Kentz building on its success

With a blue chip client base of some of the world’s top oil, gas and mining companies, and with its work backlog valued at $2.73bn, engineering group Kentz is confident about its growth plans, CEO Christian Brown tells John Daly

AS a modern Irish success story, Kentz, founded in Co Tipperary, continues to develop its commercial footprint in an arc that now touches every continent. An organisation employing 14,500 people across 30 countries, the company can trace its origins back to 1919 when it started life as a local electrical contractor based in Clonmel.

Listed on the London Stock Exchange and a member of the FTSE 250, it serves a blue-chip client base, primarily in the oil and gas, petrochemical and mining and metals sectors, for more than 90 years. Kentz’s global business units are spread across engineering, procurement, construction and technical support services engaged in complex projects in some of the most remote locations on earth. The company has operations in Australia, Africa, the Middle East, Europe and the Americas. Its clients include BP, Saudi Aramco, Chevron, Qatar Petroleum and Exxon Mobil.

Earlier this week Kentz reported a 32% jump in pre-tax profits to $104.8m (€81.5m). It ended 2012 with a gross cash balance of $223.3m, down by $15m on 12 months, with its work backlog valued at $2.73bn. Earnings per share rose 19% over the period to 58 cents, from 49 cents in 2011. Kentz paid out a final dividend of 9 cents a share, making a total dividend payment for the whole of 2012 of 14.5 cents a share, an increase of 18% on 2011.

“The group continues to maintain a very healthy financial position with net assets increasing by 18% during the year,” said CEO Christian Brown. “We have ended the year with an enhanced backlog of $2.57bn along with a very significant pipeline of prospects of $13.2bn that provides considerable confidence for our future growth plans.”

He added that 78% of the company’s backlog comprises cost reimbursable contracts, offering a low level of risk. Client relationships built over many years remain fundamental to its success story, he believes. “We are a company that prides itself on delivery, safety, quality and responsibility. The great benefit of Kentz’s strong client relationships is the level of repeat business that we obtain, and that, to me, is the cornerstone of our success.” In 2012, approximately 72% of the company’s revenues came from ten clients, all the result of repeat business.

“Over the past number of years, it is evident that not only have we successfully delivered many projects for our major clients, but we have also succeeded in securing additional work from them year after year.”

Kentz started operating internationally in the late 1970s when it successfully completed a project with an American engineering and construction partner in Saudi Arabia. This provided the launch pad to grow throughout the Middle East and expand its service offerings.

After restructuring in 1994, and the appointment of Hugh O’Donnell as chief executive, Kentz went through a sustained period of growth, culminating in its listing in February 2008 on the Alternative Investment Market of the London Stock Exchange.

In 2009, it realigned from regional hubs into three global business units: specialist engineering, procurement and construction, and technical support services. Repeated growth saw it progress onto a Primary Listing on the London Stock Exchange in July 2011. Brown took over as CEO on Feb 1, 2012, following Hugh O’Donnell’s 12-year tenure in the position. Brown joined Kentz in 2011, became group chief operating officer in July 2011, and was subsequently appointed to the board of directors. He has over 20 years’ experience in the LNG, oil and gas, refining, and petrochemicals industries, including 17 years with Kellogg Brown and Root working across the Americas, Europe, Africa and the Middle East before joining Foster Wheeler in 2009.

He was previously managing director of global sales, strategy and marketing for Foster Wheeler, president KBR Canada, and director and general manager KBR Construction Middle East and Africa.

“The global economic environment remains uncertain, with many companies adopting a cautious outlook for 2013,” he said. “We have had a positive start to 2013 with our backlog increasing a further 6% to $2.73bn at the end of February.”

According to the IEA’s World Energy Outlook Report, the long-term outlook for the global demand for energy is for continued growth at a modest but steady rate, with global oil demand set to reach a rate of 99.7m barrels per day by 2035, up from 87.4 in 2011.

“According to our international oil company clients, liquid supply will drive the requirement for investment.”

Supply from current producing fields is expected to drop by 50% in the next 20 years, and to meet the increase in future demand, crude oil producing facilities of over 30m barrels per day need to be developed, with another 30 mbpd needing to be found from other sources.

“Regardless of the source, the world’s oil companies will need to invest significantly to keep up with these supply requirements,” he added.

Kentz began in 2012 to identify strategic initiatives to enable it continue its growth performance. Six growth strategies were identified — one global and five regional — to capitalise on growth in those markets.

“We have already identified $6.9bn of opportunities in our core markets that we have the in-house ability to execute. In addition, there is a much larger market that we can address with the renewed focus on EPC (engineering, procurement and construction) through the global strategic initiative.”

During 2012, Kentz saw progress on two EPC contracts for the Gorgon LNG project in Western Australia, while continuing to develop a similar EPC business in Africa having been awarded a $45m contract by Scatec Solar to execute all in-country EPC activities associated with their Kalkbult Solar PV project facility. 2013 marks five years since Kentz began its Canadian operations.

“In that period, our construction business in the region has grown considerably, and during 2012 we achieved 235% revenue growth.

“Our main area of operation in Canada is at the Athabasca oil sands in northern Alberta — one of the largest oil sands deposits in the world.”

Brown added that Kentz is eyeing further opportunities in Colombia.

The South American country has boosted its oil output by 80% since 2008.

In the past three years, revenue from the technical support services business unit has grown at an average rate of 29% annually.

The increased demand continued in 2012 with revenues up 32% to $408.9m, representing 26% of group revenues.