FY18
CARDNO
2018 ANNUAL
REPORT
for the year ended
30 June 2018
Cardno Limited
ABN 70 108 112 303
and its controlled entities
Chairman’s Letter
Dear Shareholder,
At the Company’s most recent AGM in October 2017, I discussed that Cardno is entering the second year of a
multi-year business improvement plan. As part of this, our focus was on investing in business infrastructure,
broadening our service lines and building long term shareholder value.
I am pleased to report that your company is beginning to benefit financially from the multi-year restructure of
the business that began in FY16. Net profit before tax is up 182.0% to $35.1m, while underlying EBITDA from
continuing operations is up 27.7% to $56.2m.
Having completed the company’s restructure, our focus shifts firmly to execution of initiatives in place and
growth. We are now entering a phase of stability with incremental growth driven by organic initiatives, business
optimisation and disciplined, conservatively funded ‘on strategy’ accretive acquisitions. This position is
supported by our balance sheet which remains strong with (net) debt of just under $20m.
FY18 FINANCIAL HIGHLIGHTS
As stated, the benefits of the multi-year restructure of the business are now being seen in Cardno’s financial
results.
> EBITDA grew 27.7% to $56.2m.
> Pre-tax abnormal items totalled $3.0m net, down from $64.3m in FY17.
> Balance sheet discipline continue to improve.
> The group benefits from the ‘portfolio effect’ of our businesses;
- The Asia Pacific Engineering division’s EBITDA margins declined from 10.9% to 7.5% driven by the
continued wind down of a number of major projects in early FY18 as well as “project clean up” in
APAC North. The division restructured in H2 to create a solid platform for growth going forward.
- The Americas Engineering and Environmental division performance continued to improve with
EBITDA margin expanding from 1.6% to 4.8%. While this remains below industry average, the
division is building positive momentum.
- The International Development division consolidated its growth in backlog and cost savings to
produce a solid 2.0% EBITDA margin.
- Our Construction Sciences business benefited from the ongoing delivery of existing contracts and
new contract wins against the backdrop of a generally improving market, plus the inclusion of a
small bolt-on acquisition in the FY18 year.
> Backlog, which is a leading indicator of future revenues, grew by 9.7%
> Cash flow from operations was up significantly to $45.7m.
As flagged at the last AGM, the company will have a period of elevated capital expenditure as we address a
period of under investment and poor historical capital allocation. We believe this will tail off in FY20. For FY18,
capital expenditure was $19.3m. In addition, the company’s capital was used to continue the share buy-back
program, with $13.9m spent on buying back Cardno stock in the financial year ($5.7m in FY17).
This time last year I highlighted areas in the company’s financial results that the board and management were
particularly focused on. Pleasingly we have made good progress on previous initiatives targeted:
> The Americas Engineering and Environmental division continues to “under earn”.
As stated above, the company made solid progress through FY18, primarily as a result of an
improvement in operating margin driven by a series of initiatives that reduced non client facing
management and labour, fringe (insurance, health), overhead and occupancy costs. Growth in top line
revenues in the Americas, whilst maintaining operational discipline remains one of the most significant
opportunities for Cardno over the next three years.
> The Oil & Gas operations continue to operate at or below break even.
Pleasingly, the business was profitable in Q4 of FY18 and the outlook for FY19 is for ongoing, albeit
comparatively modest, profitability.
Page | 1
Chairman’s Letter (continued)
OPERATIONAL PROGRESS
One of the most pleasing outcomes exiting FY18 is a very structured business with emerging momentum.
Each division reached different milestones over the year. None of them are material of themselves – but each
incrementally contribute to future results:
> Asia Pacific: we restructured and aligned our operations within the two divisions to capitalise on
collaboration and client opportunities and completed the acquisition of a small bolt-on utility locating
business in Sydney.
> Americas: ongoing business disciplines improved results and margin entering FY19. The overhaul of the
US benefits plans resulted in both an improved level of benefits for our staff and also locked in a substantial
ongoing saving for the business.
>
International Development: implemented a consolidated project management and tracking tool across the
division. Business Development efforts coordinated globally (eg currently people from Melbourne are
assisting on responding to requests for tender in London). We are investing in organic growth, anticipating
a step change in this business into FY20 and FY21.
> Construction Sciences: is expanding through organic growth as it provides materials testing services to
support the considerable ongoing investment in Australian and New Zealand infrastructure development.
Completed two small bolt-on acquisitions, focused on materials testing, one during the year and one early
July 2018.
> Oil & Gas (PPI): our strategy of evolving PPI into a predominantly Quality Assurance business is yielding
results. As stated, PPI exits FY18 profitably and the order book and general activity is increasing.
> Latin America: we continue to scale back our Caminosca operations as projects complete. The Entrix
environmental services business is performing well in Ecuador and has expanded on a very small scale
into Peru.
Group wide initiatives are focused on optimising performance and engagement. We successfully rolled out a
new global online Health & Safety incident management and reporting system, we launched a new benefits
program, and developed our new web site, marketing strategy and social media programs – all of which will be
launched in Q1 FY19.
BOARD AND SENIOR MANAGEMENT
I am also delighted to welcome Rebecca Ranich to the Board, effective 19 March 2018. Based in Washington
DC, Rebecca has nearly 30 years of experience as an executive with deep roots in energy supply and demand
infrastructure as well as energy and environmental technologies. Rebecca is a former Director at Deloitte
Consulting, LLP where she led Energy and Sustainability Investment Advisory services for public sector clients
advising on more than US$1 billion of investment. She was previously a Vice President at Michael Baker
Corporation (Baker) an international energy, engineering and environmental services firm. During her time at
Baker, Ms Ranich had executive responsibility for delivering energy and environmental engineering services in
Europe, Russia and the Caspian region for projects with construction value in excess of US$40 billion.
This time last year I was reporting that the Board was recruiting for a permanent CEO. After an international
search the company did appoint Andy Goodwin as CEO and MD. Unfortunately, the Board terminated Mr
Goodwin’s contract as CEO and MD in relation to his failure to follow the lawful directions of the Board in
respect of disclosure issues relating to his previous employer SMEC.
Following Mr Goodwin’s departure we immediately commenced the global search for a CEO and after a global
process, the Board was delighted to appoint Ian Ball as CEO and MD. Ian commenced with Cardno in mid
August. Ian is an accomplished senior executive who has held key leadership roles in global service
companies such as IBM and Ernst and Young. We believe Ian’s skill set is well suited to the future
development of the Cardno business.
Page | 2
Chairman’s Letter (continued)
OUTLOOK AND GUIDANCE
FY19 is the third year of a multi-year business improvement plan. The focus of the business remains the same:
cost control, organic growth, invest in people and where appropriate strategic accretive bolt on acquisitions. At
a more granular level:
> The focus of the board is on returning the business to positive organic growth after the restructure of
the divisions over the past three years. The focus remains on medium to long term EBITDA growth,
which in turn has seen a number of investments made or expected to be made in FY19 which will limit
EBITDA growth in some divisions in the short term.
> The business will continue to explore ‘on strategy’ acquisitions to gain access to key markets or skill
sets. Disciplined M&A process established.
> The business is continuing its investment in internal systems and process improvement. This includes
investment in business development processes, staff, information technology and training.
> After a period of under investment and poor historical capital allocation, elevated capital expenditure
will continue into FY19. Cardno is forecast to invest $15m to $20m in capital expenditure on the
current existing business next year.
> The company will continue its share buy-back program while the Board considers this an appropriate
allocation of shareholder capital.
> The business expects to re-finance the existing debt facility during FY19 ahead of term (current facility
expires December 2019).
On behalf of the Board, I would like to thank our staff, clients, banking partners and shareholders for their
ongoing support.
MICHAEL ALSCHER
Executive Chairman
Page | 3
Consolidated Financial Statements
for the year ended 30 June 2018
CONTENTS
Directors’ Report .................................................................................................................................................. 5
Auditor’s Independence Declaration .................................................................................................................. 26
Consolidated Statement of Financial Performance ............................................................................................ 27
Consolidated Statement of Comprehensive Income .......................................................................................... 27
Consolidated Statement of Financial Position .................................................................................................... 28
Consolidated Statement of Changes in Equity ................................................................................................... 29
Consolidated Statement of Cash Flows ............................................................................................................. 30
Notes to the Consolidated Financial Statements ............................................................................................... 31
Directors’ Declaration......................................................................................................................................... 71
Independent Auditor’s Report ............................................................................................................................ 72
Additional Shareholder Information .................................................................................................................... 77
Corporate Directory ........................................................................................................................................... 79
The Company’s Corporate Governance Statement can be viewed on the website at
www.cardno.com/corporategovernance
Page | 4
Directors’ Report
The Directors present their Report together with the Consolidated Financial
Statements of Cardno Limited (the Company) being the Company and the
entities it controlled at the end of, or during the year ended 30 June 2018.
DIRECTORS
The names of Directors of the Company at any time during or since the end of the financial year are set out
below. Directors were in office for this entire period unless otherwise stated.
Michael Alscher
Executive Director and Executive Chairman (appointed 13 April 2018)
Acting Chief Executive Officer (appointed 13 April 2018, resigned 9 August 2018)
Non-Executive Director and Chairman (resigned 13 April 2018)
Ian Ball
Neville Buch
Chief Executive Officer and Managing Director (appointed 9 August 2018)
Executive Director and acting Chief Executive Officer (resigned 1 March 2018)
Non-Executive Director (appointed 1 March 2018)
Jeffrey Forbes
Non-Executive Director
Gary Jandegian
Non-Executive Director
Robert Prieto
Non-Executive Director
Rebecca Ranich
Non-Executive Director (appointed 19 March 2018)
Steven Sherman
Non-Executive Director
Nathanial Thomson
Non-Executive Director
FORMER DIRECTORS
Andrew Goodwin
Chief Executive Officer and Managing Director (appointed 1 March 2018 and
terminated 13 April 2018)
COMPANY SECRETARIES
Courtney Marsden
Legal Counsel & Joint Company Secretary
Peter Barker
Chief Financial Officer & Joint Company Secretary
Qualifications of Company Secretaries
Courtney Marsden – BAppSc, LLB (Hons), LLM
Peter Barker – BComm, MBA, FCPA, MAICD
Particulars of Directors’ qualifications, experience and special responsibilities are listed on the next page.
Page | 5
Special
Responsibilities
Executive Director
and Executive
Chairman
Directors’ Report (continued)
Director
Experience
Michael
Alscher
Michael Alscher joined as a Non-Executive Director of Cardno Limited in November 2015.
He then became Chairman in January 2016. Michael became the acting CEO and
Executive Chairman in April 2018. Following the appointment of Ian Ball on 9 August
2018 Michael resigned as acting CEO. Michael will remain as Executive Chairman during
a brief transition period.
He is the Managing Partner and founder of Crescent Capital Partners, a leading
Australian based private equity firm with over $2.0 billion in funds under management,
specialising in growth companies and certain industries such as healthcare and the
services sector across multiple disciplines.
Prior to founding Crescent in 2000, Michael was a strategy consultant at Bain
International and the LEK Partnership as well as holding several senior operating roles.
Michael is currently an Alternate Director of ClearView Limited and a Non-Executive
Director of Crumpler Pty Ltd, Aurora Expeditions Pty Ltd and Horsley Heights Estate Pty
Ltd. He is also the Non-Executive Chair of Australian Clinical Labs, National Dental Care
Pty Ltd and National Home Doctor Service Pty Ltd.
Michael is also a former Chairman and Director of Cover-More Group Limited and a
former Director of Gowings Bros Limited, LifeHealthCare Group Limited, and Metro
Performance Glass Limited.
Michael holds a Bachelor of Commerce (Finance & Mathematics) from the University of
New South Wales.
Ian Ball
Ian Ball was appointed Chief Executive Officer and Managing Director on 9 August 2018.
Ian has more than 30 years international experience in consulting and professional
services leadership within the fields of financial services, technology, innovation and
Federal government including executive roles in global companies such as IBM and Ernst
and Young.
Prior to his role as Deputy Chief Executive Officer for Ernst and Young Oceania, Ian
started his career as a consultant for Bain & Company before becoming one of the
founding members of a boutique consulting company, Kalchas, in the UK and North
America and holding a variety of consulting, strategy and operations roles with CSC,
Mainspring and private equity firm Silver Lake.
Ian holds a Bachelor of Science (Mechanical Engineering) from the University of Bristol
(UK) and has completed the Executive Strategic Management Program at INSEAD in
France and the Executive Strategic Leaders Course at Harvard Business School in the
US.
Chief Executive
Officer and
Managing Director
Neville
Buch
Neville Buch became a Non-Executive Director of Cardno Limited in November 2015. He
is a Partner of Crescent Capital Partners where he heads Crescent’s Operating
Improvement Practice. He brings expertise in operational management and strategic
planning.
Non-Executive
Director
Prior to joining Crescent in 2009, Neville was the Chief Executive Officer of Wormald
Australia and a Senior Executive of Tyco, where he was the Global Deputy Chairman of
the Fire and Safety Division. He spent twelve years in senior management with Tyco,
both in Australia and overseas and has significant experience in the United States,
Europe and Asia.
Neville is the Non-Executive Chair of New Zealand Panels Group, Aurora Expeditions Pty
Ltd, Hall Contracting and Nude By Nature. He is also a Non-Executive Director of Steel
Mains.
Neville holds a Bachelor of Science in Electronic Engineering (Hons Computer Design)
and a Masters of Business Administration from the University of Witwatersrand,
South Africa.
Page | 6
Directors’ Report (continued)
Director
Experience
Jeffrey
Forbes
Jeff Forbes joined Cardno Limited as a Non-Executive Director in January 2016. Jeff is an
experienced Finance Executive and Company Director with over 30 years’ merger and
acquisition, equity and capital markets and project development experience. He has
significant expertise in the financing and development of resource projects in both
Australia and in the Asia-Pacific region.
Jeff previously worked at Cardno as CFO and Company Secretary before leaving to
commence non-executive director roles. He has spent time as a member of the
remuneration and audit and risk committees of both listed and unlisted companies in a
variety of sectors.
Prior to first joining Cardno in 2006, Jeff was the CFO, Company Secretary and Executive
Director at Highlands Pacific Limited, a PNG-based mining and exploration company. He
has significant experience in capital raisings and during his career has worked for a
number of major companies including Rio Tinto, BHP and CSR.
Jeff is the Non-Executive Chair of Herron Todd White Group and Non-Executive Director
of PWR Holdings Ltd and Community Housing Limited. Previously Jeff was a Non-
Executive Director of Talon Petroleum Limited, Exoma Energy Limited, Affinity Education
Limited and CMI Limited.
Jeff holds a Bachelor of Commerce from the University of Newcastle and is a Graduate of
the Australian Institute of Company Directors.
Special
Responsibilities
Non-Executive
Director
Audit, Risk &
Compliance
Committee Chair
Gary
Jandegian
Gary Jandegian became a Non-Executive Director of Cardno Limited in March 2016 and
acting joint CEO for the period 29 August 2016 to 29 November 2016. He has more than
35 years’ experience in a range of executive and leadership roles in the engineering and
construction industry.
Non-Executive
Director
Remuneration
Committee Chair
Gary spent 24 years at leading engineering, design and construction firm, URS
Corporation, where he led the company’s Infrastructure and Environment Division for
more than a decade. This generated annual revenues approaching US$4 billion with
more than 20,000 employees across almost 50 countries.
Gary was a key member of the URS executive management and risk management
committees and worked across investor relations, mergers and acquisitions and change
management. He was also responsible for an Executive Account Management sales
model resulting in several multi-hundred million dollar accounts in the energy sector which
was fundamental to URS’s growth strategy.
He has served as a member of the Environment & Energy Committee, U.S. Chamber of
Commerce, the Silicon Valley COO Roundtable and the Industry Leaders Council,
American Society of Civil Engineers, Washington DC.
Gary has a Bachelor of Science (Biological Sciences) from UC Riverside, an MPH and
D.Env from UCLA and JD from Western State University.
Robert
Prieto
Bob Prieto became a Non-Executive Director of Cardno Limited in March 2016.
He has more than 40 years’ experience in the engineering, construction and
infrastructure industries.
Bob worked for 12 years as Senior Vice President at Fluor Corporation, a multinational
engineering and construction firm, where he was executive sponsor for multiple national
and international transportation programs and advised C-suite and “giga” project teams
on programs totaling US$50 billion.
Prior to this, he spent more than 20 years with professional services firm Parsons
Brinckerhoff, where he worked in a range of executive positions focusing on corporate
development and management, before spending six years as Chairman.
Bob is active with a number of infrastructure and engineering industry councils, including
the World Economic Forum, Millennium Challenge Corporation Advisory Council, National
Academy of Construction, American Society of Civil Engineers (ASCE) Industry Leaders
Council, Construction Management Association of America (CMAA) Fellow and
previously as a Presidential Appointee to the Asia-Pacific Economic Cooperation (APEC)
Business Advisory Council. He also serves as an Independent Member of the Mott
MacDonald Shareholder’s Committee.
Non-Executive
Director
Member of
Audit, Risk &
Compliance
Committee
Page | 7
Special
Responsibilities
Non-Executive
Director
Directors’ Report (continued)
Director
Experience
Rebecca
Ranich
Bob has a Bachelor of Science (Nuclear Engineering) from New York University School of
Engineering and Sciences and a Master of Science (Nuclear Engineering) from the
Polytechnic Institute of New York.
Rebecca Ranich joined as a Non-Executive Director of Cardno Limited in March 2018.
Rebecca has nearly 30 years of experience as an executive with deep roots in energy
supply and demand infrastructure as well as energy and environmental technologies.
Over her career, she has led transformational business initiatives, forged global
strategic alliances and led new market ventures in the energy and infrastructure
sectors.
Currently, Rebecca is an investor in and advisor to emerging technology companies,
and is a member of the Baltimore Angels – an early stage investment group. She is
collaborating with an international consortium (Fraunhofer Institute, New Jersey
Institute of Technology and Purdue University) to develop a transformational
Technology and Innovation Solution for global applications.
Rebecca is a member of the Technology Commercialization Panel for the Johns
Hopkins University Applied Physics Laboratory, and a member of the 2018 World
Gas Conference National Organizing Committee.
