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Edited Transcript of CDD.AX earnings conference call or presentation 27-Feb-20 10:59am GMT

Half Year 2020 Cardno Ltd Earnings Presentation

FORTITUDE VALLEY, QLD Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Cardno Ltd earnings conference call or presentation Thursday, February 27, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Peter A. Barker

Cardno Limited - CFO & Joint Company Secretary

* Susan Reisbord

Cardno Limited - CEO, MD & Director

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Conference Call Participants

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* James Lawrence

Morgans Financial Limited, Research Division - Analyst

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Presentation

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Susan Reisbord, Cardno Limited - CEO, MD & Director [1]

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I want to say good afternoon, and thank you for making the time to join us for the Cardno's 2020 Half Year Results Presentation. As Travis mentioned, my name is Susan Reisbord, I'm the CEO and Managing Director of Cardno, and I'm here today with Peter Barker, our CFO.

Today's presentation will be in 3 parts. First is a performance overview, the second is a detailed financial review and then, finally, we'll wrap up with the commentary and the outlook.

And so let's talk about the 2020 half year performance review. The most significant activity in the last 6 months in particular, of course, was the demerger of Intega from Cardno, and I want to say that I'm proud of the fact that it was a successful demerger and that there was a heavy lift on our side, Cardno's side, to help make that successful. And I'm pleased that it's gone well and wish our colleagues in Intega well.

But I also want to say that I'm very delighted that we did the demerger. In particular, in the U.S., as we stabilized and grew, there was more and more conflict of interest issues that were rising that we're preventing smart growth for all parts of the business. And so the demerger was really an elegant solution to that. And in addition to that and -- as well is that I feel like, from a business perspective, we make a lot more sense to the marketplace, which is important for clients and important for our staff as well, as a consulting and professional services company, delivering in the infrastructure, environmental and social arenas.

So when we look at the year -- or the half year in review, how did we do? Well, we met and actually we're slightly ahead of our EBITDA target. It came in at $19.7 million. But how we did it is interesting in the sense that our International Development team delivered as expected. So a great job on their part. At the same time, the Americas we're absolutely -- had strong and stellar performance with a great result, which was a really good thing because our APAC team was experiencing significant headwinds. And so again, I think, highlighting the strength of actually having a global and a balanced portfolio.

When we look at the '22 (sic) ['20] half year performance overview about how we're going, broadly performing as expected. And again, as I mentioned, the effect of our geographic footprint buffers the company from under or overperformance. And it's something, again, that has served us well in the past. Back in 2016 or so the situation was reversed, where APAC's outperformance helped give the Americas cover while we got our house in order.

So what's positive today? Well, Americas continues to perform well, driven by very strong performance in Science & Environment, or Government Services group and or transport group, in particular, within our Infrastructure. We've had new contract wins and really excellent project delivery, and I want to highlight a few things for you.

Relative to Science & Environment, some of that success is based on what natural resources did of growing specific key accounts. And not just growing them from a BD perspective, but in particular, excellent project delivery and management and staffing of projects so that within the confines of those kinds of contracts that we do well.

ChemRisk, their strategic positioning in research 2 and 3 years ago put them in a position to meet the market demand right now, today, that has them doing outstanding performance.

Government -- our Government services team, about 1.5 years ago we pivoted that teams, particularly the senior people's teams in direct time from administrative tasks to external client activities from BD. And again, project delivery and the results are outstanding.

And finally, if you look at Infrastructure, there's, again, a total focus on key accounts, that transport piece particularly relative to our FDOT work is about key account management.

So the thing I want to highlight, whether you look at the outperformance in Natural Resources, ChemRisk, Government Services or transport, all of these are a result of strategic planning and positioning that was started 2 years ago and that we're bearing the fruit from today.

Now I do want to highlight that we've implemented a performance improvement plan for our Structures business. We started scrubbing and retooling that business back in July, and we're already reaping some of the rewards from that. So we have a very active improvement plan in place.

Our International Development business, as I mentioned before, is delivering as expected. One thing that you'll notice is year-over-year the performance is down a bit compared to this time last year. But again, that's as planned because we made a conscious decision to make an investment in the future for our business, particularly from a business development and service line development perspective. And our balance sheet is in a great position, and Peter will talk to you a little bit more about that later.

