Kentz thrives with big guns by playing to niche strength

It's probably pushing it to say that signing a $12 million (€10.3 million) contract in Guangdong, China is a landmark for Kentz International.

The company, once known as MF Kent, is headquartered in Clonmel, Co Tipperary, but for the last decade it has focused on its international business, and at this stage has a presence on five continents.

The company announced this week that it will install the site-wide telecommunications network at a petrochemicals complex in Guangdong, southern China. A contract of this nature is Kentz's stock in trade.

But current chief executive, Dr Hugh O'Donnell, points out that it is significant for a number of reasons. One is that it was won in the teeth of international competition; the second is that it is difficult for outsiders to get into China's heavily protected market unless they have skills that the Chinese do not; and the third is because it shows the kind of company the Irish business has been keeping for much of its 80-year history.

CSPC, a consortium made up of the Chinese National Petroleum Company and oil giant, Shell, awarded the contract to Kentz. US companies Bechtel and Foster Wheeler, and Chinese company Sinopec Engineering, are the project managers.

Bechtel is a privately-held US group, which last year completed projects valued at $11.6 billion (€9.9 billion) and signed up new contracts with a total value of over $12 billion. Foster Wheeler is a construction and design operator that specialises in process industries, like petroleum, chemicals and pharmaceuticals. It had sales last year of $3.6 billion.

Though it's a dwarf by those standards, Kentz International is used to rubbing shoulders with giants. Bechtel and Shell feature on its list of core clients, along with Saudi Aramco, and Fluor, another US engineering group, which last year turned over $8.6 billion. Dr O'Donnell argues that Kentz's size is its strength.

"We are a niche player that the likes of Bechtel require on their team," he says. Kentz's niche is instrumentation, which runs all process plants. These plants are controlled by a series of instruments that monitor and control what each element does. Ultimately, they have to be integrated into one system. This is what Kentz does. "We are specialists in the design and supply of control systems for process plants worldwide," he says.

And he means worldwide. Kentz is working on projects in the Middle East, where it is involved in a joint venture development with Bechtel and Fluor, amongst other things. It has a presence in Malaysia, the Americas, Australia, Europe and Africa. In 2002, it had a turnover of $160 million, and is set to increase that to $168 million this year.

Dr O'Donnell will not reveal the group's profits, but he concedes that pre-tax margins are in line with industry norms. By those standards, sources say that the firm should be looking at an $8 million pre-tax profit this year.

It was not always so. MF Kent hit the headlines nine years ago when it went into examinership owing its banks £11 million punts. Part of its problems stemmed from the fact that US-Japanese-owned Hovisa, for whom it was building a $35 million hotel in Barcelona, was given protection from its creditors.

This left Kentz in the lurch, a situation complicated by the fact that the company had over-borrowed against other contract payments. Malaysian group, Peremba, rescued it by buying 60 per cent of the group for £7.75 million. AIB and Banque Nationale de Paris received £4 million of an £8.6 million debt.

The other 40 per cent remained in the hands of then chief executive, Mr Gus Kearney, and directors Mr Michael Campbell and Mr Noel Kelly, who bought 10 per cent for £850,000. He is the sole remaining Irish shareholder. Peremba increased its stake to 90 per cent. It recently sold that for an undisclosed sum to two unnamed Malaysian investors for an undisclosed sum.

Dr O'Donnell, who joined the business in 1991, and was head of its African operation, says the company got into trouble because it did not stick to what it knew. "We needed to focus on our clients and we needed to focus on our business," he says.

"We started a major change in 1996. We decided to have a strong focus on engineering, design and procurement (EPC) in the field of instrumentation." Refocusing the business paid off, and the company broke even in 1996, before a £1.5 million one-off charge for legal and other fees associated with the examinership. It's been profitable since then.

But the risks are never far away. It is working on building a $140 million power plant with French infrastructure specialist, Alstom. A deal involving the French government and the company's banks recently pulled Alstom back from the brink. At one stage, it looked like the EU Commission would block any rescue plans. In that situation, it had a contingency plan, Dr O'Donnell stresses.

He says the company manages its risks by structuring stage payments with clients. He argues that clients will agree to a reasonable system that will allow it to limit its exposure on a given project.

While the group has its engineering headquarters in Ireland, it is made up of a series of companies responsible for regions. They handle the nuts and bolts of their individual contracts, and assume many of the risks.

Dr O'Donnell stresses that Kentz is an Irish company, and says the majority of its management is Irish. And the company has begun looking for business here. Recently it supplied electrical services to Blackrock Clinic's new Galway private hospital, and it is seeking other maintenance and service work here.