She serves as a Director on the Board of National Fuel Gas Corporation (NYSE:
NFG, (Governance and Nominating Committee)), is a Supervisory Board member of
Uniper SE (DAX: UN01), is Vice-Chairman of the Board of the Gas Technology
Institute (and Chair Investment Committee) and on the Advisory Board of Yet
Analytics, Inc.
Rebeca has a Bachelor of Arts (BA) from Northwestern University and a Master of
Business Administration (MBA) from the University of Detroit.
Steven
Sherman
Steve Sherman joined Cardno Limited as a Non-Executive Director in January 2016. He
is a Chartered Accountant with more than 30 years’ experience in corporate restructuring
and insolvency. His experience ranges from advising on and facilitating restructuring and
turnaround strategies, to the re-engineering of entire businesses.
Steve is a former National Managing Partner of Ferrier Hodgson based in Sydney. He
practices in the area of financial and operational restructuring and provides professional
advice to financiers and lending syndicates, as well as company Boards and executives.
Steve has a Bachelor of Commerce from the University of New South Wales. He is a
Fellow of the Chartered Accountants Australia & New Zealand, a member of the
Australian Institute of Company Directors and the Australian Restructuring and
Turnaround Association.
Non-Executive
Director
Member of
Audit, Risk &
Compliance
Committee
Nathanial
Thomson
Nathanial joined as a Non-Executive Director of Cardno Limited in November 2015 before
resigning in January 2016 and being reappointed in May 2016.
Non-Executive
Director
Nathanial holds a Bachelor of Law and a Bachelor of Finance from the University of
Western Australia.
Nathanial is a partner of Crescent Capital Partners and has more than 15 years of
experience in strategy, investment and business management.
Nathanial is currently a Non-Executive Director of ClearView Ltd, National Dental Care
Pty Ltd and National Home Doctor Service Pty Ltd and has previously been a Director of
NZX listed Metro Performance Glass Ltd, ASX listed Cover-More Ltd and ASX listed
LifeHealthcare Ltd.
Prior to joining Crescent Capital Partners, Nathanial worked at McKinsey & Co.
Member of
Audit, Risk &
Compliance
Committee
Member of
Remuneration
Committee
Page | 8
Directors’ Report (continued)
PRINCIPAL ACTIVITIES
The principal activity of the consolidated entity during the financial year was operating as a professional
infrastructure and environmental services company, with expertise in the development and improvement of
physical and social infrastructure for communities around the world. There were no changes to the principal
activities of the Cardno Group during the financial year under review.
DIVIDENDS
No dividends declared for the financial years ended 30 June 2018 or 30 June 2017.
EVENTS SUBSEQUENT TO REPORTING DATE
On 1 July 2018, the Group acquired David Douglas Associates, Inc, a 20 person civil engineering consulting
firm based in Florida. The acquisition both strengthens our market position and provides geographic expansion
in Florida.
Effective 2 July 2018, the Group acquired Trilab, a leading supplier of specialised Soil Mechanics Testing and
Rock Mechanics Testing business. Trilab employs 40 staff and will strengthen Constructions Sciences’ and
Cardno’s existing expertise in Materials Testing and Geotechnical Engineering.
The aggregate consideration paid for the above mentioned acquisitions is $8.7 million plus adjustments for
working capital.
On 9 August 2018, Mr Ian Ball commenced as Chief Executive Officer and Managing Director. Ian brings more
than 30 years international experience in consulting and professional services leadership within the fields of
financial services, technology, innovation and Federal Government.
Apart from the events noted above, there has not arisen in the interval between the end of the year and the
date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the
directors of the company, to affect significantly the operations of the Group or the results of those operations.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
Cardno will continue to manage its global business in physical and social infrastructure and pursue its policy of
growing both organically and by acquisition during the next financial year.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Other than as disclosed elsewhere in this Directors’ Report, there have been no significant changes in the state
of affairs.
INDEMNIFICATION AND INSURANCE OF OFFICERS
The Company has agreements with each of the Directors and Officers of the Company in office at the date of
this report indemnifying them against liabilities to any person other than the Company or a related body
corporate that may arise from their acting as Directors or Officers of the Company. The indemnity continues to
have effect when the Directors and Officers cease to hold office other than where such liabilities arise out of
conduct involving a wilful breach of duty by the Officers or the improper use by the Directors or Officers of
their position or of information to gain advantage for themselves or someone else or to cause detriment to
the Company.
The Directors have not included details of the nature of the liabilities covered or the amount of the premium
paid in respect of the Directors’ and Officers’ liability, as such disclosures are prohibited under the terms of
the contract.
Page | 9
Directors’ Report (continued)
REVIEW OF RESULTS
PERFORMANCE ($m)
Gross Revenue from continuing operations
Fee Revenue
Underlying EBITDA 1
Underlying NOPAT 2
Net Profit / (Loss) after Tax
Operating Cash Flow
EPS - basic (cents) from continuing and discontinued operations
NOPAT EPS - basic (cents)
2018
1,117.0
763.5
56.2
20.0
(14.0)
45.7
(2.97)
4.23
2017
1,182.0
788.2
44.0
19.9
8.6
(3.8)
1.79
4.16
1 Underlying EBITDA = EBIT plus underlying adjustments, depreciation and amortisation and impairment losses
2 Underlying NOPAT = NPAT plus underlying adjustments and tax effected impairment losses
EBITDA and EBIT are unaudited. However, they are based on amounts extracted from the audited financial statements as reported in the consolidated statement of
financial performance on page 27. These metrics provide a measure of Cardno’s performance before the impact of non-cash expense items, such as depreciation and
amortisation and impairment losses, as well as interest costs associated with Cardno’s external debt facility and hire purchase arrangements.
NOPAT is unaudited. However, it is based on amounts extracted from the audited financial statements. This metric provides a measure of Cardno’s operating
performance before the impact of non-cash adjustments such as impairment losses of goodwill and other assets. Refer to reconciliation on page 13.
Balance Sheet
During the year the company completed the purchase of two acquisitions adding a total of $12.6m to goodwill.
A continued focus on WIP conversion to debtors then debtors collection has resulted in a decrease in WIP and
trade and other receivables balances.
Included in the balance sheet in the current year is the impact resulting from the passing of the Tax Cuts and
Jobs Act by the United States government, specifically the reduction in the US federal corporate income tax
rate from 35% to 21%. This has resulted in a reduction to deferred tax assets recognised.
Net debt (debt less cash on hand) at end of June 2018 is $19.9 million, up slightly from $15.3 million at June
2017 but significantly down from $49.6 million at end of June 2016.
Cash Flow
The company recorded a net operating cash inflow for the year of $45.7 million (outflow $3.8 million FY17).
This is primarily driven by a strong operating result for the year, tighter working capital controls and the timing
of receipts of large payments from clients.
Page | 10
Directors’ Report (continued)
SEGMENT OVERVIEW
Asia Pacific
The APAC business provides services in civil, structural, water, environmental, coastal, bridge, geotechnical,
subsurface utility, traffic and transport engineering as well as environmental science, surveying, landscape
architecture, planning and asset management.
Asia Pacific business revenue for the year was $266.0 million, a decrease on the prior comparative period
(PCP) of 3.6%. Underlying EBITDA for the division was also down on prior year comparative with a number of
major projects tailing off.
The business continues to invest significantly in major projects expertise with our business development group
positioning Cardno on a number of major project opportunities in Australia and Asia.
Americas
The Americas business delivers expertise to private and public sector clients across the environmental, water,
transportation, energy and resources, land, buildings and management services sectors.
The Americas’ business revenue is down on PCP by 7.9% however EBITDA increased 176.2% on prior year
comparatives. This is a result of a number of initiatives implemented to reduce non client facing management
and labour, fringe costs (insurance, health), overhead and occupancy costs which have resulted in
improvement in operating margins.
International Development (ID)
The ID business designs and implements large-scale sustainable solutions for both development assistance
agencies and private clients. By its nature, the ID business generally has long term high value contracts,
which have a high ‘pass through’ component, meaning that Cardno will project manage the contract and
receive a management fee for doing so – a large portion of the project involves the management of contractors
and specialist consultants. Hence the ID business generally operates on lower revenue margins than our
other divisions.
ID revenue is down on PCP by 5.0% however EBITDA is up 7.4% on PCP reflecting ongoing business
discipline and the release of specific provisions following the successful completion of certain projects.
Construction Sciences
The Construction Sciences business is a geotechnical engineering, environmental consulting and materials
testing business.
Revenues and EBITDA were up significantly from the PCP improving 26.2% and 84.6% respectively. The
Construction Sciences business benefited from an improved market, project timing and contract wins with the
business continuing its momentum into FY19.
Portfolio
Portfolio businesses includes Latin America and PPI, which while an integral part of the Group’s suite of
services, are not considered to be core engineering or science and environment businesses and hence have
slightly different operating methodologies, or environments and markets.
Portfolio revenues are down with continuing challenging market conditions in the Oil & Gas sector and in Latin
America. The Oil & Gas business continues to rebuild and finished the year with a profitable final quarter. The
Latin America business is focused on completing and winding down engineering projects.
Page | 11
Directors’ Report (continued)
SEGMENT OVERVIEW CONTINUED
Continuing Operations EBITDA
54,546
(12,004)
AUD ’000
Asia Pacific
Americas
ID
Construction Sciences
Portfolio
Gross Revenue
Asia Pacific
Americas
ID
Construction Sciences
Portfolio
Corporate
Depreciation and amortisation
expenses
EBIT
Net finance costs
Profit/(loss) from Continuing
Operations before Income Tax
Statutory1
Financial year
Underlying
Adjustments2
Financial year
Underlying1
Financial year
2018
2017
2018
2017
2018
2017
(12,551)
(1,888)
265,964
275,944
378,293
410,957
313,579
329,967
111,259
47,880
88,195
76,967
1,116,975
1,182,030
20,022
20,143
6,418
11,427
23,898
7,565
6,189
1,262
(23,915)
59,272
(4,726)
1,186
(13,190)
(15,979)
(23,590)
38,567
(3,442)
(35,594)
(7,230)
-
-
-
-
-
-
-
-
-
(1,667)
(3,555)
5,219
1,664
1,383
3,047
-
-
-
-
-
-
-
265,964
275,944
378,293
410,957
313,579
329,967
111,259
47,880
88,195
76,967
1,116,975
1,182,030
6,199
19,160
(1,589)
-
24,313
48,083
7,926
56,009
20,022
18,255
6,418
11,427
(405)
55,717
493
56,210
30,097
6,609
5,976
6,189
398
49,269
(5,264)
44,005
7,115
(14,596)
(16,475)
63,124
1,179
41,614
(3,442)
27,530
(6,051)
21,479
(1,543)
35,125
(42,824)
3,047
64,303
38,172
Income tax (expense)/benefit
(49,143)
23,455
30,948
(24,998)
(18,195)
Profit/(Loss) Before Gain on sale of
Discontinued Operations
(14,018)
(19,369)
33,995
39,305
19,977
19,936
Discontinued operations, net of tax
Profit/(loss) after Income Tax
-
(14,018)
27,948
8,579
-
(27,948)
-
-
33,995
11,357
19,977
19,936
Attributable to:
Ordinary Equity holders
(14,018)
8,579
33,995
11,357
19,977
19,936
1.
2.
3.
4.
5.
The use of the term ‘Statutory’ refers to IFRS financial information and ‘Underlying’ refers to non-IFRS financial information. Underlying earnings are
categorised as non-IFRS financial information and therefore have been presented in compliance with ASIC Regulatory Guide 230 – Disclosing non-IFRS
information and are unaudited. Underlying adjustments have been considered in relation to their size and nature and have been adjusted from the
Statutory information, for disclosure purposes, to assist readers to better understand the financial performance of the underlying business in each
reporting period. These adjustments include transactions or costs that on their own or in combination with a number of similar transactions contribute to
more than five percent of profit/(loss) after tax. Underlying adjustments are assessed on a consistent basis year-on-year and include both favourable and
unfavourable items.
The exclusion of these items provides a result which, in the Directors’ view, more closely reflects the ongoing operations of the Group.
Details of adjustments from Statutory to Underlying financial information are set out on page 13.
EBITDA represents earnings before interest, income tax, and depreciation and amortisation.
EBIT represents earnings before interest and income tax.
EBITDA and EBIT are unaudited. However, they are based on amounts extracted from the audited financial statements as reported in the consolidated
statement of financial performance on page 27. These metrics provide a measure of Cardno’s performance before the impact of non-cash expense items,
such as depreciation and amortisation, as well as interest costs associated with Cardno’s external debt facility and hire-purchase arrangements.
Page | 12
Directors’ Report (continued)
SEGMENT OVERVIEW CONTINUED
Underlying Profit From Continuing and Discontinued Operations After
Income Tax (Attributable to Ordinary Equity Holders)
19,977
19,936
Note
2018
$’000
2017
$’000
Underlying Adjustments to EBITDA:
Onerous lease provision and other costs associated with office
rationalisation and consolidation
Business review costs
Redundancy costs associated with restructuring
Debtor provision
Indirect tax – in dispute
Total Underlying Adjustments to EBITDA
Underlying Adjustments to Depreciation:
Accelerated depreciation on software assets
Total Underlying Adjustments to Depreciation
Underlying Adjustments to Finance Costs:
Provision for interest and penalties – tax related
Total Underlying Adjustments to Finance Costs
Underlying Adjustments to Income Tax:
Provision for taxes – in dispute
Change in US federal corporate income tax rate
Structure rationalisation
Tax effect of underlying adjustments
Total Underlying Adjustments to Income Tax
Results and Gain on sale of XP Solutions
Results and Loss on sale of Mining business
Result and Loss on sale of ECS
Total Discontinued Operations
Statutory Profit / (Loss) After Income Tax
(Attributable to Ordinary Equity Holders)
1
2
3
4
5
6
7
7
8
9
10
10
10
(1,241)
2,905
-
-
-
1,664
1,383
1,383
-
-
-
32,846
-
(1,898)
30,948
-
-
-
-
10,673
23,329
8,968
11,539
1,500
56,009
7,115
7,115
1,179
1,179
2,554
-
(8,504)
(19,048)
(24,998)
(30,924)
2,100
876
(27,948)
(14,018)
8,579
1.
2.
Successful negotiations resulting in the release of prior year onerous lease provisions and other costs associated with the group wide office rationalisation and
consolidation project.
Current period relates to:
(i)
finalisation of matters with respect to release of litigation, overhead rate audit and provisions for the closure of the Nigerian business taken up in the prior
financial year no longer required,
(ii) provisions associated with business operations in Latin America.
Prior period costs are associated with the closure of developmental drones business and balance sheet provisions related to the Petroleum and Gas business,
multi-year projects and work in progress.
3.
4.
5.
6.
7.
8.
Termination and redundancy costs associated with the group restructure.
Specific debtors viewed as uncollectable due to country specific conditions.
Indirect tax provision currently in dispute.
Accelerated amortisation on software assets following a review of group systems.
Income tax expense, penalties and interest provided for where previously considered to be exempt currently in dispute.
Impact resulting from the passing of the Tax Cuts and Jobs Act by the United States government, specifically the reduction in the US federal corporate income tax
rate from 35% to 21%.
Tax effect of rationalisation of US capital structure.
9.
10. Result and subsequent gain or loss on disposal of discontinued operations including XP Solutions, Mining and ECS sold in the prior financial year.
Page | 13
Directors’ Report (continued)
OUTLOOK
Cardno staff make a difference every day for our clients and our stakeholders around the world. Key areas of
focus for the next twelve months are:
> Ensure Cardno is best placed in terms of scale and profitability in our Australian and America’s
operations through a focus on organic growth and appropriately sized and conservatively funded on-
strategy bolt on acquisitions
> Select investment in capital expenditure to support our growing survey and materials testing
businesses
> Build long term organic growth capabilities and investment in business development teams
> Completion of debt re-finance (existing facility expires in December 2019)
DIRECTORS’ MEETINGS
Attendance at Board meetings and Board Committee meetings for the year ended 30 June 2018 is set out below:
No. of Meetings Held
Michael Alscher (i)
Andrew Goodwin (ii)
Neville Buch (iii)
Steven Sherman
Jeffrey Forbes
Gary Jandegian
Robert Prieto
Nathanial Thomson
Rebecca Ranich (iv)
Board of Directors
Audit, Risk &
Compliance Committee
A
13
1
13
14
12
13
14
14
7
B
14
1
14
14
14
14
14
14
7
A
-
-
-
4
4
-
3
1
-
B
-
-
-
4
4
-
4
1
-
Remuneration
Committee*
A
B
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A = number of meetings attended
B = number of meetings held during the time the Director held office during the year or was a committee member
(i) Michael Alscher was appointed Acting Chief Executive Officer and Executive Chairman on 13 April 2018.
(ii) Andrew Goodwin was Chief Executive Officer and Managing Director from 1 March 2018 to 13 April 2018.
(iii) Neville Buch resigned as Executive Director and acting Chief Executive Officer and transitioned back to Non-Executive Director on 1 March 2018.
(iv) Rebecca Ranich commenced as Non-Executive Director on 19 March 2018.
*The Remuneration Committee responsibilities were addressed by the full Board during Board meetings up until May 2018 when Mr Jandegian and Mr
Thompson were appointed as the Remuneration Committee. The Committee did not meet in May or June.
DIRECTORS’ INTERESTS
As at the date of this report, the interests of the Directors in the shares of Cardno Limited were:
Michael Alscher
Ian Ball
Neville Buch
Steven Sherman
Jeffrey Forbes
Gary Jandegian
Robert Prieto
Nathanial Thomson
Rebecca Ranich
Ordinary
Shares
Performance
Options
Performance
Rights
-
-
-
-
148,619
200,000
30,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Page | 14
Remuneration Report (Audited)
This Remuneration Report (Report) outlines the remuneration arrangements for Key
Management Personnel (KMP) of the Group in accordance with the requirements of the
Corporations Act 2001 and its Regulations. The information in this Report has been audited
as required by section 308(3C) of the Corporations Act 2001.