What's improving our cash conversion. So cash flow management is -- as you know, is absolutely key to upper quartile performance in our industry. And so making sure that time sheets and expense sheets get processed quickly, they get invoiced quickly, so it goes to invoice to income straight away. And we've got our leadership teams working to drive us to that upper quartile performance with regard to cash flow management. And again, Peter will talk about this a little bit later.

And then what's our work in progress? It's clear from the results that Asia Pac revenue and margin is down, primarily due to a couple of reasons. First and foremost, there was a runoff of major projects in a delay in the start of new work won. So again, not a completely unusual story for us is when you looked at the America's headwind several years ago, there was a similar part of that story. So we're making the adjustments today to respond to market condition changes and really a more refined suite of service offerings.

I did want to highlight that within the last year, it's not as if we hadn't been positioning for this. And one of the things that makes me very bullish on the market is the project wins that we have secured, and Peter will speak to some of those again a little later, within the last year. So a great job from our Asia Pac leadership team. And finally, with Caminosca, we're winding down Ecuador projects or legacy issues that are steadily being resolved.

With regard to the next slide for -- by way of introduction, we debated whether or not to include this slide and we decided to include it. For those of you who don't know me or don't know my background, I want to touch on just a few things. I'm an industry veteran with 35 years' experience in our business and started out as a geochemist, doing so in groundwater cleanups in the Americas region. So majority of my career was at MWH Global, and my last job there was Director of Strategic Planning for the Americas Region.

Before -- right before joining Cardno, I was with GHD and the Co-Chair of the North America Executive Committee. And I had the pleasure of joining Cardno in 2015 as a -- in a global role for business planning and strategy. In 2016, I became the President of the Science & Environment position. And again, a lot of the work on the integration of the former acquisitions in that division, in particular. And then finally, in 2018, became the Americas Region's CEO, and then most recently was appointed to the Managing Director role.

So again, if anybody has any questions or would like more information on my background, please feel free to reach out.

So with that, Peter, I'd like to pass it over to you to go through the detailed financial review.

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Peter A. Barker, Cardno Limited - CFO & Joint Company Secretary [2]

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Great. Thanks, Susan, and we're on Slide 7. So this is the half year financial highlights. And with the demerger and AASB 16 and us having released this to the market only a few hours ago, I would imagine there would be folks on this call who may not have had the ability to absorb it all fully.

We are holding an Investor Day in March and -- which Susan and I will be talking to investors. So if you don't receive an automatic invite from us, my details are on the half year announcement. So please do drop me a note, and we'll ensure that you get an invitation to that.

So with that, the -- as Susan said earlier, our headline EBITDA was $19.7 million, which was, as Susan said, slightly ahead of our internal targets and 3.4% up on the pro forma for last year. So generally, a pretty good outcome. Susan is going to talk through our full year guidance a little further in the pack.

The line below it -- there's a lot of numbers here, but the line below is our underlying NOPAT, net operating profit after tax, which again was a pleasing number at $9 million. So all in all, in terms of our ongoing operation, a pleasing outcome. Although again, as Susan said earlier, our portfolio effect of our businesses, with the Americas just operating at stellar levels and Asia Pac challenged, and ID hitting exactly what -- being exactly where it needs to be, means that we got there, but it was a few ups and downs.

Now associated with that, the -- as Susan said earlier, we did demerge Intega at the end of October. And associated with that, there is a noncash gain on disposal that goes through our accounts. And furthermore, recognizing the underperformance in Asia Pacific, we used the opportunity to -- we looked at their forecast quite carefully. And whilst the, and I'll talk to this in a few more slides, the backlog looks quite encouraging, nonetheless, we did take the opportunity to record a further noncash impairment of just under $70 million, which also booked -- we booked as effective as at the end of December.

So the number in the bottom right-hand corner will be a net profit -- or is a net profit after tax of just under $71 million, although you need to be highly cognizant of underlying is sitting a bit under $10 million, with those 2 large extraordinary items.

Now pleasingly, lastly, on this slide, backlog is up a little under 3%, and the quality of the backlog is encouraging. And I'll talk -- as Susan said, we'll talk to the wins -- some wins behind that in a few slides.

So going on to Slide 8, a couple of specifics on the demerger of Intega Group Limited. So investors know that we executed this at the end of October. And we join an elite group: South32 out of BHP, Coles out of Wesfarmers and now Intega of Cardno. So in terms of at a very high level, what we executed is similar in principle to Coles out of Wesfarmers. However, please note that it was a one-for-one share offer. So if you hold 1 Cardno share before the demerger, you hold 1 Cardno share and 1 Intega share post demerger. And no capital was raised and no capital will return as a result of the demerger.

