FY19
CARDNO
2019 ANNUAL
REPORT
for the year ended
30 June 2019
Cardno Limited
ABN 70 108 112 303
and its controlled entities
Chairman’s Letter
Dear Shareholder,
It is with pleasure that I write to you on the performance of your company.
Cardno continues its focus on providing an elevated platform to meet the needs of our customers and staff and
thus create long term shareholder value for all shareholders.
I am pleased to report that your company achieved results at the upper end of its guidance with an underlying
Earnings Before Interest Tax Depreciation Amortisation and Impairment of $62.0 million. As we have
counselled in prior years, we believe this financial measure is the most appropriate metric from which to
measure the company’s performance given its focus on cashflow and the company’s tax benefit position. The
Net Loss After Tax of $44.5 million included a further write-off of goodwill in the domestic Asia Pacific business
associated with acquisitions made prior to 2015. While disappointing, the Board’s focus is to ensure the
balance sheet best reflects future performance of the business. I note for shareholders that this write-off of
goodwill is not a cash item and does not impact the company’s operations.
OPERATING HIGHLIGHTS
Asia Pacific
While the Group result is pleasing, it masks a continued financial underperformance in the Asia Pacific
Consulting Division. Our Asia Pacific business is well placed with excellent leadership and staff. Unfortunately,
due to a lack of any material project wins during FY19, we have had a lower level of baseload work across
many specialist areas. This and the fall off in urban planning work associated with lower levels of residential
building activity continue to weigh down on the Australian business. It is unfortunate that we have been the
engineering partner of choice on what we believe are very strong bidding syndicates only to come second in
many of the larger tenders on new infrastructure projects awarded in the FY19 year. Our view is that it is only a
matter of time before we will see the Australian business bounce back to where it has operated previously. In
the meantime, the Australian leadership has restructured the Asia Pacific business’ operating structure to best
deal with this without affecting future opportunities.
Americas
The Americas continues to see its financial performance improve and we continue to build positive momentum
in how our operating divisions engage with their local market. The opportunity to see continued improved
performance in this division is high as this year’s result was held back by one of the Americas businesses
under performing during the year.
International Development
Our International Development (ID) business had another strong year and we remain strong believers as a
company and Board in our work in this area and the social and economic impact we deliver right across the
world. The division’s performance was held back this year due to political uncertainty in the northern
hemisphere. While our ID Asia Pacific and African operations both reported strong performance, the continued
impact of Brexit on our European operations was material. We are hopeful that some resolution to the operating
environment in Europe and the UK in the year ahead will alleviate the under performance we have encountered
this past year in this geography.
Portfolio Companies
Most pleasing this year saw the step change in size and performance of our Portfolio group of companies. With
the acquisition of Raba Kistner in the US, we now have a complementary business in the US market with that
of Construction Sciences in Australia and one which shares similar qualities in respect to market position, depth
of customer relationships and operating performance. The turnaround in Cardno PPI (our Oil and Gas Quality
Assurance business), which has had its strongest year both in terms of financial performance and work in hand
for a number of years, was also very pleasing.
Page | 1
Chairman’s Letter (continued)
ACQUISITIONS
In the FY19 year we completed the two largest acquisitions we have made in the last four years. This is
pleasing for two main reasons. Firstly, the acquisitions were on strategy and consistent with our current
operations across the business. Second, the company felt comfortable from a balance sheet and management
perspective to execute on these opportunities. I am pleased to report that each acquisition has performed to or
ahead of plan.
DEMERGER
The most material announcement of my letter to you this year is our accompanying announcement to the
release of our results regarding the proposed Demerger of the company.
The Board is unanimously recommending that shareholders, via a scheme of arrangement, support the
demerger of Cardno into two separate companies to be listed on the Australian Stock Exchange. These
companies will be known as:
> Cardno Limited (the existing global consulting services and international development business)
>
Intega Group Limited (the materials testing, underground surveying and O&G quality assurance business)
Each shareholder will receive a scheme booklet in early September outlining the proposed demerger and
shareholder information hotlines will be established to answer any questions you may have. I urge you to read
the information carefully.
The Board of Cardno believes the proposed demerger is the best way forward to maximise value for all
shareholders. As we have discussed in prior communications, the Cardno of old was a mixture of businesses
focussed on the creation of scale and little was achieved in the way of integration between some of these
acquisitions.
In the last four years your Board and management have worked tirelessly to repair the balance sheet of the
company, integrate businesses that had genuine synergies and shared customers and services as well as exit
businesses that didn’t reflect the future direction of the company. Today we have a much more integrated
business that functions as one with a divisional structure which effectively delivers on client projects across
regions. However, it was apparent to us some years ago that parts of our business did not fit together with our
main consulting services platform. These businesses needed to be managed separately due to their distinct
operating environments, customers and staff culture. This saw the creation of the Portfolio Companies division
which has been managed separately from the core business. The separation of the businesses which make up
the Portfolio Companies division has been very successful in enabling those businesses to operate in a manner
appropriate to their industry and thus thrive. Our view has always been that while these businesses remained
sub scale they still represented a core value for shareholders and that the best way to obtain value for
shareholders from these businesses was to continue to manage them directly.
With the acquisition of Raba Kistner in Texas as well as the SureSearch and Trilab businesses in Australia, the
situation has evolved such that the Portfolio Companies division now has the requisite scale to operate
independently. While we believe the division would be well received by prospective buyers if we elected to sell
it, the Board’s view is that the best way to maximise value for shareholders is to demerge the business and
award each existing shareholder with an additional share in the new entity, Intega Group Limited. Shareholders
can benefit from the opportunities available to Intega rather than another party. Shareholders can also opt to
sell their shares in the new entity, or continue to directly benefit from the ongoing ownership in the new
company, Intega Group Limited.
Page | 2
Chairman’s Letter (continued)
Our motivation as a Board for unanimously supporting the demerger has several elements:
1. The Cardno business which remains will become a pure engineering and environmental consulting and
international development company. This company will be homogenous with one shared approach to
business, one culture and one operating style.
2. The portfolio company division, Intega, has a very different approach to servicing its customers and
markets. It is also a very different business to the core Cardno business. Its demands and needs for capital
are materially different as are its customers and the way in which it is remunerated by its customers. In
essence, the management approach and style needed to operate Intega is very different to that required for
the broader Cardno business. Operating as a combined business creates a sub optimal operating
environment for each business.
3. Both Cardno and Intega have material opportunities in front of them and within the one structure there are
genuine pressures for capital allocation, internal investment and prioritisation of resources which will be
better managed as two distinct businesses.
4. While the two businesses remain as one business, neither business is able to build a truly focussed
approach to its operations, staff and culture.
5. The Board believes that the best way of maximising value for all shareholders is to operate as two distinct
companies.
At the core of all decisions made by the Board is a focus on providing exceptional service to our clients, a work
environment that is safe and attractive for our employees and maximising shareholder value for all
shareholders. We genuinely believe these three goals are best served by the proposed demerger and I urge
you to support the demerger by voting for the scheme of arrangement.
On behalf of the Board, I would like to thank our employees, clients, banking partners and shareholders for their
ongoing support.
MICHAEL ALSCHER
Executive Chairman
Page | 3
CEO’s Letter
Dear Shareholder,
This is my first annual report as the CEO and Managing Director of Cardno. I am proud to take on this role and
lead the business into its 75th year of operation. I am also delighted to report that Cardno has advanced
significantly and is now a stronger business with an improved outlook and backlog. Our focus is on Client
Excellence, People Excellence and Delivery Excellence across all parts of our business, enabling sustainable
and profitable growth underpinned by our company values of Safety, Integrity, People and Excellence.
During my first year, the leadership team has initiated specific actions to improve our focus on clients, enhance
our acquisition and retention of talent and improve our efficiency and agility. We are also leveraging the
deployment of digital technology to drive “innovation that matters”.
As a result, I am pleased to report that the Cardno Group delivered an underlying EBITDAI of $62.0m which is
at the top end of guidance, achieving expectations for a third year in a row and strengthening our platform for
future growth.
FY19 FINANCIAL HIGHLIGHTS
The benefits of our multi-year restructure can be seen in Cardno’s financial results:
> Gross Revenue $1,319m up 18.1% on prior year
> Underlying EBITDAI $62.0m up 10.3% on prior year
> Conversion of EBITDAI into operating cash flow pre-tax and interest expense was a pleasing 95.6%
($48.4m)
> We showed our strength in diversity, meeting expectations in aggregate with variances across Divisions:
Americas’ performance continues to steadily improve with revenue up 14.3% on prior year and
EBITDA margin increased from 4.8% to 5.1%. Actions are underway to address two loss-making
business units which will yield further margin improvements going forward.
Asia Pacific revenues down 4.1% on prior year in a competitive market, especially in urban
development. EBITDA margin down from 5.6% to 4.5% driven by the continued wind down of a
number of major projects, surplus capacity and the costs of running two Divisions in the first half of
the year, prior to consolidation. The Division was restructured in the second half to a single, leaner
operation and with the addition of TGM (the regional Victorian acquisition), we are now well placed for
revenue growth and margin expansion, with some large project opportunities in the pipeline.
International Development (ID) revenue up 13.2% on prior year. EBITDA margin down from 3.4% to
1.2% given planned investments. ID Asia Pacific performed strongly and a new leader was recruited
in the US.
Construction Sciences now a materially larger business – doubling its revenue through organic
growth in Australia and the acquisition of Raba Kistner in the US. EBITDA margin remains ~10% on
strong revenue growth.
> Backlog, which is a leading indicator of our future revenues, grew very strongly by 14.7% over the prior
year due to an increased focus on clients, investment in business development staff and the addition of our
recent acquisitions.
> We completed four acquisitions, DDAI, Trilab, Raba Kistner and TGM. All are performing strongly, with the
two larger businesses, TGM (expanding Cardno’s consulting engineering footprint in regional Victoria) and
Raba Kistner (establishing a footprint in materials testing across Texas in the United States) ahead of
expectations.
As noted 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. For FY19, capital expenditure was $24.5m. In
addition, capital was used to continue the share buy-back program, with $21.5m spent on buying back Cardno
stock in the financial year ($13.9m in FY18).
Page | 4
CEO’s Letter (continued)
DIVISION REVIEWS
> The Asia Pacific Division’s EBITDA margin declined from 5.6% to 4.5% as a result of a competitive
market, the conclusion of some major projects and an inefficient operating model. Asia Pacific North and
South were consolidated in H2 to create a single business to drive improved collaboration, client focus and
provide a platform for leadership to improve operational efficiencies. We introduced a key account program,
initiated an improved client feedback program, continued our investment in leading business development
capabilities and an improved opportunity management system to drive client excellence. We have also taken
many actions to improve our delivery excellence such as increasing our project management capabilities,
reducing excess capacity, exiting unprofitable practices, rationalising our P&Ls, simplifying the organisational
structure of the business and sharpening accountabilities. In addition, we successfully acquired and integrated
consulting business TGM to extend our Victorian business into the attractive regional markets of Ballarat
and Geelong.
> The Americas Division had a strong year and performance continued to improve with significant
revenue growth and an expansion of EBITDA margin from 4.8% to 5.1%. This growth has been a
result of continued integration of strategic acquisitions, strengthened operating and financial
discipline, and key account management. The past year saw particularly strong performances in
Science and Environment and Government Services with key contract wins and margin expansion in
both businesses. America’s leadership focus on key accounts and investment in business
development has driven an increase in backlog which will propel continued momentum into 2020.
Americas’ EBITDA margin was impacted by two underperforming businesses in Infrastructure which
are being addressed. This is expected to result in continued margin improvement.
> The International Development Division delivered a 1.2% EBITDA margin which met expectations
given planned investments. It has been a challenging year with BREXIT impacting decisions on UK
Government Development awards, and shifting priorities in the US Development spend. The Division
took measures to mitigate these risks and through their client focus, deep capability and experience
achieved significant new contract wins and program expansions. The Division continues to grow and
expand its private sector consulting service line, and is leveraging its expertise in eradication of
modern-day slavery, shared value and strengthening ESG business focus. We expect this to be a key
element of growth in 2020.
> Construction Sciences performed extremely well, both organically and through the acquisition of
Raba Kistner in December 2018. In Australia, Construction Sciences continues to grow the top line
organically, benefiting from ongoing transport infrastructure spend (for example freeways, roads,
airports) as well as modest mining infrastructure development activity in Western Australia and
Queensland. Ongoing operational disciplines implemented over the past three years (in part as a
result of recognising Construction Sciences as a separate business needing to operate on industry
specific business drivers and metrics) continue to deliver solid EBITDA margins. The acquisition of
Raba Kistner, a construction materials testing business headquartered in San Antonio, Texas,
provides a material presence in Texas and other US states. We are delighted to welcome Gary Raba
and the Raba Kistner team to the combined group – like Australia (albeit on a significantly larger
scale) Texas specifically and the US generally are investing heavily in transport infrastructure, and
Raba Kistner is well positioned to serve and grow with this sector.
> PPI, our Houston headquartered Oil & Gas business, exits FY19 in profit and with a growing top and
bottom line. While PPI’s contribution to group EBITDA is comparatively modest, the PPI leadership
team has over the past three years turned the operation around from being a material loss maker in
FY16 to entering FY20 with both positive momentum and a growing order book. The strategy of both
focus on mid-stream Oil & Gas and diversifying by expanding the quality assurance practice, plus
exiting loss making markets has been successful.
>
In Latin America, we continue to complete and wind down engineering projects.
Page | 5
CEO’s Letter (continued)
OPERATIONAL FOCUS
Cardno’s financial progress has been underpinned by a parallel effort to reset the organisation operationally.
Significant progress has been achieved in a number of focus areas:
> Safety – safety is one of our core values. Our Zero Harm culture is strongly embedded in our business to
ensure that our people come home from work safely every day. Our continued focus has seen an
improvement in our Total Recordable Injury Frequency Rate (TRIFR) with a 25% reduction in our TRIFR
across our Consulting business, (Asia Pacific and Americas) and a 27% reduction in Construction
Sciences. In addition, our International Development division continues to track well below industry
standard and our PPI business has industry leading performance with a TRIFR of zero which it has
maintained for the last three years.
