2012
ANNUAL
REPORT
EXPERTINNOVATIVEEXPERIENCEDRELIABLEENERGETICRESPONSIVE Our success has
been driven by our
ability to optimise
the development
and manufacture
of sophisticated
electronics products
and associated
software to deliver
cost-effective solutions.
2012
ANNUAL
REPORT
Codan Limited
ABN 77 007 590 605
Annual General Meeting
The Annual General Meeting of Codan Limited
will be held at 11:00 am on Wednesday, 17 October 2012
at the Hilton Adelaide hotel, 233 Victoria Square,
Adelaide, South Australia.
Contents
4
6
/ HIGHLIGHTS
/ CHAIRMAN’S AND CEO’S REPORT
10
/ GLOBAL LOCATIONS
11
/ OPERATIONS
22
/ BOARD OF DIRECTORS
24
/ LEADERSHIP TEAM
27
/ FINANCIAL REPORT
106 / ASX ADDITIONAL INFORMATION
108 / CORPORATE DIRECTORY
CODAN LIMITED ANNUAL REPORT 2012
11
CODAN LIMITED ANNUAL REPORT 2012 In the cu r ren t env i ronmen t
o f econom ic unce r ta in ty,
i t is c r i t ica l tha t the company
has a c lea r p lan fo r the fu tu re
tha t a t temp ts to cap i ta l ise
on the th ings we do we l l .
We succeed by
being expert
designers and
manufacturers
of elaborately
transformed
electronics
solutions and
succeeding with
these products
in markets where
others can’t.
2
2
CODAN LIMITED ANNUAL REPORT 2012
33
CODAN LIMITED ANNUAL REPORT 2012 HIGHLIGHTS /
FY12
HIGHLIGHTS
• Highest reported profit of $23.1 million
• Underlying profit increased by 19% to $27.9 million
• Annual dividend increased to 9.5 cents
• Continued growth of metal detector sales and major new product release
• Major new product releases in Radio Communications
• Successfully divested Satellite Communications’ assets
• Acquisition of Minetec brings diversification into resources technology and services sector
CODAN LIMITED
Founded in 1959, Codan
Limited (ASX:CDA) is a group
of electronics and engineering
businesses that capitalises
on its fundamental design and
manufacturing skills to provide
best-in-class electronics solutions
applicable to global markets.
We are electronics engineers and
manufacturers who have embraced the
change over time in the value of the
Australian dollar and have redesigned
our business to make currency value
largely irrelevant.
Our success has been driven by our
ability to optimise the development and
manufacture of sophisticated electronics
products and associated software, which
has enabled us to deliver cost-effective
solutions to a range of customers in
the communications and metal
detection markets.
The Codan brands are internationally
established and well regarded in the
markets we serve, which consist
primarily of aid agencies, businesses and
governments, including their military and
security arms, and dedicated individuals.
Our plan for growth is based on enhancing
our unique intellectual property, putting
that know-how into an expanding range of
electronics products, and then leveraging
our operational excellence and marketing
capability across the world. We continue
to seek out opportunities to grow the
business organically and by acquisition.
The business has now grown to have
approximately 500 employees located in
Australia, USA, UK, Ireland, China and
India. Our marketing reach, largely through
a long-established network of staff and
dealerships across the world, embraces
activity in over 150 countries.
Our plan for growth is based on expanding our range
of electronics products and leveraging our operational
excellence and marketing skills across the world.
$179.4m
total revenue
$27.9m
underlying net profit
9.5c
annual dividend
4
4
Operating revenue
EBITDA
NPAT
2008
$109.9m
2008
$24.3m
2009
2010
2011
2012
$132.4m
$189.3m
$169.6m
$179.4m
2009
2010
2011
2012
$29.4m
2008
$10.5m
2009
$12.8m
$56.1m
$44.0m
$51.7m
2010
2011
2012
$31.1m
$23.4m
$27.9m
/ HIGHLIGHTS
For year ended 30 June
REVENUE
Note
Communications products
Metal detection products
Mining technology
Other
Total revenue
2012
%
of sales
2011
%
of sales
2010
%
of sales
2009
%
of sales
2008
%
of sales
$66.4m
$98.6m
$9.3m
$5.1m
37%
55%
5%
3%
$69.8m
$92.1m
41%
54%
$70.1m
$106.6m
37%
56%
$77.3m
$41.7m
58%
32%
$83.4m
$16.2m
$7.7m
5%
$12.6m
7%
$13.4m
10%
$10.3m
$179.4m
100%
$169.6m
100%
$189.3m
100%
$132.4m
100%
$109.9m
EBITDA
EBIT
Interest
Net profit before tax
Tax
Net profit after tax
Earnings per share
Dividend per share
Return on equity
Gearing
Notes:
$51.7m
$43.2m
($3.4)m
$39.8m
($11.9)m
$27.9m
17.0c
9.5c
37%
17%
1
2
29%
24%
22%
16%
$44.0m
$35.0m
($3.0)m
$32.0m
($8.6)m
$23.4m
14.3c
9.0c
34%
26%
26%
21%
19%
14%
$56.1m
$45.8m
($3.1)m
$42.7m
($11.6)m
$31.1m
18.8c
8.0c
48%
32%
30%
24%
23%
16%
$29.4m
$21.5m
($4.6)m
$16.9m
($4.1)m
$12.8m
7.9c
6.5c
20%
48%
22%
16%
13%
10%
$24.3m
$17.0m
($2.2)m
$14.8m
($4.3)m
$10.5m
6.5c
6.5c
16%
50%
1. Return on equity is calculated as net profit after tax divided by average equity
2. Gearing is calculated as net debt divided by the sum of net debt and equity
The financial information shown above reflects the underlying business performance. For 2012, this is before the loss on sale of a subsidiary company and related assets,
restructuring costs in relation to that sale, and transaction and integration costs associated with acquisitions.