Now we have footnoted extensively through our financial report the impact of the demerger and the associated notes talked about. But the -- we did demerge effective, as I said, 31 October. And there is a TSA in place. And as we say there, we are reimbursed for these services at cost that will wind down through the end of calendar -- currently scheduled to the end of calendar 2020.

Rolling forward then on to Slide #9, this is the impact on AASB 16. Again, we have footnoted extensively through this presentation and indeed the financial report the impact of AASB 16. We are currently reflecting on how we are going to disclose this going forward. But as you can see in the table there, it does -- the impact of the standard is to increase our EBITDA by $14.8 million.

Frankly, all of our systems and processes are designed to report pre-AASB 16. And if we end up moving to adopting all our internal management reports and there's -- thus -- therefore what we talk to the market about in terms of how we run the company, there will be a shorter bridge going forward. But at this stage, please expect -- when Susan and I are talking to the market at the end of August, please expect us to do something quite similar to this where we show pre-AASB 16 and post-AASB 16. And when Susan starts talking guidance in a few more slides, she'll be talking pre-AASB 16.

Moving then on to Slide 10. So this is our bridge from our post-AASB 16 EBITDA through to our NPAT. And as I spoke earlier, we've booked the noncash impairment of goodwill in Asia Pacific and then a substantial profit from the demerger of Intega, and that leaves us with an NPAT of a little under $71 million.

Pleasingly, otherwise, there's very few abnormalities in there, which was a feature of our accounts 3 or 4 years ago. Otherwise, the bridge between statutory and underlying is quite close.

Okay. So then on to Slide #11, which is our business. Now post demerger, as Susan was explaining earlier, we are a much more focused business post demerger. We are a consulting -- as a consulting firm, we have 3 clear divisions being our Americas division, Asia Pacific and International Development.

If you will, I'd almost call this classic Cardno. So this is the Cardno of 5, 8, 10, 20 years ago, where we were consultants who provide services in both physical infrastructure, social infrastructure and sciences. And we've effectively, post demerger, went back to our roots. Critical mass in those 3 divisions, we do have a small presence in Ecuador, which -- and Latin America, which Susan spoke to earlier. And I'll now go on to Slide 12 to talk a little more about each of these divisions.

So on 12, we have Asia Pacific. And that clearly, as Susan said earlier, is a very disappointing outcome for us. They actually made, on a pre-AASB 16 basis, a small loss for the half, which -- it's disappointing because it doesn't reflect the superb work that our people do every day for their clients. But it does reflect, firstly, a number of projects, what I'll call moving to the right. That's both the award of the projects, i.e., winning the work, but then from the awards through to delivery, the time it gets there moving to the right, and that reflects the -- it's just a challenging environment where, frankly, everyone is busy. But it does lead to challenges for our utilization and some of our business disciplines around that. So that, and then some softness in certain specific geographies, as we say, that has led to a reduction in revenue and its resultant pressure on EBITDA.

As I said earlier, we did book an impairment associated with this. But having said that, while this is clearly disappointing, if you look at the bottom of the page, you can see that -- what I said earlier about our backlog is up. So Asia Pacific's backlog is up on prior comparative periods. And we've highlighted a number of key wins here and we've pulled a few out from each state. So Logan Water Alliance is a substantial major win in Queensland. Northeast Link, Suburban Roads and Barry Beach are all in Victoria. And Nowra Bridge is one of several really important wins in New South Wales.

Now we need to follow that up with excellent project discipline and a real back-to-basics approach, which Susan's -- under Susan's leadership, together with the -- our Asia Pac leadership team, we're very much focused on. So a disappointing outcome, but we're well encouraged. I'm encouraged by the quality of the backlog, and I do expect to be showing an improvement on that for the second half. I won't talk to exactly how much is there because it depends on a number of the variables I've just alluded to. But I expect to see second half '20, Susan, we expect it to be much more back to -- on its way to a much better outcome.

So if we move on to the Slide 13, which is the Americas, and I think the headline there says it all. Operating on close to all cylinders. This is Slide 13. Now the -- and Susan spoke a little -- to it a little earlier. We stay close to all cylinders because there are still a couple of businesses within the portfolio, that is our Americas division, that aren't quite there yet and they've got some work to do. And that's really quite encouraging in terms of -- the Americas, I think, can do a little better in the future.