> People Excellence – Cardno’s greatest asset is its people. We are committed to attracting, developing and
retaining the very best people for our business. In the last year we have initiated work on a new Employee
Value Proposition, implemented new Personal Development Plans, defined new Career Paths and Talent
Development Programs - providing more options for our people. We also launched industry leading Paid
Parental Leave policies and Domestic and Family Violence leave programs and significantly reduced our
gender pay gap in Asia Pacific and the Americas by 47% for USD paid employees and by 32% for AUD paid
employees in less than one year. International Development continues to lead with a gender pay gap of
close to zero and is focussed on extending and expanding its inclusive agenda with more active
engagement with indigenous communities through the development of our Reconciliation Action Plan.
Cardno also recently launched its Inclusion and Diversity strategy across the business and I have
communicated about how an inclusive culture contributes to Cardno being a great place to work. I’ve also
made some deliberate and public strategic moves to increase Cardno’s profile in the diversity and inclusion
space, including publishing Cardno’s Gender Pay Gap results internally and externally, speaking on the
subject on panels and joining Consult Australia’s Male Champions of Change.
> Client Excellence – We are building on our strengths in project delivery as well as technical and industry
eminence to achieve advisor status and sustainable relationships with our clients. Over the last year, in
Asia Pacific and the Americas, we have formalised our Key Account Programs with the development of Key
Account Plans and appointment of Key Account Leaders. We have increased our investment in business
development expertise and we have executed our plans to broaden and deepen client relationships and
provide solutions for our clients’ most complex engineering and environmental challenges. Through this
more proactive approach, we are adding value for our clients and have increased our backlog at the end of
2019 as well as our pipeline of opportunities.
> Delivery Excellence – We have reviewed our project delivery and business support processes over the
last year. In Asia Pacific, we have designed and launched a new end-to-end project management
framework to improve the consistency of our quality and commercial outcomes which in turn allows us to
better manage risk. Towards the end of the year, we commenced a review of our business support
functions in each Division and at the Group level. We will continue this review, including benchmarking
during 2020 with a goal to evolve our business support functions to provide efficient and effective support,
leveraging technology and our Manila operation.
> Digital Enablement & IT – Half way through FY19 we appointed a Chief Digital Officer to accelerate the
digital transformation of Cardno. We also appointed a Chief Technology Officer to focus on developing a
technology stack for the future as well as enterprise applications. These two new roles will increase our
focus on the business application of emerging technology. We have completed our future state enterprise
architecture and have begun rapidly advancing our digital agenda with a goal to develop and launch new
digital client value propositions whilst continuing to improve our digital tools and analytics capabilities to
uplift delivery excellence and efficiency. One such example, already launched and implemented on client
projects in our New Zealand business, is a drone mounted thermal imaging capability to scan, map and
identify underground water leaks invisible from the surface.
Page | 6
CEO’s Letter (continued)
FUTURE PRIORITIES
Going forward we are focused on building Cardno into a client-focused professional services business
generating sustainable growth and double-digit margins, leveraging digital technology.
> We are focused on continuing the strong momentum in our Americas business by continuing to grow
through prioritising and accelerating growth of priority service lines (for example: Transportation and
Restoration Services) in priority markets (for example: California, Texas, Florida) through strategic
investments and our aspiration to complete an acquisition of scale.
>
>
In Asia Pacific, we will continue to build our business around our key accounts and our continued
investment in business development. We are focused on winning several large opportunities in our pipeline
and benefitting from the underlying growth in spend on infrastructure. In addition, we will continue to
execute our business improvement actions and leverage digital technology to improve client value and
efficiency and expand our margins
International Development will be focused on growing its US and EMEA business leveraging our
investments in new leadership and developing deeper client relationships. We will continue to invest in
building new client value propositions in private sector consulting work leveraging our strengths in shared
value programs, ESG consulting, and Modern-Day Slavery mitigation
> People Excellence will always be a focus and we will complete our Employee Value Proposition, expand
our commitment to Inclusion and Diversity programs, and we will continue to reduce our gender pay gap
until we reach and sustain equality
> We will advance our Digital transformation across the business with specific client facing offerings and
internal process improvements.
In closing, it has been a year in which we have commenced many initiatives to improve our client, people and
delivery excellence which are strengthening our business, providing a platform for future growth and delivering
strong operating profit and cashflow. I would like to thank my Board, our employees, clients, banking partners
and shareholders for their support during my first year and their ongoing support as we advance Cardno into
the future.
IAN BALL
Managing Director and Chief Executive Officer
Page | 7
Consolidated Financial Statements
for the year ended 30 June 2019
CONTENTS
Directors’ Report ..................................................................................................................................................... 9
Auditor’s Independence Declaration ..................................................................................................................... 29
Consolidated Statement of Financial Performance .............................................................................................. 30
Consolidated Statement of Other Comprehensive Income .................................................................................. 30
Consolidated Statement of Financial Position ...................................................................................................... 31
Consolidated Statement of Changes in Equity ..................................................................................................... 32
Consolidated Statement of Cash Flows ............................................................................................................... 33
Notes to the Consolidated Financial Statements.................................................................................................. 34
Directors’ Declaration ........................................................................................................................................... 82
Independent Auditor’s Report ............................................................................................................................... 83
Additional Shareholder Information ...................................................................................................................... 88
Corporate Directory .............................................................................................................................................. 90
The Company’s Corporate Governance Statement last updated and Board approved on 20 August 2019
can be viewed on the website at www.cardno.com/corporategovernance.
Page | 8
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 2019.
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
Non-Executive Director and Chairman (appointed 9 August 2018)
Executive Director and Executive Chairman (appointed 13 April 2018, resigned 9 August
2018)
Acting Chief Executive Officer (appointed 13 April 2018, resigned 9 August 2018)
Ian Ball
Chief Executive Officer and Managing Director (appointed 9 August 2018)
Neville Buch
Non-Executive Director
Jeffrey Forbes
Non-Executive Director
Rebecca Ranich
Non-Executive Director
Steven Sherman
Non-Executive Director
Nathanial Thomson
Non-Executive Director
Gary Jandegian
Non-Executive Director (resigned 24 October 2018)
Robert Prieto
Non-Executive Director (resigned 24 October 2018)
COMPANY SECRETARIES
Courtney Marsden
Legal Counsel & Joint Company Secretary (on parental leave)
Vikash Naidu
General Counsel & Interim Joint Company Secretary (appointed 12 November
2018)
Peter Barker
Chief Financial Officer & Joint Company Secretary
Qualifications of Company Secretaries
Courtney Marsden – BAppSc, LLB (Hons), LLM
Vikash Naidu - LLB, BEnvSc, GradDip LegalPrac, LLM, GradDip AppCG
Peter Barker – BComm, MBA, FCPA
Particulars of Directors’ qualifications, experience and special responsibilities are listed on the next page.
Page | 9
Directors’ Report (continued)
Director
Experience
Special
Responsibilities
Michael
Alscher
Michael Alscher joined as a Non-Executive Director of Cardno Limited in November 2015.
He then became Chairman in January 2016.
Non-Executive
Chairman
He is the Managing Partner and founder of Crescent Capital Partners, a leading
Australian based private equity firm with $2 billion in funds under management,
specialising in high 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 a Non-Executive Director of ClearView Limited and the Non-
Executive Chair of Australian Clinical Labs, National Dental Care, National Home Doctor
Service and Crumpler
Michael holds a Bachelor of Commerce (Finance & Mathematics) from the University of
New South Wales.
Chairman of
Remuneration
Committee
Member of
Audit, Risk &
Compliance
Committee
Ian Ball
As the Chief Executive Officer and Managing Director of Cardno, Ian Ball is responsible
for leading the Global business and driving client excellence, people excellence and
delivery excellence to grow Cardno’s shareholder value.
Chief Executive
Officer and
Managing Director
Ian has more than 30 years’ experience in consulting and professional services within the
fields of financial services, technology, industrial services and government.
He began his career in strategy consulting and has developed international leadership
experience in Australia, North America and Europe; working with companies like IBM,
Ernst & Young, Bain & Company and SilverLake LLP Private Equity.
Ian represents Cardno as a Male Champion of Change with Consult Australia and is
Cardno’s Pay Equity Ambassador for the Workplace Gender Equality Agency (WGEA).
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
United States.
Neville
Buch
Neville Buch joined as a Non-Executive Director of Cardno Limited in November 2015. He
became the Interim CEO in November 2016 to March 2018, and was appointed as a
Deputy Chairman in May 2018. 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
Member of
Remuneration
Committee
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 Director of Steel Mains and the Non-Executive Chair of NZ
Panels Group, Hall Contracting, Viridian and Nude By Nature.
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.
Steven
Sherman
Steven Sherman joined Cardno Limited as a Non-Executive Director in January 2016. He
is a Chartered Accountant with more than 35 years’ experience in corporate restructuring
and insolvency. His experience ranges from advising on and facilitating restructuring and
turnaround strategies for large listed enterprises to the re-engineering of entire business
across multiple international jurisdictions.
During his time in private practice Steven was the National Managing Partner of one of
Australia’s largest independent internationally operating restructuring and corporate
advisory firms. He has practiced in the area of financial and operational restructuring and
provided professional advice to multi national financiers and lending syndicates as well as
company boards and executives.
Non-Executive
Director
Member of
Audit, Risk &
Compliance
Committee
Member of
Remuneration
Committee
Page | 10
Directors’ Report (continued)
Director
Experience
Steven has a Bachelor of Commerce from the University of NSW. He is a Fellow of the
Institute of Chartered Accountants and a member of the Australian Institute of Company
Directors.
Jeff
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.
Jeff is the Non-Executive Chair of Herron Todd White Group and Non-Executive Directors
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.
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 holds a BCom from the University of Newcastle and is a Graduate of the Australian
Institute of Company Directors.
Nathanial
Thomson
Nathanial Thomson became a Non-Executive Director of Cardno Limited in May 2016. He
is a Partner at Crescent Capital Partners and responsible for the assessment of potential
investment opportunities and management of investee companies.
Prior to joining Crescent in 2004, Nathanial was a strategy Consultant for McKinsey & Co.
where he executed multiple strategy and operational assignments across industry sectors
and geographies.
He is currently a Non-Executive Director of ClearView Limited, Australian Clinical Labs,
National Dental Care and National Home Doctor Service.
Nathanial holds a BCom with honours and an LLB with honours from the University of
Western Australia.
Rebecca
Ranich
Rebecca Ranich joined Cardno Limited as a Non-Executive Director in March 2018. She
has nearly 30 years of experience, and over her career, has led transformational business
initiatives, forged global strategic alliances and led new market ventures in the energy and
infrastructure sectors.
Rebecca is an investor in and advisor to emerging technology companies, and is in
collaboration 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 former Director at Deloitte Consulting, LLP where she led Energy and
Sustainability Investment Advisory services for public sector clients. Prior to Deloitte, she
was a Vice President at Michael Baker Corporation (Baker).
Rebecca also serves as a Director on the Board of the National Fuel Gas Corporation
(NYSE: NFG, (Governance and Nominating Committee)); she is a Supervisory Board
member of Uniper SE (DAX: UN01); a Vice-Chairman of the Board of the Gas
Technology Institute (and Chair Investment Committee) and serves on the Advisory
Board of Yet Analytics, Inc.
Rebecca has a Bachelor of Arts (B.A.) from Northwestern University and a Masters of
Business Administration (MBA) from the University of Detroit. She served on the National
Petroleum Council and has been a member of the National Association of Corporate
Directors.
Special
Responsibilities
Non-Executive
Director
Audit, Risk &
Compliance
Committee
Chairman
Member of
Remuneration
Committee
Non-Executive
Director
Member of
Remuneration
Committee
Non-Executive
Director
Member of
Remuneration
Committee
Page | 11
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 2019 or 30 June 2018.
EVENTS SUBSEQUENT TO REPORTING DATE
On 21 August 2019, the Company announced the proposed demerger of its Quality, Testing and Measurement
businesses into a separate ASX listed entity, to be named Intega Group Limited. The demerger requires
shareholder approval and if it proceeds, will be implemented via a capital reduction and scheme of
arrangement.
There has been no impact of the proposed demerger on the balances and transactions recognised in these
financial statements. Should the demerger proceed, the composition of the Group’s cash generating units (CGUs)
and tax consolidated groups will change and certain non-current assets will be reclassified as assets held for
distribution to owners and measured at the lower of carrying value and fair value less costs to distribute. Accordingly,
key accounting estimates and judgements relying on forward looking assumptions used to determine the carrying
value of goodwill and deferred tax assets may need to be reassessed, and the fair value less costs to distribute of
certain assets will need to be determined.
Other than the matter 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 | 12
Directors’ Report (continued)
REVIEW OF RESULTS
PERFORMANCE ($m)
Gross Revenue
Fee Revenue
Underlying EBITDAI 1
Underlying NOPAT 2
Net Profit / (Loss) after Tax
Operating Cash Flow
EPS - basic (cents)
NOPAT EPS - basic (cents)
2019
1,319.3
895.2
62.0
16.3
(44.5)
40.8
(9.78)
3.57
2018
1,117.0
763.5
56.2
20.0
(14.0)
45.7
(2.97)
4.23
1 Underlying EBITDAI = EBIT plus underlying adjustments, depreciation, amortisation and impairment losses
2 Underlying NOPAT = NPAT plus underlying adjustments and impairment losses
EBITDAI 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 30. 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 underlying adjustments such as impairment losses of goodwill and acquisition related costs.
Balance Sheet
During the year, the Company refinanced its debt facilities. The new facility is a three-year AU $110.8 million
and US $83.0 million syndicated drawdown facility, expiring in December 2021. The company is in a net debt
(cash on hand less debt) position of $93.6 million at the end of 30 June 2019 (net debt of $110.9 million at 31
December 2018 and net debt of $19.9 million at 30 June 2018). The increase in net debt relates to funds drawn
for the acquisition of Raba Kistner and TGM in late calendar year 2018, less repayment of debt in 2H FY19.
Included in the balance sheet is an increase of $46.0 million to intangible assets relating to goodwill, customer
contracts and customer relationships acquired on the completion of four acquisitions during the year ended 30
June 2019, net of an impairment recorded against the Asia Pacific business. Refer to notes 2 and 12 for further
details.
Cash Flow
The Company recorded a net operating cash inflow for the year of $40.8 million (inflow $45.7 million FY18).
This is primarily driven by a strong operating result for the year, tighter working capital controls, the timing of
receipts of large payments from clients, and higher financing costs associated with the new debt facility (both
drawn debt to fund acquisitions and higher cost of debt).