76%
15%
9%
100%
22%
15%
13%
10%
5
CODAN LIMITED ANNUAL REPORT 2012
CHAIRMAN’S AND CEO’S REPORT /
CHAIRMAN’S
AND CEO’S
REPORT
Dr David Klingner
Chairman
Mr Donald McGurk
Managing Director
and CEO
6
6
We are pleased to report that the company has had another good year, producing another excellent result in FY12. Underlying net profit after tax for the year of $27.9 million was our second highest on record, and our statutory profit of $23.1 million was the highest we have ever achieved. Codan declared a fully franked final dividend of 5.5 cents per share, following on from the 4 cents per share fully franked interim dividend, making a total dividend of 9.5 cents per share for the year, an increase from the total dividend of 9 cents per share for FY11.Net debt reduced from $26 million to $16 million during the year and this, coupled with significantly lower levels of working capital, have further strengthened our balance sheet and positioned us very well to support further opportunities to invest in the growth of the business, as and when they arise. Post year-end, we have announced the acquisition of Daniels Electronics which, because of the uncertain economic outlook worldwide, we have chosen to fund by a combination of debt and equity.Codan has demonstrated time and time again that we offer the best value-for-money solutions to customers in our defined markets, particularly in the emerging world, which continues to grow strongly and increasingly demands world’s-best product solutions at an affordable price. We have been successful over many years by being the best designer and manufacturer of elaborately transformed electronics solutions, and by taking these products to the world and succeeding where others can’t.In the current environment of economic uncertainty, it is critical that the company has a clear plan for the future that attempts to capitalise on the things we do well. We are pleased to report that the board and management have further refined our strategy, which consists of three major initiatives: invest in ourselves, expand our businesses and investigate further acquisitions. The foundation of our growth strategy is to ensure that we continue to invest heavily in new product development and to clearly understand that we must continue to innovate and invest in future product technologies to successfully grow the business. To that end, we released three new major product platforms in the last quarter of FY12. Secondly, we continue to seek opportunities to further strengthen profitability by expanding into related businesses offering complementary products and technologies. The Daniels acquisition is an excellent example of this approach, with strong product synergies with our radio communications business, a major presence in the North American market, and a product range that enables us to enter the land mobile radio market for the first time. We continue to seek out other opportunities to broaden our appeal to the markets we serve. Finally, we are continuing with our disciplined approach to identify acquisition opportunities that fit our strategy of further diversification. Codan is continuously on the lookout for profitable businesses that enable us to diversify into different products and industries, but around a common theme, enabling us to leverage off our core capabilities and strengths. In support of these initiatives, we have also made significant investment in the areas of marketing and market development. More sales staff than ever before are travelling the world and meeting with customers to ensure that we continue to build our sales pipelines and capitalise on our improved products and solutions.The acquisition of Minetec, a mining communications and technology company specialising in mine safety and productivity solutions, has further diversified the business and will provide another strong area for growth, focussed on the rapidly expanding resources sector. Minetec has developed an exciting range of best-in-class solutions for underground mines, directed at collision avoidance, traffic control and situational awareness
to improve mine safety, and a planning,
scheduling and messaging system to
improve mine productivity.
After careful evaluation of our strategic
options, a decision was taken to divest
our satellite communications assets, which
we sold to CPI Canada Inc on 30 June
2012. The combination of an intensely
competitive and rapidly consolidating
US-centric industry and a strong Australian
dollar has led to declining profitability, and
these were compelling reasons to exit
the business.
The sale will result in a one-off write down
to profit of $3.5 million, and further reduces
Codan’s net exposure to the USD.
The difference between the statutory and
the underlying net profit after tax includes
expenses post-tax associated with the
integration of the acquired Minetec
business, transaction costs associated
with the Daniels acquisition and the loss
on the sale of the satellite communications
assets.
The metal detection division again
performed very well. Strong demand for
gold detection products, supplemented
by growth in the sales of coin and treasure
machines, has reinforced Minelab’s
position as the global market leader
for handheld metal detectors. Demand
for mine clearance detectors was also
boosted during the year with the award of
a major contract in Cambodia and ongoing
supply to the newly established demining
programme in Angola.
The most pleasing aspect of the success
enjoyed by Minelab during the year is the
increased level of sales across our African
markets as a direct result of the business
development work carried out by the team
during the past 12 months. There is now
less reliance on a single market in Africa,
with sales for our gold detectors coming
from many different regions, and this in
turn has provided a more sustainable base
from which to increase sales further.
From this solid foundation, we are
expecting to have another very good year
from our metal detection division in FY13,
boosted by the release of an innovative,
feature-packed new coin and treasure
detector that has redefined the market
standard, and a new compact land mine
detector which has taken our world’s-best
metal detection technology and packaged
it in a smaller, more tactical form.
We cannot afford to become complacent,
as we have seen a number of suppliers in
China attempt to copy our products, spoil
our markets and attempt to deceive our
customers. This has caused us to take
steps to further protect our intellectual
property and ensure that our customers
have access to the genuine, world’s-best
Minelab product.
Our Radio Communications Division
increased sales and profitability in FY12,
despite some frustrating delays with the
awarding of major government projects
in Africa and Central Asia. The increased
level of business development work being
conducted has resulted in a much more
robust sales pipeline and, in turn, a higher
level of order intake during the period.
The focus of this business remains to
expand beyond our current HF product
offerings, with the Daniels acquisition
being a significant first step, to position
ourselves to supply a more comprehensive
and complete radio communications
solution, primarily directed at our military
and security market customers. We have
formed strong partnerships with other
product suppliers during the past year and
are well positioned to meet our customers’
total radio communications needs.
The new Codan software-defined radio
was released to the market in June 2012
and was very well received by our dealer
network and the many customers who
visited our stand at various exhibitions
in Europe and Asia Pacific. The product
is aimed at delivering first world features
and benefits to the developing world at
the right price, and gives us a brand new
HF technology platform from which to
continue the growth of this business.
In order to survive and prosper in
a high-wage, high-dollar economy, our
manufacturing processes and systems
have had to become even more cost
effective, responsive and customer driven.
The steps taken several years ago to
reduce our exposure to the US dollar
by outsourcing some manufacturing to
Malaysia continue to evolve and stand
us in good stead.
Codan’s people continue to be our greatest
strength and they have once again worked
extremely hard during the year and have
risen to the many challenges thrown at
them. We continue to foster the unique
culture of the organisation, where the
desire to respectfully create dissatisfaction
with the current state, and the giving and
/ CHAIRMAN’S AND CEO’S REPORT
receiving of feedback, are critical elements
of challenging each other and the future.
This is a fundamental aspect of our
continuous process improvement mantra.
We sincerely thank everyone for their
contribution and support during FY12
as we look forward to yet another strong
year in FY13.
Dr David Klingner
Chairman
Mr Donald McGurk
Managing Director and CEO
7
CODAN LIMITED ANNUAL REPORT 2012 The Codan b rand is
in te r na t iona l ly es tab l ished and
we l l rega rded in the ma rke ts we
se rve , wh ich cons is t p r ima r i ly
o f a id agenc ies , bus inesses and
gove r nmen ts , inc lud ing the i r
m i l i ta ry and secu r i ty a rms , as we l l
as soph is t ica ted en thus ias ts .
Our experience
and intellectual
property enable
us to leverage
our operating
excellence
and marketing
capability across
the world, seeking
opportunities to
grow the business
organically and
by acquisition.
8
8
CODAN LIMITED ANNUAL REPORT 2012
99
CODAN LIMITED ANNUAL REPORT 2012 GLOBAL LOCATIONS/
GLOBAL
LOCATIONS
Codan has major service centres
and manufacturing facilities
around the world.