CONTENTS
The Report contains the following sections:
A. Key Management Personnel
B. Role of the Remuneration Committee
C. Non-Executive Directors’ Remuneration
D. Executive Remuneration Strategy and Structure
E. Executive Key Management Personnel – Contract Terms
F. Executive Key Management Personnel – Remuneration Tables
G. LTI Share Plans
H. The Group’s Performance
I. Other Related Party Transactions
A.
KEY MANAGEMENT PERSONNEL
Key Management Personnel are defined as those persons having authority and responsibility for planning,
directing and controlling the activities of the Group, directly or indirectly, including any Director (whether
Executive or otherwise) of the Company.
From financial year ended 30 June 2016 onward, Cardno has for the purposes of this Report, considered the
KMP to be the Chief Executive Officer (CEO), or Executive Chairman and Chief Financial Officer (CFO). During
the financial year ended 30 June 2016 all forms of strategic and management decision were centralised with
the CEO and CFO (on behalf of the Board). The company’s delegation of authority matrix was rewritten and
strengthened thus allowing a delegation of operational (but not management) authority that enables the
separate divisions to operate on a day-to-day basis. Members of management meet with the CEO weekly, and
the CEO and CFO monthly to enable appropriate management oversight.
The KMP disclosed for the financial year ended 30 June 2018 are detailed in the following table.
Name
Title
NON-EXECUTIVE DIRECTORS
Neville Buch1
Non-Executive Director
Steven Sherman
Non-Executive Director
Jeffrey Forbes
Gary Jandegian
Robert Prieto
Non-Executive Director
Non-Executive Director
Non-Executive Director
Nathanial Thomson
Non-Executive Director
Period KMP (if less than full year)
Rebecca Ranich
EXECUTIVES
Michael Alscher2
Non-Executive Director
From 19 March 2018
Executive Director, Acting Chief Executive
Officer and Executive Chairman
Peter Barker
Chief Financial Officer
FORMER EXECUTIVES
Andrew Goodwin
Chief Executive Officer and Managing Director
1 March 2018 – 13 April 2018
1 Neville Buch resigned as Executive Director and acting Chief Executive Officer and transitioned back to Non-Executive Director on 1 March 2018.
2 Michael Alscher was the Chairman and Non-Executive Director prior to his appointment of Executive Director, Acting Chief Executive Officer and Executive
Chairman on 13 April 2018.
Page | 15
Remuneration Report (Audited) (continued)
B. ROLE OF THE REMUNERATION COMMITTEE
The remuneration of Directors, the Chief Executive Officer, Chief Financial Officer, managers and staff is
reviewed by the Remuneration Committee.
Board decisions on the remuneration of the Chief Executive Officer and Chief Financial Officer are made in the
absence of the Chief Executive Officer and Chief Financial Officer.
When required, the Committee obtains independent advice from remuneration consultants on the
appropriateness of remuneration based trends in comparative countries, both locally and internationally.
No advice was obtained during the year ended 30 June 2018.
The Remuneration Committee responsibilities were addressed by the full Board during Board meetings up until
May 2018 when Mr Jandegian and Mr Thompson were appointed as the Remuneration Committee. The
Committee did not meet in May or June.
C. NON-EXECUTIVE DIRECTORS’ REMUNERATION
Non-Executive Directors’ are paid a fee for being a Director of the Board and an additional fee if they chair
certain Board Committees. Non-Executive Director fees are not linked to the performance of the Group and
Non-Executive Directors do not participate in any of the Company’s incentive plans.
Non-Executive Director fees are reviewed annually, and are determined within an aggregate Directors’ fee pool
limit, which is periodically recommended for approval by shareholders. The Board seeks to set aggregate
remuneration at a level that provides the Company with the ability to attract and retain Directors of appropriate
calibre, whilst incurring a cost that is acceptable to shareholders.
The current aggregate fee limit of $1,150,000 was approved by shareholders at the Company’s 2014 Annual
General Meeting. There is no intention to increase Non-Executive Directors’ fees for the 2019 financial year.
The fee structure (which is inclusive of superannuation contributions (where compulsory) for Non-Executive
Directors) is detailed in the following table.
Australian based Board members (AUD)
Chairman
Non-Executive Director
US based Board members (USD)
Non-Executive Director
Board
$
Audit, Risk &
Compliance
Committee
$
200,000
100,000
27,273
13,500
100,000
11,000
Remuneration
Committee
$
-
-
-
Page | 16
Remuneration Report (Audited) (continued)
C. NON-EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
The remuneration received by Non-Executive Directors for the years ended 30 June 2018 and 30 June 2017 is
set out in the following table.
NON-EXECUTIVE
Neville Buch1
Steven Sherman
Jeffrey Forbes
Gary Jandegian3
Robert Prieto3
Nathanial Thomson4
Rebecca Ranich2
Total 2018
Total 2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Salary and Fees
$
453,425
532,986
103,652
103,652
116,231
116,231
129,029
482,145
143,222
213,403
100,000
100,000
37,517
-
Superannuation
Benefits
$
-
-
9,847
9,847
11,042
11,042
-
-
-
-
-
-
-
-
Total
$
453,425
532,986
113,499
113,499
127,273
127,273
129,029
482,145
143,222
213,403
100,000
100,000
37,517
-
1,083,076
1,548,417
20,889
20,889
1,103,965
1,569,306
1 Neville Buch transitioned from acting Chief Executive Officer back to Non-Executive Director on 1 March 2018. His salary and fees paid during his time as
Chief Executive Officer are included in the table above. Neville’s fees are paid to Crescent Capital Partners.
2 Rebecca Ranich commenced on 19 March 2018.
3 Gary Jandegian and Robert Prieto in 2017 had agreements with Cardno Limited to provide project specific consultancy advice for which they may receive
remuneration not exceeding US$50,000 per annum. Also included in Gary’s 2017 salary and fees is US $240,000 received from his time as joint interim Chief
Executive Officer.
4 Nathanial Thomson’s fees are paid to Crescent Capital Partners.
Page | 17
Remuneration Report (Audited) (continued)
D. EXECUTIVE REMUNERATION STRATEGY AND STRUCTURE
The Board, has developed and adopted a remuneration structure driven by criteria which comprises a mix of
fixed and variable remuneration components as outlined below.
Total Fixed
Remuneration
(TFR)
Short-Term
Incentive (STI)
Consists of base salary plus statutory superannuation contributions and other benefits.
Executive KMP and senior managers receive a fixed remuneration package which is
reviewed annually by the Remuneration Committee and the Board taking into consideration
the responsibilities of the role, the qualifications and experience of the incumbent and
benchmark market data including those companies with which the Group competes
for talent.
In reviewing TFR the Committee and the Board takes into consideration business and
individual performance as well as the factors outlined above.
There are no guaranteed base pay increases included in any Executive KMP contract.
Target STI opportunities are expressed as a percentage of TFR.
For the year ended 30 June 2018, STI payments for Executive KMP and senior managers
were determined by achievement of financial and non-financial performance targets. The
Remuneration Committee and the Board are responsible for reviewing the achievement of
targets.
For Executive KMP’s STI is assessed 100% against achievement of budgeted EBITDA for
the year. Payment of STI is based on the achievement of the following gates:
< 90% budget EBITDA achieved 0% STI paid
90% budget EBITDA achieved 50% STI paid
100% budget EBITDA achieved 75% STI paid
> 110% budget EBITDA achieved 100% STI paid
STI’s are paid in cash following the release of the audited financial results to the ASX. For
FY18 100% of budgeted EBITDA was achieved.
For FY19 the strategy is to link STI to the financial performance of the business in the
form of achievement of scorecards with specific key financial and non-financial
performance indicators (KPI’s) set as targets. It is planned that these KPI’s will be based
primarily on financial measures such as EBITDA and backlog targets and non-financial
measures determined and scored by collaboration surveys.
Long-Term
Incentive (LTI)
Target LTI opportunities are expressed as a percentage of TFR.
Performance Rights issued under the previous LTI plan are tested against the relevant
performance hurdles at the end of the performance period.
Refer Section G for the terms and conditions of the Performance Rights and Options.
For FY19 the focus of the LTI scheme will aim to ensure an incentive program that
fundamentally underpins sustained improved performance of the business and
restoration and creation of shareholder value. The scheme will provide for the issue of
Performance Rights for nil consideration to Executive KMP and senior management
who contribute to the achievement of performance hurdles over a three-year period
related to targeted EBITDA levels (adjusted for acquisitions and divestitures) and share
price levels that focus on rebuilding shareholder value and profit expectations.
Subject to meeting the relevant performance hurdles, upon vesting, the Performance Rights
will be converted into ordinary shares in the Company.
Page | 18
Remuneration Report (Audited) (continued)
E. EXECUTIVE KEY MANAGEMENT PERSONNEL - CONTRACT TERMS
Executive KMP are employed on the basis of Executive Service Agreements (Agreements). These Agreements
contain a range of terms and conditions including remuneration and other benefits, notice periods and
termination benefits. The key contract terms are as follows:
> Contract term: no fixed term.
> Notice Period: (resignation or termination without cause) 6 months.
The Company may terminate Agreements immediately for cause, in which case the Executive KMP is not
entitled to any payment in lieu of notice or contractual compensation. Termination of employment with cause
would result in no STI awards and all unvested LTI to lapse or vest based on the LTI plan rules at the Board
discretion. In the event of termination without cause, the Group is required to pay Executive KMP their notice
period of 6 months of salary.
The Agreements also provide for the Executive KMP’s participation in the STI and LTI plans subject to Board
approval of their eligibility and in accordance with the terms and conditions of the respective plans. Executive
KMP’s are entitled to a maximum of 50% of total fixed remuneration for both their annual STI and LTI.
Mr Goodwin commenced as Chief Executive Officer and Managing Director on 1 March 2018 and was paid a
cash fixed annual remuneration of USD $575,000 per annum. His employment contract had no fixed term and
provided both fixed and incentive based remuneration which includes STI and LTI.
Mr Goodwin was able to earn a maximum STI of 50% of base salary (pro-rata basis) subject to certain Cardno
Group EBITDA budget thresholds being met. Subject to receiving shareholder approval at the Annual General
Meeting in 2018, for his LTI plan Mr Goodwin was entitled to receive two tranches of performance options or in
the event they were not approved, an equivalent financial payment. Mr Goodwin was also entitled to relocation
benefits including rental support.
On 13 April 2018, Mr Goodwin’s employment contract was terminated for cause. Mr Goodwin was paid his
statutory entitlements as required by law. Mr Goodwin was not paid any termination benefits and is not entitled
to any performance options or equivalent financial payment under the LTI plan.
F. EXECUTIVE KEY MANAGEMENT PERSONNEL - REMUNERATION TABLES
The remuneration received by Executive KMP for the years ended 30 June 2018 and 30 June 2017 is set out in
the following table.
The share-based payments reflect the amounts required under the Australian Accounting Standards to be
expensed by the Company in relation to any long term incentives and the deferral component of any short-term
incentives. It represents the value of vested and unvested equity expensed during the period including
reversals for forfeited equity incentives and the probability of the incentives vesting. These figures are
accounting values and not the amounts actually received by Executive KMP. Whether or not Executive KMP
realise any value from these share based payments will depend upon the satisfaction of the applicable
performance conditions.
Page | 19
Remuneration Report (Audited) (continued)
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Page | 20
Remuneration Report (Audited) (continued)
Proportion of Performance Related Remuneration
Percentage of Target
STI Received
Percentage of Remuneration
Performance Related1
EXECUTIVE KEY MANAGEMENT PERSONNEL
Michael Alscher2
Peter Barker
2018
2017
2018
2017
FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL
Andrew Goodwin
Neville Buch
2018
2017
2018
2017
-
-
75%
100%
-
-
-
-
1 Calculated based on STI cash, other cash bonuses and share based payments as a percentage of total remuneration.
2 Michael is not entitled to a STI.
-
-
39.9%
38.7%
-
-
-
-
Performance Rights Granted and Movement During the Year
The aggregate number of Performance Rights in the Company that were granted as compensation, exercised
and lapsed to each Executive KMP for the year ended 30 June 2018 is set out in the following table.
Balance
at 1 July
2017
Rights
Granted
During the
Year as
Remuneration
Value of
Right
Granted
During
the Year
Rights
Exercised
During the
Year
Value of
Rights
Exercised
During the
Year1
Lapsed /
Cancelled
During the
Year
Value of
Lapsed /
Cancelled2
Balance
at 30
June
2018
Maximum
Total Yet
to Vest
No.
No.
EXECUTIVE KEY MANAGEMENT PERSONNEL
Michael Alscher3 -
-
$
-
Peter Barker
316,143
172,554 207,928
FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL
Andrew Goodwin -
Neville Buch
-
-
-
-
-
No.
-
-
-
-
$
-
-
-
-
No.
-
-
-
-
$
-
No.
No.
-
-
- 488,697 488,697
-
-
N/A
N/A
N/A
N/A
1 Calculated per Performance Right as the market value of Cardno shares on the date of exercise.
2 Value is calculated at fair market value of the performance right on date of grant.
3 Michael is not entitled to a LTI.
Details of vesting profiles of Performance Rights granted as remuneration to Key Management Personnel of
Cardno and still outstanding at 30 June 2018, including those granted during the financial year are as follows in
the table below:
Year Outstanding
Performance
Rights
Grant Date Vesting Date
% Vested in
Year
% Forfeited
in Year
Fair Value
at Grant
Date
EXECUTIVE KEY MANAGEMENT PERSONNEL
Michael Alscher
Peter Barker
-
-
-
2016
2017
2018
34,801
1-Mar-16
1-Nov-18
281,342
1-Nov-16
1-Nov-19
172,554
1-Nov-17
1-Nov-20
FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL
Andrew Goodwin
Neville Buch
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
-
-
-
0.0%
0.0%
0.0%
-
-
-
2.07
0.78
1.21
-
-
Page | 21
Remuneration Report (Audited) (continued)
The number of Performance Rights at 30 June 2018 for the Executive KMP is set out in the following table.
Balance at
30 June 2018
Vested & Exercisable at the
End of the Year
EXECUTIVE KEY MANAGEMENT PERSONNEL
Michael Alscher
Peter Barker
FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL
Andrew Goodwin
Neville Buch
-
488,697
N/A
N/A
-
-
N/A
N/A
Subsequent to year end, no Performance Rights have been issued, granted or vested to KMP. No terms of
Performance Rights transactions have been altered by the Company during the reporting period. The Board
has not exercised its discretion to allow the early vesting of any Performance Rights under any of the incentive
plans.
Securities Trading Policy
The Company prohibits KMP from entering into any hedging arrangements or acquiring financial products
(such as equity swaps, caps and collars or other hedging products) over unvested Performance Rights
which have the effect of reducing or limiting exposure to risks associated with the market value of the
Company’s securities.
No Directors or Senior Executives may directly or indirectly enter into any margin loan facility against the
Company’s securities unless the prior written consent of the Chairman of the Board is obtained.
G. LTI SHARE PLANS
Existing LTI plans are delivered through the Performance Equity Plan (PEP). Under this plan any LTI award is
paid in Performance Rights.
Performance Period:
The performance period for Performance Rights issued under the PEP is three years and the rights vest
subject to the achievement of Performance Hurdles detailed below. The issue of Performance Rights is
discretionary and applied to eligible staff considered to have been high performers in their respective roles.
All Performance Rights expire on the earlier of their expiry date or termination of employment. There are no
voting or dividend rights attached to the Performance Rights.
2018 LTI Plan Performance Hurdles:
Performance Rights issued were allocated in two equal tranches: 50% is subject to the achievement of a Share
Price performance hurdle and 50% is subject to a Group EBITDA performance hurdle. These conditions are
tested independently.
The Performance Rights are subject to performance hurdles of Share Price (Tranche 1: 50%), the volume
weighted average price of Shares at the close of trading over a 20 day trading period immediately prior to the
Company’s 2020 AGM, must be at least $1.10 per share, and Group underlying EBITDA (Tranche 2: 50%) for
the full 2020 financial year must exceed $60 million.
2017 LTI Plan Performance Hurdles:
Performance Rights issued were allocated in two equal tranches: 50% is subject to the achievement of a Share
Price performance hurdle and 50% is subject to a Group underlying EBITDA performance hurdle. These
conditions are tested independently.
Page | 22
Remuneration Report (Audited) (continued)
2017 LTI Plan Performance Hurdles (continued):
The Performance Rights are subject to performance hurdles of Share Price (Tranche 1: 50%), the volume
weighted average price of shares at the close of trading over a 20 day trading period immediately prior to the
Company’s 2019 AGM, must be at least $1.00 per share, and Group underlying EBITDA (Tranche 2: 50%) for
the full 2019 financial year must exceed $54 million.
2016 LTI Plan Performance Hurdles:
Performance Rights issued were allocated in two equal tranches: 50% is subject to the achievement of a
relative Total Shareholder Return (TSR) performance hurdle and 50% is subject to an Earnings Per Share
(EPS) performance hurdle. These conditions are tested independently.
The Performance Rights are subject to performance hurdles of TSR (Tranche 1: 50%) and EPS growth
(Tranche 2: 50%) in accordance with the following scale:
TSR of Cardno Relative to
TSRs of Companies in
Comparator Group
Over 3 Years ending 30
June 2018
<50th percentile
50th percentile
>50th & <75th percentiles
75th percentile and above
% of Performance
Rights to Vest
(Tranche 1 50%)
EPS Growth
Over 3 Years ending
30 June 2018
% of Performance
Rights to Vest
(Tranche 2 50%)
0%
50%
Pro rata
100%
<12.5% (<4% pa)
12.5% (4% pa)
>12.5% (4% pa) & <26% (8% pa)
26% (8% pa)
>26% (8% pa) & <40% (12% pa)
>40% (12% pa)
0%
30%
Pro rata
70%
Pro rata
100%
Under Tranche 1 – up to 50% of the Performance Rights will vest if the Group achieves a certain TSR ranking within
the S&P/ASX 300 Industrial Sector Index (excluding companies involved in financial, energy, metals and mining).
Under Tranche 2 – up to 50% of Performance Rights vest if the Group achieves certain EPS performance targets.
Number of Performance Rights:
There are currently 4,168,275 Performance Rights on issue at 30 June 2018. As a share-based payment, these
Performance Rights were valued for accounting and reporting purposes using the Monte Carlo simulation and Black
Scholes method. The below table outlines the key assumptions.