Page | 13
Directors’ Report (continued)
SEGMENT OVERVIEW
Asia Pacific (APAC)
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 revenues were down 4.1% on PCP and EBITDA margin down from 5.6% to 4.5% driven by the
continued wind down of a number of major projects in FY18 that have not been replaced as well as “project
clean up”. The division restructured in H2, creating a platform for growth going forward.
The Company completed the acquisition of TGM in early December 2018. TGM is a regional Victorian
professional engineering consultancy practice – increasing the group’s expanding presence in major Australian
regional centres.
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 division performance continues to improve with revenue up 14.3% on PCP and EBITDA margin
increasing from 4.8% to 5.1%. New leadership, investment in business development initiatives over the past
two years and ongoing operating disciplines have driven growth in top and bottom line results.
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 other
divisions.
International Development revenue was up 13.2% on PCP. EBITDA margin was down from 3.4% to 1.2%, due
in part to modest planned investment in business development and delays in awarding contracts in the northern
hemisphere.
Construction Sciences
The Construction Sciences business is a geotechnical engineering, environmental consulting and materials
testing business. It acquired Trilab in July 2018 and Raba Kistner in December 2018. Raba Kistner has a
material presence in Texas and certain other US locations that is expected to benefit from the substantial long
term infrastructure investment underway in the US and Canada.
Construction Sciences is now a materially larger business – doubling its revenue through organic growth in
Australia and the acquisition of Raba Kistner. EBITDA margin remains ~10%.
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 up, primarily due to improved revenues and profitability for the PPI Oil & Gas business –
reflecting both improving market conditions and the successful strategic pivot towards quality assurance
services for mid-stream oil and gas clients and other clients. The Latin America business is focused on
completing and winding down engineering projects.
Page | 14
Directors’ Report (continued)
SEGMENT OVERVIEW CONTINUED
AUD ’000
Asia Pacific
Americas
ID
Construction Sciences
Portfolio
Gross Revenue
Asia Pacific
Americas
ID
Construction Sciences
Portfolio
Corporate
EBITDAI
Depreciation, impairment and
amortisation expenses
EBIT
Net finance costs
Profit/(loss) before income tax
Statutory1
Financial year
Underlying
Adjustments2
Financial year
Underlying1
Financial year
2019
2018
2019
2018
2019
2018
250,829
261,498
432,474
378,293
355,348
313,873
221,615
115,431
59,006
47,880
1,319,272
1,116,975
7,727
21,898
4,297
19,062
2,794
55,778
(5,164)
50,614
14,618
20,143
10,552
12,697
1,262
59,272
(4,726)
54,546
(73,313)
(15,979)
(22,699)
(7,714)
(30,413)
38,567
(3,442)
35,125
-
-
-
-
-
-
3,477
102
-
3,153
-
6,732
4,662
11,394
46,285
57,679
522
58,201
2,544
60,745
-
-
-
-
-
-
-
(1,888)
-
-
(1,667)
(3,555)
5,219
1,664
1,383
3,047
-
3,047
250,829
261,498
432,474
378,293
355,348
313,873
221,615
115,431
59,006
47,880
1,319,272
1,116,975
11,204
22,000
4,297
22,215
2,794
62,510
(504)
62,006
14,618
18,255
10,552
12,697
(405)
55,717
493
56,210
(27,028)
(14,596)
34,978
(7,192)
27,788
41,614
(3,442)
38,172
30,948
(11,533)
(18,195)
33,995
16,255
19,977
Income tax (expense)/benefit
(14,077)
(49,143)
Profit/(loss) after income tax
(44,490)
(14,018)
Attributable to:
Ordinary Equity holders
(44,490)
(14,018)
60,745
33,995
16,255
19,977
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 16.
EBITDAI represents earnings before interest, income tax, depreciation, amortisation and impairment.
EBIT represents earnings before interest and income tax.
EBITDAI 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 30. These metrics provide a measure of Cardno’s performance before the impact of non-cash expense items,
such as depreciation, impairment and amortisation, as well as interest costs associated with Cardno’s external debt facility and hire-purchase
arrangements.
Page | 15
Directors’ Report (continued)
SEGMENT OVERVIEW CONTINUED
Underlying Profit From Continuing and Discontinued Operations After
Income Tax (Attributable to Ordinary Equity Holders)
16,255
19,977
Note
2019
$’000
2018
$’000
Underlying Adjustments to EBITDAI:
Onerous lease provision and other costs associated with office
rationalisation and consolidation
Business review costs
Costs associated with restructuring
Acquisition related costs
De-merger costs
Legal costs
Total Underlying Adjustments to EBITDAI
Underlying Adjustments to Depreciation, Amortisation and
Impairment:
Impairment of goodwill
Accelerated depreciation on software assets
Total Underlying Adjustments to Depreciation, Amortisation and
Impairment
Underlying Adjustments to Finance Costs:
Write off of borrowing costs
Total Underlying Adjustments to Finance Costs
Underlying Adjustments to Income Tax:
Change in US federal corporate income tax rate
Tax effect of underlying adjustments
Valuation allowance against foreign tax credits
Total Underlying Adjustments to Income Tax
Statutory Profit / (Loss) After Income Tax
(Attributable to Ordinary Equity Holders)
1
2
3
4
5
6
7
8
9
10
(517)
-
2,162
4,418
4,599
732
(1,241)
2,905
-
-
-
-
11,394
1,664
46,285
-
-
1,383
46,285
1,383
522
522
-
(3,103)
5,647
2,544
-
-
32,846
(1,898)
-
30,948
(44,490)
(14,018)
1.
2.
3.
4.
5.
6.
7.
8.
9.
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.
Prior 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.
Termination and redundancy costs associated with the Asia Pacific restructure.
Costs incurred in acquiring new businesses during the year, such as legal, due diligence and insurance costs
Costs incurred in relation to proposed Group de-merger
Impairment of Asia Pacific goodwill
Accelerated amortisation on software assets following a review of group systems.
Break fees and write off of capitalised finance costs on previous debt facility a result of refinancing in December 2018
Impact in prior year 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%.
10. Valuation allowance booked against foreign tax credits carried forward in the United States
Page | 16
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:
> Growing revenue and rebuilding EBITDA margins by investing in growth initiatives and building the
business development pipeline
>
Improve revenue per client by stronger focus on cross selling of all Cardno services
> Continued focus on operational efficiencies and conservative fiscal and balance sheet management
> Delivering small carefully considered ‘bolt-on’ style acquisitions to supplement existing divisional
businesses
DIRECTORS’ MEETINGS
Attendance at Board meetings and Board Committee meetings for the year ended 30 June 2019 is set out below:
No. of Meetings Held
Michael Alscher (i)
Ian Ball (ii)
Neville Buch
Steven Sherman
Jeffrey Forbes
Nathanial Thomson (iii)
Rebecca Ranich
Robert Prieto
Gary Jandegian
Board of Directors
Audit, Risk &
Compliance Committee
Remuneration
Committee
A
9
8
8
8
9
8
6
1
2
B
9
8
9
9
9
9
9
2
2
A
2
-
-
3
4
1
-
1
-
B
2
-
-
4
4
2
-
1
-
A
3
3
3
3
3
4
2
-
2
B
3
3
3
3
3
5
3
-
2
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 resigned from his positions as Acting Chief Executive Officer and Executive Chairman on 9 August 2018. He was appointed Non-
Executive Director and Chairman on 9 August 2018. On 29 November 2018 Michael Alscher rejoined the ARCC.
Ian Ball was appointed Chief Executive Officer and Managing Director on 9 August 2018. He attended Remuneration Committee meetings by invitation.
(ii)
(iii) Nathanial Thompson resigned from the ARCC on 29 November 2018 when Michael Alscher rejoined.
INTERESTS
As at the date of this report, the interests of the Directors in the shares of Cardno Limited were:
Michael Alscher
Neville Buch
Steven Sherman
Jeffrey Forbes
Nathanial Thomson
Rebecca Ranich
Ian Ball
Ordinary
Shares
Performance
Options
Performance
Rights
-
-
-
148,619
-
-
-
-
-
-
-
-
-
5,600,000
-
-
-
-
-
-
-
Page | 17
Directors’ Report (continued)
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 making 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 2019 are detailed in the following table.
Name
Title
NON-EXECUTIVE DIRECTORS
Michael Alscher1
Non-Executive Director and Chairman
Neville Buch
Non-Executive Director
Steven Sherman
Non-Executive Director
Jeffrey Forbes
Non-Executive Director
Nathanial Thomson
Non-Executive Director
Rebecca Ranich
Non-Executive Director
FORMER NON-EXECUTIVE DIRECTORS
Gary Jandegian
Non-Executive Director
Robert Prieto
Non-Executive Director
Period KMP
(if less than full-year)
Resigned 24 October 2018
Resigned 24 October 2018
Page | 18
Directors’ Report (continued)
Name
Title
Period KMP
(if less than full-year)
EXECUTIVES
Ian Ball
Chief Executive Officer and Managing Director
Appointed 9 August 2018
Peter Barker
Chief Financial Officer
1 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. He transitioned back to his Non-Executive Director and Chairman role following the appointment of Ian Ball on 9 August 2018.
B. ROLE OF THE REMUNERATION COMMITTEE
The remuneration of Directors, the CEO, KMP, managers and staff is reviewed by the Remuneration
Committee.
Board decisions on the remuneration of the Chief Executive Officer and Key Management Personnel are made
in the absence of the CEO and KMP.
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 2019.
The Committee met five times during the year and committee members’ attendance record is disclosed in the
table of Directors’ meetings.
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 2020 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 | 19
Directors’ Report (continued)
C. NON-EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
The remuneration received by Non-Executive Directors for the years ended 30 June 2019 and 30 June 2018 is
set out in the following table.
NON-EXECUTIVE
Michael Alscher1
Neville Buch2
Steven Sherman
Jeffrey Forbes
Rebecca Ranich3
Nathanial Thomson
Robert Prieto4
Gary Jandegian5
Total 2019
Total 2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Salary and Fees
$
348,603
274,575
100,000
453,425
103,652
103,652
116,231
116,231
139,833
37,517
100,000
100,000
50,982
143,222
45,571
129,029
Superannuation
Benefits
$
-
-
-
-
9,847
9,847
11,042
11,042
-
-
-
-
-
-
-
-
Total
$
348,603
274,575
100,000
453,425
113,499
113,499
127,273
127,273
139,833
37,517
100,000
100,000
50,982
143,222
45,571
129,029
1,004,872
1,357,651
20,889
20,889
1,025,761
1,378,540
1 Michael Alscher transitioned from acting Chief Executive Officer back to Non-Executive Director and Chairman on 9 August 2018. He was still paid as
transitioning CEO until October 2018. His salary and fees paid during his time as Chief Executive Officer are included in the table above. Michael Alscher's fees
are paid to Crescent Capital Partners.
2 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.
3Rebecca Ranich commenced on 19 March 2018.
4Robert Prieto resigned from the board on 24 October 2018.
5Gary Jandegian resigned from the board on 24 October 2018.
Page | 20
Directors’ Report (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.
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 KMP contract.
Target STI opportunities are expressed as a percentage of TFR.
For the year ended 30 June 2019, STI payments were determined by achievement of
financial and non-financial performance targets. The 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:
Long-Term
Incentive (LTI)
< 90% budget underlying EBITDA achieved
0% STI paid
90% budget underlying EBITDA achieved
50% STI paid
100% budget underlying EBITDA achieved
75% STI paid
> 110% budget underlying EBITDA achieved 100% STI paid
STI’s are paid in cash following the release of the audited financial results to the ASX.
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 and beyond, 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 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 | 21
Directors’ Report (continued)
E. EXECUTIVE KEY MANAGEMENT PERSONNEL - CONTRACT TERMS
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 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 an Executive’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.
Ian Ball commenced as CEO and Managing Director on 9 August 2018 and is paid Total Fixed Remuneration
(TFR) of AU $900,000 per annum. He is eligible to receive an STI up to a maximum of 40% of TFR, subject to
certain Cardno Group EBITDA budget thresholds being met. For FY19 only, recognising that Mr Ball
commenced with Cardno mid-way through the year and he has spent FY19 focussing on positioning the
company for long term growth rather than short term return, the Board determined that Mr Ball will receive his
maximum (100%) STI, pro-rated down to reflect starting mid-way through the financial year.
Mr Ball was granted a one-time LTI following shareholder approval on 24 October 2018, in the form of
Performance Equity Plan Options in two tranches – Tranche 1 for 3,600,000 options and Tranche 2 for
2,000,000 options. Tranche 1 options vest after the 4 year anniversary of Mr Ball’s commencement date and
are exercisable until the end of the 8th year of his commencement date anniversary. The strike price for
Tranche 1 options is $1.18 and they are cancellable for no benefit if employment is terminated before the 4th
anniversary of his commencement date. Tranche 2 options vest after the 5 year anniversary of Mr Ball’s
commencement date and are exercisable until the end of the 9th year of his commencement date anniversary.
The strike price for Tranche 2 options is $1.90 and they are cancellable for no benefit if employment is
terminated prior to the 5th anniversary of his commencement date.
He has a six month notice required by either party on termination as well as a six month restraint period.
Peter Barker commenced as CFO on 1 September 2016 and is paid TFR of AU $486,531 per annum. He is
eligible to receive an STI up to a maximum of 50% of TFR, subject to certain Cardno Group EBITDA budget
thresholds being met. For FY19 only, Mr Barker was awarded his STI on the basis of 93.6% of the EBITDA
target and an additional discretionary amount determined by the Board in relation to this performance on a
specific project during the year.
In 2017 and 2018, Mr Barker was awarded an LTI in the form of performance rights equivalent to 50% of TFR.
The number of performance rights granted were calculated based on the LTI opportunity (50% of TFR),
converted using a fair value methodology, in accordance with Cardno’s internal policy.
He has a six month notice required by either party on termination as well as a six month restraint period.
F. EXECUTIVE KEY MANAGEMENT PERSONNEL - REMUNERATION TABLES
The remuneration received by Executive KMP for the years ended 30 June 2019 and 30 June 2018 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 | 22
Directors’ Report (continued)
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Page | 23
Peter
Barker
1.
2.