VICTORIA
CHICAGO
ROCHESTER
FARNHAM
CORK
BEIJING
NEW DELHI
PENANG
PERTH
ADELAIDE
CODAN DISTRIBUTION
CUSTOMER SERVICE CENTRES
MANUFACTURING CENTRES
10
10
METAL
DETECTION
RADIO
COMMUNICATIONS
SATELLITE
COMMUNICATIONS
MINING
TECHNOLOGY
ADVANCED
MANUFACTURING
CODAN LIMITED ANNUAL REPORT 2012
1111
CODAN LIMITED ANNUAL REPORT 2012 OPERATIONS /
RADIO
COMMUNICATIONS
Codan Radio Communications has
been successfully designing and
building premium High Frequency (HF)
communications equipment for the
worldwide security, emerging world
military, and protection markets for over
50 years. Serving customers in over 150
countries, Radio Communications has
earned a gilt-edged reputation in the
market for its innovative and durable
communications products. Combined
with its global support network, Radio
Communications is recognised as the
best-value supplier of cost-effective
communications solutions to its core
humanitarian, military, public safety,
security and commercial customers.
The successful global launch of the
innovative and ground-breaking Envoy™
software-defined family of HF radio
products, greater penetration in emerging
international markets, and successful
marketing and sales initiatives were
highlights of the past financial year
for Radio Communications.
In a relatively mature HF radio
communications sector, Radio
Communications has increased its market
share. A more favourable product mix was
introduced into the business, growing its
traditional HF product line by adding unique
system configurations and solutions that
operate with other suppliers’ products.
12
In line with these expanded offerings, the
division was restructured in September
2011 to focus on broader communications
solutions. This included renaming what
was originally known as the HF Division
to the Radio Communications Division, to
reflect a broader focus by the company on
integrated radio communications systems
and solutions. The division has adopted
the slogan “...for the long haul”, reflecting
our heritage of providing long range
communications that last.
While the business experienced modest
revenue growth during the year, profitability
was improved significantly.
The considerable investment into new
and innovative product technologies in
recent years was demonstrated with the
successful launch of several new products
in June 2012. In addition to the Envoy™
family, Radio Communications announced
a significant mid-life upgrade of its HF
manpack product, adding several new
features to strengthen an already powerful
value proposition. These new product
offerings build on Codan’s enviable
reputation for innovation and reliability,
and will provide further competitive
advantage into the future.
In the past financial year, Radio
Communications completed delivery of
$17 million worth of radio communications
systems under contracts for a number of
Central Asian countries in support of United
States Department of Defense initiatives.
The contracts included orders for HF radios
and systems to support counter-narcotics
and border security missions in Afghanistan
and Central Asia. In July 2011, Radio
Communications announced a contract
to deliver HF radio systems to the United
States Africa Command for use in security
missions throughout the African continent.
Radio Communications continues to build
on its strength in Africa, and its radio
systems are now in use in more than
40 African countries and by international
entities such as the African Union and the
United Nations. The vast majority of Radio
Communications’ sales force is located
overseas in offices from China and India
through to the United Kingdom, Middle
East and USA. Radio Communications
continues to grow in Southeast Asia,
supplying key new customers in the region.
An increased global sales and marketing
push is helping Radio Communications
break into new markets, with encouraging
progress being made in Latin America
and the Middle East. The company also
continues to roll out its strategy of end-
country manufacturing in target markets
to improve supply flexibility.
Acquisition news
On 7 August 2012, Codan announced
the acquisition of 100% of the shares in
Canadian-based land mobile radio company,
Daniels Electronics Limited. The acquisition
is consistent with Codan’s stated strategic
goal to expand the radio communications
business by investing in adjacent markets
and technologies. The board believes that
Codan’s extensive international distribution
network will deliver significant growth
opportunities to the Daniels business,
which is currently focussed on the North
American market.
In the year ahead, Radio Communications
will seek to continue its growth path across
its key markets. This will involve executing
strategies to consolidate its presence in
emerging countries and the worldwide
security markets, as well as introducing more
features to its recently launched Envoy™
family of products.
Despite uncertain global economic conditions,
Radio Communications is targeting strong
revenue growth for the next financial year.
Global product launches
• From Paris in June 2012, Radio
Communications launched its new
software-defined HF radio platform – the
Codan Envoy™. The Envoy™ is the most
advanced commercial HF radio in the
world. Initial market response to the
product and Radio Communications’
value proposition has been positive.
• At the same time, Radio Communications
announced a 3G ALE upgrade to its
HF manpack radio, which provides
effective increased data throughput
and shorter linking times in difficult
HF conditions.
• In March 2012, Radio Communications
released its military-grade transceiver
power supply, designed to power
sensitive radio equipment and eliminate
interference with radio communications.
• In September 2011, Radio
Communications launched the Voice
Encryption unit, which enables fully-
secure communications to extend to
third-party systems, and the Independent
Sideband capability for the current NGT
product range to improve responsiveness
and reduce transmission times for data-
intensive applications such as email.
FY12 Highlights
• Successful global launch
of new products
• Further penetration in
emerging markets
• Significant increase in
profitability
• Key international
contracts won
• Sustained investment
in new technologies
FY13 Objectives
• Consolidate presence in
rapidly-growing emerging
markets
• Introduce more features
to product suite
• Target strong sales growth
in FY13
• Successfully integrate the
Daniels business and
develop international sales
opportunities for land
mobile radio products
/ OPERATIONS
Our products
deliver reliable first
world features and
benefits to the
emerging world at
an affordable price,
representing best
value-for-money
solutions in our
defined markets.
CODAN LIMITED ANNUAL REPORT 2012
13
13
CODAN LIMITED ANNUAL REPORT 2012
Minelab’s countermine detectors are
manufactured in Adelaide and exported
to more than 55 countries around the
world where landmines remain a threat.
These include Angola, Sri Lanka, Vietnam,
Mozambique, Colombia, Lebanon and
Afghanistan, just to name a few.
FY12 Highlights
• Another exceptional result
in FY12
• Release of the flagship
CTX 3030 treasure detector
• Continued strength of
gold detector sales
• Solid countermine
contracts
FY13 Objectives
• Plan for another strong year
• Expand gold detector sales
into many more regions
• Increase marketing
support in new and
established markets
• Turbo-charge new
product development
OPERATIONS /
METAL
DETECTION
Minelab is the world leader in providing
metal detection technologies for
consumer, humanitarian demining and
military needs. Another excellent year
was achieved, with positive growth
recorded across traditional consumer
markets and for Minelab’s superior
ground-penetrating, gold-seeking
detectors in artisanal gold markets
across Africa, and Central and Latin
America. Demand for countermine
products also remains strong from
military and security customers around
the world. The outlook remains positive
across all key markets.
Gold detectors
Minelab’s leading metal detection
technology and favourable market
conditions are driving strong interest from
professional and hobbyist gold prospectors
around the world. While the high gold price
has a positive influence on prospecting
activity, particularly in the first world
consumer market, it is not the only factor
behind this strong demand.