Assumption at fair value date
Share Price
Risk Free Rate
Dividend Yield
Volatility
Initial TSR
2018
$1.35
1.99%
0%
63%
-
2017
$0.925
1.725%
0%
60%
-
2016
$2.95
1.89%
5.4%
47%
(6.5%)
H. THE GROUP’S PERFORMANCE
The Group’s performance in respect of the current financial year and the previous four financial years is
summarised in the following table.
2018
2017
2016
2015
2014
Gross Revenue – Continuing Operations (000’s)
$1,116,975 $1,182,030 $1,164,613 $1,185,949 $1,309,597
Underlying EBITDA (000’s)
$56,210
$44,005
$42,036
$108,406
$141,700
Net Profit/(Loss) After Tax (000’s)
($14,018)
$8,579
($194,919)
($245,068)
$78,134
Dividends Paid or Provided (000’s)
-
-
$11,548
$49,452
$56,530
Change in Share Price – year on year ($ per share)
$0.11
$0.64
($1.18)
($3.09)
$1.14
Page | 23
Remuneration Report (Audited) (continued)
I. OTHER RELATED PARTY TRANSACTIONS
Share Holdings
The movement for the year ended 30 June 2018 in the number of ordinary shares in the Company held, directly
or indirectly or beneficially, by each KMP, including their related parties, is detailed in the following table.
Balance at
the Start of
the Year
Received During
the Year on the
Exercise of Rights
Other Changes
During the
Year
Balance at
the End of
the Year
Name
NON-EXECUTIVE DIRECTOR
Neville Buch1
Steven Sherman
Jeffrey Forbes
Gary Jandegian
Robert Prieto
Nathanial Thomson
Rebecca Ranich4
EXECUTIVE KEY MANAGEMENT PERSONNEL
Michael Alscher2
Peter Barker
-
-
148,619
200,000
-
-
-
-
44,500
FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL
Andrew Goodwin3
N/A
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
148,619
200,000
30,000
30,000
-
-
-
-
-
-
-
-
44,500
N/A
1 Neville Buch transitioned from acting Chief Executive Officer back to Non-Executive Director on 1 March 2018.
2 Michael Alscher was the Chairman and Non-Executive Director prior to his appointment as Executive Director, Acting Chief Executive Officer and Executive
Chairman on 13 April 2018.
3 Andrew Goodwin was Chief Executive Officer and Managing Director from 1 March 2018 to 13 April 2018.
4 Rebecca Ranich commenced on 19 March 2018.
Loans to Executive Key Management Personnel
There were no loans to Executive KMP made during the period and no outstanding balances at reporting date.
Other key management personnel transactions with the Company or its controlled entities
A number of key management persons, or their related parties, hold positions in other entities that result in
them having control or significant influence over the financial or operating policies of those entities.
None of these entities transacted with the Company or its subsidiaries in the reporting period.
Page | 24
Directors’ Report (continued)
NON-AUDIT SERVICES
The Company’s auditor may perform certain other services in addition to their statutory duties.
The Board has considered the non-audit services provided during the year by the auditor and in accordance with
written advice provided by resolution of the Audit, Risk and Compliance Committee, is satisfied that the provision
of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
> All non-audit services were subject to the corporate governance procedures adopted by the Board and
have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact the
integrity and objectivity of the auditor; and
> The non-audit services provided do not undermine the general principles relating to auditor
independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not
involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity
for Cardno, acting as an advocate for Cardno or jointly sharing risks and rewards.
Details of the amounts paid to the auditor and its related practices for audit and non-audit services provided during
the year are set out in Note 31.
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001
The lead auditor’s independence declaration is set out on page 26 and forms part of the Directors’ report for the
year ended 30 June 2018.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 issued by the Australian
Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report.
Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest
thousand dollars or, in certain cases, to the nearest dollar.
This Report is made in accordance with a resolution of the Directors.
MICHAEL ALSCHER
Executive Chairman
20 August 2018
Page | 25
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Cardno Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Cardno Limited for the
financial year ended 30 June 2018 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Simon Crane
Partner
Brisbane
20 August 2018
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme
approved under Professional
Standards Legislation.
Page | 26
Consolidated Statement of Financial Performance
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
Revenue from continuing operations
Other income
Employee expenses
Consumables and materials used
Sub-consultant and contractor costs
Depreciation and amortisation expenses
Net financing costs
Other expenses
Profit/(Loss) before income tax
Income tax benefit/(expense)
Loss for the year from continuing operations
Profit for the year from discontinued operations, net of tax
Profit/(Loss) for the year
Profit/(Loss) attributable to:
Owners of the Company
Continuing Operations
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Continuing and Discontinuing Operations
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Note
2018
$’000
2017
$’000
3
3
5
4
6
26
26
26
26
1,116,975
1,182,030
1,384
(520,459)
(334,913)
(175,144)
(15,979)
(3,442)
(33,297)
35,125
(49,143)
(14,018)
-
(14,018)
(14,018)
(14,018)
(2.97)
(2.97)
(2.97)
(2.97)
2,455
(547,838)
(392,103)
(194,687)
(23,590)
(7,230)
(61,861)
(42,824)
23,455
(19,369)
27,948
8,579
8,579
8,579
(4.05)
(4.05)
1.79
1.79
Consolidated Statement of Comprehensive Income
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
Profit/(Loss) for the year
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations
Reclassification of exchange differences on disposal of subsidiary
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Note
2018
$’000
(14,018)
2017
$’000
8,579
13,367
-
(17,381)
1,793
13,367
(15,588)
(651)
(7,009)
(651)
(651)
(7,009)
(7,009)
The statement of financial performance and statement of comprehensive income should be read in conjunction with the notes to the financial statements.
Page | 27
Consolidated Statement of Financial Position
Cardno Limited and its Controlled Entities as at 30 June 2018
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Work in progress
Other current assets
Current tax receivable
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Other financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Loans and borrowings
Current tax liabilities
Employee benefits
Provisions
Other current liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables
Loans and borrowings
Deferred tax liabilities
Employee benefits
Other non-current liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Retained earnings/(losses)
TOTAL EQUITY
Note
2018
$’000
2017
$’000
8
9
10
23
24
11
7
12
13
14
15
16
13
14
7
16
17
71,127
212,158
73,773
12,850
2,216
80,028
218,749
96,882
13,696
-
372,124
409,355
236
49,336
102,333
313,017
464,922
1,323
35,593
142,127
295,873
474,916
837,046
884,271
120,840
144,327
2,165
-
32,400
3,860
44,526
615
3,614
31,758
4,857
46,888
203,791
232,059
3,015
88,900
121
4,430
3,581
100,047
303,838
533,208
804,145
75,104
-
94,708
290
4,937
7,000
106,935
338,994
545,277
815,563
61,737
(346,041)
(332,023)
533,208
545,277
The statement of financial position should be read in conjunction with the notes to the financial statements.
Page | 28
Consolidated Statement of Changes in Equity
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
Note
Share
Capital
Ordinary
$’000
Retained
Earnings
/ (losses)
$’000
Foreign
Translation
Reserve
$’000
Reserve
for Own
Shares*
$’000
Total
$’000
BALANCE AT 30 JUNE 2016
820,374
(340,602)
91,936
(14,611)
557,097
Profit for the year
Exchange differences on translation
of foreign operations
Reclassification of exchange
difference on disposal of subsidiary
Total comprehensive
income for the year
Transactions with owners in
their capacity as owners:
Shares issued
Employee share based payments
Share buy-back (net of income tax)
-
-
-
-
8,579
-
-
-
(17,381)
1,793
8,579
(15,588)
17
17
17
9
850
(5,670)
(4,811)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,579
(17,381)
1,793
(7,009)
9
850
(5,670)
(4,811)
BALANCE AT 30 JUNE 2017
815,563
(332,023)
76,348
(14,611)
545,277
Loss for the year
Exchange differences on translation
of foreign operations
Total comprehensive
income for the year
Transactions with owners in
their capacity as owners:
-
-
-
(14,018)
-
-
13,367
(14,018)
13,367
Employee share based payments
Share buy-back (net of income tax)
17
17
2,499
(13,917)
(11,418)
-
-
-
-
-
-
-
-
-
-
-
-
(14,018)
13,367
(651)
2,499
(13,917)
(11,418)
BALANCE AT 30 JUNE 2018
804,145
(346,041)
89,715
(14,611)
533,208
*
Shares held in trust by the Cardno Limited Performance Equity Plan Trust are for the purpose of subscribing for, acquiring and holding shares for the
benefit of employees participating in the Performance Equity Plan (PEP) of Cardno Limited. Shares are transferred to PEP participants on exercise of
Performance Rights and Performance Options.
The statement of changes in equity should be read in conjunction with the notes to the financial statements.
Page | 29
Consolidated Statement of Cash Flows
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
Note
2018
$’000
2017
$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Interest received
Finance costs paid
Cash paid to suppliers and employees
Income tax paid
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
25
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on disposal of subsidiaries
Acquisition of subsidiaries net of cash acquired
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Share Buy-Back (Cancellation of shares)
Proceeds from borrowings
Repayment of borrowings
Finance lease payments
NET CASH USED IN FINANCING ACTIVITIES
1,214,257
1,257,701
715
(3,658)
665
(5,385)
(1,160,874)
(1,255,426)
(4,738)
45,702
-
(10,738)
471
(19,298)
(29,565)
(13,917)
33,363
(44,563)
(2,039)
(27,156)
(1,388)
(3,833)
57,977
(6,180)
932
(12,280)
40,449
(5,670)
38,250
(93,719)
(2,059)
(63,198)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS HELD
(11,019)
(26,582)
CASH AND CASH EQUIVALENTS AT 1 JULY
Reclassification of cash included in disposal group held for sale
Effects of exchange rate changes on cash and cash equivalents
at the end of year
CASH AND CASH EQUIVALENTS AT 30 JUNE
8
80,028
105,613
-
1,512
2,118
71,127
(515)
80,028
The statement of cash flows should be read in conjunction with the notes to the financial statements.
Page | 30
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
Set out below is an index of the notes to the financial statements, the details of which are available on the
pages that follow:
GROUP STRUCTURE
Explains aspects of the Group
structure and how changes have
affected the financial position and
performance of the Group
KEY FINANCIAL STATEMENT ITEMS
Provides a breakdown of individual
line items in the financial statements
RISKS
Discusses exposure to various
financial risks and how these
are managed
UNRECOGNISED ITEMS
Provides information about items
that are not recognised in the
financial statements
OTHER INFORMATION
Provides information not considered
to be significant in the context of the
main operations of the Group or not
directly related to specific items in
the financial statements
1. Segment information
2. Business combinations
3. Revenue and other income
4. Net finance costs
5. Expenses
6.
Income tax expense
7. Deferred tax assets and liabilities
8. Cash and cash equivalents
9. Trade and other receivables
10. Work in progress
11. Property, plant and equipment
12. Intangible assets
13. Trade and other payables
14. Loans and borrowings
15. Provisions
16. Other liabilities
17. Issued capital
18. Critical estimates and judgements
19. Financial risks
20. Commitments
21. Contingent liabilities
22. Subsequent events
23. Other current assets
24. Other financial assets
25. Notes to the cash flow statement
26. Earnings per share
27. Related party disclosures
28. Controlled entities
29. Parent entity disclosures
30. Deed of cross guarantee
31. Auditor’s remuneration
32. Statement of significant accounting policies
PAGE
32
34
36
36
36
37
38
39
40
40
41
42
44
44
46
46
47
50
50
54
54
55
56
56
56
57
58
59
61
62
64
64
Page | 31
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
GROUP STRUCTURE
1. SEGMENT INFORMATION
Cardno has five reportable segments managed separately by location and services provided. The segments are an
aggregate of businesses which provide similar services and markets. Due to its size, Construction Sciences has been
identified as being a separate segment during the current year and therefore the prior year comparatives have been
restated for this change.
Internal management reports on the performance of these reportable segments are reviewed weekly and monthly by
the Group’s Chief Executive Officer (CEO). The following summary describes the operations in each of Cardno’s
reportable segments.
> Asia Pacific Engineering and Environmental (Asia Pacific) – provides services in civil, structural, water,
environmental, coastal, bridge, geotechnical, subsurface utility, traffic and transport engineering as well as
environmental science, surveying, landscape architecture, planning and asset management.
> Americas Engineering and Environmental (Americas) – delivers expertise to private and public sector
clients across the environmental, water, transportation, energy and resources, land, buildings and
management services sectors.
International Development (ID) – the ID business designs and implements large-scale sustainable solutions
for both development assistance agencies and private clients.
>
> Construction Sciences (CS) – a geotechnical engineering, environmental consulting and materials testing
business.
> Other – includes Portfolio Companies including LATAM (engineering, consulting operations in Latin America)
and PPI (quality testing and services to the Oil and Gas sector) and Group Head Office.
Segment results that are reported to the CEO include items directly attributed to the segment as well as those that can
be allocated on a reasonable basis.
2018
$’000
Asia
Pacific
Americas
ID
CS
Other
Total
SEGMENT REVENUE – Continuing Operations
Fees from consulting services
226,556
245,361
141,330
105,001
45,255
Fees from recoverable expenses
38,479
132,534
172,249
5,323
2,402
763,503
350,987
-
Inter-segment revenue
Segment Revenue
Other revenue
Total Segment Revenue
Inter-segment elimination
-
-
-
-
-
265,035
377,895
313,579
110,324
47,657
1,114,490
929
398
-
935
223
2,485
265,964
378,293
313,579
111,259
47,880
1,116,975
-
-
-
-
-
-
Total Revenue from continuing operations
Segment Result
Onerous lease provision
Business review costs
20,022
18,255
6,418
11,427
-
-
752
1,136
-
-
-
-
Depreciation and amortisation expense
(2,949)
(3,300)
(321)
(3,211)
1,116,975
56,210
1,241
(2,905)
(15,979)
88
489
(4,041)
(6,198)
Profit/(loss) from continuing operations
before interest and income tax
Finance costs and interest income
Profit from continuing operations before
income tax
Income tax expense
Loss from continuing operations after
income tax
Net profit from discontinued operations after
income tax
Loss from continuing and discontinuing
operations after income tax
17,073
16,843
6,097
8,216
(9,662)
38,567
(3,442)
35,125
(49,143)
(14,018)
-
(14,018)
Page | 32
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
1. SEGMENT INFORMATION CONTINUED
2017
$’000
Asia
Pacific
Americas
ID
CS
Other
Total
9,848
6,850
788,199
387,822
6,850
SEGMENT REVENUE – Continuing Operations
Fees from consulting services
230,619
281,584
129,185
82,508
64,303
Fees from recoverable expenses
43,525
128,150
200,700
5,599
Inter-segment revenue
Segment Revenue
Other revenue
Total Segment Revenue
Inter-segment elimination
Total Revenue from continuing operations
Segment Result
Redundancy costs
Office consolidation
Business review costs
Debtor provisioning
Indirect tax in dispute
-
-
-
-
274,144
409,734
329,885
88,107
81,001
1,182,871
1,800
1,223
82
88
2,816
6,009
275,944
410,957
329,967
88,195
83,817
1,188,880
-
-
-
-
-
(6,850)
30,097
6,609
5,976
6,189
(4,866)
-
-
(2,495)
(8,178)
-
-
(161)
(10,982)
3,089
(3,543)
-
-
-
-
(1,500)
-
-
-
-
-
(8,968)
-
(10,673)
(15,275)
(23,329)
(7,996)
(11,539)
-
(1,500)
1,182,030
44,005
(8,968)
Depreciation and amortisation expense
(2,836)
(4,004)
(384)
(2,306)
(14,060)
(23,590)
Profit/(loss) from continuing operations
before interest and income tax
Finance costs and interest income
Loss from continuing operations
before income tax
Income tax benefit
Loss from continuing operations
after income tax
Net profit from discontinued operations
after income tax
Profit from continuing and discontinuing
operations after income tax
GEOGRAPHICAL INFORMATION
Australia & New Zealand
Americas
United Kingdom
Canada
Africa
Latin America
Asia
Other Countries
21,062
(16,555)
7,181
3,883
(51,165)
(35,594)
(7,230)
(42,824)
23,455
(19,369)
27,948
8,579
2018
Revenues
$’000
514,095
471,285
23,495
19,591
3,538
10,576
67,581
6,814
Non-Current
Assets
$’000
285,240
166,264
3,264
7,913
41
1,063
987
150
2017
Revenues
$’000
523,261
510,507
27,357
7,363
23,921
25,251
57,924
6,446
Non-Current
Assets
$’000
260,100
205,504
3,124
2,304
43
3,356
328
157
1,116,975
464,922
1,182,030
474,916
Page | 33
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
2. BUSINESS COMBINATIONS
Acquisitions in 2018
On 1 November 2017, the Group acquired Network Geotechnics. Network Geotechnics is an 80 person New
South Wales business based in offices located in Sydney, Wollongong, and the NSW Central Coast, with site
laboratories at several locations on the Pacific Highway. This acquisition will strengthen Construction Sciences
as a major provider of Construction Materials Testing, Geotechnical Engineering, and Environmental
Consultancy services. This acquisition is not considered to be material to the Group.
On 5 April 2018, the Group acquired 100% of the shares and voting interests of Sure Search, a utility location
and management business that employs 52 staff in offices in the NSW Central Coast, Western Sydney and the
Illawarra region.
The acquisition will further strengthen Cardno’s existing expertise in utility management, survey, infrastructure
design, geospatial services and project management. The acquisition is aligned with our strategy of growing
our utilities management and coordination expertise, and to expand into the early phase of design and build
projects.
From the date of acquisition to 30 June 2018, the acquisitions contributed $11.4 million of revenue and $1.4
million to profit before tax from continuing operations of the Group. If the business combinations had taken
place at the beginning of the year, the consolidated Group’s revenue from continuing operations would have
been $1,134.2 million and profit before tax from continuing operations for the consolidated Group would have
been $38.7 million.
The aggregated fair value of the identifiable assets and liabilities for both business combinations as at the date
of acquisition were:
Cash
Trade and other receivables
Property, plant and equipment
Intangible assets
Current and deferred tax assets
Other current assets
Trade and other payables
Employee benefits
Borrowings
Current and deferred tax liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred
The fair value of receivables acquired is $4.3 million of which $30,000 is considered doubtful.