Directors’ Report (continued)
Proportion of Performance Related Remuneration
Percentage of Target
STI Received
Percentage of Remuneration
Performance Related1
EXECUTIVE KEY MANAGEMENT PERSONNEL
Ian Ball
Peter Barker
2019
2018
2019
2018
100%
-
80%
75%
1 Calculated based on STI cash, other cash bonuses and share based payments as a percentage of total remuneration.
51.7%
-
40.5%
39.9%
Performance Rights and Options Granted and Movement During the Year
The aggregate number of Performance Rights and Options in the Company that were granted as
compensation, exercised and lapsed to each Executive KMP for the year ended 30 June 2019 is set out in the
following table.
Balance
at 1 July
2018
Rights /
Options
Granted
During the
Year as
Remuneration
Value of
Rights /
Options
Granted
During the
Year
Rights /
Options
Exercised
During the
Year
Value of
Rights /
Options
Exercised
During
the Year1
Lapsed /
Cancelled
During the
Year
Value of
Lapsed /
Cancelled2
Balance at
30 June
2019
Maximum
Total Yet
to Vest
No.
No.
$
No.
EXECUTIVE KEY MANAGEMENT PERSONNEL
Ian Ball
-
5,600,000 2,788,000
488,697
199,490
240,266
-
-
$
-
-
No.
$
No.
No.
-
- 5,600,000 5,600,000
(34,801)
(72,038)
653,386
653,386
Calculated per Performance Right as the market value of Cardno shares on the date of exercise.
Value is calculated at fair market value of the performance right on date of grant. Lapsed performance rights were granted in 2015.
Details of vesting profiles of Performance Rights and Options granted as remuneration to Key Management
Personnel of Cardno and still outstanding at 30 June 2019, including those granted during the financial year are
as follows in the table below:
Year
Outstanding
Performance
Rights/Options
Grant Date Vesting Date % Vested in
Year
% Forfeited
in Year
Fair Value
at Grant
Date
EXECUTIVE KEY MANAGEMENT PERSONNEL
Ian Ball
2019
3,600,000
24-Oct-18
9-Aug-22
Peter Barker
2,000,000
24-Oct-18
9-Aug-23
2017
2018
2019
281,342
1-Nov-16
1-Nov-19
172,554
1-Nov-17
1-Nov-20
199,490
1-Nov-18
1-Nov-21
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.53
0.44
0.78
1.21
1.20
The number of Performance Rights and Options included in the balance at 30 June 2019 for the Executive
KMP is set out in the following table.
Balance at
30 June 2019
Vested & Exercisable at the
End of the Year
EXECUTIVE KEY MANAGEMENT PERSONNEL
Ian Ball
Peter Barker
5,600,000
653,386
-
-
Page | 24
Directors’ Report (continued)
Subsequent to year end, no Performance Rights or Options have been issued 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.
2019 LTI Plan Performance Hurdles:
Performance Rights issued are subject to a Group EBITDA performance hurdle in order for the Performance
Rights to vest on the third anniversary of the grant date, in addition to the employee continuing to be employed
by the Cardno Group.
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 (adjusted for acquisitions).
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%), 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 (adjusted for acquisitions).
Page | 25
Directors’ Report (continued)
Number of Performance Rights:
There are currently 4,889,915 Performance Rights on issue at 30 June 2019. As a share-based payment, these
Performance Rights were valued for accounting and reporting purposes using the Monte Carlo simulation and Black
Scholes method.
Assumption at fair value date
Share Price
Risk Free Rate
Dividend Yield
Volatility
20191
$1.08
-
-
-
2018
$1.35
1.99%
0%
63%
2017
$0.925
1.725%
0%
60%
1.
Due to the 2019 LTI Plan being only subject to an EBITDA non-market based performance hurdle, the valuation is based on the grant date share price.
There are currently 5,600,000 CEO Performance Options on issue at 30 June 2019 as disclosed under the
Executive Key Management Personnel – Contract Terms section. As the Performance Options have no market
based performance hurdle, they were valued for accounting and reporting purposes using the Binomial method.
Assumption at fair value date
Share Price
Risk Free Rate Tranche 1
Risk Free Rate Tranche 2
Dividend Yield
Volatility
Post-vesting withdrawal rate
2019
$1.075
2.49%
2.57%
0%
45%
0%
2018
-
-
-
-
-
-
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.
2019
2018
2017
2016
2015
Gross Revenue – Continuing Operations (000’s)
$1,319,272 $1,116,975 $1,182,030 $1,164,613 $1,185,949
Underlying EBITDAI (000’s)
$62,006
$56,210
$44,005
$42,036
$108,406
Net Profit / (Loss) After Tax (000’s)
($44,490)
($14,018)
$8,579
($194,919)
($245,068)
Dividends Paid or Provided (000’s)
-
-
-
$11,548
$49,452
Change in Share Price – year on year ($ per share)
($0.38)
$0.11
$0.64
($1.18)
($3.09)
Page | 26
Directors’ Report (continued)
I. OTHER RELATED PARTY TRANSACTIONS
Share Holdings
The movement for the year ended 30 June 2019 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
Michael Alscher1
Neville Buch
Steven Sherman
Jeffrey Forbes
Nathanial Thomson
Rebecca Ranich
EXECUTIVE KEY MANAGEMENT PERSONNEL
Ian Ball2
-
-
-
148,619
-
-
-
Peter Barker
44,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
148,619
-
-
-
44,500
1. Michael Alscher was the Chairman and Non-Executive Director prior to his appointment as Executive Director, Acting CEO and Executive Chairman on
13 April 2018. He transitioned back to this Non-Executive role on 9 August 2018 after the appointment of Ian Ball as CEO and Managing Director.
Ian Ball was appointed CEO and Managing Director on 9 August 2018.
2.
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 | 27
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
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 2011
The lead auditor’s independence declaration is set out on page 29 and forms part of the Directors’ report for the
year ended 30 June 2019.
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 legislative instrument 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
Chairman
21 August 2019
Page | 28
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 2019 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
21 August 2019
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 | 29
Consolidated Statement of Financial Performance
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
Revenue
Other income
Financing income
Employee expenses
Consumables and materials used
Sub-consultant and contractor costs
Depreciation and amortisation expenses
Financing costs
Impairment loss on goodwill
Impairment loss on trade receivables and contract assets
Other expenses
Profit/(Loss) before income tax
Income tax expense
Loss for the year
Loss attributable to:
Owners of the Company
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Note
3A
3B
4
4
12
5, 19
6
26
26
2019
$’000
2018
$’000
1,319,272
1,116,975
1,171
765
(630,513)
(359,638)
(230,932)
(27,028)
(8,479)
(46,285)
(2,959)
(45,787)
(30,413)
(14,077)
(44,490)
(44,490)
(44,490)
(9.78)
(9.78)
1,384
715
(520,459)
(334,913)
(175,144)
(15,979)
(4,157)
-
(3,848)
(29,449)
35,125
(49,143)
(14,018)
(14,018)
(14,018)
(2.97)
(2.97)
Consolidated Statement of Other Comprehensive Income
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
Loss for the year
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Owners of the Company
Note
2019
$’000
2018
$’000
(44,490)
(14,018)
16,757
16,757
(27,733)
(27,733)
(27,733)
-
13,367
13,367
(651)
(651)
(651)
The statement of financial performance and statement of comprehensive income should be read in conjunction with the notes to the financial statements.
Page | 30
Consolidated Statement of Financial Position
Cardno Limited and its Controlled Entities as at 30 June 2019
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Contract Assets
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
Contract liabilities
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 losses
TOTAL EQUITY
Note
8
9
3A, 10
23
24
11
7
12
13
14
15
3A, 16
16
13
14
7
16
17
2019
$’000
2018
$’000
55,544
194,084
122,905
1,068
14,942
-
71,127
212,158
-
73,773
12,850
2,216
388,543
372,124
1,245
52,185
97,310
359,054
509,794
236
49,336
102,333
313,017
464,922
898,337
837,046
158,768
120,840
2,754
5,594
40,079
4,285
36,613
2,718
250,811
14,422
146,427
1,006
4,896
2,077
168,828
419,639
478,698
782,214
91,861
2,165
-
32,400
3,860
-
44,526
203,791
3,015
88,900
121
4,430
3,581
100,047
303,838
533,208
804,145
75,104
(395,377)
(346,041)
478,698
533,208
Page | 31
The statement of financial position should be read in conjunction with the notes to the financial statements.
Consolidated Statement of Changes in Equity
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
Note
Share
Capital
Ordinary
$’000
Retained
Earnings
/ (losses)
$’000
Foreign
Translation
Reserve
$’000
Reserve
for Own
Shares*
$’000
Attributable
to owners
of
company
$’000
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
Adjustment on initial application of
AASB 9 (net of income tax)
-
(4,846)
-
-
(4,846)
Adjusted Balance 1 July 2018
804,145
(350,887)
89,715
(14,611)
528,362
Profit/(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:
(44,490)
-
-
16,757
(44,490)
16,757
Employee share based payments
Share buy-back (net of income tax)
17
17
(461)
(21,470)
(21,931)
-
-
-
-
-
-
-
-
-
-
-
-
(44,490)
16,757
(27,733)
(461)
(21,470)
(21,931)
BALANCE AT 30 JUNE 2019
782,214
(395,377)
106,472
(14,611)
478,698
*
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 | 32
Consolidated Statement of Cash Flows
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
Note
2019
$’000
2018
$’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
Acquisition of subsidiaries net of cash acquired
Proceeds from sale of property, plant and equipment & rent incentives
Payments for property, plant and equipment
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of debt raising costs
Share Buy-Back
Proceeds from borrowings
Repayment of borrowings
Finance lease payments
NET CASH USED IN FINANCING ACTIVITIES
17
1,371,434
1,214,257
416
(6,852)
715
(3,658)
(1,323,065)
(1,160,874)
(1,164)
40,769
(4,738)
45,702
(76,950)
(10,738)
7,760
(17,346)
(86,536)
(834)
(21,470)
224,777
(171,239)
(3,401)
27,833
471
(19,298)
(29,565)
-
(13,917)
33,363
(44,563)
(2,039)
(27,156)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS HELD
(17,934)
(11,019)
CASH AND CASH EQUIVALENTS AT 1 JULY
Effects of exchange rate changes on cash and cash equivalents
at the end of year
CASH AND CASH EQUIVALENTS AT 30 JUNE
8
71,127
80,028
2,351
55,544
2,118
71,127
The statement of cash flows should be read in conjunction with the notes to the financial statements.
Page | 33
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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. Contract assets
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
35
37
40
43
43
44
45
46
47
48
49
50
52
53
55
55
56
58
58
63
63
64
65
65
65
66
67
68
70
71
73
73
Page | 34
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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.
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.
Fees from recoverable expenses
36,178
151,749
196,150
32,683
2,876
214,252
280,096
158,046
188,784
54,016
2019
$’000
SEGMENT REVENUE
Fees from consulting services
Inter-segment revenue
Segment Revenue
Other revenue
Total Segment Revenue
Inter-segment elimination
Total Revenue
Segment Result
Redundancy costs
Impairment costs
Acquisition related expenses
Legal costs
Reversal of lease provision
De-merger project costs
Depreciation and amortisation expense
(3,177)
Profit/(loss) before interest and income tax
(41,905)
Net Finance costs including one-offs
Loss before income tax
Income tax expense
Loss after income tax
Asia
Pacific
Americas
ID
CS
Other
Total
-
-
-
-
250,430
431,845
354,196
221,467
56,892
1,314,830
399
629
1,152
148
2,114
4,442
250,829
432,474
355,348
221,615
59,006
1,319,272
-
-
-
-
-
-
22,000
4,297
22,215
2,290
11,204
(2,162)
(46,285)
(753)
(732)
-
-
-
-
(619)
-
517
-
(4,690)
17,208
-
-
-
-
-
-
-
-
(3,046)
-
-
-
895,194
419,636
-
1,319,272
62,006
(2,162)
(46,285)
(4,418)
(732)
517
-
-
-
-
-
(4,599)
(4,599)
(245)
(12,702)
(6,214)
(27,028)
4,052
6,467
(8,523)
(22,701)
(7,712)
(30,413)
(14,077)
(44,490)
Page | 35
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
1. SEGMENT INFORMATION CONTINUED
Fees from recoverable expenses
40,156
132,534
171,020
4,875
2,402
222,972
245,361
140,661
109,254
45,255
2018
$’000
SEGMENT REVENUE
Fees from consulting services
Inter-segment revenue
Segment Revenue
Other revenue
Total Segment Revenue
Inter-segment elimination
Total Revenue
Segment Result
Onerous lease provision
Business review costs
Asia
Pacific
Americas
ID
CS
Other
Total
763,503
350,987
-
-
-
-
-
-
263,128
377,895
311,681
114,129
47,657
1,114,490
(1,630)
398
2,192
1,302
223
2,485
261,498
378,293
313,873
115,431
47,880
1,116,975
14,618
18,255
10,552
12,697
752
1,136
0
1,116,975
56,210
1,241
(2,905)
88
489
(4,041)
Depreciation and amortisation expense
(2,810)
(3,300)
(231)
(3,440)
(6,198)
(15,979)
Profit/(loss)
before interest and income tax
Finance costs and interest income
Profit before income tax
Income tax expense
Loss after income tax
GEOGRAPHICAL INFORMATION
Australia & New Zealand
Americas
United Kingdom
Canada
Africa
Latin America
Asia
Other Countries
11,808
16,843
10,321
9,257
(9,662)
38,567
(3,442)
35,125
(49,143)
(14,018)
2019
Revenues
$’000
544,827
607,619
30,877
19,021
4,119
10,444
93,643
8,722
Non-Current
Assets
$’000
270,095
232,830
3,335
(248)
68
1,436
2,150
128
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
1,319,272
509,794
1,116,975
464,922
Page | 36
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
2. BUSINESS COMBINATIONS
Acquisitions in 2019
On 1 July 2018, the Group acquired 100% of David Douglas Associates, Inc, a 20 person civil engineering
consulting firm based in the Florida Keys. The acquisition both strengthens the company’s market position and
provides geographic expansion in Florida.
On 2 July 2018, the Group acquired 100% of Trilab, a Brisbane based leading supplier of specialised Soil
Mechanics Testing and Rock Mechanics Testing services. Trilab employs 40 staff.
The acquisitions contributed $12.1 million of revenue and $1.3 million to profit before tax from continuing
operations of the Group.
The aggregated fair value of the identifiable assets and liabilities as at the date of acquisitions were:
Cash
Trade and other receivables
Contract assets
Property, plant and equipment
Intangible assets
Current and deferred tax assets
Other current assets
Trade and other payables
Employee benefits
Current and deferred tax liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred
$’000
612
1,339
404
1,772
4,023
147
55
8,352
(938)
(391)
(1,046)
(2,375)
5,977
4,264
10,241
The fair value of receivables acquired is $1.4 million of which $15,000 is considered doubtful.