However, having said that, as we say here, the results in the first half were buttressed by major, very profitable projects in our natural resources and our toxicology fields that may not repeat in future halves. So a 14% EBITDA margin in the Americas is, as far as we understand, best practice or very close to it, if not beyond best practice...

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Susan Reisbord, Cardno Limited - CEO, MD & Director [3]

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(inaudible), I suppose

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Peter A. Barker, Cardno Limited - CFO & Joint Company Secretary [4]

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Yes. Yes. So pleased -- it would be wrong for stakeholders to walk away from this call thinking that Cardno Americas will achieve those sorts of margins in the future. I do think -- and Susan, please expand on this, but I do think there is an opportunity for ongoing growth on the top line. But I don't -- I do -- I certainly don't think that 14% is the new go-forward margin, right?

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Susan Reisbord, Cardno Limited - CEO, MD & Director [5]

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No, no.

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Peter A. Barker, Cardno Limited - CFO & Joint Company Secretary [6]

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That's correct. Pleasingly, the wins you see down at the bottom of the page, FDOT in our transport sector in Florida, that's the Florida Department of Transport. That is a long-term client of ours and we continue to do great work for them up and down various parts of Florida. And then 3 great wins in our Government Services space supporting the Navy, the Air Force and again the Navy.

There are a bunch of other wins, which we haven't put in here, we're just drawn a few out. But the really pleasing thing is that backlog in the Americas is up across all the businesses that comprise the division. And that, together with, frankly, the tough calls that were made 2 or 3 years ago, which Susan led a lot of it and spoke to earlier, really had our Americas business pretty close to exactly where we want it. And again, please take my preface earlier about margin. But certainly, the midterm outlook for our Americas business is encouraging.

Moving on to Slide 14, our International Development business. Now structurally -- just to remind investors, structurally, this is a low-margin business. And whilst it is -- you see a slight deterioration in the EBITDA margin, this is exactly where we expected it to be and exactly where we need it to be. We have ongoing modest investment in various initiatives to diversify our revenue stream, and they will -- we're starting to see some progress there.

To give you but one example, modern-day slavery is an issue that most corporates, if not all corporates, need to deal with, their response to that in terms of modern-day slavery in their supply chain. Our experts have been assisting various nations around the world in terms of human trafficking avoiding -- human trafficking avoidance.

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Susan Reisbord, Cardno Limited - CEO, MD & Director [7]

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Eradication.

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Peter A. Barker, Cardno Limited - CFO & Joint Company Secretary [8]

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Eradication, yes. Not for, against. Yes, thanks. Yes, human trafficking eradication. So those services are incredibly valuable because we've got decades -- literally decades of experience in this space versus just trying to sell something, which I suspect other major consultant firms might try to do.

So what we're trying to do is -- by modestly investing is create a diversified revenue stream whereby we can assist you. And if you think about the organizations on this call, all of you need to respond to this. And please give us a call because we can help you because we've lived this.

Also the -- our International Development team are watching very carefully our clients, both the Australian government, the United States government, as they pivot more towards the Pacific and the implications. That represents both opportunities but also challenges in terms of ensuring that our business lines are ready to go.

There's some great wins down the bottom there. And what's really pleasing about a number of these is you see USAID, so that's a program won in Washington, where it's actually being delivered in New Guinea, and Asian Development Bank, DFAT in Sri Lanka, et cetera. So it's really encouraging to see our International Development business operating as a global business, with wins in one part of the world or with a client in one part of the world being delivered in other geographies.

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Susan Reisbord, Cardno Limited - CEO, MD & Director [9]

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Yes. Peter, I'd like to add to that because I think there were even some more significant developments that aren't necessarily super clear by what we have here. And that's that, in the last year in particular, including this project that's highlighted here, this USAID project in the PNG, is that Cardno is winning projects based on our entire portfolio though, because that was not just ID staff that were in that proposal. We had Science & Environment staff as well.

And then we have other projects in Vietnam, for example, that have our Government Services team and our Science & Environment, our Infrastructure team New South Wales staff. And that we're finally in a position where we're materially benefiting from the acquisition strategies of 2004 to 2014, is that we're finally really moving from a company that had global offices to a global company. And so it's the BD lead, that again has been seeded over the last 18 months, that is resulting in really being able to capture projects that not any one of the regions would have been able to capture on their own.