There are now an estimated 10 million
artisanal gold prospectors operating in
remote corners of the globe, from Africa to
South America. With its reputation for high
quality and reliable products, as well as
increasingly strong marketing and service
support, Minelab is well positioned to
capitalise on this growing market sector.
14
Significant progress has been made to further
protect our intellectual property and prevent
sub-standard Chinese gold detector copies
from deceiving our customers. A number of
initiatives have been implemented to ensure
that our customers can easily identify and
have access to the genuine product. We
continue to work on limiting the effectiveness
of the copiers. We are pleased to report
that demand in our major gold markets
remains strong.
Treasure detectors
Minelab recently released the CTX 3030
all-terrain treasure detector and successfully
outsourced its manufacture to Malaysia
to ensure that customers receive the best
value-for-money product on the market. This
product sets a new standard, with integrated
GPS, wireless audio, a high resolution colour
display and improved target recognition in
a fully waterproof platform. It has received
excellent feedback, with success stories
from treasure hunters across the world being
posted on the Minelab website.
Countermine
Minelab’s detectors are considered the best
in the world for locating landmines
and explosive remnants of war.
Consequently, Minelab has become
the detector of choice for many
humanitarian demining organisations,
military and government bodies.
During the year, landmine and unexploded
ordnance detectors were supplied to help
ongoing land clearance operations in
Cambodia. The contract, worth more than
$2 million, was part of the Japanese Project
for Improvement of Equipment for Demining
Activities (Phase VI).
• Plan for another strong year
• Expand gold detector sales
into many more regions
• Increase marketing
support in new and
established markets
• Turbo-charge new
product development
Rare coin found with CTX 3030
West Point history
/ OPERATIONS
Minelab explorer, Tom from New York
“I am fortunate to live in a very history-
rich area of upstate New York. It has many
old landmarks and battlegrounds from
the revolutionary war. I went to one of my
productive locations under a large pine
tree which has produced musket balls and
a few old colonial buttons. Was not there
very long when I had a solid 12-47 signal
from my CTX 3030. It was reading 10”
down, so I chose to dig it. It was a good
thing I did...
Did some research and shown a few
people the coin and they are pretty
confident it is the rare version. I was
shocked, this is by far my greatest find
yet! The discrimination on the CTX 3030
showed 2 targets close together, one good,
one iron. I would not have found this coin
if it weren’t for this feature. I have gone
over this area a bunch of times before
with other detectors!”
Tom, N.Y., USA
CTX 3030 treasures
“As I continue to get familiar with the
CTX 3030, I am hitting some old haunts
that I have worked very hard before.
The CTX 3030 rang out… 11/32 12/33
@ 6”… I had to dig around some roots,
but out popped a 2 piece brass button…
Looked Civil War period right off… I could
see Cadet USMA (United States Military
Academy)… I sent my wife a picture and
she replied back that she looked it up and
USMA was West Point…
1840’s West Point Cadet Button…
WAHOO!!! Thank you Minelab !!”
Paul Flickner, Connecticut, USA
15
CODAN LIMITED ANNUAL REPORT 2012
The integration of the Minetec operations
into the Codan group will continue during
the next few months, with a focus on
ensuring that the right level of investment
in product development is made, available
synergies are realised and the business
is well positioned for medium- to long-
term growth.
OPERATIONS /
MINING
TECHNOLOGY
With the purchase and integration
of Minetec, Codan has expanded
into the mining communications and
technology services industry, and is
now building on Minetec’s established
and reliable track record of providing
best-of-breed communications
technology, focussed on improving
mine safety and efficiency,
particularly in underground, hard
rock mines.
Minetec
The $10 million purchase of Perth-based
mining communications and technology
company, Minetec Pty Ltd, funded entirely
from Codan’s existing debt facility, has
allowed Codan to successfully enter the
fast growing mining communications and
technology services industry.
This industry offers significant
opportunities for further growth for the
company, and Minetec provides an ideal
foundation to this strategy.
Since the acquisition was completed in
January 2012, the business has performed
to expectations, delivering $0.5 million
EBIT to the group.
Minetec’s key areas of expertise are the
design and manufacture of electronics
products and associated software that
provide critical technical solutions in
underground and hard rock mines.
16
Minetec communications infrastructure
This is closely aligned to Codan’s key
competencies of designing and
manufacturing electronics products
and distributing them almost anywhere
in the world.
While Minetec’s revenues are predominantly
Australian-based, it has developed strong
relationships with a number of large global
miners, and is now developing these
business opportunities internationally, with
Africa and Central and Latin America among
the key target markets.
Successful trials have just been completed
in gold mines in Australia and Indonesia
for breakthrough technology developed by
Minetec to improve safety and productivity
in underground hard rock mines. The
new technology, which provides collision
avoidance and asset tracking capabilities,
and whole of mine scheduling systems,
is expected to be available for worldwide
distribution in the near future.
It is critical that Minetec focusses on
ensuring that our sponsor customers
are totally satisfied and that the product
platforms are thoroughly tested and robust
before we are seduced by the many global
opportunities in front of us, and attempt
to grow too quickly.
Global mining communications and
technology services is expected to be
a high growth industry during the next
five years. Customer expectations are
high, and Minetec is confident that it has
best-in-class solutions aimed at assisting
mine operators to substantially improve
mine safety and productivity.
Our initial strategy for the growth of this
business is to support global miners with
Australian operations and to successfully
install our suite of solutions into their
mining operations globally.
FY12 Highlights
• Successful purchase and
integration of Minetec
• Acquisition performing
to expectations
• New technology pilot
underway with major
mining customer
• Major investment in
product and technology
road map
FY13 Objectives
• Scale-up the business to
meet increased demand
• Implement improved
management processes
and systems
• Identify and create
cost-effective ways to
employ resources
• Successfully deliver pilot
programme to key
customers
• Stabilise and commercialise
product platform
• Continue to invest in new
products and technology
/ OPERATIONS
We continue to
innovate and invest
in future product
technologies to
successfully grow
the business and
give our customers
access to genuine,
world’s-best
products.
CODAN LIMITED ANNUAL REPORT 2012
17
17
CODAN LIMITED ANNUAL REPORT 2012
CP I and Codan sa te l l i te
commun ica t ions se rve many o f
the same comme rc ia l and m i l i ta ry
commun ica t ions cus tome rs , and
Codan is cu r ren t ly ass is t ing CP I
w i th manu fac tu r ing , t ra in ing and
suppo r t fo r a pe r iod to ensu re
con t inuous supp ly to cus tome rs .
OPERATIONS /
SATELLITE
COMMUNICATIONS
Successful divestment of
satellite communications
Following the evaluation of strategic options for
Codan’s satellite communications products and
taking into account several factors including the
highly competitive and consolidating nature of
the industry, the decision was made to divest
this division.