Goodwill of $1.5 million has been allocated to the Americas segment and $2.8 million to the Construction
Sciences segment. The goodwill recognised is attributable to the skills and technical talent of the employees of
the acquisition and the synergies expected to be achieved from integrating the business into the Group's
existing operations. Goodwill is not expected to be deductible for tax.
Purchase consideration comprised of $8.8 million paid in cash on acquisition and $0.8 million in deferred
consideration. The deferred consideration is contingent on the acquisition achieving a certain level of EBITDA
in FY19 and FY20. Analysis of cash flows on acquisition is below:
Purchase consideration
Cash balance acquired
Deferred consideration
Net cash flow on acquisition
Transaction costs of the acquisition of $0.8 million are included in other expenses in the Consolidated
Statement of Financial Performance.
$’000
10,241
(612)
(791)
8,838
Page | 37
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
2. BUSINESS COMBINATIONS (CONTINUED)
On 14 December 2018, the Group acquired 100% of TGM, a Victorian based 130 person engineering services
firm specialising in the approval, design and completion of urban development, building and infrastructure
projects.
From the date of acquisition to 30 June 2019, the business contributed $12.1 million of revenue and
$1.4 million to profit before tax from continuing operations of the Group. If the business combination had
taken place at the beginning of the financial year, the consolidated Group’s revenue would have been
$1,330.8 million and loss before tax for the consolidated Group would have been $29.2 million.
The fair value of the identifiable assets and liabilities, determined on a provisional basis, as at the date of
acquisition were:
Cash
Trade and other receivables
Contract assets
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
$’000
320
4,173
1,701
1,445
4,504
575
405
13,123
(1,185)
(2,090)
(6)
(1,736)
(5,017)
8,106
14,003
22,109
The fair value of receivables acquired is $4.3 million of which $140,000 is considered doubtful.
Goodwill of $14.0 million has been allocated to the Asia Pacific segment. The goodwill recognised is
attributable to the skills and technical talent of the employees of the acquisition and the synergies expected to
be achieved from integrating the business into the Group's existing operations. Goodwill is not expected to be
deductible for tax.
Purchase consideration comprised of $16.0 million paid in cash on acquisition and $6.1million in deferred
consideration. The deferred consideration is contingent on the acquisition achieving a certain level of EBITDA
in FY19 and FY20. Analysis of cash flows on acquisition is below:
Purchase consideration
Cash balance acquired
Deferred consideration
Net cash flow on acquisition
$’000
22,109
(320)
(6,104)
15,685
Transaction costs of the acquisition of $0.6 million are included in other expenses in the Consolidated
Statement of Financial Performance.
Page | 38
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
2. BUSINESS COMBINATIONS (CONTINUED)
On 21 December 2018, the Group acquired 100% of Raba Kistner Inc, a Texas based 470 person engineering
services firm specialising in construction materials testing, geotechnical engineering consulting, project
management and independent quality assurance and inspection primarily for transport infrastructure projects,
government and commercial clients.
From the date of acquisition to 30 June 2019, the business contributed $77.8 million of revenue and
$7.5 million to profit before tax from continuing operations of the Group. If the business combination had taken
place at the beginning of the financial year, the consolidated Group’s revenue from continuing operations would
have been $1,382.0 million and loss before tax for the consolidated Group would have been $23.1 million.
The fair value of the identifiable assets and liabilities, determined on a provisional basis, as at the date of
acquisition were:
Cash
Trade and other receivables
Contract assets
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
$’000
8,762
15,658
4,604
2,825
21,704
2,548
2,299
58,400
(5,394)
(9,802)
(1,022)
(13,131)
(29,349)
29,051
43,119
72,170
The fair value of receivables acquired is $16.0 million of which $0.4 million is considered doubtful.
Goodwill of $43.1 million has been allocated to the Construction Sciences segment. The goodwill recognised is
attributable to the skills and technical talent of the employees of the acquisition and the synergies expected to
be achieved from integrating the business into the Group's existing operations. Goodwill is not expected to be
deductible for tax.
Purchase consideration comprised of $52.2 million paid in cash on acquisition and $11.2 million in deferred
consideration. The deferred consideration is contingent on the acquisition achieving a certain level of EBITDA
in CY19 and CY20. Analysis of cash flows on acquisition is below:
Purchase consideration
Cash balance acquired
Deferred consideration
Net cash flow on acquisition
$’000
72,170
(8,762)
(11,249)
52,159
Transaction costs of the acquisition of $2.8 million are included in other expenses in the Consolidated
Statement of Financial Performance.
Page | 39
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
KEY FINANCIAL STATEMENT ITEMS
3. (A) REVENUE
REVENUE
Professional services revenue
Materials testing revenue
Fees from consulting services
Procurement services revenue
Fees from recoverable expenses
Other
2019
$’000
766,044
129,151
895,195
419,635
419,635
4,442
2018
$’000
668,269
95,234
763,503
350,987
350,987
2,485
1,319,272
1,116,975
Professional services revenue
The Group performs engineering design and project delivery services. These activities tend to be highly
integrated and accordingly where appropriate will be accounted for as a single performance obligation.
Performance obligations are fulfilled over time as the services are delivered, as the Group has a right of
payment for services delivered to date together with the highly customised nature of the services provided.
Consequently, under AASB 15 the Group will continue to recognise revenue for these services over time rather
than at a point of time.
Materials testing services
The Group performs materials testing for the construction industry. These services are provided on a per test
basis. Performance obligations are fulfilled as each test is completed. Consequently, under AASB 15 the
Group will continue to recognise revenue for these services at a point in time being on completion and delivery
of each test.
Procurement services
Procurement revenue represents services from entering into contracts with customers to acquire, on their
behalf, equipment produced by various suppliers or services provided by different subcontractors. The Group
continues to be involved in procurement as a principal and as an agent, and has concluded that AASB 15
would not materially change the current assessment of principal versus agent.
Accounting for Revenue
Revenues from customer contracts is disaggregated into existing segments and the timing of transfer of
services, being overtime versus point in time.
$’000
Asia Pacific
Americas
International Development
Construction Sciences
Other
TOTAL Revenue
Over Time
Revenue
Point in Time
Revenue
Segment
Revenue
250,829
432,474
355,348
221,615
59,006
250,829
428,039
355,348
92,464
50,040
1,319,272
1,176,720
-
4,435
-
129,151
8,966
142,552
Page | 40
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
3.(A) REVENUE CONTINUED
Revenue from providing services on lump sum contracts is recognised based on the actual services provided
to the end of the reporting period as a proportion of the total services to be provided, on the basis that the
Group’s performance does not create an asset with an alternative use and the Group has an enforceable
right to payment for performance completed to date. This is determined based on the proportion of actual
costs incurred relative to the total expected project costs at completion (input method). Revenue is capped at
the approved budget for each client contract.
The customer pays Cardno based on the agreed payment schedule. If the services rendered by Cardno as
at the reporting date exceed the payments received, a contract asset is recognised. If the payments received
exceed the services rendered, a contract liability (i.e. unearned revenue) is recognised.
Revenue on Cost Plus projects is recognised in line with effort required to satisfy the performance
obligations of the contract with no cap. For Cost Plus Max projects, revenue is capped at the approved
budget amount for each contract.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change.
Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the
period in which the circumstances that give rise to the revision become known by management.
This includes variations to client contracts which increase the total contract value and result in an adjustment
to revenue recognised to date in the period in which the variation is approved.
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from
contracts with customers.
$’000
Note
30 June 2019
1 July 2018
Receivables (included in Trade and other receivables)
Loss allowance
Contract assets
Contract liabilities
204,621
(21,552)
122,905
36,613
235,384
(40,805)
72,957
42,037
The contract assets primarily relate to the Group’s rights to consideration for work completed but not billed
at the reporting date. The carrying amount of contract assets as at 30 June 2019 is reduced by an
impairment provision of $9.5 million (FY18: $9.1 million). Impairment provisions are booked against specific
high risk and aged contract assets where billing and recovery is doubtful. See note 19 for further details.
The contract assets are transferred to trade receivables when the rights become unconditional. This usually
occurs when the Group issues an invoice to the customer.
The contract liabilities primarily relate to consideration received from customers in advance of providing
goods or services, or unearned revenue. These liabilities will be recognised as revenue when the services
are performed. As the majority of contracts have a duration of 12 months or less, contract liabilities as at
30 June 2018 were recognised as revenue in the year ending 30 June 2019.
Revenue recognition policies
Under AASB 15 revenue is recognised when a customer obtains control of the goods or services.
Determining the timing of the transfer of control at a point in time or over time requires judgement. When
recognising the contract revenue over time using the input method, revenue is recognised on the basis of
the entity’s efforts or inputs and requires a judgemental assessment of cost or labour hours incurred to date
as a proportion of total cost or labour hours remaining to fully satisfy contract performance obligations.
Page | 41
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
3. (A) REVENUE CONTINUED
Revenue measured and recognised at a point in time requires judgement in relation to the assessment of
whether the entity has a right to payment for services performed to date, whether legal title of an asset has
passed to the client, in addition to the transfer of risks and rewards and the acceptance and physical
possession of the asset by the client.
The Group has adopted AASB 15 using the cumulative effect method with practical expedients such as not
restating comparatives and only applying the new standard to contracts that remained in force at transition
date, with the effect of initially applying this standard recognised on 1 July 2018 (being the date of initial
application). Accordingly, the information presented for 2018 comparatives has not been restated.
The accounting policies under AASB 118 Revenue and AASB 111 Construction Contracts are disclosed
separately if they are different to those under AASB 15.
The following table provides information about the nature and timing of the satisfaction of performance
obligations in contracts with customers and the related revenue recognition policies.
Revenue type
Professional services
revenue
Nature and timing of
performance obligations
The Group performs
engineering design and
project delivery services.
Performance obligations are
fulfilled over time as the
services are delivered.
Materials testing services
Testing services are provided
Procurement services
on a per unit basis and
performance obligations are
fulfilled as each test is
completed.
Revenue from entering into
contracts with customers to
acquire equipment or
services provided by different
subcontractors.
Revenue recognition
under AASB 15 (from 1
July 2018)
Revenue recognition
under AASB 118 (pre 1
July 2018)
Revenue for these
services is recognised
over time rather than at
a point in time as the
Group has a right of
payment for services
delivered to date.
Revenue was
recognised over time
as the services were
delivered.
The Group will continue
to recognise revenue
for these services
being at a point in time
on completion and
delivery of each test.
Revenue was
recognised for these
services at a point in
time being on
completion and
delivery of each test.
The Group will continue
to recognise revenue
as services performed
Revenue was
recognised as services
performed
3.
(B) OTHER INCOME
Non-refundable R&D tax incentives
Gain/(loss) on disposal of property, plant and equipment
Other Income
2019
$’000
711
460
1,171
2018
$’000
863
521
1,384
Page | 42
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
4. NET FINANCING COSTS
Interest paid
Borrowing costs
Financing Costs
Interest income
Net Financing Costs
2019
$’000
6,691
1,788
8,479
765
7,714
2018
$’000
3,094
1,063
4,157
715
3,442
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
Impairment loss on trade receivables and contract assets
Rental expense relating to operating leases
2019
$’000
2,959
32,936
2018
$’000
3,848
28,009
Page | 43
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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
Income tax using the Australian corporation tax rate of 30% (2018: 30%)
Increase (decrease) in income tax expense due to:
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
Impact of impairment of goodwill
US tax rate change
Impact of valuation allowance on foreign tax credits
Allowances for R&D expenditure
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
1 Relates to costs incurred on the share buy-back program.
2019
$’000
2018
$’000
3,449
369
3,818
9,431
828
10,259
14,077
(30,413)
(9,124)
2,389
1,368
13,885
-
5,647
(213)
(1,071)
12,881
1,196
14,077
20
375
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
-
The effective tax rate for FY19 was (46.28%) as compared to 139.9% in FY18. If we exclude the impact of (a)
the impairment reflected in the Australian results; (b) a valuation allowance booked against foreign tax credits
carried forward in the United States; (c) prior year adjustments increasing income tax expense; (d) losses
incurred in jurisdictions in which a deferred income tax benefit is not recognised; and (e) withholding tax
incurred by a loss making branch; the effective tax rate is 37.08% (compared to 35.5% in FY18).
Page | 44
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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
Contract assets
Prepayments
Other
Total deferred tax liabilities
Set-off against deferred tax assets
Net deferred tax liabilities
NET DEFERRED TAX ASSETS
2019
$’000
4,600
27,499
16,978
53,294
420
6,127
108,918
(11,608)
97,310
7,871
813
3,930
12,614
(11,608)
1,006
96,304
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
The group has unrecognised deferred tax assets from tax loss carry forwards as at 30 June 2019: (a) capital
losses in the United States of $19.3 million (2018: $26.7 million) which will expire if not used to offset capital
gains derived by 30 June 2021; (b) revenue losses in the United States of $11.8 million (2018: $10.8 million)
which will expire if not used to offset revenue gains by 30 June 2020 ($0.8 million), 30 June 2021 ($0.3 million)
and 30 June 2037 ($10.7 million); and (c) capital losses in Australia of $30.6m (2018: $30.6m) the future
utilisation of which is reliant on satisfaction of the continuity of ownership and/or similar business tests.
The group also has unrecognised deferred tax assets from foreign tax credit carry forwards in the United States
of $5.6 million (2018: $Nil) as at 30 June 2019. These credits will expire if not used to offset tax payable by 30
June 2023 ($0.005 million), 30 June 2024 ($1.2 million), 30 June 2025 ($1.0 million), 30 June 2026 ($0.8
million), 30 June 2027 ($1.3 million), 30 June 2028 ($0.6 million), and 30 June 2029 ($0.7 million).
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 profit forecasts
support the recoverability of the tax losses recognised.