Back to you.

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Peter A. Barker, Cardno Limited - CFO & Joint Company Secretary [10]

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So moving -- thanks, Susan. So moving back on to Slide 15, the balance sheet. Look, the -- clearly, it impacts -- as I said earlier, we footnoted wherever appropriate in terms of AASB 16, but also the demerger. Suffice to say, if you want to get further into the detail, the -- if you look at Note 3 of the financial report for the discontinued operations, i.e., the demerger; and Note 18, it's the longest Note 18 I think I've ever seen in terms of change of accounting policies, you'll see the impact of AASB 16.

In terms of Slide 16, the thing I'd like to stress here is that as has been our model for the last 4 years, Cardno remains a conservatively funded company with strong balance sheet position. Our net debt-to-EBITDA was 1.3x at December and our lending covenant takes us back to 2.5.

Also, we have a -- for a company our size, we have a substantial facility in place with nearly AUD 80 million equivalent in unused facilities. So ample financial horsepower. And again, though conservative -- we believe conservatively funded and which reflects what we've said for the last 4 years would be our plan.

Last slide in the financial section is cash flow. Now the -- as I say there, you actually see a mild negative in terms of cash provided by operating activities. That's obviously a bit disappointing. We -- I do state there -- or we state there that we expect the second half cash flow -- a positive cash flow.

And what tends to happen is the timing of our client payments. Not always but typically, if you have a good first half, you have a bad second half. If you have a good -- a bad first half, you have a good second half. That was somewhat impacted as well by the substantial multimillion-dollar cash impact of the costs associated with the demerger.

We did do the demerger on a shoestring, I will say, compared to the other ones that I mentioned earlier in the call. Clearly, we're a smaller company. But nonetheless, for a company our size, they were material amounts.

We have put -- we announced to the market a few days ago that we have put the mechanism in place for our buybacks to resume. We'll obviously be announcing that as and when that unfolds, but it will be extremely modest. Again, reverting back to my comments just on previous slide in terms of conservatism, so please expect that to be modest at best.

Finally, our new lending facility is a 3-year facility with HSBC, Investec and NAB, and it takes us out to the end of October of 2022. So we've got plenty of time frame there.

With that, that's the end of the financial section. I'll pass back to you, Susan.

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Susan Reisbord, Cardno Limited - CEO, MD & Director [11]

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Great. Thanks, Peter. So on Slide 19, I want to do the focus for the remainder of FY '20. And I alluded to it just a minute ago, I said that the focus of the business for the remainder of the fiscal year will be based on 3 themes that actually move us from being a company with global offices to a global company. Again, realizing the potential of that large acquisition run from 2004 to 2014.

The key -- the first theme is really simplify and prioritize. And when I talk about that, I'm talking about simplifying and unifying processes, procedures, means and methods to reduce the administrative demands and total cost. And it was really one of the underlying -- the foundational reasons of the Americas turnaround, is that we had to take advantage of the tools and processes that we had to create consistency so that we could reduce our overall administrative burden.

The heavy lifting -- the good news is that the heavy lifting that was done to this end in the Americas in 2016 and 2017 will be leveraged across to APAC. So we do not have to recreate the wheel. Now I can tell you, I've been in my role since late last year, and that's not going to be just a one-way street. If there are best practices in APAC as well, which we'll leverage back to the Americas. But again, it's realizing the potential of the acquisition strategy that existed before.

The second thing is really prioritizing nonbillable time away from these administrative tasks to client engagement, project delivery and technical advancement. So as I mentioned, with regard to the Government Services business, one of the things that you've seen in the turnaround relative to their performance year-over-year for the last couple is really the foundation of it is this bullet point in particular.

A little over 1.5 years ago, we met with the leadership team, we prioritized the things that we were not going to do from an administrative standpoint and refocused on particularly client engagement to fill the contract capacity of large contract vehicles that we had, and that team has done a remarkable job doing that. So again, it's not rocket science in our business, but it is a discipline issue.

And then finally, hone the service offerings to markets and clients where we can have an impact and make a fair profit. So we have extraordinary technical talent throughout the business, and it is technical talent that is enviable. What's interesting is that I, think, again, pre demerger, we were trying to be too many things to too many people. So the visibility of that strength wasn't there so much, and that will be more visible this year.

