The Interview: Hugh O’Donnell chief executive, Kentz engineering group
The engineer who built a career on being dropped in at the deep end
Published 05/08/2010 | 05:00
When Hugh O'Donnell graduated in 1987 as a mechanical engineer from what is now the University of Limerick, he wanted to work in the United States. So, having seen an advert in the college, he successfully applied for a job with mining giant Anglo American, assuming it would land him on a westbound flight. It didn't.
Somewhat to his surprise, it wasn't West Virginia or Montana that was he was shipped out to, but to a state-of-the-art coal mine in Standerton, about 170km east of Johannesburg, that had just been opened by the South African company.
"I went there with my eyes wide open. It was the height of apartheid," says O'Donnell, who at age 22, just three months after arriving, was suddenly plunged into a senior position at the operation.
"I was introduced to my four Afrikaner supervisors. If you can imagine the front row of the Springboks team, it's about the same profile," O'Donnell laughs. One of his first tasks was to learn Afrikaans -- "They weren't going to speak English to me" -- and he can still converse in the language today.
The grounding in South Africa, where O'Donnell would spend more than a decade, set him on a path where as chief executive of Clonmel-headquartered global engineering group Kentz, he oversees a bulging $1.6bn (€1.2bn) order book that includes work for clients such as Shell, Chevron and Rio Tinto.
Working in isolated regions around the globe, Kentz engineers (there's about 10,000 of them) are currently toiling on projects including the development of a construction village on the remote Barrow Island off western Australia.
It's part of the massive Gorgon gas field project being jointly developed by Chevron, ExxonMobil and Shell at an overall cost of A$43bn (€30bn). The A$500m (€344m) construction village will have to house about 3,300 workers and make them feel like they're staying in a hotel.
In Dublin for a brief visit before he jets off to Abu Dhabi, O'Donnell has had plans on the boil since Kentz floated on London's Alternative Investment Market (AIM) in early 2008 to boost the scale of the company.
That has already been achieved to a large extent via organic growth, but shareholders are still awaiting a much anticipated acquisition that could further transform the group, which currently has a market capitalisation of about £286m (€344m).
Since it went public more than two years ago, Kentz's shareprice has more than doubled from its initial £1.15 price. Revenues rose 18pc in 2008 to $643m and last year by nearly 10pc to $705m, while pre-tax profit jumped just over 9pc to $44.5m in 2009.
This year, analysts expect revenue to be in the region of $845m and pre-tax profit of $52m.
It's a world away from dark days in the nineties when the company's Irish operation was on the brink, emerging from examinership and leaving Malaysia group Peremba with an initial 60pc stake following a restructuring (upon the flotation, Peremba reduced its then 80pc stake to 26pc).
O'Donnell admits there's an expectation among shareholders now that an acquisition will be done, but he's loathe to set a timetable for such a move.
A team of four people at the firm has been eyeing up potential targets and the company has about $60m in cash that it could use to fund an acquisition -- a figure that could comfortably be doubled with bank debt, of which Kentz currently has none.
"At the end of the day, we're investing shareholders' money, so it's up to us to ensure that we are pretty certain that we're going to deliver on an enhanced earnings per share (EPS)," he explains.
"It's not about bolting on this or that, or making it just look good. It's about EPS."
The "bandwidth of EPS enhancement" as O'Donnell describes it, which would be necessary for an acquisition to make sense, is "double-digit".
"Our shareholders would need to see the value," he stresses.
O'Donnell points out that, ironically, Kentz was interested in making a first acquisition that would enable it to engage in development work of upstream oil and gas separation plants -- the facilities where crude oil is processed to extract gas and contaminants.
However, even while it was looking, it set up a joint venture, Kentz Global Oil & Gas, with Dubai-based GPS to advance entry into that specific market.
"For the last two years the company has been looking at contracts and development contracts. It now has a pipeline of prospects that are far in excess of any of the acquisition targets that we've actually looked at," he explains.
At the moment, Kentz is solidifying its presence in Iraq, having this week unveiled a joint venture that will attempt to secure contracts in the oil-rich ravaged country.
Kentz already has a significant footprint in the Middle East. That region and Australasia combined are likely to account for a large portion of the company's revenue this year.
For O'Donnell, who took over the reins at Kentz in 2000 at the age of just 35, the transformation of the group has been relatively rapid.
Having moved on to run other Anglo American projects in South Africa in the nineties (including its Mondi paper mill plants that compete with Smurfit Kappa), O'Donnell was on his way home to Ireland on South African airlines in 1991 when he spotted an advert for jobs at Kentz.
"There was a lovely picture of the Caribbean and it said: 'Join Kentz and see the world'," O'Donnell recalls. Now a firm scuba diving enthusiast, he was hooked on the idea.
He signed up, but seeing the world was effectively put on hold. Kentz left him stationed in South Africa, running projects and eventually being sent to Durban to open up a mechanical engineering office (the company had been focused on electrical engineering). It was a big success.
South Africa was also now home. O'Donnell was living there with his wife and two children (they now have three).
"I was very happy there and I took over as Kentz CEO of South Africa in 1997 and moved to Johannesburg. I was very settled."
In 2000, the chairman of Kentz paid him a visit and asked him to become group chief executive.
"I thought he was a bit mad actually, asking a 35-year-old to lead this global organisation. Kentz had this enormous potential though."
But there was a legacy of geographical units being operated as fiefdoms.
"There wasn't a culture of sharing, or of networking or of synergies. It was like a federation of independent states, but it worked.
But when you stood back and looked at it, we were in 10 countries, had annual revenues of about $150m, and there was enormous potential to lever that Irishness of having no boundaries of where we could go in order to move up a league."
As an incentive, O'Donnell took a 10pc stake in the company, linking his own fortunes to that of Kentz. So far, things seem to have pretty much gone according to plan.
O'Donnell doesn't think that the events at the BP well in the Gulf of Mexico will do long-term damage to the industry, but he views the hurdles that needed to be jumped to advance the Corrib gas field off the west coast of Ireland with a degree of incredulity.
"It's not good that an oil and gas company that invests in the development of converting resources off Ireland to make them available to the domestic supply has to go through what it went through. It doesn't bode well."
Kentz is now of a scale that it could move from its AIM-listing to being a main market company. Such a move would probably help it lure more investors and give it greater access to capital resources.
O'Donnell concedes its something he has a battle plan for.
"We do have a plan to upgrade to the main market in London, but we haven't set a timeframe for it."
For now, O'Donnell spends much of his time globe-trotting, as he plots the growth course for Kentz, which he says will continue to capitalise on its Irish roots.
"Those Irish values of modesty, humour and being able to do a deal, work with cultures across the world."