% or US$7.9m on 30 June 2008 levels, but up $21.1m or 191% on December
2008.This increase since year end is mainly attributable to a decrease in
inventory levels during H1 2009.
Cash flow used in investing activities
Net cash used in investing activities was US$16.1m, up 474% on the same period
in 2008 but similar to the level of investing activity at year end 31 December
2008. This mainly relates to the purchase of plant and equipment and a
fabrication facility in South Africa to support the Medupi project.
Cash flow from financing activities
Net cash used in financing activities for the period was US$2.3m, down US$36.6m
on the six month period to 30 June 2008 which showed a net inflow of US$34.4m.
The difference mainly relates to the flotation proceeds of US$34.2m net of
expenses which were included in the prior period.
Net cash and equivalents
Net cash and cash equivalents amounted to US$165.7m at 30 June 2009, down
US$29.8m or 15.2% on the June 2008 figure of US$195.5m but up $11.3m on the
December 2008 figure of $154.4m, reflecting continuing strong cash collections
from trading.
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 2009 which comprises of the Condensed Consolidated
Income Statement, the Condensed Consolidated Balance Sheet, the Condensed
Consolidated Cash Flow Statement, the Condensed Consolidated 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 (ISRE), 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 conclu-sions 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 require
that the accounting policies and presentation applied to the interim figures
should be consistent with those applied in preparing the preceding annual
accounts financial statements 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
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