Judgements are also 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 | 45
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
7. DEFERRED TAX ASSETS & LIABILITIES CONTINUED
Movement in temporary differences during the year:
30 June 2019
Accruals
Provisions
Tax losses
Sundry items
Prepayments
Contract assets
Goodwill on acquisition (USA)
30 June 2018
Accruals
Provisions
Tax losses
Sundry items
Prepayments
Contract assets
Goodwill on acquisition (USA)
1 July
2018
$’000
5,865
21,838
42,815
16,671
(1,667)
(5,733)
22,423
102,212
1 July
2017
$’000
5,437
19,035
76,875
13,748
(1,276)
(11,816)
39,834
141,837
Recognised in
profit or loss
$’000
Adjustments
to prior years
$’000
(460)
558
767
(5,107)
20
684
(5,893)
(9,431)
(4,158)
(8,438)
12,734
2,075
3,908
(7,859)
911
(827)
Recognised in
profit or loss
$’000
Adjustments
to prior years
$’000
1,013
1,117
(39,044)
2,232
(758)
5,522
(5,298)
(35,216)
(1,002)
(1,248)
320
(928)
(85)
1,343
(332)
(1,932)
Other*
$’000
3,352
13,541
(3,022)
(11,022)
(3,073)
5,037
(463)
4,350
Other*
$’000
417
2,934
4,664
1,619
452
(782)
(11,781)
(2,477)
30 June
2019
$’000
4,600
27,499
53,294
2,617
(813)
(7,871)
16,978
96,304
30 June
2018
$’000
5,865
21,838
42,815
16,671
(1,667)
(5,733)
22,423
102,212
* Other adjustments relate to impacts of translating foreign operations, acquisitions and amounts booked to equity.
8. CASH AND CASH EQUIVALENTS
Cash at bank and on hand
Restricted cash1
Bank short term deposits
1 Cash held as part of operating license by US based subsidiary.
2019
$’000
50,074
3,565
1,905
55,544
2018
$’000
66,320
3,382
1,425
71,127
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 | 46
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
9. TRADE & OTHER RECEIVABLES
Trade debtors
Loss allowance
Sundry debtors
2019
$’000
204,621
(21,552)
183,069
11,015
194,084
2018
$’000
235,384
(33,881)
201,503
10,655
212,158
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 its loss allowance is determined at
both a specific and collective level. All individually significant and aged receivables are assessed for specific
impairment.
The Group has elected to measure its loss allowances for trade receivables and contract assets at amounts
equal to their lifetime expected credit loss (ECL). The ECLs are a probability weighted estimate calculated
based on debtors ageing, actual credit loss experience over the past three years and future economic
conditions. The Group’s trade receivables and contract assets were segmented based on common credit risk
characteristics such as customer type, geographical location of customer, and ageing of financial asset. The
Group considers a financial asset to be in default when the client is unlikely to pay its credit obligations to the
Group in full, without recourse by the Group to actions such as realising security (if any is held) or the financial
asset is more than 90 days past due.
Contract assets held by the Group relate to work in progress which has not yet been billed and as such the
average ECL percentage applied is equivalent to that applied to current (not past due) trade receivables.
Bad debts are written off when the Group has no reasonable expectations of recovering a financial asset in its
entirety or a portion thereof. In some segments and industries, extended payment terms may be agreed, for
example under a pay when paid arrangement. It is therefore not appropriate to implement a policy of writing off
financial assets based solely on the age of the debtor and other factors are considered.
Comparative disclosures
In the prior comparative period, the recoverability of trade receivables was reviewed on an ongoing basis and a
provision for impairment was determined at both a specific and a collective level. All individually significant
receivables were assessed for specific impairment. Those found not to be specifically impaired were then
collectively assessed for any impairment that had been incurred but not yet identified. Receivables that were
not individually significant were collectively assessed for impairment by grouping together assets with similar
risk characteristics.
In assessing collective impairment, the Group used historical trends of the probability of default adjusted for
management’s judgement around current economic and credit conditions. Bad debts were written off as
incurred.
Page | 47
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
10. CONTRACT ASSETS
Contract assets 1
2019
$’000
122,905
2018
$’000
-
1 Current year contract assets include $34.3 million invoicing completed during the first week of July 2019 in relation to FY19 and reflects timing of billing
process only
Accounting for contract assets
Contract assets are 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 represent unearned revenue and are presented as contract liabilities under other
liabilities. Amounts are transferred to receivables when the right to billing and payment becomes unconditional.
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 the
Group’s activities in general.
Estimates of the contract assets balances are determined using the percentage of completion methodology. Refer to
Note 3 for further details.
The Group has elected to measure its loss allowances for contract assets at amounts equal to their lifetime
expected credit loss (ECL). The ECLs are a probability weighted estimate calculated based on debtors ageing,
actual credit loss experience over the past three years and future economic conditions. The Group’s trade
receivables and contract assets were segmented based on common credit risk characteristics such as
customer type, geographical location of customer, and ageing of financial asset. The Group considers a
financial asset to be in default when the client is unlikely to pay its credit obligations to the Group in full, without
recourse by the Group to actions such as realising security (if any is held) or the financial asset is more than 90
days past due.
Contract assets held by the Group relate to work in progress which has not yet been billed and as such the
average ECL percentage applied is equivalent to that applied to current (not past due) trade receivables.
Page | 48
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
11. PROPERTY, PLANT & EQUIPMENT
Land & buildings
Land & buildings
Less accumulated depreciation
Carrying amount at the beginning of the year
Additions
Increase through acquisition
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
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
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
Disposals
Depreciation expense
Foreign exchange
Carrying amount at the end of the year
2019
$’000
4,174
(1,889)
2,285
1,461
325
598
(33)
(159)
93
2,285
154,122
(114,751)
39,371
40,907
9,567
5,081
(634)
(16,077)
527
39,371
26,002
(15,473)
10,529
6,968
7,805
340
(114)
(4,496)
26
10,529
184,298
(132,113)
52,185
49,336
17,697
6,019
(781)
(20,732)
646
52,185
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
Page | 49
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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
Customer
Contracts
Patents and
Trademarks
Software
Intangibles
$’000
$’000
$’000
$’000
Customer
Relation-
ships
$’000
Total
$’000
2019
Balance at the beginning of year
308,950
422
2,609
Acquired through business
combination
Impairment losses
Amortisation charges
Effect of foreign exchange
Closing value at 30 June 2019
2018
Balance at the beginning of year
Acquired through business
combination
Written off
Amortisation charges
Effect of foreign exchange
Closing value at 30 June 2018
60,927
(46,285)
-
7,088
330,680
13,188
-
(2,874)
490
11,226
-
-
-
-
2,609
293,225
29
2,619
12,567
-
-
3,158
308,950
543
(29)
(121)
-
422
-
(10)
-
-
2,609
-
-
-
-
-
-
-
-
-
-
-
-
1,036
313,017
17,042
-
(4,139)
600
91,157
(46,285)
(7,013)
8,178
14,539
359,054
-
295,873
1,332
-
(296)
-
14,442
(39)
(417)
3,158
1,036
313,017
Page | 50
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
12. INTANGIBLE ASSETS CONTINUED
Amortisation of Intangibles
Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the
straight-line method over their estimated useful lives, and is generally recognised in profit or loss within
depreciation and amortisation expense. Goodwill is not amortised.
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if
appropriate.
Impairment Testing
The carrying amount of goodwill (pre-impairment) allocated to each of the cash generating units (CGUs) for
impairment testing is as follows:
Americas
Asia Pacific (APAC)
Construction Sciences (CS)
International Development (ID)
2019
$’000
96,454
190,542
84,240
5,733
2018
$’000
90,138
188,713
24,366
5,733
376,969
308,950
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 2020 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 post-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
As a result of a decline in major project wins and a lower level of work across many specialist areas, the carrying
amount of the Asia Pacific (APAC) CGU was determined to be in excess of its recoverable amount of $192.4 million
and an impairment loss of $46.3 million was recognised in the year ended 30 June 2019. The impairment was
recognised in full against the carrying value of the APAC goodwill.
Management has evaluated the Company’s market capitalisation value against the Group’s net asset position at 30
June 2019 and is comfortable with the valuation of its net assets for a number of reasons, including but not limited to,
that management believes that (1) Cardno Limited shares are “thinly traded” (average daily traded volume is low
compared to the number of shares on issue and the market capitalisation), this being a result of (2) the structure of
the share register whereby more than 50% of the issued shares are held by one investor, Crescent Capital Partners,
which has not traded their holding, and (3) Cardno Limited sits outside of the ASX 200.
Page | 51
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
12. INTANGIBLE ASSETS CONTINUED
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
2019
2018
Americas
6.6% - 8.6%
6.8% - 9.0%
APAC
7.4% - 10.4% 10.7% - 13.0%
CS
ID
11.0% - 13.0% 10.0% - 12.0%
1.2% - 3.2%
1.1% - 5.0%
2019
2.50%
2.50%
2.50%
2.50%
2018
2.70%
2.70%
2.70%
2.70%
2019
11,32%
13.19%
12.92%
2018
13.29%
14.42%
14.42%
12.88%
12.29%
1 EBITDA margins are applied to net fee revenue.
Impact of Possible Changes in Key Assumptions
The determination of the recoverable amounts of the Group’s CGU’s involves significant estimates and
judgements and results are subject to the risk of adverse and sustained changes in the markets in which the
Group operates.
Any variation in the key assumptions would impact on the assessed recoverable amount both positively and
negatively. Analysis performed on the impact of adverse changes in the key assumptions on the recoverable
amounts of the Americas, CS and ID CGU’s, concluded that a reasonable possible change in these
assumptions did not result in impairment in any of the CGU’s.
In relation to the APAC CGU, the value in use model is particularly sensitive to changes in the EBITDA margin
assumption. The impairment model assumes that the EBITDA margin will increase from 7.4% in FY20 to 10.4%
in FY23 as a result of cost efficiencies delivered through changes to the business operating model. Given the
impairment recorded in the APAC CGU at 30 June 2019, any adverse movement in the EBITDA margin
assumption, or other key assumptions, could result in further impairment.
13.TRADE & OTHER PAYABLES
CURRENT
Trade payables & accruals
Vendor liability
NON-CURRENT
Vendor liability
2019
$’000
2018
$’000
149,090
118,074
9,678
2,766
158,768
120,840
14,422
14,422
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.
Page | 52
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
14. LOANS & BORROWINGS
CURRENT
Lease and hire purchase liabilities
NON-CURRENT
Lease and hire purchase liabilities
Bank loans
TOTAL CURRENT & NON-CURRENT LOANS & BORROWINGS
2019
$’000
2,754
2,754
8,750
137,677
146,427
149,181
2018
$’000
2,165
2,165
4,791
84,109
88,900
91,065
Interest Bearing Borrowings
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 $137.7million (2018: $84.1 million) as at 30 June 2019 with a weighted average
interest rate of 4.04% (2018: 3.27%). Funding available to the Group from undrawn facilities is $89.8 million
(2018: $39.1million).
In December 2018 the Group re-financed and increased its debt facilities. The previous bi-lateral facility with
common terms deed has been replaced by two secured, revolving syndicated facilities, both with three year tenor,
one of which is multi-currency.
The Group’s new debt facilities include certain financial covenants which are tested quarterly. A breach of a
financial covenant would represent an event of default under the terms of the debt facilities. At 30 June 2019, the
Group was in compliance with all financial covenants.
There were no bank overdrafts in existence at 30 June 2019 (2018: Nil).
Under the terms of the facility agreement, 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 terms of 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.
Page | 53
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
14. LOANS & BORROWINGS CONTINUED
2019
$’000
2018
$’000
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
Reconciliation of movement in loans and borrowings:
$’000
Balance as at 1 July 2018
Changes from financing cash flows
Proceeds from borrowings
Repayment of borrowings
Finance lease payments
Total changes from financing cash flows
Other changes
Amortisation of capitalised borrowing costs
New capitalised borrowing costs
New finance leases plus interest paid
Total other changes
Balance as at 30 June 2019
3,218
8,962
493
12,673
(1,169)
11,504
2,754
8,288
462
11,504
2,526
5,445
-
7,971
(1,015)
6,956
2,165
4,791
-
6,956
Loans and
borrowings
91,065
224,777
(171,239)
(3,401)
50,137
(912)
2,247
6,644
7,979
149,181
Page | 54
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
15. PROVISIONS
CURRENT
Provision for legal claims
Accounting for Provisions
2019
$’000
4,285
4,285
2018
$’000
3,860
3,860
The Group makes provision for legal claims not covered by the Group’s professional indemnity policy and as at
30 June 2019 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.
16. OTHER LIABILITIES
CURRENT
Contract liabilities
Unearned revenue
Deferred rent
NON CURRENT
Deferred rent
Other
2019
$’000
36,613
-
2,718
39,331
1,949
128
2,077
2018
$’000
-
42,037
2,489
44,526
3,347
234
3,581
Contract liabilities relates to amounts received in advance of providing goods or services. Refer to Note 10.
Page | 55
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
17. ISSUED CAPITAL
30 June 2019
30 June 2018
No. of shares
$’000
No. of shares
Balance at the beginning of the year
464,381,508
804,145
474,955,277
Shares issued during the year:
> Shares issued for cash (net of transaction costs)
> Employee share based payments
-
-
-
(461)
-
-
> Share buy-back (i)
(20,111,944)
(21,470)
(10,573,769)
Balance at the end of the year
444,269,564
782,214
464,381,508
$’000
815,563
-
2,499
(13,917)
804,145
(i)
As part of the capital management program, on 21 February 2019 the Group announced the implementation of an on-market buyback of up to 10% of
Cardno ordinary shares commencing 8 March 2019 for a 12 month period. During the year, a total of 20,111,944 ordinary shares were bought back at an
average price of $1.07 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
2019
$’000
2018
$’000
1,578
-
-
(2,509)
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 2019, there were 5,600,000 Performance Options on issue (2018: nil) and 5,600,000 options were
issued during the year (2018: nil).
2019 LTI Plan Performance Hurdles:
Performance Rights issued are subject to a Group EBITDA performance hurdle in order for the Performance
Rights to vest on the third anniversary of the grant date, in addition to the employee continuing to be employed
by the Cardno Group.
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 (adjusted for acquisitions).
Page | 56
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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 (adjusted for acquisitions).
The movements in the performance rights and options 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
Options 2019
Number
of Performance
Rights 2019
Number
of Performance
Rights 2018
-
5,600,000
4,168,275
1,394,169
4,962,639
1,318,929
-
-
-
5,600,000
-
-
-
(672,529)
4,889,915
-
-
-
(2,113,293)
4,168,275
-
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
2019
$1.08
-
0%
-
2018
$1.35
1.99%
0%
63%
2017
$0.925
1.725%
0%
60%
There are currently 5,600,000 CEO Performance Options on issue at 30 June 2019 as disclosed under the
Executive Key Management Personnel – Contract Terms section of the Remuneration Report. As the Performance
Options have no market based performance hurdle, they were valued for accounting and reporting purposes using
the Binomial method. The below table outlines the key assumptions.
