Environment Analyst finds out first hand from Cardno CEO Ian Ball how the firm’s global environmental consulting offering has shown resilience, the significance of its latest 500-person acquisition Raba Kistner in the US, and how it is capitalising on emerging areas such as microplastics.
Australian-headquartered infrastructure and environmental services company Cardno recently released interim results for the first half of 2018/19 showing a 10% increase year-on-year in both gross revenues and fee revenues to A$600m and A$414m respectively (EA 26-Feb-19). The firm said it was "broadly performing as expected", which on the face of it didn’t sound overly enthusiastic.
But the latest set of figures will almost certainly have been a quiet vindication for senior management at the c6,000-strong firm of the success of a multi-year, multi-pronged turnaround strategy, and affirmation that this firm is now firmly back on the up.
There’s no two ways about it, Cardno has been through the mill the past few years. Driven by the surge in demand for its services from the oil & gas sector during the last commodities super cycle, the firm grew rapidly on the back of an aggressive (and ultimately ill-focused) M&A strategy, peaking in 2014 with revenues close to A$1.5bn and total staff of over 8,000 worldwide. But as global commodity prices started to spiral downwards in H2 2014, the firm found itself heavily indebted and its share price severely eroded as it struggled to integrate and coordinate its operations across the globe.
In late 2015, it saw the entry of Sydney-based private equity firm, Crescent Capital, holding a 41% stake, and the subsequent dismissal of Cardno’s entire board as the former embarked on a multi-year programme to turn the firm around (EA 5-Nov-15), including "delayering" its structure and several rounds of divestments which saw the off-loading of PPI ECS, XP Solutions, Cardno ATC amongst others.
On taking the role of chair of Cardno’s board back in 2015, managing partner/founder of Crescent, Michael Alscher, did not hold back in his criticism of the firm’s former management for their "off-target" acquisitions and the over-centralisation of decision-making which had "emasculated regional managers" (EA 15-Sep-16).
Adding insult to injury, was the instability caused by the appointment - and departure - of three CEOs within the space of just three years.
It’s been a harsh lesson for Cardno - but not one that the firm has shied away from. It’s certainly had to make some difficult decisions to reposition itself to the new constrained macroeconomic conditions within the commodities sector whilst simultaneously taking a good look in the mirror to root out inefficiencies and weaknesses.
Now, three years into the improvement plan implemented by Crescent, the firm believes it is operationally and financially in the "strongest position" it has been in within recent history with a "solid basis" for revenue and earnings growth in the medium term. In a nutshell, the plan has focused (and continues to focus) on cost control, organic growth, investment in people and strategic accretive acquisitions. This is unequivocally now a leaner, sharper and much more focused organisation, Cardno boldly states.
Furthermore, it has a new CEO at the helm in the shape of Ian Ball, who brings three decades of international experience in the consulting and professional services leadership field with past positions at household names such as IBM, EY and Bain & Company.
That’s why "performing as expected" is actually a more welcome assessment than it might at first appear.
Environment Analyst spoke to Ball, who took up the reins back in August last year, to get a better understanding of the new Cardno, its EC capability and offering, where it sits within the business, and its aspirations for the future.
Fully integrated EC offering
Since 2017 the business has been structured around five segments managed separately by location and service: Americas engineering & environmental (34% of FY17/18 gross revenue); Asia Pacific engineering & environmental (24%); portfolio companies (PPI and LatAm) (4%); international development (ID) (28%); and construction sciences (10%).
Environmental consulting services run throughout all five segments.
"Cardno has both breadth and depth of environmental services. Our environmental consultancy offering is a service line that is provided throughout the firm across all of our segments and integrated across our regions rather than a stand-alone unit," explains Ball.
It’s a service line which has shown greater resilience whilst other areas were being squeezed during the challenges and successive rounds of restructuring of recent years, Ball confirms.
"If anything, Cardno has increased its environmental consulting activities, particularly in North America in recent years. Our permitting and compliance, environmental assessment, sustainability, restoration and contamination businesses are all expanding due to a combination of both market recognition of Cardno’s pool of talented and dedicated industry experts and sheer market demand for our services."
It’s not surprising then that with the firm on a firmer financial footing, further bolstering its EC offering was made a priority through the resumption of a "disciplined" M&A strategy aimed at building key disciplines in key geographic areas.
