Acquisitions and geo-diversification lead to profits for Cardno

Infrastructure and environmental services company Cardno (ASX: CDD) released 2013 annual results, showing a 24.2% increase in revenue and a 4.7% increase in net profit after tax.

According to the report this increase was largely due to the addition of revenue from two acquisitions made this year. In total, there were seven acquisitions throughout the year in Australia/New Zealand, the US and Ecuador.

Of the company’s business, 51% comes from the Americas, where growth is expanding, yet still at a slow pace. Its infrastructure software sales were up 20%, but other areas related to US government sector were affected by delays in funding. This region increased its NPAT share by 20.3%.

As it anticipates the economic climate to improve there, it is restructuring the organisation to better create synergies to support revenue growth and offset synergies anticipated reduction of services to the Gulf of Mexico oil spill project.

Within the Australia/ New Zealand region, which makes up 41% of revenue, it is still feeling the effects of the slowdown in the mining industry. Three strategic acquisitions were made in NSW and WA. Apart from mining, they have moved ahead in social infrastructure projects for water treatment, environment protection and transport, so this helps to offset the decline in mining-related works. This region’s NPAT share was down by 1.43%

Progress is seen for next year, but the mining slowdown is resulting in a more competitive market environment. In addition, with state governments wanting to cut their budget expenditures, it may still be a hard to drive social infrastructure growth without expanding the company’s industry market share.

The company’s Emerging Markets region saw a slight 19.2% revenue increase, but that in the end only translated to a 1.86% increase in its NPAT share. This region, represented by nine corporate offices offering services in over 85 countries, presently only comprises 8% of Cardno’s total revenue. As the world economy improves, more growth may be seen, yet the lingering effects of the GFC still hamper it.

Return on equity was 12.27%, down compared to the last few years, as was the same for its net profit margin, presently at 6.51%. Gross gearing is at 38%, well within reasonable bounds for such a company. Long-term debt is rising, but shareholder equity is continuing its long-term rise also. Operating cash flow is up 31.8%, which better funds further capital expenditure.

Since July 1, 2012, Cardno’s share price is down 16.7% to about $6.30 while the S&P ASX All Ordinaries Index (ASX: XAO) is up 21.4% over the same period.

Foolish takeaway

Infrastructure companies require long-range plans for growth and cost management which many times spans longer that regular business cycles. An investor who knows the business and industry well can see what is hurting and helping the company, and make a better decision about adding to or taking from their portfolio position.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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