Assumption at fair value date
Share Price
Risk Free Rate Tranche 1
Risk Free Rate Tranche 2
Dividend Yield
Volatility
Post-vesting withdrawal rate
2019
$1.075
2.49%
2.57%
0%
45%
0%
2018
-
-
-
-
-
-
Page | 57
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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:
>
Impairment of goodwill and assumptions applied in estimating future cash flows – 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 – availability of future taxable profit against which deductible
temporary differences and tax losses carried forward can be utilised – refer to Note 7 and 32(e).
> Assessing the recoverability of trade receivables and contract assets – measurement of ECL allowance
and key assumptions in determining the weighted average loss rate - 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
Other than loans and borrowings, the Group’s financial assets and liabilities at 30 June 2019 and 30 June 2018
are included in the balance sheet at amounts that approximate fair values. The Group does not have any
derivative financial instruments at 30 June 2019 (2018: nil).
The fair value of loans and borrowings represents level 2 in the fair value hierarchy and has been determined
using the carrying amount of loans repayable to debt providers. The difference between the carrying amount
and fair value of loans and borrowings represents unamortised capitalised borrowing costs.
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.
Page | 58
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
19. FINANCIAL RISKS CONTINUED
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 below.
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 (2018: nil). Identifying concentrations of risk requires
judgement in light of specific circumstances, and may arise industry sectors, geographic distribution or a limited
number of counterparties.
Trade receivables and contract assets
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
2019
$’000
57,481
107,383
12,710
5,495
2018
$’000
71,566
108,973
16,282
4,682
183,069
201,503
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 (>90 day ageing)
2019
2018
Gross
$’000
110,921
30,988
18,025
44,687
204,621
Impairment
$’000
195
113
140
21,104
21,552
Gross
$’000
120,935
35,066
17,261
62,122
235,384
Impairment
$’000
-
-
-
33,881
33,881
The maximum exposure to credit risk for contract assets at the reporting date by geographic region was:
Australia & New Zealand
Americas
Asia
Europe & Africa
2019
$’000
44,049
63,504
2,791
12,561
122,905
2018
$’000
7,107
56,369
3,855
5,626
72,957
Page | 59
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
19. FINANCIAL RISKS CONTINUED
The ageing of Cardno’s contract assets 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
2019
2018
Gross
$’000
76,499
12,044
4,014
39,896
132,453
Impairment
$’000
9,548
9,548
Gross
$’000
41,099
6,788
3,270
30,854
82,011
Impairment
$’000
9,054
9,054
Cardno establishes an allowance for impairment that represents its estimate of expected credit losses in
respect of trade and other receivables and contract assets.
Expected credit loss assessment
The recoverability of trade receivables is reviewed on an ongoing basis and its loss allowance is determined at
both a specific and collective level. All individually significant and aged receivables are assessed for specific
impairment.
The Group has elected to measure its loss allowances for trade receivables and contract assets at amounts
equal to their lifetime expected credit loss (ECL). The ECLs are a probability weighted estimate calculated
based on debtors ageing, actual credit loss experience over the past three years and future economic
conditions. The Group’s trade receivables and contract assets were segmented based on common credit risk
characteristics such as customer type, geographical location of customer, and ageing of financial asset. The
Group considers a financial asset to be in default when the client is unlikely to pay its credit obligations to the
Group in full, without recourse by the Group to actions such as realising security (if any is held) or the financial
asset is more than 90 days past due.
Contract assets held by the Group relate to work in progress which has not yet been billed and as such the
average ECL percentage applied is equivalent to that applied to current (not past due) trade receivables.
Bad debts are written off when the Group has no reasonable expectations of recovering a financial asset in its
entirety or a portion thereof. In some segments and industries, extended payment terms may be agreed, for
example under a paid when pay arrangement. It is therefore not appropriate to implement a policy of writing off
financial assets based solely on the age of the debtor and other factors are considered.
The movement in the provision for impairment in respect of trade receivables of Cardno during the year was as
follows. Comparative amounts for 2018 represent the allowance account for impairment losses under AASB
139:
Balance at 1 July
Impact of initial adoption of AASB 9
Impairment loss recognised during the year
Receivables written off
Sale of subsidiary
Effect of foreign exchange
Balance at 30 June
2019
$’000
33,881
6,923
2,959
(22,528)
-
317
21,552
2018
$’000
38,626
-
3,848
(4,429)
(4,609)
445
33,881
Page | 60
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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:
-
493
-
493
-
-
-
-
30 June 2019
Non-derivative financial liabilities
Trade and other payables
Finance leases & hire purchase
Bank loans
30 June 2018
Non-derivative financial liabilities
Carrying
amount
$’000
Contractual
cash flows
$’000
Less than
1 year
$’000
1 – 5 years
$’000
Over 5
years
$’000
173,190
11,504
137,677
322,371
173,190
12,676
152,981
338,847
158,768
3,221
5,626
167,615
14,422
8,962
147,355
170,739
Trade and other payables
123,855
123,873
120,840
Finance leases & hire purchase
Bank loans
6,956
84,109
7,971
88,979
2,432
2,776
214,920
220,823
126,048
3,033
5,539
86,203
94,775
Bank loans are revolving syndicated facilities, one of which is multi-currency, maturing in December 2021.
Hedge of net investment in foreign operation
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 $75.3 million (2018: $18.2 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 2019, a 10 per cent strengthening of the Australian dollar against the USD would have increased
equity by $6.8 million (2018: $1.7 million). A 10 per cent weakening of the Australian dollar against the USD would
have decreased equity by $8.4 million (2018: $2.0 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 | 61
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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:
2019
2018
Effective
Interest Rate
Balance
$’000
Effective
Interest Rate
Balance
$’000
Variable rate instruments
Cash assets
Bank loans
Fixed rate instruments
0.14%
4.04%
Finance leases & hire purchase
3.89%
55,544
(137,677)
(82,133)
(11,504)
(11,504)
0.31%
3.27%
4.62%
71,127
(84,109)
(12,982)
(6,956)
(6,956)
Group sensitivity
Cash flow sensitivity analysis for variable rate instruments
At 30 June 2019, 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 $290,000 higher/lower (2018: $48,000
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 21 February 2019, the company announced the board had approved the implementation of an on-market
share buyback of up to 10% of Cardno ordinary shares on issue commencing 8 March 2019. The board will
continue to evaluate the share buy-back program whilst it considers this an appropriate allocation of
shareholder capital.
Page | 62
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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
2019
$’000
20181
$’000
41,433
105,328
34,422
181,183
37,972
80,209
29,636
147,817
1 Prior year comparatives have been restated to more accurately reflect the operating lease commitments as at 30 June 2018
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 and 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 2019 in respect of:
Bank guarantees and insurance bonds
2019
$’000
46,121
2018
$’000
43,301
Cardno has bank guarantee and insurance bond facilities with financial institutions denominated in Australian
dollars, United States dollars, Euros and Great British pounds. These facilities available to Cardno total $71.6
million (2018: $75.9 million) and are secured jointly and severally by the company and a number of its wholly
owned subsidiaries.
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 it 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.
While both matters continue to be monitored and managed, there has been no material change in either matter.
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.
Page | 63
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
21. CONTINGENT LIABILITIES CONTINUED
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.
22. SUBSEQUENT EVENTS
On 21 August 2019, the Company announced the proposed demerger of its Quality, Testing and Measurement
businesses into a separate ASX listed entity, to be named Intega Group Limited. The demerger requires
shareholder approval and if it proceeds, will be implemented via a capital reduction and scheme of
arrangement.
There has been no impact of the proposed demerger on the balances and transactions recognised in these
financial statements. Should the demerger proceed, the composition of the Group’s cash generating units
(CGUs) and tax consolidated groups will change and certain non-current assets will be reclassified as assets
held for distribution to owners and measured at the lower of carrying value and fair value less costs to
distribute. Accordingly, key accounting estimates and judgements relying on forward looking assumptions used
to determine the carrying value of goodwill and deferred tax assets may need to be reassessed, and the fair
value less costs to distribute of certain assets will need to be determined.
Other than the matter 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 | 64
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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
2019
$’000
11,080
2,229
1,633
14,942
2019
$’000
1,245
1,245
2019
$’000
2018
$’000
10,040
1,290
1,520
12,850
2018
$’000
236
236
2018
$’000
Reconciliation of Net Cash from Operating Activities to Net profit for the year
Net profit/(loss) for the year
(44,490)
(14,018)
Adjust for non-cash items
Depreciation and amortisation
Impairment loss on goodwill
Gain/(loss) on sale of property, plant & equipment
Gain/(loss) on purchase/sale of business
Unrealised foreign exchange (gain)/loss
Share based remuneration
Adjust for changes in assets and liabilities:
(Increase)/decrease in assets:
Contract assets
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
Contract liabilities
Other liabilities
Deferred tax liabilities
27,028
46,285
(459)
-
475
(461)
(6,826)
13,150
21,466
(19,253)
(360)
1,573
(304)
13,555
45
3,311
(6,553)
(851)
(6,562)
40,769
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
Page | 65
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
26. EARNINGS PER SHARE
The calculation of basic earnings per share was based on the following:
2019
$
2018
$
Profit / (Loss) attributable to ordinary shareholders
(44,490,000)
(14,018,000)
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
(44,490,000)
(14,018,000)
No.
No.
464,381,508
474,955,277
(9,485,821)
(2,218,733)
-
-
Weighted average number of ordinary shares at 30 June
454,895,687
472,736,544
Earnings per share
Earnings per share - continuing operations
Cents
(9.78)
(9.78)
Cents
(2.97)
(2.97)
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:
2019
$
2018
$
Profit / (Loss) attributable to ordinary shareholders (diluted)
(44,490,000)
(14,018,000)
Profit / (Loss) from continuing operations attributable to ordinary
shareholders (diluted)
(44,490,000)
(14,018,000)
Weighted average number of ordinary shares (diluted)
No.
No.
Weighted average number of ordinary shares at 30 June (basic)
454,895,687
472,736,544
Effect of Performance Options and Performance Rights on issue
-
-
Weighted average number of ordinary shares (diluted) at 30 June
454,895,687
472,736,544
Diluted Earnings per share
Diluted Earnings per share – continuing operations
Cents
(9.78)
(9.78)
Cents
(2.97)
(2.97)
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 | 66
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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
2019
$’000
2018
$’000
2,829,792
2,512,918
59,435
733,645
40,938
128,697
3,622,872
2,682,553
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 | 67
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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 (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.1
Cardno Roadtest Pty Ltd
Cardno BEC (Qld) Pty Ltd
Cardno (Colombia) S.A.S.
Network Geotechnics Pty Ltd
Country of
Incorporation
Equity
Holding
2019
Equity
Holding
2018
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
United Kingdom
Kenya
New Zealand
New Zealand
New Zealand
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
United States of America
100%
United States of America
Belgium
Australia
Papua New Guinea
Australia
Australia
Australia
Ecuador
100%
100%
100%
100%
100%
100%
100%
100%
United States of America
-
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%
1 Entity was dissolved during FY19
Page | 68
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
28. CONTROLLED ENTITIES CONTINUED
Name
SureSearch Australia Pty Limited
Utility Locating Pty Limited
Cardno Emerging Markets (USA), Ltd
Cardno Humphrey Reynolds Perkins Pty Ltd
Cardno GS, Inc.
Cardno EM-Assist, Inc.2
Cardno BTO Limited
Cardno Hard & Forester Pty Ltd
Cardno ChemRisk, LLC
Caminosca S.A.S
Cardno Geotech Pty Ltd
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
Cardno South Africa (Pty) Ltd
Cardno Emerging Markets (Rwanda) Limited
Cardno Mozambique LDA
I.T. Transport Limited
ES NY Engineering P.A
Cardno Emerging Markets (Rwanda) Ltd
TGM Group Pty Ltd
Trilab Pty Ltd
David Douglas Associates Inc
Raba Kistner
Cardno Uganda
Cardno Canada Holdings Limited
Cardno S&E Limited
Equity
Holding
2019
Equity
Holding
2018
Country of
Incorporation
Australia
Australia
United States of America
Australia
United States of America
100%
100%
100%
100%
100%
United States of America
-
New Zealand
Australia
United States of America
South America
Australia
Canada
Canada
United States of America
Australia
United Kingdom
Singapore
Malaysia
South Africa
Rwanda
Mozambique
United Kingdom
United States of America
Rwanda
Australia
Australia
United States of America
United States of America
Uganda
Canada
Canada
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%
-
-
-
-
-
-
-
2 Entity was dissolved during FY19
Page | 69
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
29. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 30 June 2019 the parent Company of Cardno was
Cardno Limited.
Results of the parent entity
Profit/(Loss) for the year
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
2019
$’000
2018
$’000
17,153
17,153
(330,727)
(330,727)
120,809
384,344
65,333
65,434
120,687
370,274
45,532
45,944
782,214
804,145
(463,303)
(479,815)
318,911
324,330
27,825
20,148
Bank guarantee facilities are available to Cardno totalling $45.7 million (2018: $40 million). These facilities are
secured jointly and severally by the Company and a number of its wholly-owned subsidiaries.
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 | 70
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
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 Legislative Instrument 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 2019 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
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
2019
$’000
2018
$’000
527,026
471,671
(169,157)
(163,603)
(184,466)
(173,385)
(96,727)
(10,986)
563
(8,114)
(22,269)
35,870
(10,515)
25,355
-
25,355
(83,075)
(4,595)
(55,537)
(3,929)
(48,346)
(60,799)
(11,094)
(71,893)
(2,389)
(74,282)
(431,769)
(362,923)
-
2,389
(406,414)
(434,816)
(406,414)
(434,816)
Page | 71
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
30. DEED OF CROSS GUARANTEE CONTINUED
Statement of financial position
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Contract assets
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
Loans and borrowings
Short term provisions
Contract 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
2019
$’000
2018
$’000
11,115
526,858
7,643
50
2,520
7,085
10,286
266,861
-
3,524
3,321
2,439
555,272
286,431
399,358
372,601
20,374
43,976
57,031
520,739
1,076,011
15,445
42,044
43,482
473,572
760,003
473,140
214,132
1,457
16,891
3,495
-
16,320
8,032
494,983
238,484
-
144,724
3,910
3,010
151,644
646,627
429,384
782,213
53,585
3,015
87,010
4,485
2,630
97,140
335,624
424,379
804,145
55,050
(406,414)
(434,816)
429,384
424,379
Page | 72
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
31. AUDITOR’S REMUNERATION
Audit services
Auditors of the Company
KPMG Australia:
> Audit and review of financial reports
> Audit of historical financial information (de-merger project)
> Assurance services provided (de-merger project)
> Other fees
Overseas KPMG firms:
> Audit and review of financial reports
> Other fees
2019
$
2018
$
821,400
205,000
475,000
71,880
873,400
-
-
-
177,199
191,434
36,090
-
1,786,569
1,064,834
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 2019 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 21 August 2019.