Since 2017 the firm has made half a dozen progressively bigger acquisitions in its core Australian and US markets, all of which have added EC elements to varying degrees, including:
- Network Geotechnics (80-strong Australian firm offering geotech engineering, EC and construction materials laboratory testing)
- T2 Utility Engineers (75-strong Canadian Subsurface Utility Engineering (SUE) firm)
- Sure Search (70-strong Australian utility location and management business)
- Trilab (40-strong Australian specialist in soil mechanics testing and rock mechanics testing)
- David Douglas Associates Inc. (20-strong US civil engineering consulting firm)
- TGM Group (130-strong Australian approvals and design firm) (EA 11-Dec-18)
- Raba Kistner (470-strong US civil engineering firm) (EA 9-Jan-19)
Proof of its new-found confidence, the most recent, Texas-based Raba Kistner which completed just before the end of last year, was Cardno’s biggest M&A since the commodities crash, adding nearly 500 staff and significantly enhancing its geographic footprint in the US.
Ball outlines the significance of the deal: "With 470 employees across 12 offices throughout the US, the addition of Raba Kistner really enhances our technical capability with a broad range of engineering services including construction materials testing, geotechnical engineering consulting, project management, and independent quality assurance and inspection; it’s focus is on transport infrastructure projects, working for both government and commercial clients alike.
"In terms of environmental expertise, Raba Kistner provides full-service environmental permitting and compliance services for design-build and other transportation infrastructure projects – from project pre-construction right through construction to completion phases."
And with Raba Kistner’s clients including names such as the Texas Department of Transport, Fluor and energy firm, Williams Companies, Ball will certainly be looking to exploit new openings for Cardno through this latest acquisition.
Furthermore, we can expect to see more in the way of acquisitive growth, Ball hints: "We are researching a number of environmental consulting businesses in North America and also in Australia and are hopeful to execute one or more "on-strategy" EC acquisitions over the next 12-18 months."
Client and geographic diversification
Even despite the ‘pain’ of the past few years, it would be unrealistic to think that the firm has turned its back on the oil & gas sector – of course it hasn’t. But Ball is confident that going forward, it is in a much more diversified position: "Growth of our EC business is dictated, clearly, by client demand and the oil & gas sector remains an important client sector for our EC businesses. However, we have worked hard to broaden our client sector base, so expansion of our EC offerings and revenue is not directly tied to oil & gas markets."
Cardno is seeing strong demand in a number of areas, according to Ball: "Our Cardno ChemRisk business area has a robust practice in litigation support; work for our natural resources business area is booming, including environmental impacts assessments, permitting/re-licensing support, and incident response. Our restoration business area is expanding because of the demand for stream restoration, wetland protection and natural habitat preservation, and our assessment and remediation service continues to thrive as we expand our services geographically."
Looking forwards, Ball is certainly optimistic of increased demand for its EC offering across its core regions of operation: "In the APAC region, the sustainability piece is really beginning to take off, particularly in the infrastructure and construction sustainability side of things. With the Infrastructure Sustainability Council of Australia (ISCA) requirements being seen in more and more infrastructure contracts in Australia and New Zealand, we’re helping our constructor clients understand and embed key environmental, social and governance requirements into their tenders, initial designs and then through into implementation and delivery of requirements on the ground.
"Some of the key aspects within this include climate change resilience, flood management and biodiversity management services too that we’re very well set up to service. We only expect the demand for these types of services, as well as broader sustainability management services, to grow and we’re building our team to reflect that."
In the US, the opportunities are similarly strong, as outlined by Cardno’s Susan Reisbord, who acts both as CEO Americas region and president of science & environment. She states: "In the Americas Region, we are delivering a number of key environmental projects for clients across a number of sectors. Staff are collaborating to provide their expertise on projects including: permitting for hydro relicensing projects; support for at-risk pollinator populations; environmental restoration for dam removals; integrated assessment and remediation services at firing ranges; decontamination and decommissioning of refineries and pipelines; and full master planning environmental support by our Government Services team."
And beyond its core Australian and North American markets, Cardno’s consulting reputation is also growing, Ball stresses, such as recent consultancy input on a large European project, through Cardno ChemRisk, conducting a mass balance assessment of tyre and road wear particles using the Seine watershed.