2018
$’000
1,903
4,329
5,678
1,875
354
117
14,256
(2,891)
(1,110)
(3,453)
(946)
(8,400)
5,856
12,567
18,423
Page | 34
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
2. BUSINESS COMBINATIONS CONTINUED
Goodwill of $12.1 million has been allocated Asia-Pacific segment and $0.5 million to the Construction
Sciences segment. The goodwill recognised is attributable to the skills and technical talent of the employees of
the acquisitions and the synergies expected to be achieved from integrating the business into the Group's
existing operations. Amortisation of this goodwill is not expected to be deductible for tax.
Purchase consideration comprised of $10.7 million paid in cash on acquisition and $5.8 million in deferred
consideration. The deferred consideration consists of $5.0 million which is contingent on the acquisition
achieving a certain level of gross profits in each of financial year 2019 and 2020. The remaining deferred
consideration of $0.8 million is to be paid over three years on each anniversary of the completion date. Analysis
of cash flows on acquisition is below.
Purchase consideration
Cash balance acquired
Deferred consideration
Net cash flow on acquisition
2018
$’000
18,423
(1,903)
(5,782)
10,738
Transaction costs of the acquisition of $0.2 million are included in other expenses in the Consolidated
Statement of Financial Performance.
Acquisitions in 2017
On the 31 March 2017, the Group acquired the remaining 50% of T2 Utility Engineers (T2), previously a joint
venture shared with AECOM, based in Canada.
Page | 35
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
KEY FINANCIAL STATEMENT ITEMS
3. REVENUE AND OTHER INCOME
REVENUE FROM CONTINUING OPERATIONS
Fees from consulting services
Fees from recoverable expenses
Other
OTHER INCOME
Non-refundable R&D tax incentives
Gain on disposal of property, plant and equipment
Other Income
Accounting for Revenue
2018
$’000
763,503
350,987
2,485
2017
$’000
788,199
387,822
6,009
1,116,975
1,182,030
863
521
1,384
1,995
460
2,455
Revenue is recognised at fair value of the consideration received net of the amount of goods and services tax
(GST) payable to the taxation authority.
Revenue from consulting services provided on a time and material basis are recognised at the contractual
hourly rates as labour hours are delivered. Fees from recoverable expenses are recognised in accordance with
customer contracts as they are incurred. For non time and material contracts, revenue and expenses are
recognised in accordance with the percentage of completion method. Where a loss is expected to arise from
any contract, the loss is recognised immediately as an expense. The percentage of completion method involves
a level of estimation for costs or effort incurred to date and total project costs or effort to complete the project
based on analysis of the individual projects and past experience of similar services provided.
4. NET FINANCING COSTS
Interest paid
Amortisation of borrowing costs
Financing Costs
Interest income
Net Financing Costs
2018
$’000
3,094
1,063
4,157
715
3,442
2017
$’000
6,133
1,762
7,895
665
7,230
Accounting for Net Finance Costs
Finance costs are recognised as expenses in the period in which they are incurred.
Borrowing costs are calculated using the effective interest method and include costs incurred in connection with
arrangement of borrowings. There have been no qualifying assets and related debt to which borrowing costs
could have been applied, and as a result no borrowing costs have been capitalised to qualifying assets.
Interest income is recognised in profit or loss as it accrues, using the effective interest method.
5. EXPENSES
Bad and doubtful debts
Rental expense relating to operating leases
2018
$’000
3,848
28,009
2017
$’000
22,868
41,189
Page | 36
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
6. INCOME TAX EXPENSE
(a) The components of tax expense comprises:
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Current year
Adjustments for prior years
Total income tax expense / (benefit)
(b) Numerical reconciliation between tax expense and pre-tax profit
Profit / (loss) before tax from continuing operations
Income tax using the Australian corporation tax rate of 30% (2017: 30%)
Increase (decrease) in income tax expense due to:
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
US tax rate change
Allowances for R&D expenditure
Structure rationalisation
Sundry items
Under / (over) provided in prior years
Income tax expense / (benefit)
(c) Amounts recognised directly in equity
Tax benefit on equity raising costs1
Foreign exchange
2018
$’000
2017
$’000
10,113
1,881
11,994
35,216
1,933
37,149
49,143
35,125
10,538
4,058
1,107
32,846
(259)
-
(2,960)
45,330
3,813
49,143
13
-
1,701
1,728
3,429
(22,885)
(3,999)
(26,884)
(23,455)
(42,824)
(12,847)
1,650
2,078
-
(598)
(10,302)
(1,165)
(21,184)
(2,271)
(23,455)
106
2,149
1 Current year amount relates to costs incurred on the share buy-back program.
The effective tax rate for FY18 was 139.9% as compared to 54.8% in FY17. Included in income tax expense for
the year is the impact resulting from the passing of the Tax Cuts and Jobs Act by the United States government
($32.8m). Specifically the reduction in the US federal corporate income tax rate from 35% to 21% reduces the
Group’s deferred tax assets, and this has been reflected in a reduction to deferred tax assets and associated
charge to income tax expense. Excluding the impact of this one-off adjustment and prior year true ups, the
Group’s consolidated effective tax rate from continuing operations for the year was 35.5%. The prior year tax
benefit recognised includes the tax effect of a structure rationalisation.
Page | 37
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
7. DEFERRED TAX ASSETS & LIABILITIES
Recognised deferred tax assets and liabilities
Assets
Accruals
Provisions
Intangibles
Tax losses
Property, plant and equipment
Other
Total deferred tax assets
Set-off of deferred tax liabilities
Net deferred tax assets
Liabilities
Work in progress
Prepayments
Other
Total deferred tax liabilities
Set-off against deferred tax assets
Net deferred tax liabilities
NET DEFERRED TAX ASSETS (LIABILITIES)
2018
$’000
5,865
21,838
22,423
42,815
1,578
15,576
110,095
(7,762)
102,333
5,733
1,667
483
7,883
(7,762)
121
102,212
2017
$’000
5,437
19,035
39,834
76,875
2,576
12,291
156,048
(13,921)
142,127
11,815
1,276
1,120
14,211
(13,921)
290
141,837
The group has unrecognised deferred tax assets from capital loss carry forwards as at 30 June 2018: (a) in the
United States of $26.7 million (2017: $40.2 million) which will expire if not used to offset capital gains derived by
30 June 2021 ($23.0 million) and 30 June 2022 ($3.7 million); (b) in Australia of $30.6 million (2017: $30.5
million) the future utilisation of which is reliant on satisfaction of the continuity of ownership and/or same
business tests.
Judgement is required to determine the amount of deferred tax assets that are recognised based on the likely
timing and the level of future taxable profits. The Group assesses the recoverability of recognised and
unrecognised deferred taxes, in Australia and the United States using assumptions and projected cash flows as
applied in the Group impairment reviews for associated operations. The Group’s current taxable profits
forecasts support the recoverability of the tax losses recognised.
Judgements are required about the application of income tax legislation and its interaction with income tax
accounting principles. These judgements are subject to risk and uncertainty, hence there is a possibility that
changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and
deferred tax liabilities recognised on the balance sheet and the amount of other tax losses and temporary
differences not yet recognised. Where the final tax outcomes are different from the amounts that were initially
recorded, these differences impact the current and deferred tax provisions in the period in which the
determination is made.
Page | 38
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
7. DEFERRED TAX ASSETS & LIABILITIES CONTINUED
Movement in temporary differences during the year:
30 June 2018
Accruals
Provisions
Sundry items
Prepayments
Work in progress
Goodwill on acquisition (USA)
30 June 2017
Accruals
Provisions
Sundry items
Prepayments
Work in progress
Goodwill on acquisition (USA)
1 July
2017
$’000
5,437
19,035
90,623
(1,276)
(11,816)
39,834
141,837
Recognised in
profit or loss
$’000
Adjustments
to prior years
$’000
1,013
1,117
(36,812)
(758)
5,522
(5,298)
(35,216)
(1,002)
(1,248)
(608)
(85)
1,343
(332)
(1,932)
1 July
2016
$’000
Recognised in
profit or loss
$’000
Adjustments
to prior years
$’000
34,390
17,874
25,303
(2,122)
(10,576)
53,180
118,049
(24,346)
6,620
49,268
227
(1,252)
(7,632)
22,885
(1,500)
2,044
593
9
-
2,853
3,999
Other*
$’000
417
2,934
6,283
452
(782)
(11,781)
(2,477)
Other*
$’000
(3,107)
(7,503)
15,459
610
12
(8,567)
(3,096)
30 June
2018
$’000
5,865
21,838
59,486
(1,667)
(5,733)
22,423
102,212
30 June
2017
$’000
5,437
19,035
90,623
(1,276)
(11,816)
39,834
141,837
* Other adjustments relate to impacts of translating foreign operations, acquisitions and divestments, and amounts booked to equity.
8. CASH AND CASH EQUIVALENTS
Cash at bank and on hand
Restricted cash1
Bank short term deposits
2018
$’000
66,320
3,382
1,425
71,127
2017
$’000
76,957
2,680
391
80,028
1 Cash held as part of operating license by US based subsidiary.
Accounting for Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and investments in money market instruments which are at
call or with an original term of three months or less. Bank overdrafts are shown with interest-bearing loans and
borrowings in current liabilities on the statement of financial position.
Page | 39
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
9. TRADE & OTHER RECEIVABLES
Trade debtors
Provision for doubtful debts
Sundry debtors
2018
$’000
235,384
(33,881)
201,503
10,655
212,158
2017
$’000
245,503
(38,626)
206,877
11,872
218,749
Accounting for Trade and Other Receivables
Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectible
debts. The recoverability of trade receivables is reviewed on an ongoing basis and a provision for impairment
determined at both a specific and collective level. All individually significant receivables are assessed for
specific impairment. Those found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Receivables that are not individually significant are
collectively assessed for impairment by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default adjusted for
management’s judgement around current economic and credit conditions. Bad debts are written off as incurred.
10. WORK IN PROGRESS
Work in progress
Accounting for Work in Progress
2018
$’000
73,773
2017
$’000
96,882
Work in progress is stated at the aggregate of contract costs incurred to date plus recognised profits less recognised
losses and progress billings. If there are contracts where progress billings exceed the aggregate costs incurred plus
profits less losses, the net amounts are presented as unearned revenue under other liabilities.
Contract costs include all costs directly related to specific contracts, costs that are specifically chargeable to the
customer under the terms of the contract and an allocation of overhead expenses incurred in connection with
Cardno’s activities in general.
The recoverability of work in progress is reviewed on an ongoing basis. Amounts assessed as not recoverable from
future billings are written off when identified.
Estimates of the work in progress balance involve determination of percentage of completion. Refer to Note 3 for
further details.
Page | 40
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
11. PROPERTY, PLANT & EQUIPMENT
Land & buildings
Land & buildings
Less accumulated depreciation
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation expense
Foreign exchange
Carrying amount at the end of the year
Office Furniture & Equipment
Laboratory equipment, instruments & amenities
Less accumulated depreciation
Carrying amount at the beginning of the year
Additions
Increase through acquisition
Reinstate previously held for sale assets
Disposals
Depreciation expense
Foreign exchange
Carrying amount at the end of the year
Motor vehicles
Motor vehicles
Less accumulated depreciation
Carrying amount at the beginning of the year
Additions
Increase through acquisition
Reinstate previously held for sale assets
Disposals
Depreciation and amortisation expense
Foreign exchange
Carrying amount at the end of the year
Total property, plant & equipment
Property, plant & equipment
Less accumulated depreciation
Carrying amount at the beginning of the year
Additions
Increase through acquisition
Reinstate previously held for sale assets
Disposals
Depreciation expense
Foreign exchange
Carrying amount at the end of the year
2018
$’000
3,029
(1,568)
1,461
1,476
53
-
(114)
46
1,461
148,407
(107,500)
40,907
31,325
19,765
4,005
-
(564)
(13,722)
98
40,907
21,251
(14,283)
6,968
2,792
4,296
1,673
-
(84)
(1,726)
17
6,968
172,687
(123,351)
49,336
35,593
24,114
5,678
-
(648)
(15,562)
161
49,336
2017
$’000
2,859
(1,383)
1,476
1,493
136
-
(104)
(49)
1,476
129,393
(98,068)
31,325
44,019
10,961
99
280
(1,941)
(21,460)
(633)
31,325
14,840
(12,048)
2,792
1,798
2,177
66
246
(261)
(1,188)
(46)
2,792
147,092
(111,499)
35,593
47,310
13,274
165
526
(2,202)
(22,752)
(728)
35,593
Page | 41
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
11. PROPERTY, PLANT & EQUIPMENT CONTINUED
Accounting for Property, Plant and Equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a
working condition for its intended use, the costs of dismantling and removing the items and restoring the site on
which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the
related equipment is capitalised as part of that equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to Cardno and the cost of the
item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and
maintenance are charged to profit or loss during the reporting period in which they are incurred.
Depreciation is calculated on the depreciable amount, which is the cost of an asset, or other amount substituted for
cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated
useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter
of the lease term and their useful lives unless it is reasonably certain that Cardno will obtain ownership by the end of
the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
> buildings
> motor vehicles
> office furniture and equipment
40 years
4-7 years
3-11 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
12. INTANGIBLE ASSETS
Reconciliation of movement in carrying amounts from the beginning of year to end of year:
Goodwill
Works
Contracts
Patents and
Trademarks
Software
Intangibles
$’000
$’000
$’000
$’000
Customer
Relation-
ships
$’000
Total
$’000
2018
Balance at the beginning of year
293,225
29
2,619
Acquired through business
combination
Written off
Amortisation charges
Effect of foreign exchange
Closing value at 30 June 2018
2017
12,567
-
-
3,158
308,950
543
(29)
(121)
-
422
-
(10)
-
-
2,609
-
-
-
-
-
-
-
295,873
1,332
-
(296)
-
14,442
(39)
(417)
3,158
1,036
313,017
Balance at the beginning of year
317,498
75
2,081
2,749
201
322,604
Acquired through business
combination
Disposal of subsidiary
Amortisation charges
Effect of foreign exchange
Closing value at 30 June 2017
2,504
(23,699)
-
(3,078)
293,225
-
-
(41)
(5)
29
538
-
-
-
2,619
-
(1,930)
(596)
(223)
-
-
-
(201)
-
-
3,042
(25,629)
(838)
(3,306)
295,873
Page | 42
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
12. INTANGIBLE ASSETS CONTINUED
The carrying amount of goodwill allocated to each of the cash generating units (CGUs) for impairment testing is
as follows:
Americas
Asia Pacific
Construction Sciences (CS)
International Development (ID)
Impairment Testing
2018
$’000
90,138
188,713
24,366
5,733
2017
$’000
86,630
176,958
23,904
5,733
308,950
293,225
After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated
impairment losses. Goodwill is not amortised but is subject to impairment testing. In accordance with Cardno’s
accounting policies, the Group performs its impairment testing annually or more frequently if required.
For the purposes of impairment testing, goodwill is allocated to Cardno’s management divisions which represent the
lowest level within Cardno at which the goodwill is monitored for internal management purposes. The CGU’s remain
unchanged from prior year.
The Group uses the value in use method to estimate the recoverable amount of each CGU. Value in-use is
calculated based on the present value of cash flow projections over a five-year period and includes a terminal value
at the end of year five.
The cash flow projections over the five-year period are based on the Group’s budget for 2019 and year on year
growth rates over the forecasted period based on management’s estimates of underlying economic conditions, past
performance and other factors anticipated to impact the CGU’s performance. The long term growth rate used in
calculating the terminal value is based on long term growth estimates for the countries and industries in which the
CGU operates.
The cash flows are discounted to their present value using a pre-tax discount rate on a weighted average cost of
capital adjusted for country and industry specific risks associated with the CGU.
Group overhead and corporate costs are allocated to the individual CGUs for impairment testing purposes.
Results of Impairment Testing
No impairment was recognised during the year as all CGU recoverable amounts were in excess of carrying values.
Key Assumptions
The key assumptions used in the estimation of recoverable amount are set out below. The values assigned to
the key assumptions represent management’s assessment of factors impacting the relevant regions and
industries in which the CGUs operate and have been developed taking into consideration relevant forecast and
historical data from both external and internal sources.
EBITDA Margins1
Terminal Growth Rate
Pre-Tax Discount Rate
2018
2017
Americas
6.8% - 9.0%
6.2% - 8.5%
Asia Pacific
10.7% - 13.0% 11.5% - 13.5%
CS
ID
10.0% - 12.0%
8.3% - 10.0%
1.1% - 5.0%
2.1% - 4.0%
2018
2.70%
2.70%
2.70%
2.70%
2017
2.70%
2.70%
2.70%
2.70%
2018
13.29%
14.42%
14.42%
12.29%
2017
14.42%
14.86%
14.86%
13.14%
1 EBITDA margins are applied to net fee revenue.
Page | 43
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
12. INTANGIBLE ASSETS CONTINUED
Impact of Possible Changes in Key Assumptions
Whilst there was no impairment in any of the CGU’s, any variation in the key assumptions would result in a
change in the assessed recoverable amount both positively and negatively. Analysis performed on the impact
of adverse changes in the key assumptions on the recoverable amount of the CGU’s concluded that a
reasonable possible change in these assumptions did not result in impairment in any of the CGU’s.
13. TRADE & OTHER PAYABLES
CURRENT
Trade payables & accruals
Vendor liability
NON-CURRENT
Vendor liability
2018
$’000
2017
$’000
118,074
142,496
2,766
1,831
120,840
144,327
3,015
3,015
-
-
Accounting for Trade & Other Payables
Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not
billed to Cardno, and are stated at cost. Trade accounts payable are normally settled within 60 days.
Vendor liabilities are recognised at the present value of future payments of deferred consideration.
14. LOANS & BORROWINGS
CURRENT
Lease and hire purchase liabilities
NON-CURRENT
Lease and hire purchase liabilities
Bank loans
TOTAL CURRENT & NON-CURRENT LOANS & BORROWINGS
Interest Bearing Borrowings
2018
$’000
2,165
2,165
4,791
84,109
88,900
91,065
2017
$’000
615
615
725
93,983
94,708
95,323
Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent
to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost
and redemption value being recognised in the profit and loss over the period of the borrowings on an effective
interest rate basis.