(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 dated 1 April 2016 and in
accordance with that Legislative Instrument, 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
During the year ended 30 June 2019, the Group adopted for the first time the following new accounting
standards:
> AASB 15 Revenue from Contracts with Customers
> AASB 9 Financial Instruments
Due to the transition methods chosen by the Group in applying these standards, comparative information
throughout these financial statements has not been restated to reflect the requirements of the new standards.
Page | 73
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much, and when revenue is
recognised. It replaced existing revenue recognition guidance, including AASB 118 Revenue, AASB 111
Construction Contracts and related interpretations.
The Group has adopted AASB 15 using the cumulative effect method, with practical expedients such as not
restating comparatives and only applying the new standard to contracts that remained in force at transition
date, with the effect of initially applying this standard recognised on 1 July 2018 (being the date of initial
application). Accordingly, the information presented for 2018 comparatives has not been restated.
The following table summarises the impact of transition to AASB 15 on the Group’s financial statements as at
30 June 2019.
$’000
Contract assets
Work in progress
TOTAL CURRENT ASSETS
Other current liabilities
Contract liabilities
TOTAL CURRENT LIABILITIES
As reported
Adjustments
Amounts without
adoption of AASB
15
122,905
1,068
123,973
2,718
36,613
39,331
(122,905)
122,905
-
36,613
(36,613)
-
-
123,973
123,973
39,331
-
39,331
These adjustments relate to reclassifications of balances on the statement of financial position to align them to
the AASB 15 presentation format. Other than this reclassification, there was no impact on the timing or amount
of revenue recognition on the initial application of AASB 15.
Page | 74
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
AASB 9 Financial Instruments
AASB 9 replaced 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.
Impairment of financial assets
The effect on the Group of adopting AASB 9 on the carrying amounts of financial assets at 1 July 2018 relates
to the new impairment requirements. AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected
credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost
and contract assets. Under AASB 9, credit losses are recognised earlier than under AASB 139.
The Group has elected to measure its loss allowances for trade receivables and contract assets at amounts
equal to lifetime ECLs. The ECLs are a probability weighted estimate calculated based on debtors ageing,
actual credit loss experience over the past three years and future economic conditions. The Group’s trade
receivables and contract assets were segmented based on common credit risk characteristics such as
customer type, geographical location of customer, and ageing of financial asset.
Contract assets held by the Group relate to work in progress which has not yet been billed and as such the
average ECL percentage applied is equivalent to the current (not past due).
Application of AASB 9 on the Group’s accounts receivable and contract assets resulted in an increase to the 30
June impairment provision of $6.9 million with an adjustment to opening retained profit net of tax of $4.8 million.
The following table summarises the impact, net of tax, of transition on the opening balance of retained earnings
as at 1 July 2018.
$’000
Carrying amount
30 June 2018
Impact of adopting
AASB 9 1 July 2018
Restated opening
balance 1 July
2018
Retained earnings/(losses)
(346,041)
(4,846)
(350,887)
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 2016-5 Amendments to AAS – Classification and Measurement of Share-based Payment
Transactions
> AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration
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 16 Leases
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2019
30 June 2020
AASB Interpretation 23 Uncertainty over Income Tax Treatments, and
relevant amending standards
1 January 2019
30 June 2020
Page | 75
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
The new standards not yet effective which may have a significant impact on the Group’s consolidated financial
statements when adopted include:
AASB 16 Leases
The Group is required to adopt ASSB 16 Leases from 1 July 2019. AASB 16 introduces a single, on-balance
sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use
the underlying asset and a lease liability representing its obligation to make lease payments. There are
recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar
to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
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 for its operating leases
of property and equipment (primarily leased office space and motor vehicles);
>
>
>
removing lease payments as straight-lined operating expenses. A depreciation and finance cost expense
will be recognised 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; and
the Group will no longer recognise provisions for operating leases that it assesses to be onerous, instead
the Group will include the payments due under the lease in its lease liability.
The full quantum of financial and disclosure impacts is yet to be determined, however the Group has taken the
following steps to prepare for adoption of the new standard on 1 July 2019:
>
Implementation of a leasing software solution for managing, accounting and disclosing leases, with lease
data uploads completed and training provided to delegates across the Group
> Significant work has been undertaken to determine the Group’s discount rates for the purpose of
calculating the present value of future lease payments; and
> Reconciliations of the leasing data have commenced along with testing of the automated journals
generated by the leasing software solution
Transition
The Group plans to apply AASB 16 initially from 1 July 2019, using the modified retrospective approach. Under
this approach, the cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening
balance of retained earnings at 1 July 2019, with no restatement of comparative information.
The Group will likely recognise a right of use asset for each lease at the date of initial application at its carrying
amount as if the Standard had been applied since the lease commencement date, discounted using the
lessee’s incremental borrowing rate at the date of initial application.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This
means that it will apply AASB 16 to all contracts entered into before 1 July 2019 and identified as leases in
accordance with AASB 117.
(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.
Page | 76
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
(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.
Page | 77
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(e) Income Tax continued
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.
(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 7 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.
Page | 78
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(f) Intangible Assets continued
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.
(g) Impairment
Non-financial assets
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 post-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.
Page | 79
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(g) Impairment continued
Financial assets
Trade receivables and contract assets
The Group recognises loss allowances for Expected Credit Losses (ECLs) on financial assets measured at
amortised cost and contract assets. The Group has elected to measure its loss allowances for trade
receivables and contract assets at amounts equal to lifetime ECLs. The ECLs are a probability weighted
estimate calculated based on debtors ageing, actual credit loss experience over the past three years and future
economic conditions. The Group’s trade receivables and contract assets are segmented based on common
credit risk characteristics such as customer type, geographical location of the customer and ageing of the
financial asset.
Contract assets held by the Group relate to work in progress which has not yet been billed and as such the
average ECL percentage applied is equivalent to the current (not past due).
(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.
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 offset the
Company’s net investment in a foreign subsidiary.
Page | 80
Notes to the Consolidated Financial Statements
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
32. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(i) Reserves continued
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 2019 the
Group held 357,716 of the Company’s shares (2018: 357,716).
Page | 81
Directors’ Declaration
Cardno Limited and its Controlled Entities for the year ended 30 June 2019
1.
In the opinion of the Directors of Cardno Limited (the Company):
(a) the consolidated financial statements and notes set out on pages 30 to 81 and the Remuneration
Report of the Directors’ Report, set out on pages 18 to 27, are in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2019 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 Cardno entities 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 2019.
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 21 day of August 2019.
Signed in accordance with a resolution of the Directors.
MICHAEL ALSCHER
Chairman
Page | 82
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 2019 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 2019;
• consolidated statement of financial
performance, consolidated statement of other
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 – professional services
revenue; and
recoverability of deferred tax assets relating to
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.
Page | 83
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.
Valuation of goodwill and intangible assets ($359m)
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
40% of total assets and the impairment loss of
$46.3m recognised for the APAC Cash Generating
Unit (CGU) during the year. We focused on the
significant forward-looking assumptions the Group
applied in their value in use models and the
determination of the impairment loss recognised
in the APAC CGU, including:
•
forecast cash flows (EBITDA margins and
terminal growth rates) – the Group has
experienced competitive market conditions
particularly in APAC with a decline in major
project wins and a lower level of work across
many specialist areas. These conditions
resulted in impairment of the APAC CGU and
increase the risk of inaccurate forecasts or a
wider range of possible outcomes for us to
consider. This requires additional audit effort
specific to the feasibility of key assumptions
and consistency of application to the Group’s
strategy. The Group’s modelling is sensitive
to changes in the EBITDA margin; and
• discount rates – these are judgemental in
nature and vary according to the conditions
and environment each specific CGU is subject
to from time to time. The Group’s modelling is
sensitive to changes in the discount rate.
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;
information
• challenging the Group’s significant forecast
cash flows including margin assumptions in
light of
the expected continuation of
competitive market conditions within APAC in
particular. We compared forecast margins to
published
comparable
companies. We used our knowledge of the
Group, their past performance, business and
customers, and our industry experience;
• we independently developed 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;
for
•
•
for the APAC CGU, comparing the recoverable
amount determined from the value in use
model to the fair value less cost of disposal
calculated using market multiples of
comparable entities;
recalculating the impairment charge against
the recorded amount disclosed;
• assessing the disclosures in the financial report
using our understanding obtained from our
testing and against the requirements of the
accounting standards.
Page | 84
Revenue recognition – professional services revenue ($766m)
Refer to Note 3 in the Financial Report
The key audit matter
We focused on fees from professional services
revenue as a key audit matter due to the risk
associated with the judgements applied in
determining revenue recognition near year-end.
58% of the Group’s revenue relates to
professional services revenue.
The Group’s policy is to account for revenue
earned from professional services over time as the
services are delivered.
Judgements are applied to assess the Group’s
measure of progress for the recognition of
professional services revenue near year-end for
fixed price contracts using an estimation of the
percentage of completion.
Changes to these estimates would give rise to
variances in the amount of revenue recognised
during the year.
How the matter was addressed in our audit
Our procedures included:
• considering the appropriateness of the
Group’s accounting policies against the
requirements of AASB 15 Revenue from
Contracts with Customers (AASB 15) and our
understanding of the business;
for a sample of contracts, comparing the
relevant features of the underlying
professional services contracts to the criteria
in the accounting standard, those in the
Group’s accounting policy, and against
identified performance obligations.
In addition, we focussed on the significant
judgements applied to assess the Group’s
measure of progress for revenue recognition from
professional services contracts. For a sample of
contracts, our procedures included:
•
•
testing key controls in the Group’s revenue
recognition process, including:
-
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 with fixed fee arrangements near
year-end by selecting a sample of these
contracts; and:
-
inspecting key terms including pricing,
deliverables, project commencement and
end dates and contract type to the
underlying contract with those recorded in
the accounting system;
performing inquiries with the relevant
project managers regarding the progress
of the contract against key milestones in
the contract, write ons/offs, progress
against budget and budget revisions;
critically evaluating the estimated
percentage of completion calculated using
the input method, to recognise revenue
by comparing it to evidence in the project
reports provided by project managers and
correspondence and billing to the client;
inspecting revenue adjustments through
write ons/offs to identify any trends and
bias in the timing of revenue recognition
near year-end; and
-
-
-
• checking the subsequent billing and cash
received where applicable, and assessing the
aging of work in progress amounts remaining
unbilled at year end.
Page | 85
Recoverability of deferred tax assets relating to tax losses ($53m)
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.
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
the Board approved budget and assumptions
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;
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.
involving our tax specialists 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 | 86
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
In our opinion, the Remuneration Report of Cardno
Limited for the year ended 30 June 2019,
complies with Section 300A of the Corporations
Act 2001.
Directors’ responsibilities
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 18 to 27 of the Directors’ Report
for the year ended 30 June 2019.
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
21 August 2019
Page | 87
Additional Shareholder Information
DISTRIBUTION OF ORDINARY SHAREHOLDERS
The number of shareholders, by size of holding, as at 31 July 2019 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
6,412
1,814
594
894
109
Number of
Shares
1,793,451
4,412,196
4,403,551
24,429,042
409,231,324
9,823
444,269,564
As at 31 July 2019 there were 5,330 shareholders who held less than a marketable parcel of 544 shares.
TWENTY LARGEST ORDINARY SHAREHOLDERS
The names of the twenty largest holders as at 31 July 2019 were:
CRESCENT CAPITAL INVESTMENTS
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
HALJAN MANAGEMENT LP
BAINPRO NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
UBS NOMINEES PTY LTD
BRISPOT NOMINEES PTY LTD
ANNE FELICITY PHILLIPS
BAINPRO NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
ALLEGRA VENTURES PTY LTD
NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT>
16 PEDERICK ENTERPRISES PTY LTD
TREVOR JOHNSON
TAMBLYN INVESTMENTS PTY LTD
ALLEGRA VENTURES PTY LTD
FOUR G'S HOLDINGS PTY LTD
Listed Ordinary Shares Number
Held
Percentage
215,178,846
93,179,010
36,003,467
25,998,903
4,480,634
1,686,192
1,540,544
1,495,615
1,314,913
1,294,337
1,101,378
1,004,584
955,174
947,339
794,490
762,736
687,779
650,000
621,072
600,000
48.43%
20.97%
8.10%
5.85%
1.01%
0.38%
0.35%
0.34%
0.30%
0.29%
0.25%
0.23%
0.21%
0.21%
0.18%
0.17%
0.15%
0.15%
0.14%
0.14%
Total
390,297,013
87.85%
Page | 88
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
46,751,415
50.01%
10.52%
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 2019 the details of Performance Rights on issue are as follows:
Number of Rights Holders
Number of Rights on Issue
16
4,701,057
VOTING RIGHTS OF RIGHTS
The ordinary shares issued on exercise of the rights will rank equally with all other ordinary shares.
Page | 89
BOARD OF DIRECTORS
AUDITORS
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
BANKERS
HSBC Bank Australia Limited
HSBC Bank USA
Commonwealth Bank of Australia
National Australia Bank Limited
Chairman
Michael Alscher
Directors
Neville Buch
Steve Sherman
Jeffrey Forbes
Nathanial Thomson
Rebecca Ranich
Chief Executive Officer
Ian Ball
Chief Financial Officer
Peter Barker
Company Secretaries
Peter Barker
Courtney Marsden
Vikash Naidu
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 + 61 7 3369 9822
Fax + 61 7 3369 9722
cardno@cardno.com
www.cardno.com
SHARE REGISTRY
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
Page | 90
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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
Follow us on
www.linkedin.com/company/cardno
Follow us on
www.twitter.com/cardno
Join us on
www.facebook.com/CardnoGlobal
Watch us on
www.cardno.com/youtube