The sale of Codan’s satellite communications
assets to CPI Canada Inc was successfully
completed on 30 June 2012.
The sale – for an upfront price of USD $9 million
and a maximum of USD $4.5 million in additional
payments if certain earn-out objectives and
targets are met over the next two years –
consisted of Codan’s Australian-based satellite
communications assets and 100% of the shares
of Locus Microwave, Inc.
CPI is a leading provider of microwave, radio
frequency, power and control solutions for
critical defence, communications, medical,
scientific and other applications.
CPI and Codan satellite communications serve
many of the same commercial and military
communications customers, and Codan is
currently assisting CPI with manufacturing,
training and support for a period to ensure
continuous supply to customers.
The sale, which resulted in a loss of
approximately AUD $3.5 million, will reduce
Codan’s net exposure to the US dollar, have
a positive impact on Codan’s profitability and
enable the company to focus on higher growth
businesses and other market opportunities.
18
Manufacturing remains a key focus for
Codan into the future.
The company is also investing in the
engineering capabilities of its advanced
Australian operations. The Adelaide
facility will remain integral to the group’s
operations, serving as a technology hub,
particularly for new product development,
in addition to its ongoing production
requirements for lower volume, higher
complexity products.
Continuous improvement
Now into its 13th year, the Codan
Production System is based on generating
continuous improvement in manufacturing
processes and systems by harnessing the
ideas and creativity of all of its employees.
Efficiency and productivity improvements
remain a constant objective for the range
of projects underway, in order to lower
product cost and delivery lead times.
This is a key strategy in the company’s
commitment to supplying high-quality
electronics solutions, competitive pricing,
excellent customer service and on-time
delivery.
Occupational Health and Safety
Codan is committed to the safety of all of its
employees, both in Australia and overseas,
and maintains very high safety records. This
commitment goes beyond the production
line. With employees venturing to all corners
of the globe, traveller safety is paramount,
and Codan engages experts in this field to
ensure the safety of its travellers.
ADVANCED
MANUFACTURING
Codan’s ability to manufacture high
level, high quality electronics products
and associated software remains
a sustainable competitive advantage
in its future growth. The company
is committed to pursuing ongoing
efficiencies, flexibility and investment
in its production capabilities for
global markets.
Manufacturing operations
The integration of Minetec manufacturing
and the high demand for gold prospecting
products ensured a busy and successful
FY12 for manufacturing operations.
Throughput at Codan’s Australian and
Malaysian facilities increased significantly
in response to high global demand.
This included production of a range of new
models, including the Minelab CTX 3030
metal detector and the Envoy™ software-
defined HF radio platform.
To position ourselves for expected market
growth in the future, the company is
investing in an upgrade of its Malaysian
manufacturing facilities. These facilities
will continue to provide flexible production
options for Codan, as well as a natural
hedge against USD currency fluctuations.
Additional opportunities are being sought
for further in-country manufacturing, with
operations in China now well progressed
and investigations underway for similar
partnerships in India and Central Asia.
Environment
While the business is a “low-impact
industry” in relation to its effect on the
environment, Codan continues to look
at ways to reduce its carbon footprint
wherever possible. In line with this, the
company is currently investigating solar
energy options for its Adelaide operations
to supplement the rainwater storage
systems already in place.
/ OPERATIONS
FY12 Highlights
• Integration of Minetec
manufacturing
• Met high production
demand for gold
prospecting products
• Successful global
outsourcing
FY13 Objectives
• Further develop in-country
manufacturing operations
• Implement a world-class
global warehousing and
distribution system
• Invest in engineering
capabilities in Australia
• Commit to ongoing
process improvement
Advanced manufacturing expertise
at the Newton, Australia site
19
CODAN LIMITED ANNUAL REPORT 2012
We con t inue to inves t heav i ly
in new p roduc t deve lopmen t and
expand in to re la ted bus inesses
o ffe r ing comp lemen ta ry p roduc ts
and techno log ies to success fu l ly
g row the bus iness .
20
20
Our greatest
strength is our
people. They are
energetic and
foster a culture
where the desire to
respectfully create
dissatisfaction with
their current state
is a critical element
of challenging each
other and the future.
CODAN LIMITED ANNUAL REPORT 2012
21
21
CODAN LIMITED ANNUAL REPORT 2012
Dr David Klingner
Mr Donald McGurk
Mr Peter Griffiths
B.Sc (Hons), PhD, FAusIMM
HNC (Mech Eng), MBA, GAICD
B.Ec (Hons), CPA, FAICD
Chairman, Independent
Non-Executive Director
Managing Director and
Chief Executive Officer
Age: 68
Age: 50
Independent
Non-Executive Director
Age: 70
Dr Klingner was appointed by the board
as Chairman in May 2007. Dr Klingner
has been a director with Codan since
December 2004. Dr Klingner, a geologist,
was previously employed by Rio Tinto in
a number of senior roles involving business
leadership, project development and
worldwide exploration activities, gaining
extensive experience in the establishment
and management of overseas operations.
He is a former chairman of Coal & Allied
Industries Ltd, Bougainville Copper Limited
and the World Coal Institute. Dr Klingner
was appointed as a director of Energy
Resources of Australia Limited in July 2004,
and became Chairman in January 2005.
He was appointed Chairman of the board
of Turquoise Hill Resources Ltd (formerly
Ivanhoe Mines Ltd), Canada in May 2012.
Mr McGurk was appointed to the board as
Director in May 2010, and was appointed
as Managing Director in November 2010.
Mr McGurk joined Codan in December
2000 and had executive responsibility for
group-wide manufacturing until his transition
into the role of CEO. In addition to his
manufacturing role, from 2005 to 2007 Mr
McGurk held executive responsibility for
sales of the company’s communications
products, and from 2007 to 2010, executive
responsibility for the business performance
of the company’s HF radio products. Mr
McGurk came to Codan with an extensive
background in change management applied
to manufacturing operations, and held
senior manufacturing management positions
in several industries. Mr McGurk holds a
Masters Degree in Business Administration
from Adelaide University and completed the
Advanced Management Program at Harvard
University in 2010.
Mr Griffiths was appointed to the Codan
board in July 2001. He is a former senior
executive of Coca-Cola Amatil Limited,
with 10 years of experience working in
Central and Eastern Europe and South
East Asia. He has also held the positions
of Company Secretary, Chief Financial
Officer and Managing Director of C-C
Bottlers Limited and held board positions
in Australia, New Zealand and the USA.
Mr Griffiths is a Certified Practising
Accountant and a former President of the
South Australian branch of the Financial
Executives Institute, as well as State
and Federal President of the Australian
Softdrink Association Ltd. Mr Griffiths
has also been a director of several not-
for-profit organisations.