Bank Loans
The Group has bank loans of $84.1million (2017: $94.0 million) as at 30 June 2018 with a weighted average
interest rate of 3.27% (2017: 2.97%). Funding available to the Group from undrawn facilities is $39.1 million
(2017: $23.7million).
Page | 44
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
14. LOANS & BORROWINGS CONTINUED
Bank Loans Continued
The Group’s facility limits comprise a committed multi-currency bilateral revolving term facility of US $86.6
million (2017: US $86.6 million) as well as an uncommitted working capital facility US $5.0 million (2017: US
$5.0 million). Bank loans are term facilities with three banks maturing in December 2019.
The Group’s debt facilities include certain financial covenants which are tested semi-annually at 30 June and
31 December each year. A breach of a financial covenant would represent an event of default under the terms
of the debt facilities. At 30 June 2018, the Group was in compliance with all financial covenants.
There were no bank overdrafts in existence at 30 June 2018 (2017: Nil).
Under the terms of the agreements, the Company and a number of its wholly-owned subsidiaries jointly and
severally guarantee and indemnify the banks in relation to each borrower’s obligations.
Lease and Hire Purchase Liabilities
Leases in which Cardno assumes substantially all the risks and rewards of ownership are classified as finance
leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value
and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset. The corresponding rental obligations, net
of finance charges, are included in current and non-current interest-bearing loans and borrowings. Minimum
lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The
finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Finance leases and hire purchase
Commitments in relation to finance leases are payable as follows:
> Within one year
>
>
Later than one year but not later than 5 years
Later than 5 years
Minimum lease payments
Less: Future finance charges
Recognised as a liability
Present value of minimum lease and hire purchase payment
Commitments in relation to finance leases are payable as follows:
> Within one year
>
>
Later than one year but not later than 5 years
Later than 5 years
Recognised as a liability
2018
$’000
2017
$’000
2,526
5,445
-
7,971
(1,015)
6,956
2,165
4,791
-
6,956
655
784
-
1,439
(99)
1,340
615
725
-
1,340
Page | 45
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
15. PROVISIONS
CURRENT
Provision for legal claims
2018
$’000
3,860
3,860
2017
$’000
4,857
4,857
Accounting for Provisions
The Group makes provision for legal claims not covered by the Group’s professional indemnity policy. As at 30
June 2018 an estimate of the potential impact of these claims has been provided for.
A provision is recognised in the Statement of Financial Position when Cardno has a present legal, equitable or
constructive obligation as a result of a past event, and it is probable that a future sacrifice of economic benefits
will be required to settle the obligation, the timing or amount of which is uncertain. If the effect is material,
provisions are determined by discounting the expected future cash flows at the pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for dividends payable is recognised in the reporting period in which the dividends are declared.
16. OTHER LIABILITIES
CURRENT
Unearned revenue
Deferred rent
NON CURRENT
Deferred rent
Other
2018
$’000
42,037
2,489
44,526
3,347
234
3,581
2017
$’000
45,024
1,864
46,888
6,703
297
7,000
Unearned revenue relates to amounts received in advance of providing goods or services. Refer to Note 10.
Page | 46
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
17. ISSUED CAPITAL
30 June 2018
30 June 2017
No. of shares
$’000
No. of shares
$’000
Balance at the beginning of the year
474,955,277
815,563
479,040,905
820,374
Shares issued during the year:
> Shares issued for cash (net of transaction
costs)
> Employee share based payments
-
-
-
2,499
549,024
-
> Share buy-back (i)
(10,573,769)
(13,917)
(4,634,652)
Balance at the end of the year
464,381,508
804,145
474,955,277
9
850
(5,670)
815,563
(i)
As part of the capital management program, on 28 February 2017 the Group announced the implementation of an on-market buyback commencing
15 March 2017. On 28 February 2018 the Group extended the buyback period for a further 12 months. During the year, a total of 10,573,769 ordinary
shares were bought back at an average price of $1.32 per share.
The Company does not have authorised capital or par value in respect of its issued shares.
All shares are ordinary shares and have the right to receive dividends as declared and, in the event of winding
up the Company, to participate in the process from the sale of all surplus assets in proportion to the number of
and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by
proxy, at a meeting of members.
Franking account balance
The amount of franking credits available for the subsequent financial year are:
franking account balance as at the end of the financial year at 30%
>
franking credits/(debits) that will arise from the payment/(receipt) of income
>
tax payable/(receivable) as at the end of the financial year
2018
$’000
2017
$’000
-
17
(2,509)
(2,947)
Performance Equity Plan (PEP)
The PEP is designed to reward strong performance by individuals within the Cardno Group of companies.
Performance Options and Performance Rights are issued under the PEP (made in accordance with thresholds
set in the plan approved at the 2009 AGM) which provides certain employees (as determined by the Board)
with the right to acquire shares in the Company, or the option to acquire shares in the Company.
Each right or option is granted to the employee for no consideration and vest upon the achievement of specified
performance hurdles.
At 30 June 2018, there are no Performance Options on issue (2017: nil) and no options were issued during the
year (2017: nil).
2018 LTI Plan Performance Hurdles:
Performance Rights issued were allocated in two equal tranches: 50% is subject to the achievement of a Share
Price performance hurdle and 50% is subject to a Group EBITDA performance hurdle. These conditions are
tested independently.
The Performance Rights are subject to performance hurdles of Share Price (Tranche 1: 50%) where the
volume weighted average price of Shares at the close of trading over a 20 day trading period immediately prior
to the Company’s 2020 AGM, must be at least $1.10 per share, and Group EBITDA (Tranche 2: 50%) for the
full 2020 financial year must exceed $60 million.
Page | 47
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
17. ISSUED CAPITAL CONTINUED
2017 LTI Plan Performance Hurdles:
Performance Rights issued were allocated in two equal tranches: 50% is subject to the achievement of a Share
Price performance hurdle and 50% is subject to a Group EBITDA performance hurdle. These conditions are
tested independently.
The Performance Rights are subject to performance hurdles of Share Price (Tranche 1: 50%) where the
volume weighted average price of shares at the close of trading over a 20 day trading period immediately prior
to the Company’s 2019 AGM, must be at least $1.00 per share, and Group EBITDA (Tranche 2: 50%) for the
full 2019 financial year must exceed $54 million.
2016 LTI Plan Performance Hurdles:
Performance Rights issued were allocated in two equal tranches: 50% is subject to the achievement of a
relative Total Shareholder Return (TSR) performance hurdle and 50% is subject to an Earnings Per Share
(EPS) performance hurdle. These conditions are tested independently.
The Performance Rights are subject to performance hurdles of TSR (Tranche 1: 50%) and EPS growth
(Tranche 2: 50%) in accordance with the following scale:
TSR of Cardno Relative to
TSRs of Companies in
Comparator Group
Over 3 Years ending 30
June 2018
<50th percentile
50th percentile
>50th & <75th percentiles
75th percentile and above
% of Performance
Rights to Vest
(Tranche 1 50%)
EPS Growth
Over 3 Years ending
30 June 2018
% of Performance
Rights to Vest
(Tranche 2 50%)
0%
50%
Pro rata
100%
<12.5% (<4% pa)
12.5% (4% pa)
>12.5% (4% pa) & <26% (8% pa)
26% (8% pa)
>26% (8% pa) & <40% (12% pa)
>40% (12% pa)
0%
30%
Pro rata
70%
Pro rata
100%
Under Tranche 1 – up to 50% of the Performance Rights will vest if the Group achieves a certain TSR ranking within
the S&P/ASX 300 Industrial Sector Index (excluding companies involved in financial, energy, metals and mining).
Under Tranche 2 – up to 50% of Performance Rights vest if the Group achieves certain EPS performance targets.
The movements in the performance rights are as follows:
Outstanding at the beginning of the period
Granted during the period
Exercised during the period
Vested during the period
Cancelled/lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
Number
of Performance
Rights 2018
Number
of Performance
Rights 2017
4,962,639
1,318,929
-
-
(2,113,293)
4,168,275
-
4,023,392
3,540,023
-
-
(2,600,776)
4,962,639
-
Page | 48
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
17. ISSUED CAPITAL CONTINUED
Performance Rights were valued for accounting and reporting purposes using the Monte Carlo simulation and Black
Scholes method. The below table outlines the key assumptions.
Assumption at fair value date
Share Price
Risk Free Rate
Dividend Yield
Volatility
Initial TSR
2018
$1.35
1.99%
0%
63%
-
2017
$0.925
1.725%
0%
60%
-
2016
$2.95
1.89%
5.4%
47%
(6.5%)
Page | 49
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
RISKS
18. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to
be reasonable under the circumstances.
Cardno makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
> Assessing the recoverability of goodwill – refer to Note 12.
> Revenue recognition in relation to long term contracts including estimating stage of completion and
total contract costs – refer Note 3.
> Recognition of deferred tax assets – refer to Note 7 and 32(e).
> Assessing the recoverability of trade receivables and work in progress – refer to Note 9, 10 and 19.
19. FINANCIAL RISKS
Determination of Fair Values
In determining fair value measurement for disclosure purposes, the Group uses the following fair value
measurement hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments
where the valuation technique includes inputs not based on observable data and the unobservable inputs
have a significant effect on the instrument’s valuation.
Fair Values of Financial Instruments
The Group’s financial assets and liabilities at 30 June 2018 and 30 June 2017 are included in the balance sheet
at amounts that approximate fair values.
The Group does not have any derivative financial instruments at 30 June 2018 (2017: nil).
Financial Risk Management
The main risks arising from Cardno’s financial instruments are interest rate risk, foreign exchange risk, credit
risk and liquidity risk. Cardno uses different methods to measure different types of risk to which it is exposed.
These methods include sensitivity analysis in the case of interest rate and foreign exchange risks and ageing
analysis for credit risk. The Board through the Audit, Risk & Compliance Committee (ARCC) reviews and
agrees policies for managing these risks and ensures that risk management strategies are implemented in the
business. A Quality Management System supports consistent risk mitigation practices and procedures in order
to maintain a consistent level of quality across Cardno which includes the minimisation of risk. The policies for
managing each of Cardno’s financial risks are summarised below and remain unchanged from the prior year.
Credit Risk
Credit risk is the risk of financial loss to Cardno if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from Cardno’s receivables from customers.
The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as
summarised on page 51.
Page | 50
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
19. FINANCIAL RISKS CONTINUED
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.
Credit evaluations are performed on customers in accordance with the policy.
Cardno does not require collateral in respect of financial assets.
In line with the Group’s Treasury policy, investments are allowed only in liquid securities and only with
counterparties that have a credit rating equal to or better than a rating approved by the ARCC. The Treasury
policy is reviewed by the ARCC annually.
There are no material concentrations of credit risk (2017: nil).
Trade Receivables
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Australia & New Zealand
Americas
Asia Pacific
Europe & Africa
2018
$’000
71,566
108,973
16,282
4,682
2017
$’000
71,634
111,032
15,411
8,800
201,503
206,877
The ageing of Cardno’s trade receivables at the reporting date was:
Not past due (current)
Past due 0-30 days (30 day ageing)
Past due 31-60 days (60 day ageing)
Past due more than 60 days
2018
2017
Gross
$’000
120,935
35,066
17,261
62,122
235,384
Impairment
$’000
-
-
-
33,881
33,881
Gross
$’000
129,355
33,595
20,711
61,842
245,503
Impairment
$’000
-
-
-
38,626
38,626
Cardno establishes an allowance for impairment that represents its estimate of incurred losses in respect of
trade and other receivables. The main components of this allowance are a specific loss component that relates
to individually significant exposures, and a collective loss component established for groups of similar assets in
respect of losses that have been incurred but not yet identified.
The movement in the provision for impairment in respect of trade receivables of Cardno during the year was
as follows:
Balance at 1 July
Impairment loss recognised
Reinstate previously held for sale assets
Disposal of subsidiary
Receivables written off
Effect of foreign exchange
Balance at 30 June
2018
$’000
38,626
3,848
-
(4,429)
(4,609)
445
33,881
2017
$’000
11,090
22,868
13,387
-
(8,588)
(131)
38,626
Page | 51
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
19. FINANCIAL RISKS CONTINUED
Liquidity risk
Liquidity risk is the risk that Cardno will not be able to meet its financial obligations as they fall due. Prudent
liquidity risk management implies maintaining sufficient cash and the availability of funding through an
adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses,
Cardno aims to maintain flexibility in funding by keeping sufficient committed credit lines available to meet
Cardno’s requirements.
The following are the contractual maturities of financial liabilities at the reporting date, including estimated
interest payments and excluding the impact of netting agreements:
30 June 2018
Carrying
amount
$’000
Contractual
cash flows
$’000
Less than
1 year
$’000
Non-derivative financial liabilities
Trade and other payables
123,855
123,873
120,840
Finance leases & hire purchase
Bank loans
30 June 2017
Non-derivative financial liabilities
6,956
84,109
7,971
88,979
2,432
2,776
214,920
220,823
126,048
Trade and other payables
144,327
144,327
144,327
Finance leases & hire purchase
Bank loans
1,340
93,983
239,650
1,439
102,378
248,144
655
2,831
147,813
Bank loans are term facilities with three banks maturing in December 2019.
Hedge of net investment in foreign operation
1 – 5 years
$’000
3,033
5,539
86,203
94,775
-
784
99,547
100,331
Over 5
years
$’000
-
-
-
-
-
-
-
-
Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net
investment in a foreign operation are recognised in other comprehensive income to the extent that the hedge is
effective, and are presented within equity in the foreign currency translation reserve (FCTR). To the extent that the
hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is
disposed of, the relevant amount in the FCTR is transferred to profit or loss as part of the profit or loss on disposal.
Foreign exchange risk
Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are
denominated in a currency that is not the functional currency of the respective Group entities. Cardno operates
internationally and is exposed to foreign exchange risk arising from the currency exposure to the Australian dollar.
Cardno does not engage in any transactions which are of a speculative nature.
Cardno borrows funds in foreign currencies to hedge its net investments in foreign operations. Cardno has loans
totalling $18.2 million (2017: $17.5 million) denominated in US dollars (USD) which have been designated as hedges
of Cardno’s net investments in subsidiaries with functional currencies in those currencies.
As at 30 June 2018, a 10 per cent strengthening of the Australian dollar against the USD would have increased
equity by $1.7 million (2017: $1.6 million). A 10 per cent weakening of the Australian dollar against the USD would
have decreased equity by $2.0 million (2017: $1.9 million). There would be no impact on profit and loss as the loans
are designated as net investment hedges.
Other than interest bearing liabilities, there are no other significant foreign currency exposures in relation to financial
instruments at year end.
Page | 52
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
19. FINANCIAL RISKS CONTINUED
Interest rate risk
Cardno manages its exposure to interest rate fluctuation by continuously monitoring its debt to ensure any significant
movement would not have a material impact on the performance of Cardno. Cardno does not engage in any
transactions which are of a speculative nature.
At the reporting date the interest rate profile of Cardno’s interest-bearing financial instruments was:
2018
2017
Effective
Interest Rate
Balance
$’000
Effective
Interest Rate
Balance
$’000
Variable rate instruments
Cash assets
Bank loans
Fixed rate instruments
0.31%
3.27%
Finance leases & hire purchase
4.62%
Group sensitivity
Cash flow sensitivity analysis for variable rate instruments
71,127
(84,109)
(12,982)
(6,956)
(6,956)
0.40%
2.97%
3.72%
80,028
(93,983)
(13,955)
(1,340)
(1,340)
At 30 June 2018, if interest rates had changed by -/+ 50 basis points from the year-end rates with all other
variables held constant, profit after tax for the year would have been $48,000 higher/lower (2017: $49,000
higher/lower), mainly as a result of lower/higher interest expense on variable term debt partially offset by
higher/lower interest income from cash and cash equivalents. There have been no changes in the underlying
assumptions from the previous year.
Capital management
Cardno’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that
the Company can maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, Cardno may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
On 28 February 2017 the Group announced the implementation of an on-market buy-back of shares. On 28
February the Group extended the buy-back period for a further 12 months. The board will continue to evaluate
the share buy-back program whilst it considers this an appropriate allocation of shareholder capital.
Page | 53
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
UNRECOGNISED ITEMS
20. COMMITMENTS
Operating Leases
> Within one year
>
>
Later than one year but not later than 5 years
Later than 5 years
Commitments not recognised in the financial statements
2018
$’000
22,700
52,006
22,803
97,509
2017
$’000
29,298
57,520
11,005
97,823
Operating leases are not recognised in Cardno’s statement of financial position. The Group leases office
premises under non-cancellable operating leases, with terms varying from three to ten years. The majority of
leases provide for an option of renewal at the end of the lease term. Premise leases are subject to annual
review for changes in the CPI index and contain restrictions on sub-leasing. Payments made under operating
leases which are subject to fixed annual increments are recognised in the income statement on a straight-line
basis over the term of the lease. Lease incentives received are recognised in the profit or loss as an integral
part of the total lease expense and are spread over the lease term.
The Group also leases various plant & equipment under terms between two and five years as well as software
licenses with a term of three years’ subject to annual review based on the number of licences exercised.
21. CONTINGENT LIABILITIES
Cardno had contingent liabilities at 30 June 2018 in respect of:
Bank guarantees
2018
$’000
43,301
2017
$’000
60,160
Cardno had, at 30 June 2018, bank guarantee facilities/bond facilities with financial institutions denominated in
Australian dollars, United States dollars and Great British pounds. The guarantee facilities available to Cardno
total $75.9 million (2017: $73.0 million). These facilities are secured by an unlimited interlocking guarantee and
indemnity or a parent company guarantee.
Matters Relating to Cardno Caminosca S.A (“Caminosca”)
In December 2015 a claim was filed and served on Caminosca in Ecuador alleging cost overruns relating to design
and project management work performed by Caminosca during the period from 2008 to 2013. While the damages
claimed would be material if awarded against Caminosca, the claim remains at the preliminary stages and the
Company believes is spurious in nature. Caminosca has filed an initial response and will defend the claim.
In February 2015, the Group announced it was investigating a series of transactions involving Caminosca which are
still ongoing. There remains the potential that a penalty or sanction could be imposed on Cardno.
