Investment Matters

Cardno: Structurally sound

Cardno's result had good and not-so-good elements.  The good first: structurally the company has made a material step forward.  Net debt and gearing have reduced considerably - net debt from $311m to less than $50m, and gearing from 46% to 31%.  This has been facilitated by asset sales ($86m), working capital reduction, capital raisings and operating cash flow.  The company is now on a sound footing.

Operationally, the result was not-so-good. Revenue on a constant-currency basis was down 20%, impacted by conditions in the Americas. More specifically, delayed or deferred projects particularly in engineering and natural resources fields, as well as reduced number of oil and gas related projects, impacted.  Conditions for the company's Asia Pacific operations were more stable; downturns in WA and Queensland mostly offset by a solid performance in NSW.

Cardno is spending considerable effort decentralising operations and delayering management, fixing IT and other systems, and improving operational responsiveness.   These are currently holding back the company, and hence represent an opportunity as the company turns these around. 

Cardno also announced the resignation of its CEO, with majority shareholder Crescent Capital moving to appoint interim joint CEO's (one for the Americas, and one for the Asia Pacific region).  We see this as a move to reinvigorate the restructuring and optimisation efforts mentioned above.

Whilst this result is disappointing operationally, considerable leverage exists when the company is able to make improvements such as increasing utilisation, bringing to fruition the operational management and systems improvements mentioned above, and increasing backlog (thereby increasing future revenue).