Meanwhile, in Latin America, Cardno’s Ecuadorean environmental contingent represents the "cornerstone" of the firm’s activities there, having helped to establish best practice with regard to environmental permitting and protection, as well as assessment and remediation, in the country.
Ball explains: "Cardno Latin America has been working with OCP Ecuador SA since 1999 during the feasibility, planning, construction and operational phases of the heavy crude pipeline that crosses the country.
"As part of this project, Cardno participated in the route selection and undertook environmental assessments throughout various phases, including the environmental monitoring conducted on-shore and offshore. Through our work with OCP, Cardno Latin America pioneered natural resource valuation in Ecuador, and developed a methodology for compensating potential environmental impacts, in accordance with new regulations provided by the country’s government agencies."
Of course, like many of its peers, Cardno has made digitalising its business and its service offering a priority. Having spent the best part of seven years in a variety of roles at tech giant IBM in the past, Ball brings considerable personal experience to this particular Cardno initiative.
"My past experience in technology has taught me to appreciate the power of data. There is a convergence of business, environmental, social and engineering challenges and opportunities underpinned by the curation and analysis of data. Accelerating our capability in emerging technologies to solve complex business and technical problems will allow us to bring new solutions to our clients as well as enabling us to work more efficiently and productively. It is a key focus for us and will be a priority for investment. We are already leveraging some powerful digital technologies and delivering digital solutions to our clients but we plan to take this enterprise wide to a new level of engagement."
"We’re working on partnering with clients throughout the digital engineering process, offering solutions that allow all parties to share data and drive insights and decisions as a collaborative team," he adds.
Helping to drive Cardno’s digital agenda will be newly appointed global chief digital officer, Nicola Dorling, supported by Elena Schamp in the newly created role of chief technology officer.
"We are focusing on making it easier to do business internally within Cardno and externally with our clients with improvements to our core delivery systems that manage the client interactions and the project deliverables. What’s really exciting is that we are finding new ways to deliver insights that drive valuable outcomes for our clients – it’s ultimately about client value creation not about the technology," Dorling explains.
"We have a number of projects in the pipeline," she adds, "such as computer vision diagnostics which leverage AI technology to rapidly diagnose digital image and video footage to extract information for a diverse set of applications including assessing the rate of growth of control, tracking animal movements and condition assessments for roads and other physical assets."
A new chapter
"We will not change for change’s sake"
In short, there is no doubt that the past three years have been testing for Brisbane-based Cardno. But the senior management is pleased, understandably so, with what the firm has achieved so far and what’s ahead.
Reisbord comments: "The management team is enthusiastic and energised with the flat organisation structure, quick decision making, and the ability to make a difference every day. This team, management and staff, has been through a lot and have come through stronger and as better business people. Their resilience, acumen and positive attitude makes Cardno a great place to work."
Ball concludes: "We’ve got our mojo back. I have a first-class leadership team. Excluding the portfolio business, four of my six key leaders are women; there aren’t many engineering firms, or for that matter, many public companies, whose core leadership is two thirds women. This brings a fresh and inclusive approach. We have a modern, authentic, transparent leadership style. Our leaders are accessible to our 6,000 people. I have an anonymous Q&A page where each month I receive and answer more than 20 questions that range from what’s my favourite music artist (it’s The Cure by the way) to what’s our policy on domestic violence leave." [Environment Analyst will be exploring Cardno’s initiatives to tackle gender imbalance and increase diversity in a follow-up article.]
So, (now that it has found The Cure to past difficulties…) when will Cardno reach 8,000-strong once again, asks EA? For Ball, it’s hard to predict but in any case, the firm doesn’t see that as a measure of success. In contrast, he and his team will be focusing on three priorities: firstly, a deepening and broadening of its key account programme to drive organic growth by better meeting our clients’ demands; secondly, a continued focus on delivering "excellent client service through efficient high quality delivery"; and thirdly, continued investment in "on strategy" acquisitions in APAC and in the US (with a number in the works already). And of course, continued investment in accelerating and innovating digital services to meet clients’ needs will be ongoing.
Finally, with these objectives providing the framework for the firm as it moves forward, Ball is keen to stress one thing: "The business has been through a lot of change in the past few years and much of it has been a result of poor past leadership. We will continue to change but my commitment to our people is that the future changes will be beneficial for the business, we will not change for change’s sake. My job is to bring our team along and harness their talent and energy."