Other Matters
Members of the Cardno Group are defendants in proceedings instituted in FY15 in relation to a large infrastructure
project. While the damages claimed would be material if awarded against Cardno, the proceedings are ongoing and
Cardno intends to continue defending the claim.
Other than the above, the Directors are not aware of any current material litigation involving Cardno. The directors
are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future
sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
Page | 54
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
22. SUBSEQUENT EVENTS
On 1 July 2018, the Group acquired David Douglas Associates, Inc, a 20 person civil engineering consulting
firm based in Florida. The acquisition both strengthens our market position and provides geographic expansion
in Florida.
Effective 2 July 2018, the Group acquired Trilab, a leading supplier of specialised Soil Mechanics Testing and
Rock Mechanics Testing business. Trilab employs 40 staff and will strengthen Constructions Sciences’ and
Cardno’s existing expertise in Materials Testing and Geotechnical Engineering.
The aggregate consideration paid for the above mentioned acquisitions is $8.7 million plus adjustments for
working capital.
On 9 August 2018, Mr Ian Ball commenced as Chief Executive Officer and Managing Director. Ian brings more
than 30 years international experience in consulting and professional services leadership within the fields of
financial services, technology, innovation and Federal Government.
Apart from the events noted above, there has not arisen in the interval between the end of the year and the
date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the
directors of the company, to affect significantly the operations of the Group or the results of those operations.
Page | 55
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
OTHER INFORMATION
23. OTHER CURRENT ASSETS
Prepayments
Project advances
Security deposits
24. OTHER FINANCIAL ASSETS
Investments in non-related entities
25. NOTES TO THE CASH FLOW STATEMENT
Reconciliation of Net Cash from Operating Activities to Net profit for the year
Net profit/(loss) for the year
Adjust for non-cash items
Depreciation and amortisation
Gain/(loss) on sale of property, plant & equipment
Gain/(loss) on purchase/sale of business
Unrealised foreign exchange (gain)/loss
Share of associates net profits
Share based remuneration
Adjust for changes in assets and liabilities:
(Increase)/decrease in assets:
Work in progress
Deferred tax assets
Trade receivables
Provision for doubtful debts
Other receivables
Prepayments
Other assets
Increase/(decrease) in liabilities:
Trade payables
Income tax payable
Employee provisions
Unearned revenue
Other liabilities
Deferred tax liabilities
2018
$’000
10,040
1,290
1,520
12,850
2018
$’000
236
236
2017
$’000
10,607
720
2,369
13,696
2017
$’000
1,323
1,323
2018
$’000
2017
$’000
(14,018)
8,579
15,979
(521)
51
(96)
-
2,499
25,609
44,788
18,242
(3,070)
1,731
474
2,521
(33,014)
(5,875)
(608)
(4,327)
(3,792)
(871)
45,702
23,590
1,285
(27,948)
(281)
64
850
18,523
(27,437)
(16,919)
6,139
(4,856)
(1,984)
1,108
6,267
1,355
(3,676)
5,079
8,357
(1,928)
(3,833)
Page | 56
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
26. EARNINGS PER SHARE
The calculation of basic earnings per share was based on the following:
2018
$
2017
$
Profit/(Loss) attributable to ordinary shareholders
(14,018,000)
8,579,000
Profit/(Loss) from continuing operations attributable to ordinary
shareholders
Weighted average number of ordinary shares
Number of ordinary shares at 1 July
Effect of share buy back
Effect of shares issued during the year
(14,018,000)
(19,369,000)
No.
No.
474,955,277
479,040,905
(2,218,733)
(1,103,017)
-
446,740
Weighted average number of ordinary shares at 30 June
472,736,544
478,384,628
Earnings per share
Earnings per share - continuing operations
Cents
(2.97)
(2.97)
Cents
1.79
(4.05)
Performance Options and Performance Rights are considered to be potential ordinary shares and are therefore
excluded from the weighted average number of ordinary shares used in the calculation of basic earnings per
share. Where dilutive, potential ordinary shares are included in the calculation of diluted earnings per share.
The calculation of diluted earnings per share was based on the following:
2018
$
2017
$
Profit/(Loss) attributable to ordinary shareholders (diluted)
(14,018,000)
8,579,000
Profit/(Loss) from continuing operations attributable to ordinary
shareholders (diluted)
(14,018,000)
(19,369,000)
Weighted average number of ordinary shares (diluted)
No.
No.
Weighted average number of ordinary shares at 30 June (basic)
472,736,544
478,384,628
Effect of Performance Options and Performance Rights on issue
-
-
Weighted average number of ordinary shares (diluted) at 30 June
472,736,544
478,384,628
Diluted Earnings per share
Diluted Earnings per share – continuing operations
Cents
(2.97)
(2.97)
Cents
1.79
(4.05)
Cardno presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is
calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted
average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares, which
comprise share Performance Options and Performance Rights granted to employees.
Page | 57
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
27. RELATED PARTY DISCLOSURES
Key management personnel
Key management personnel compensation included in employee benefits are as follows:
Short-term employee benefits
Post-employment benefits
Equity compensation benefits
Termination benefits
2018
$
2017
$
2,512,918
2,657,482
40,938
128,697
63,533
(74,926)
-
1,014,655
2,682,553
3,660,744
No Director has entered into a material contract with the Company or the consolidated entity since the end
of the previous financial year and there were no material contracts involving Directors’ interests existing at
year-end.
Other key management personnel transactions with the Company or its controlled entities
A number of key management persons, or their related parties, hold positions in other entities that result in
them having control or significant influence over the financial or operating policies of those entities.
None of these entities transacted with the Company or its subsidiaries in the reporting period.
Page | 58
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
28. CONTROLLED ENTITIES
Cardno’s significant subsidiaries are listed below. This includes newly incorporated subsidiaries and
subsidiaries acquired during the year (refer to Note 2). In addition, as part of ongoing efforts to streamline the
group, a number of dormant subsidiaries were dissolved or closed.
Name
Cardno Holdings Pty Ltd
Cardno (Qld) Pty Ltd
Cardno Staff Pty Ltd
Cardno Staff No. 2 Pty Ltd
Cardno Operations Pty Ltd
Cardno International Pty Ltd
Cardno (WA) Pty Ltd
Cardno Lawson Treloar Pty Ltd
Cardno (NSW/ACT) Pty Ltd
Cardno Willing Pty Ltd
Cardno Victoria Pty Ltd
Cardno Emerging Markets (Australia) Pty Ltd
Cardno UK Limited
Cardno Emerging Markets (UK) Limited
Cardno Emerging Markets (East Africa) Limited
Cardno (NZ) Limited
Cardno Holdings New Zealand Limited
Construction Sciences NZ Limited
Cardno USA, Inc.
Cardno, Inc.
Cardno Emerging Markets Belgium s.a.
Cardno (NT) Pty Ltd
Cardno (PNG) Ltd
Construction Sciences Pty Ltd
Cardno ITC Pty Ltd
Cardno Australian Underground Services Pty Ltd
ENTRIX Americas, SA
J.F. New & Associates, Inc.
Cardno Roadtest Pty Ltd
Cardno BEC Pty Ltd
Cardno BEC (Qld) Pty Ltd
Cardno (Colombia) S.A.S.
Network Geotechnics Pty Ltd
Country of
Incorporation
Equity
Holding
2018
Equity
Holding
2017
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
United Kingdom
Kenya
New Zealand
New Zealand
New Zealand
United States of America
United States of America
Belgium
Australia
Papua New Guinea
Australia
Australia
Australia
Ecuador
United States of America
Australia
Australia
Australia
Colombia
Australia
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
Page | 59
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
28. CONTROLLED ENTITIES CONTINUED
Name
SureSearch Australia Pty Limited
Utility Locating Pty Limited
Country of
Incorporation
Australia
Australia
Cardno Emerging Markets (USA), Ltd
United States of America
Equity
Holding
2018
Equity
Holding
2017
Cardno Humphrey Reynolds Perkins Pty Ltd
Cardno LP Pty Ltd
Cardno GS, Inc.
Cardno EM-Assist, Inc.
Cardno BTO Limited
Cardno Hard & Forester Pty Ltd
Cardno ChemRisk, LLC
Caminosca S.A.S
Cardno Geotech Pty Ltd
Cardno Haynes Whaley, Inc.
Cardno Canada Limited
T2 Utility Engineers, Inc
Cardno PPI, LLC
PPI Australia Pty Ltd
Cardno PPI UK Limited
PPI Quality & Asset Management (Singapore) Pte Ltd
PPI Quality & Asset Management (Malaysia) Sdn Bhd
PPI Technology Services Nigeria Limited
Cardno South Africa (Pty) Ltd
Cardno Emerging Markets (Rwanda) Limited
Cardno Mozambique LDA
I.T. Transport Limited
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
Australia
Australia
United States of America
United States of America
New Zealand
Australia
United States of America
South America
Australia
United States of America
-
Canada
Canada
United States of America
Australia
United Kingdom
Singapore
Malaysia
Nigeria
South Africa
Rwanda
Mozambique
United Kingdom
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
-
-
100%
Page | 60
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
29. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 30 June 2018 the parent Company of Cardno was
Cardno Limited.
Results of the parent entity
Profit/(Loss) for the year
Other comprehensive income
Total comprehensive income for the year
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share capital
Retained earnings
Total equity
Parent entity contingencies
Bank guarantees
Company
2018
$’000
2017
$’000
(330,727)
(162,366)
-
-
(330,727)
(162,366)
120,687
370,274
45,532
45,944
534,571
892,695
225,809
226,220
804,145
815,563
(479,815)
(149,088)
324,330
666,475
20,148
26,574
A multiple guarantee facility is available to Cardno totalling $40 million (2017: $40 million). The facility is
secured by an unlimited interlocking guarantee and indemnity.
The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable
that a future sacrifice of economic benefits will be required or the amount is not capable of reliable
measurement.
Parent entity guarantees in respect of debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees
debts in respect of its subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed below in
Note 30.
Page | 61
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
30. DEED OF CROSS GUARANTEE
Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785, the wholly-owned
subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and
lodgement of financial reports, and Directors’ reports. It is a condition of the Class Order that the Company and
each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company
guarantees to each creditor payment in full for any debt in the event of winding up of any of the subsidiaries
under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act,
the Company will only be liable in the event that after six months any creditor has not been paid in full. The
subsidiaries have also given similar guarantees in the event that the Company is wound up.
The subsidiaries subject to the Deed are:
> Cardno Holdings Pty Ltd
> Cardno (Qld) Pty Ltd
> Cardno Staff Pty Ltd
> Construction Sciences Pty Ltd
> Cardno Emerging Markets (Australia) Pty Ltd
> Cardno (NSW/ACT) Pty Ltd
A consolidated statement of comprehensive income and consolidated statement of financial position,
comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions
between parties to the Deed of Cross Guarantee, for the year ended 30 June 2018 is set out as follows:
Statement of comprehensive income and retained earnings
Revenue
Employee expenses
Consumables and materials used
Sub-consultant and contractor costs
Depreciation and amortisation expenses
Loss on investment
Finance costs
Other expenses
Profit / (loss) before income tax
Income tax (expense)/benefit
Profit / (loss) from continuing operations
Profit for the year from discontinued operations
Net profit/(loss) for the year
Other comprehensive income for the year
Total comprehensive income for the year
Retained earnings at the beginning of the year
Transfers to and from reserves
Retained earnings at the end of the year
Attributable to:
Owners of the Company
2018
$’000
2017
$’000
471,671
528,622
(163,603)
(198,745)
(173,385)
(185,383)
(83,075)
(4,595)
(80,297)
(7,945)
(55,537)
(420,010)
(3,929)
(48,346)
(60,799)
(11,094)
(71,893)
(6,607)
(26,098)
(396,463)
25,197
(371,266)
-
38,009
(71,893)
(333,257)
(2,389)
7,251
(74,282)
(326,006)
(362,923)
2,389
(29,666)
(7,251)
(434,816)
(362,923)
(434,816)
(362,923)
Page | 62
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
30. DEED OF CROSS GUARANTEE CONTINUED
Statement of financial position
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Work in progress
Current tax receivables
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Investments
Property, plant and equipment
Deferred tax assets
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Short term provisions
Other current liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Deferred tax liabilities
Employee benefits
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
2018
$’000
2017
$’000
10,286
266,861
3,524
3,321
2,439
15,849
934,919
21,085
2,891
2,558
286,431
977,302
372,601
392,823
15,445
42,044
43,482
8,691
46,818
41,943
473,572
490,275
760,003
1,467,577
214,132
841,937
16,320
8,032
15,399
7,634
238,484
864,970
3,015
87,010
4,485
2,630
97,140
335,624
424,379
804,145
55,050
-
94,505
7,750
3,197
105,452
970,422
497,155
815,584
44,494
(434,816)
(362,923)
424,379
497,155
Page | 63
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
31. AUDITOR’S REMUNERATION
2018
$
2017
$
Audit services
Auditors of the Company
KPMG Australia:
> Audit and review of financial reports
873,400
794,500
Overseas KPMG firms:
> Audit and review of financial reports1
1 Current year includes fees incurred for audits for financial reports across multiple years
191,434
1,064,834
139,608
934,108
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
Cardno Limited (the “Company”) is a company incorporated and domiciled in Australia. The consolidated
financial report of the Company for the year ended 30 June 2018 encompasses the Company and its
subsidiaries (together referred to as “Cardno” or the “Group”).
Cardno is a for-profit entity that operates as a professional infrastructure and environmental services company,
with expertise in the development and improvement of physical and social infrastructure for communities
around the world.
The financial report was authorised for issue by the Board of Directors on 20 August 2018.
(a) Statement of compliance
The consolidated financial statements are general purpose financial statements which has been prepared in
accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board
(AASB) and the Corporations Act 2001. The financial statements of the consolidated entity also comply
with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards
Board (IASB).
(b) Basis of Preparation
The financial report has been prepared on a historical cost basis except where otherwise noted.
The consolidated financial statements are presented in Australian dollars, which is the Company’s
functional currency.
The Company is of a kind referred to in ASIC Legislative Instrument 2016/191 and in accordance with that
Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand
unless otherwise stated.
Standards and Interpretations Affecting Amounts Reported in the Current Period
There are no new and revised Standards and interpretations adopted in these Consolidated Financial
Statements that have affected the amounts reported.
Standards and Interpretations Adopted with no Effect on Financial Statements
The following new and revised Standards and interpretations have been adopted in the current year and have
no material impact on the amounts reported in these Consolidated Financial Statements.
> AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets
for Unrealised Losses
> AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to
AASB 107
> AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-
2016 Cycle
Page | 64
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Standards Issued not yet Effective
At the date of this report the Standards and Interpretations listed below were issued but not yet effective and
were not adopted in preparing these consolidated financial statements.
Standard/Interpretation
AASB 9 Financial Instruments
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2018
30 June 2019
AASB 15 Revenue from Contracts with Customers
1 January 2018
30 June 2019
AASB 16 Leases
AASB 2016-5 Amendments to AAS – Classification and Measurement
of Share-based Payment Transactions
AASB Interpretation 22 Foreign Currency Transactions and Advance
Consideration
AASB Interpretation 23 Uncertainty over Income Tax Treatments, and
relevant amending standards
1 January 2019
30 June 2020
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2019
30 June 2020
The new standards not yet effective which may impact on the Group’s consolidated financial statements when
adopted include:
AASB 9 Financial Instruments
AASB 9 replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement.
AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new
expected credit loss model for calculating impairment on financial assets and new general hedge accounting
requirements. It also carries forward the guidance on recognition and de-recognition of financial instruments
from AASB 139.
While the group does not expect the application of AASB 9 to have a material financial impact on the
classification, measurement and recognition of its financial assets and financial liabilities, the provision for
doubtful debts will increase on implementation of the accounting standard.
AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much, and when revenue is
recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111
Construction contracts and AASB Interpretation 13 Customer Loyalty Programmes.
The core principle of the new accounting standard is that an entity recognises revenue related to the transfer of
promised goods or services when control of the goods or services passes to the customer. The amount of
revenue recognised should reflect the consideration to which the entity expects to be entitled in exchange for
those goods or services.
During the year, the group undertook an assessment to determine the impact of the new standard on the
recognition, measurement and classification of revenue. A sample of revenue contracts were selected from
revenue streams in each of the Group’s divisions for analysis. Each contract was reviewed with reference to
the five step model under the new standard.
As a professional services company, revenue is recognised on a percentage of completion basis for services
provided. Percentage of completion is determined based on the proportion of contract costs or effort incurred
to date and the estimated costs or effort required to complete the contracted services.
On application of AASB 15, the Group will continue to recognise revenue on the current percentage of
completion method. As the services provided by the Group under the contracts sampled are highly interrelated
with the same pattern of transfer they are viewed as a series of distinct services and as such the Group will
account for services as a single performance obligation with revenue recognised based on the percentage of
completion for that single performance obligation.
Page | 65
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
AASB 15 Revenue from Contracts with Customers Continued
Some contracts include a requirement for the customer to pay an upfront non reimbursable amount on
inception of the contract. These are currently accounted for as deferred revenue and released as the
performance obligations are satisfied. The Group will continue to account for the upfront payments as part of
the overall performance obligation as they do not result in the transfer of a promised service to the customer at
that time.
Based on this detailed assessment of the sample of existing revenue contracts, the Group expects no material
changes in the timing or measurement of revenue would be required under the new standard.
In addition to the analysis, during the year the Group made significant improvements to its internal systems,
provided training to project managers on updated policies and procedures and developed additional internal
controls to meet the requirements of AASB 15.
The Group will adopt the cumulative transition approach to implementation where any transitional adjustment is
recognised in retained earnings at 1 July 2018 without adjustment of comparatives and the new standard will
only be applied to contracts that remain in force at that date.
AASB 16 Leases
AASB 16 removes the lease classification test and requires all leases (including operating leases) to be brought
onto the balance sheet by a lessee. The definition of a lease is also amended and is now the new on/off
balance sheet test for lessees.