BOARD OF DIRECTORS /
BOARD
OF
DIRECTORS
Board of Directors (Left to Right):
Mr David Klingberg AO,
Mr David Simmons,
Mr Scott Davies,
Dr David Klingner,
Lt-Gen Peter Leahy AC,
Mr Donald McGurk,
Mr Peter Griffiths and
Mrs Corinne Namblard
22
22
Mr David Klingberg AO
Mr David Simmons
Lt-Gen Peter Leahy AC
Mr Scott Davies
Mrs Corinne Namblard
/ BOARD OF DIRECTORS
BA (Acc)
Independent
Non-Executive Director
Age: 58
Mr Simmons was appointed
to the board in May 2008.
Mr Simmons has worked in
the manufacturing industry
throughout his career and has
extensive financial and general
management experience. Mr
Simmons joined Hills Industries
Limited in 1984, where he was
appointed Finance Director in
1987 and Managing Director
in 1992. He retired from Hills
Industries Limited in June 2008.
He is Chairman of Commercial
Motor Vehicles Group and a
board member of Gunns Limited,
Thomson Lawyers and Detmold
Group. He is a former chairman
of the SA Government Economic
Development Board, Korvest Ltd
and Innovate SA.
BA (Military Studies), MMAS,
GAICD
Independent
Non-Executive Director
Age: 59
Lieutenant General Leahy
was appointed to the board in
September 2008. He retired
from the Army in July 2008 after
a 37-year career and 6 years as
Chief of Army. His distinguished
service was recognised with his
2007 appointment as Companion
of the Order of Australia. Since
leaving the Army he has been
appointed as Professor and
Foundation Director of the
National Security Institute at
the University of Canberra.
He is a member of the Defence
South Australia Advisory
Board, a director of the Kokoda
Foundation and a director of
Electro Optic Systems Holdings
Limited. Lieutenant General
Leahy holds a Master of Military
Arts and Science from the US
Army Command and General
Staff College, where he also
served as an instructor, and
is a graduate of the Australian
Institute of Company Directors.
FTSE, BTech (Civil), DUniSA,
FIEAust, FAusIMM, FAICD
Independent
Non-Executive Director
Age: 68
Mr Klingberg was appointed to
the board in July 2005. He is an
engineer with extensive national
and international experience,
having been Managing Director
of Kinhill Limited from 1986 to
1998, where he played a major
role in developing the small,
Adelaide-based group into one of
the largest and most successful
firms of professional engineers
in Australia and South East Asia.
Mr Klingberg was Chancellor of
the University of South Australia
for 10 years, retiring in 2008. His
private sector and government
appointments include Chairman
of Centrex Metals Limited and
Barossa Infrastructure Limited,
and directorships of Snowy Hydro
Limited and E & A Limited. He is
a member of the board of Invest
in SA and a former chairman of
the South Australian Premier’s
Climate Change Council. He is
a patron of the Cancer Council
of South Australia and the St
Andrew’s Hospital Foundation.
In 2009 David was made an
Officer of the Order of Australia for
his contributions to governance
policy in the tertiary education
sector and to commercial and
economic development and
infrastructure projects.
LLB
Independent
Non-Executive Director
PhD (Pol Sci), HEC CAP
Independent
Non-Executive Director
Age: 50
Age: 56
Mr Davies was appointed to the
board in May 2011. In July 2011
he was appointed to the position
of Global Head of Infrastructure
for AMP Capital Investors.
A commercial lawyer by
profession, Mr Davies was Chief
Executive Officer of Macquarie
Communications Infrastructure
Group, a leading global
provider of communications
infrastructure, from 2002 to
2009. Prior to that, Mr Davies
held roles with Macquarie Capital
and Hambros Bank, where he
gained valuable experience in
relation to business development
and mergers and acquisitions.
Mr Davies is an alternate director
of Australia Pacific Airports
Corporation Limited and the
DUET Group.
Mrs Namblard was appointed
to the board in August 2011.
Mrs Namblard has more than
30 years of experience in large
projects in finance, infrastructure
and related industries and has
worked in the USA, Canada,
Australia and Europe. Most
recently Mrs Namblard was
Chief Executive Officer of Galaxy
Fund, a dedicated transportation
infrastructure equity fund. Prior to
that, Mrs Namblard spent 19 years
with Banque Nationale de Paris,
rising to the role of Vice President
and Head of Financial Advisory in
the Project Finance team, before
becoming the Executive Vice
President of leading international
French engineering firm, Egis
Group, where she led their
worldwide strategy and business
development activities. Mrs
Namblard has previously held
a number of board positions
including Flinders Ports Pty Ltd
in Australia and Chair of the
Geneva-based United Nations
PPP Alliance. She has been a
director of Qantas Airways Ltd
since June 2011. She also sits
on the Council of the University of
South Australia, is a Member of
the Economic Development Board
of South Australia and a director
of Invest in SA.
23
CODAN LIMITED ANNUAL REPORT 2012 LEADERSHIP TEAM /
LEADERSHIP
TEAM
Mr Donald McGurk
Mr Michael Barton
HNC (Mech Eng), MBA, GAICD
BA (Acc), CA
Managing Director and
Chief Executive Officer
Chief Financial Officer and
Company Secretary
Mr McGurk was appointed to the board as
Director in May 2010, and was appointed
as Managing Director in November 2010.
Mr McGurk joined Codan in December
2000 and had executive responsibility
for group-wide manufacturing until his
transition into the role of CEO.
For more details of Mr McGurk’s
qualifications and experience please
see page 22.
Mr Barton holds a Bachelor of Arts in
Accountancy from the University of South
Australia and is a member of the Institute
of Chartered Accountants in Australia.
He was appointed to the position of
Company Secretary in May 2008.
Reporting to the Chief Financial Officer,
Mr Barton had the responsibility for the
areas of Finance and Business Systems
across the Codan group. In September
2009, Mr Barton was appointed to
the position of Chief Financial Officer
and Company Secretary, and has
responsibility for the financial control
and reporting across the Codan group.
Prior to joining Codan in May 2004,
he was a senior manager with KPMG
Chartered Accountants.
Mr Peter Charlesworth
BEE (Hons), MBA, GAICD
General Manager Minelab
Peter holds a Degree in Electrical
and Electronic Engineering with First
Class Honours and a Masters Degree
in Business Administration, both from
Adelaide University, and is a Graduate
Member of the Australian Institute of
Company Directors. He was appointed
General Manager of the subsidiary,
Minelab Electronics Pty Ltd, in 2008
following the Codan acquisition of Minelab
that same year. Peter joined Codan in
2003 as General Manager of Engineering,
and then held various roles such as New
Business Manager and HF Radio Business
Development Manager. Prior to Codan,
he was a Business Unit Manager at Tenix
Defence - Electronic Systems Division and
he has worked in the electronics industry
for more than 20 years.