And I want to highlight that idea of making a fair profit because, again, one of the keys, which you heard earlier, to Americas turnaround was key account management. And that's not just management and growing the top line revenue, but it's also growing the profitability. And we use business analytics and particularly developed some interesting tools for the last 6 quarters to make sure that we are managing key accounts very deliberately.

Second big theme is to innovate and transform. We'll be driving integrated global working through the fundamentals of financial, operational and delivery hygiene, so powered by digital. What that says is we have invested in great tools and systems that we haven't capitalized on and certainly not used consistently on a global basis. As we do that, there's great opportunity. One, again, for cost control and reducing admin. And there's even more potential about working globally, like on those projects that I mentioned with regard to ID, and really capitalizing in the market to be able to do projects that bring all of Cardno to bear. So we think globally, and design our processes and systems globally so we can learn and deliver locally.

The second thing that will be a hallmark of what we do is remain technologically agnostic. It's what our clients expect, where we have a preference for buy versus build. I've been -- as you can tell in my career, I've spent a lot of time in the industry. And one of the things that I've seen is that we -- there have been companies that have spent a great deal of money building something that was -- that we could have bought cheaper and better elsewhere. And as we move forward, this is our preference.

And then finally, harnessing the total company investment through governance and financial transparency. We've operated in a very -- I think it's not truly but kind of siloed way, Americas versus APAC versus ID. And as a result, we've had some, in parallel, investments going on that we can harness better through a global approach. And we've just put in place, as I think you guys may know, is we hired Raj Prasad to be our Chief Transformation Officer, and he has a long career in our industry from the IT and digital transformation space. And we have just implemented new governance and financial transparency programs to be able to do this more effectively.

The third big theme is really making a difference. So Peter alluded to modern-day slavery eradication. That's just one element of a suite of services we, as Cardno, provide under an ESG framework. But I want to highlight that ESG -- environment, social and governance framework, isn't just what we do for our clients, it's who we are as a company. And I think our work this year is really capturing and communicating the significant progress we as Cardno has made in the last few years, in particular, and set global goals so we maximize our positive impact.

And then last but not least, we'll be strengthening the technical fabric of the company by knitting together resources more closely. So we use the digital tools that we have to raise service line leadership. And again, it's good for clients because they get the best of Cardno. It's good for the staff because of the professional development perspective. And I just think it's one of the things that makes working for a company like ours that's so enriching is that technical collaboration.

So I'd like to move to Slide 20 and give you an outlook for fiscal year '20, where we remain focused on cost control, smart growth, both organic and acquisitive. Because one of the things that you'll see in the Americas, I think, over the next few years is not only -- we built success on organic growth primarily and as we move forward, we'll -- we're in a position now to do acquisitions to achieve strategic objectives more readily. And of course, people development.

I want to highlight, though, first and foremost, that the FY '19 pro forma EBITDA was $38 million, and we expect the FY '20 EBITDA to be about the same level or potentially even stronger than the prior year.

With the demerger successfully executed, as I mentioned before, we're focused on Consulting and Professional Services in the infrastructure, environmental and social arena. And we're -- we'll be finishing out this year and entering FY '21 with a good, strong quality backlog and operating discipline to set the stage for the future.

With that, Peter -- oh, there's one other thing that I'd like to highlight for you. And we wanted to talk to you a little bit about how we're -- we have coronavirus preparedness being executed within the company. We have -- our global platform, the nature of what we do, requires active risk management and business continuity planning. So I wanted to share with you what we've done and what we're planning.

At the outset of the outbreak or certainly the communications of the outbreak, we set up a global crisis management team with a regional focus with our International Development team in the lead. And again, given the nature of the business that we have, that was the part of our business that was sort of at the point in the sphere of this.

We issued regional communications by the leaders of International Development, Asia Pac and the Americas and created regional intranet pages set up for real-time access to current information with regard to travel restrictions, self-quarantine requirements, antidiscrimination expectations, et cetera.

Our leadership team receives daily briefings that include a status update of the overall situation and the status of the outbreak; status with regard to geographies, in particular, that we're closely monitoring; highlights and links to the latest research and advice; and then any Cardno update.

In addition, I'm on the phone with Jamie Alonso and Marian Boreland on a regular basis to talk about proposed changes or plans to the policy as the dynamics of the situation change.