The Group continues to assess the impact on its consolidated financial statements with the following impacts
expected:
> additional lease assets and liabilities recorded in the Statement of Financial Position;
>
>
removing lease payments as an operating expense and replacing this amount with a depreciation and
finance cost expense in the Statement of Financial Performance; and
reclassification in the Statement of Cash Flows for lease payments from operating cash outflows to
financing cash outflows.
The full quantum of financial and disclosure impacts are yet to be determined with the choice of transition yet to
be decided.
(c) Basis of Consolidation
Subsidiaries
Subsidiaries are entities controlled by Cardno. Control exists when the Company is exposed to, or has rights to,
variable returns from its involvement with an entity and has the ability to affect those returns through its power
over the entity. In assessing control, potential voting rights that presently are exercisable or convertible are
taken into account. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases.
The accounting policies of subsidiaries have been changed when necessary to align them with the policies
adopted by Cardno.
A list of the significant subsidiaries is contained in Note 28 to the financial statements. All controlled entities
have a June financial year-end.
Transactions eliminated on consolidation
Intra-group balances and transactions, unrealised gains and losses and inter-entity balances resulting from
transactions with or between controlled entities are eliminated in full on consolidation.
Page | 66
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(d) Foreign Currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated to the functional currency at the foreign exchange rate at that
date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the
functional currency at the beginning of the period, adjusted for effective interest and payments during the
period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are
translated to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences
arising on the translation of available-for-sale equity instruments, a financial liability designated as a hedge of
the net investment in a foreign operation, (see (ii) below) or qualifying cash flow hedges, which are recognised
in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
acquisition, are translated to Australian dollars at exchange rates at the reporting date. The revenue and
expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange
rates at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income in the foreign currency translation
reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is
transferred to profit or loss.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign
operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form
part of a net investment in a foreign operation and are recognised in other comprehensive income and are
presented within equity in the FCTR.
(e) Income Tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition
of assets or liabilities in a transaction that is not a business combination and that affects neither accounting or
taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent
that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised
for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when
they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the
liability to pay the related dividend is recognised.
Page | 67
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(f) Intangible Assets
Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the
date on which control is transferred to Cardno.
Cardno measures goodwill at the acquisition date as:
>
>
>
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus, if the business
combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed.
Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships.
Such amounts are generally recognised in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that
Cardno incurs in connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent
consideration is classified as equity, it is not remeasured and settlement is accounted for within equity.
Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.
When share-based payment awards (replacement awards) are required to be exchanged for awards held by
the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of
the acquirer’s replacement awards is included in measuring the consideration transferred in the business
combination. This determination is based on the market-based value of the replacement awards compared with
the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past
and/or future service.
Works contracts, software intangibles and customer relationships
Works contracts, software intangibles and customer relationships are acquired by Cardno and are stated at
cost less accumulated amortisation and impairment losses. Amortisation is calculated based on the timing of
projected cash flows of the contracts over their estimated useful lives, which currently vary from 1 to 3 years.
Patents and trademarks
Patents and trademarks acquired by Cardno are considered to have indefinite useful lives and are stated at
cost less any impairment losses. Patents and trademarks are not amortised but tested for impairment annually.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed
as incurred.
Amortisation
Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its
residual value.
Amortisation is charged to the profit and loss on a systematic basis over the estimated useful lives of intangible
assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite life are not amortised
but are systematically tested for impairment each year at the same time. Works contracts which are assigned a
value are amortised over the life of the contract from the date they are available for use.
Amortisation methods, useful lives and residual values are reviewed at each reporting date.
Page | 68
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(g) Impairment
The carrying amount of Cardno’s assets, other than work in progress and deferred tax assets, are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication exists, an
impairment test is performed. Cardno performs impairment testing of goodwill and intangibles with indefinite
useful lives annually.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds
its recoverable amount. Impairment losses are recognised in the profit and loss unless the asset has previously
been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous
revaluation with any excess recognised through the profit and loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating unit (group of units) and then, to reduce the carrying
amount of the other assets in the unit (group of units) on a pro rata basis.
Calculation of recoverable amount
The recoverable amount of Cardno’s receivables carried at amortised cost is calculated as the present value of
estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate
computed at initial recognition of these financial assets). Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their fair value less costs of disposal and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset belongs.
Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which
goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest
level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business
combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
Reversals of impairment
An impairment loss in respect of receivables carried at amortised cost is reversed if the subsequent increase in
recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss
had been recognised.
(h) Employee Benefits
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave expected to be settled within 12 months
of the period end represent present obligations resulting from employees’ services provided to reporting date,
calculated at undiscounted amounts based on remuneration wage and salary rates that Cardno expects to pay
as at reporting date including related on-costs.
Long-term service benefits
The provisions for employee entitlements to long service leave and other deferred employee benefits represent
the present value of the estimated future cash outflows to be made by the employer resulting from employees’
services provided up to the balance date and include related on-costs. In determining the liability for long
service leave, consideration has been given to future increases in wage and salary rates, and the consolidated
entity’s experience with staff departures.
Page | 69
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(h) Employee Benefits Continued
Liabilities for employee entitlements which are not expected to be settled within 12 months are discounted
using the rates attached to corporate bonds at balance date, which most closely match the terms of maturity of
the related liabilities.
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions
into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for
contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in
the periods during which services are rendered by employees. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined
contribution plan that are due more than 12 months after the end of the period in which the employees render
the service are discounted to their present value.
Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period that the employees unconditionally become
entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that meet the related service and non-
market performance conditions at the vesting date.
(i) Reserves
Foreign Currency Translation Reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation
of the financial statements of foreign Group entities where their functional currency is different to the
presentation currency of the reporting entity as well as from the translation of liabilities that hedge the
Company’s net investment in a foreign subsidiary.
Reserve for Own Shares
The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group.
The shares are held in trust by the Cardno Limited Performance Equity Plan Trust which has been formed
solely for the purpose of subscribing for, acquiring and holding shares for the benefit of employees participating
in the Performance Equity Plan (PEP) of Cardno Limited and its associates employees. At 30 June 2018 the
Group held 357,716 of the Company’s shares (2017: 357,716).
Page | 70
Directors’ Declaration
Cardno Limited and its Controlled Entities for the year ended 30 June 2018
1.
In the opinion of the Directors of Cardno Limited (the Company):
(a) the consolidated financial statements and notes set out on pages 27 to 70 and the Remuneration
Report of the Directors’ Report, set out on pages 15 to 24, are in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of Cardno’s financial position as at 30 June 2018 and of its performance
for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
2. There are reasonable grounds to believe that the Company and Group identified in Note 30 will be able to
meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross
Guarantee between the Company and those Group entities pursuant to ASIC Corporations (Wholly Owned
Companies) Instrument 2016/785.
3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001
from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2018.
4. The Directors draw attention to Note 32 to the consolidated financial statements, which includes a
statement of compliance with International Financial Reporting Standards.
Dated at Brisbane on the 20th day of August 2018.
Signed in accordance with a resolution of the Directors.
MICHAEL ALSCHER
Executive Chairman
Page | 71
Independent Auditor’s Report
To the shareholders of Cardno Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Cardno Limited (the Company).
In our opinion, the accompanying
Financial Report of the Company is in
accordance with the Corporations Act
2001, including:
• giving a true and fair view of the
Group's financial position as at 30
June 2018 and of its financial
performance for the year ended on
that date; and
• complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
The Financial Report comprises:
• consolidated statement of financial position as at 30
June 2018;
• consolidated statement of financial performance,
consolidated statement of comprehensive income,
consolidated statement of changes in equity, and
consolidated statement of cash flows for the year then
ended;
• notes including a summary of significant accounting
policies; and
• Directors' Declaration.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during the
financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We
have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified
are:
• valuation of goodwill and intangible
•
•
assets;
revenue recognition – fees from
consulting services; and
recoverability of deferred tax
assets for tax losses.
Key Audit Matters are those matters that, in our professional
judgement, were of most significance in our audit of the
Financial Report of the current period.
These matters were addressed in the context of our audit of
the Financial Report as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme
approved under Professional
Standards Legislation.
Page | 72
Valuation of goodwill and intangible assets ($313m)
Refer to Note 12 to the Financial Report
The key audit matter
How the matter was addressed in our audit
A key audit matter for us was the Group’s
annual testing of goodwill and intangible assets
for impairment, given the size of the balance
being 37% of total assets. We focused on the
significant forward-looking assumptions the
Group applied in their value in use models,
including:
•
forecast cash flows (margin and terminal
growth rates) – the Group has experienced
competitive market conditions in the
current year. This impacted the Group
through margin pressure in some Cash
Generating Units (CGUs). These conditions
increase the possibility of goodwill and
intangible assets being impaired, plus the
risk of inaccurate forecasts or a wider range
of possible outcomes for us to consider.
This requires additional audit effort specific
to their feasibility and consistency of
application to the Group’s strategy; and
• discount rates – these are judgemental in
nature and vary according to the conditions
and environment the specific CGU is
subject to from time to time.
We involved our valuation specialists and senior
audit team members in assessing this key audit
matter.
Working with our valuation specialists, our procedures
included:
• considering the appropriateness of the value in
use method used in the annual test of goodwill
and intangible assets for impairment against the
requirements of the accounting standards;
• assessing the integrity of the value in use models
used, including the accuracy of the underlying
calculation formulas;
• comparing the forecast cash flows contained in
the value in use models to the Board approved
budgets;
• assessing the accuracy of the previous Group
budgets to inform our evaluation of forecasts
incorporated in the models. We noted previous
trends where challenging market conditions
existed and how they impacted the business, for
use in further testing;
• considering the sensitivity of the models by
varying key assumptions
(forecast margins,
terminal growth rates and discount rates), within
a reasonably possible range, to identify those
CGUs at a higher risk of impairment and to focus
our audit procedures;
• challenging the Group’s significant forecast cash
flows including margin assumptions in light of the
expected continuation of competitive market
conditions. We compared forecast margins to
published information for comparable companies.
We used our knowledge of the Group, their past
performance, business and customers, and our
industry experience; and
•
independently developing a discount rate range
considered comparable using publically available
market data for comparable entities, adjusted by
risk factors specific to the Group and the industry
it operates in.
Page | 73
Revenue recognition - fees from consulting services ($764m)
Refer to Note 3 in the Financial Report
The key audit matter
How the matter was addressed in our audit
We focused on fees from consulting services
as a key audit matter due to the risk associated
with the judgements applied in determining
revenue recognition near year-end. 68% of the
Group’s revenue relates to fees from consulting
services.
The Group’s policy is to account for revenue
earned from consulting services under long
term contracts or fixed fee arrangements using
contract accounting, which is based on the
Group’s estimate of the percentage of
completion.
•
Our audit effort focused on revenue earned
from long term contracts or fixed fee
arrangements which remains in work in
progress at year-end (unbilled). This is driven by
the risk arising from the estimates and
judgements required by the Group in
determining the percentage of completion of
the project. Changes to these estimates would
give rise to variances in the amount of revenue
and profit/loss recognised.
Our procedures included:
•
testing key controls in the Group’s revenue
recognition process, including:
-
-
-
approval of project initiation and subsequent
contract variations;
approval of timesheets by project managers;
and
relevant IT systems controls with the
assistance of our IT specialists;
testing revenue earned from long term contracts
or fixed fee arrangements near year-end by
selecting a sample of these contracts within
work in progress; and:
-
comparing key terms of the contract with the
revenue recognition basis applied by the
Group and the revenue recognition criteria of
accounting standards;
-
-
-
comparing the project details recorded in the
accounting system, including contract start
date and contract amount, to the key terms
of the actual contract;
critically evaluating the estimated percentage
of completion used to recognise revenue and
work in progress by comparing it to evidence
from project reports and information
provided by the project managers; and
checking the subsequent billing and cash
received where applicable, or assessing the
aging of work in progress amounts remaining
unbilled at year end.
Page | 74
Recoverability of deferred tax assets for tax losses ($43m)
Refer to Note 7 in the Financial Report
The key audit matter
How the matter was addressed in our audit
The recoverability of Deferred Tax Assets (DTA)
relating to historical tax losses is dependent on
the ability of the Group to generate sufficient
taxable income in the future, to which the
historical tax losses can be applied. This is a key
audit matter due to:
•
•
the high level of judgement required by us
in evaluating the Group’s assessment of the
probability sufficient taxable income will be
generated in the future; and
the judgement required by us in evaluating
the Group’s interpretation of tax legislation
and the application of accounting
requirements, particularly in Australia and
the United States of America.
These factors increase the risk associated with
accurately forecasting future taxable income
and create complexity in our work on the
recoverability of the DTA.
We involved our tax specialists and senior audit
team members in assessing this key audit
matter.
Working with our tax specialists, our procedures
included:
• comparing the forecasts included in the Group’s
estimate of future taxable income used in the
DTA recoverability assessment to those used in
the Group’s assessment of the valuation of
goodwill and intangible assets for consistency.
Our approach to testing these forecasts was
consistent with the approach detailed above in
relation to the valuation of goodwill and intangible
assets;
• comparing taxable profit to historical trends and
performance to inform our evaluation of the
current taxable profit forecasts;
•
involving our tax specialists and teams from the
relevant jurisdictions to assess the tax loss
availability, utilisation expiry dates and annual
utilisation allowances for consistency with local
practice, regulatory parameters and legislation;
and
• understanding the timing of future taxable profits
and considering the consistency of the
timeframes of expected recovery to our
knowledge of the business and its plans. We
placed increased scepticism where there was a
longer timeframe of expected recovery.
Other Information
Other Information is financial and non-financial information in Cardno Limited’s annual reporting which is
provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the
Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Page | 75
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
•
Standards and the Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error; and
• assessing the Group and Company’s ability to continue as a going concern and whether the use of the
going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless they either intend to
liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
•
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1pdf. This
description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Cardno Limited for the year ended 30 June
2018, complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration
Report in accordance with Section 300A of the
Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included in
pages 15 to 24 of the Directors’ Report for the year
ended 30 June 2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Simon Crane
Partner
Brisbane
20 August 2018
Page | 76
Additional Shareholder Information
DISTRIBUTION OF ORDINARY SHAREHOLDERS
The number of shareholders, by size of holding, as at 31 July 2018 were:
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – and over
Total
Ordinary Shares
Number of
6,576
2,104
757
Number of
Shares
1,879,119
5,161,168
5,617,611
1,083
29,992,461
121
421,499,066
10,641
464,149,425
As at 31 July 2018 there were 4,645 shareholders who held less than a marketable parcel of 394 shares.
TWENTY LARGEST ORDINARY SHAREHOLDERS
The names of the twenty largest holders as at 31 July 2018 were:
Listed Ordinary Shares Number
Held
Percentage
CRESCENT CAPITAL INVESTMENTS
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
UBS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
NATIONAL NOMINEES LIMITED
BRISPOT NOMINEES PTY LTD
HALJAN MANAGEMENT LP
ANNE FELICITY PHILLIPS
BNP PARIBAS NOMINEES PTY LTD
ALLEGRA VENTURES PTY LTD
TAMBLYN INVESTMENTS PTY LTD
PEDERICK ENTERPRISES PTY LTD
TREVOR JOHNSON
ALLEGRA VENTURES PTY LTD
NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT>
FOUR G'S HOLDINGS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
MR RICHARD FRANCIS WOODS + MRS THERESE WOODS
215,178,846
111,719,600
30,478,509
24,200,883
3,181,955
3,142,732
1,929,108
1,719,369
1,686,192
1,101,378
955,174
947,339
800,000
762,736
687,779
621,072
611,587
600,000
555,761
497,928
46.36
24.07
6.57
5.21
0.69
0.68
0.42
0.37
0.36
0.24
0.21
0.20
0.17
0.16
0.15
0.13
0.13
0.13
0.12
0.11
Total
401,377,948
86.48
Page | 77
Additional Shareholder Information
SUBSTANTIAL SHAREHOLDERS
The names of substantial shareholders who have notified the company in accordance with section 671B of the
Corporations Act 2001 are:
Crescent Capital Investments
Invesco Australia Limited
VOTING RIGHTS
Number Held
Percentage
224,025,306
56,159,533
47.75
11.71
All ordinary shares (whether fully paid or not) carry one vote per share without restriction.
ESCROWED SHARES
There are currently no shares held in escrow.
RIGHTS
As at 31 July 2018 the details of Performance Rights on issue are as follows:
Number of Rights Holders
Number of Rights on Issue
17
4,168,275
VOTING RIGHTS OF RIGHTS
The ordinary shares issued on exercise of the rights will rank equally with all other ordinary shares.
Page | 78
BOARD OF DIRECTORS
AUDITORS
Chairman
Michael Alscher
Directors
Neville Buch
Steven Sherman
Jeffrey Forbes
Gary Jandegian
Robert Prieto
Nathanial Thomson
Rebecca Ranich
Chief Executive Officer
Ian Ball
Chief Financial Officer
Peter Barker
Company Secretaries
Courtney Marsden
Peter Barker
KPMG
Level 16, Riparian Plaza
71 Eagle Street
Brisbane QLD 4000
Phone +61 7 3233 3111
Fax +61 7 3233 3100
www.kpmg.com.au
LAWYERS
Gilbert + Tobin Lawyers
Level 35, Tower Two
International Towers Sydney
200 Barangaroo Avenue
Barangaroo NSW 2000
Phone +61 2 9263 4000
Fax +61 2 9263 4111
www.gtlaw.com.au
REGISTERED OFFICE
BANKERS
HSBC Bank Australia Limited
Commonwealth Bank of Australia
Standard Chartered Bank
Cardno Limited
ABN 70 108 112 303
Level 11, North Tower
Green Square
515 St Paul’s Terrace
Fortitude Valley
QLD 4006 Australia
Phone + 61 7 3369 9822
Fax + 61 7 3369 9722
cardno@cardno.com
www.cardno.com
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Computershare Investor Services
Pty Limited
Level 1, 200 Mary Street
Brisbane QLD 4000
Phone 1300 552 270 (within Australia)
+61 3 9415 4000 (outside Australia)
www.computershare.com.au
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Registered office
Cardno Limited
ABN 70 108 112 303
Level 11, North Tower
Green Square
515 St Paul’s Terrace
Fortitude Valley
QLD 4006 Australia
Phone + 617 3369 9822
Fax + 617 3369 9722
cardno@cardno.com
www.cardno.com
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