Leadership Team (Left to Right):
Mr Matthew Csortan,
Mr Peter Charlesworth,
Mr Simon Porter,
Mr Donald McGurk,
Mr Michael Barton,
Mr Kevin Kane and
Mr Allan Morichaud
2424
Mr Kevin Kane
Mr Matthew Csortan
Mr Allan Morichaud
Mr Simon Porter
/ LEADERSHIP TEAM
BSc (Computer Engineering),
MBA (Finance) (Hons), MSc
President & Executive General
Manager, Radio Communications
Kevin holds a Bachelor of Science
(Computer Engineering) from the
Rochester Institute of Technology and
an MBA (Finance) from the Bittner School
of Business at St. John Fisher College
in Rochester, New York. Kevin assumed
his current role at Codan in 2010. Prior
to joining Codan, Kevin served as a
Harris Corporation executive at its RF
Communications Division in Rochester,
New York, overseeing federal sales
and business development for the
company’s radio products. Kevin has
25 years of experience in the radio
communications market, including roles
in general management, engineering,
sales, programme management and
business development.
BEng (Mech Eng) (Hons), MEng (Mfg Mgmt)
MSc (Economics), MBA
B.App.Sci (Physio), MBA
General Manager Group Operations
Matthew holds a Degree in Mechanical
Engineering with Honours and a Masters
Degree in Manufacturing Management,
both from the University of South Australia.
In 2009, he was appointed Codan’s
General Manager for Group Operations.
Matthew joined Codan in 1999 and
held various roles in manufacturing and
production, until his appointment as
Production Manager of Communications
Products in 2004. In 2006, Matthew
became Manufacturing Manager of
Codan, and was appointed General
Manager of Parketronics in 2008. Prior
to joining Codan, Matthew gained
experience in manufacturing and project
engineering through his employment at
Gerard Industries and ASC Engineering.
General Manager Corporate
Development & Systems
Allan holds a Masters Degree in Science
(Economics) from the University of
Copenhagen, and a Masters Degree in
Business Administration from Adelaide
University. Allan joined Codan in 2008
as Senior Business Analyst, and soon
became the Manager for IT and Business
Analysis. He was appointed General
Manager for Business Systems and
Analysis in 2009, followed by General
Manager Corporate Development &
Systems in early 2012. Prior to joining
Codan, Allan was Finance Manager
at Hardi Australia, and both Finance
Manager and Business Analyst during
his five years working for Copenhagen
Airports in Denmark.
Group Human Resources Manager
Acting Executive General Manager,
Minetec
Simon holds a Bachelor of Applied Science
in Physiotherapy from the University of
South Australia and an MBA from the
University of Adelaide. He joined Codan
in 2010 as the Group Human Resources
Manager. Prior to joining Codan, Simon
served as the General Manager, Human
Resources at Clipsal Australia, where he
also held executive roles in Quality and
Customer Satisfaction, as well as in Health,
Safety & Environmental Management.
Prior to that, Simon had worked at
Holden Limited, and comes to Codan
with valuable and relevant experience in
the automotive industry. In May 2012,
Simon was appointed as the Acting
Executive General Manager of Minetec to
lead the operational review and process
improvement opportunities for the newly
acquired company.
25
CODAN LIMITED ANNUAL REPORT 2012 In order to survive
and prosper in
a challenging
economy, our
manufacturing
processes and
systems have
become even more
cost effective,
responsive and
customer driven.
262626
FINANCIAL
REPORT
For year ended 30 June 2012
28
/ DIRECTORS’ REPORT
47
/ LEAD AUDITOR’S INDEPENDENCE DECLARATION
48
/ CONSOLIDATED INCOME STATEMENT
49
/ CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
50
/ CONSOLIDATED BALANCE SHEET
51
/ CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
52
/ CONSOLIDATED STATEMENT OF CASH FLOWS
53
/ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
103 / DIRECTORS’ DECLARATION
104 / INDEPENDENT AUDITOR’S REPORT
106 / ASX ADDITIONAL INFORMATION
108 / CORPORATE DIRECTORY
/ FINANCIAL REPORT
CODAN LIMITED ANNUAL REPORT 2012
27
27
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
28
28
The directors present their report together
with the financial statements of the group
comprising Codan Limited (“the company”)
and its subsidiaries for the financial year
ended 30 June 2012 and the auditor’s
report thereon.
DIRECTORS
The directors of the company at any time
during or since the end of the financial
year are:
Dr David Klingner
Donald McGurk
Peter Griffiths
David Klingberg, AO
David Simmons
Lt Gen Peter Leahy, AC
Scott Davies
Corinne Namblard
Details of directors and their qualifications
and experience are set out on pages
22 to 23.
COMPANY SECRETARY
Mr Michael Barton BA (Acc), CA
Mr Barton was appointed to the position of
Company Secretary in May 2008. Reporting
to the Chief Financial Officer, Mr Barton had
the responsibility for the areas of Finance
and Business Systems across the Codan
group. In September 2009, Mr Barton was
appointed to the position of Chief Financial
Officer and Company Secretary, and has
responsibility for the financial control and
reporting across the Codan group. Prior to
joining Codan in May 2004, he was a senior
manager with KPMG Chartered Accountants.
DIRECTORS’
MEETINGS
The number of directors’ meetings (of
the company), and of meetings of board
committees held, and the number of those
meetings attended by each of the member
directors during the financial year are
noted in the table below:
CORPORATE
GOVERNANCE
STATEMENT
This statement outlines the main corporate
governance practices in place throughout
the financial year, which comply with
the ASX Corporate Governance Council
recommendations, unless otherwise stated.
Board of directors
Role of the board
The board’s primary role is the protection
and enhancement of long-term shareholder
value.
To fulfil this role, the board is responsible
for the overall corporate governance of the
group, including formulating its strategic
direction, approving and monitoring
the annual plan, budget and capital
expenditure, setting senior executive
and director remuneration, establishing
and monitoring the achievement of
Board Meetings
Board Audit, Risk and Compliance
Committee meetings
Remuneration Committee
meetings
DIRECTOR
Dr G D Klingner
Mr D S McGurk
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
Lt-Gen P F Leahy
Mr S W Davies
Mrs C S Namblard
A
11
12
12
11
12
12
11
12
B
12
12
12
12
12
12
12
12
A
-
-
4
4
-
-
-
4
B
-
-
4
4
-
-
-
4
A
2
-
-
-
2
2
-
-
B
2
-
-
-
2
2
-
-
A - Number of meetings attended B – Number of meetings held during the time the director held office during the year
management’s goals and ensuring the
integrity of risk management, internal
control, legal compliance and management
information systems. It is also responsible
for approving and monitoring financial and
other reporting.
The board has delegated responsibility
for operation and administration of the
company to the managing director.
Board processes
To assist in the execution of its
responsibilities, the board has established
a Remuneration Committee and a Board
Audit, Risk and Compliance Committee.