So what are we planning? Next week, we'll be pivoting from regional communications to global communication standards. And the reason we're doing this is in response both to the outbreak of -- the outbreak advancements but also the heightened fears due to media exposure. So both real and perceived risks in the marketplace and -- to take care of our staff.

We will be issuing office and personnel preparedness guidance next week and implementing regional country or office-specific continuity plans as needed. It's a skill set we have. It's muscle that we exercise on a regular basis and have -- whether it's been hurricanes or floods or bush fires or forest fires, is that we have a process and procedures in place to wind down offices or regions, and to wind them up and redeploy.

So again, I feel like we're in a very good position about being as ahead of the situation as you can be, given what we know about the situation right now.

So with that, I'd like to hand this back to Travis for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from James Lawrence from Morgans.

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James Lawrence, Morgans Financial Limited, Research Division - Analyst [2]

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I was just wondering if we could delve a bit deeper into the APAC region, please. And you talked about the utilization obviously being a key issue, and I was wondering if you could just elaborate this in a bit more -- about this a bit more, and also talk about the restructuring kind of cost-out process that was being undertaken and where that's at.

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Susan Reisbord, Cardno Limited - CEO, MD & Director [3]

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Absolutely. Thanks for the questions. So it's more than just about utilization. So utilization is one of the issues that is caused by, what Peter mentioned, is projects moving to the right. So we've staffed the business, particularly if you look at some of the large water and transport projects, to be able to deliver. So when we have delays of project awards and project starts, we don't want to move people out of a company or furlough them because competitiveness with regard to the right talent is really challenging right now in Asia Pac.

So in those specific pieces of the business, we have had utilization issues. But the APAC issues are more complicated than that. And what we had, again, through the acquisition strategy and work that was done by the way, like in the Americas in 2016, 2017, is that we haven't, in my opinion, fully integrated the business and hone the service lines to what the market is buying today. What we did was and have done is maintain a very broad service offering to the marketplace when, in fact, pieces of that marketplace are not in demand today.

So when you talk -- when you mentioned restructuring, one of the restructuring is really about honing the business to move away from parts of the business where we can't compete or make a difference, and -- because of our size or market demands, and double down in the areas where the business is and we know where it's going based on market research in the Asia Pac region for the next 5- to 10-year time frame.

With regard to the cost-out, which is the third piece of your question is -- the cost-out strategy is multidimensional. And it's not just cost out, it's cost up. So if we get and have gotten more efficient about how we manage our business, which goes from everything from project set-up, again through invoicing to cash collections, that's a cash-in strategy. It's about being the best at making sure that from the time we work an hour that we get paid for that hour and tightening that time up. So that's a cash in versus cash out.

From a cash-out standpoint, one of the things that we're doing and in the process of is looking at -- like basically scrubbing the business, and scrubbing the business from our vendor agreements, from how cash is used inside the business. It is a variety up and down our real estate cost. It's just like good business governance management. And again, there's just work to be done, but work that we know how to do because we've done it over the last couple of years.

Peter, is there anything else you wanted to add to that?

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Peter A. Barker, Cardno Limited - CFO & Joint Company Secretary [4]

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I think that answers it.

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Susan Reisbord, Cardno Limited - CEO, MD & Director [5]

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Does that address your question?

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James Lawrence, Morgans Financial Limited, Research Division - Analyst [6]

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Yes. No, that was great. And I guess just a bit further to that, obviously, talking about project timing being pushed out, what confidence have you got that the they'll start dropping in this half just given -- obviously, you flagged coronavirus and things like that, as that might obviously just defer some client activity as well, I would have thought?

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Susan Reisbord, Cardno Limited - CEO, MD & Director [7]

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Well, I'm also sure that the coronavirus is going to impact the activity that we're talking about, particularly on large projects. And again, fortunately, the volume of what's in the shoot and what has been delayed, we've been waiting on already. So in some ways, it's kind of like the pipeline backing up. So my confidence is in the -- in where we are "in the delay".

With regard to the coronavirus impacting that revenue stream, I don't see a threat to that today. The biggest things that I would see happening, and particularly in Asia Pac with the work that we have, might be if we have sick-outs on the business and people unavailable. But again, we're not anywhere near that today. And knock on wood, we won't be in an epidemic situation. It would be more like a standard flu season in countries around the world.

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Operator [8]

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(Operator Instructions) At this time, we're showing no further questions. That does conclude our conference today. Thank you for your participation. You may now disconnect.