These committees have written mandates
and operating procedures, which are
reviewed on a regular basis. The board
has also established a framework for
the management of the group, including
a system of internal control, a business
risk management process and the
establishment of appropriate ethical
standards.
The full board currently holds ten scheduled
meetings each year, plus strategy meetings
and any extraordinary meetings at such
other times as may be necessary to
address any specific significant matters
that may arise.
The agenda for meetings is prepared in
conjunction with the chairman, managing
director and company secretary. Standing
items include the managing director’s
report, occupational health and safety
report, financial reports, strategic matters,
governance and compliance. Submissions
are circulated in advance. Executives are
regularly involved in board discussions,
and directors have other opportunities,
including visits to business operations, for
contact with a wider group of employees.
Director and executive education
The group has a process to educate new
directors about the nature of the business,
current issues, the corporate strategy and
the expectations of the group concerning
performance of directors. Directors also
have the opportunity to visit group facilities
and meet with management to gain a better
understanding of business operations.
Directors are given access to continuing
education opportunities to update and
enhance their skills and knowledge.
The group also has a process to educate
new executives upon taking such positions.
This process includes reviewing the group’s
structure, strategy, operations, financial
position and risk management policies.
It also familiarises the individual with the
respective rights, duties, responsibilities
and roles of the individual and the board.
Independent professional advice and
access to company information
Each director has the right of access to
all relevant company information and to
the company’s executives and, subject to
prior consultation with the chairman, may
seek independent professional advice from
a suitably qualified adviser at the group’s
expense. The director must consult with
an adviser suitably qualified in the relevant
field. A copy of the advice received by
the director is made available to all other
members of the board.
Composition of the board
The composition of the board is determined
using the following principles:
• a broad range of expertise both
nationally and internationally;
• a majority of non-executive directors;
• directors having extensive knowledge
of the group’s industries and/or
extensive expertise in significant
aspects of financial management
or general management;
• a non-executive director as chairman;
• enough directors to serve on various
committees without overburdening the
directors or making it difficult for them
to fully discharge their responsibilities;
and
• at each annual general meeting, one-
third of the directors and any other
director who has held office for three
years or more since last being elected
must stand for re-election (except for
the managing director).
The board’s policy is to seek a diverse
range of directors who have a range
of ages and genders which mirrors the
environment in which the group operates.
An independent director is a director who
is not a member of management (a non-
executive director) and who:
• holds less than five percent of the
voting shares of the company and is not
an officer of, or otherwise associated,
directly or indirectly, with a shareholder
of more than five percent of the voting
shares of the company;
/ FINANCIAL REPORT
• has not within the last three years been
employed in an executive capacity by
the company or another group member,
or been a director after ceasing to hold
any such employment;
• within the last three years has not
been a principal or employee of a
material professional adviser or a
material consultant to the company
or another group member;
is not a material supplier or customer
•
of the company or another group
member, or an officer of or otherwise
associated, directly or indirectly, with
a material supplier or customer;
• has no material contractual relationship
with the company or another group
member other than as a director of the
company; and
is free from any interest and any
•
business or other relationship that
could, or could reasonably be perceived
to, materially interfere with the director’s
ability to act in the best interests of
the company.
The board is regularly addressing
succession in order to ensure that its
composition going forward is appropriate.
Nomination Committee
The ASX Corporate Governance Council’s
“Principles of Good Corporate Governance
and Best Practice Recommendations”
recommend the establishment of a
nomination committee. The role of
nomination of proposed directors
is conducted by the full board.
29
Board Meetings
Board Audit, Risk and Compliance
Remuneration Committee
Committee meetings
meetings
DIRECTOR
Dr G D Klingner
Mr D S McGurk
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
Lt-Gen P F Leahy
Mr S W Davies
Mrs C S Namblard
A
11
12
12
11
12
12
11
12
B
12
12
12
12
12
12
12
12
A
-
-
4
4
-
-
-
4
B
-
-
4
4
-
-
-
4
A
2
-
-
-
2
2
-
-
B
2
-
-
-
2
2
-
-
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
CORPORATE
GOVERNANCE
STATEMENT
(CONTINUED)
30
30
Remuneration report -
audited
Remuneration Committee
The Remuneration Committee reviews
and makes recommendations to the board
on remuneration packages and policies
applicable to the managing director, senior
executives and directors themselves. It is
also responsible for share schemes, incentive
performance packages, superannuation
entitlements, retirement and termination
entitlements and fringe benefits policies.
The members of the Remuneration
Committee during the year were:
• Mr D J Simmons (Chairman)
Independent Non-Executive Director
• Dr G D Klingner
Independent Non-Executive Director
• Lt-Gen P F Leahy
Independent Non-Executive Director
The managing director is invited to
Remuneration Committee meetings,
as required, to discuss executives’
performance and remuneration packages.
Remuneration policies
Key management personnel comprises the
directors and executives of the group. Key
management personnel have authority and
responsibility for planning, directing and
controlling the activities of the group.
Remuneration levels are competitively set to
attract and retain appropriately qualified and
experienced executives. The Remuneration
Committee may obtain independent advice
on the appropriateness of remuneration
packages, given trends in comparative
companies both locally and internationally.
Remuneration packages can include a mix
of fixed remuneration and performance-
based remuneration.
The remuneration structures explained
below are designed to attract suitably
qualified candidates, and to effect the
broader outcome of increasing the group’s
net profit. The remuneration structures take
into account:
•
•
•
the overall level of remuneration for
each director and executive;
the executive’s ability to control the
relevant segment’s performance; and
the amount of incentives within each
key management person’s remuneration.
Certain executives may receive bonuses
based on the achievement of performance
hurdles. The performance hurdles relate to
measures of profitability and working capital
management. The bonus payable to certain
executives may relate to the qualitative
performance of the executive against
objectives agreed as part of the budget and
strategic planning processes. The potential
bonus payable to certain executives is based
on 60% of the executives’ fixed salary
inclusive of superannuation, but can
exceed this level if performance hurdles
are exceeded.
These performance conditions have been
established to encourage the profitable
growth of the group. The board considered
that for the year ended 30 June 2012 the
above performance-linked remuneration
structure was appropriate.
There has been no increase to the fixed
salaries paid to senior executives during
the year.
Total remuneration for all non-executive
directors, last voted upon by shareholders
at the 2010 AGM, is not to exceed $850,000
per annum. Non-executive directors
do not receive any performance-related
remuneration nor are they issued options on
securities. Directors’ fees cover all main
board activities and membership of
committees.
There has been no increase to the fees paid
to directors during the year.
Service contracts
It is the group’s policy that service contracts
for key management personnel are unlimited
in term but capable of termination on one
to six months’ notice, and that the group
retains the right to terminate the contract
immediately by making payment in lieu of
notice. The group has entered into a service
contract with each key management person.
The key management personnel are
also entitled to receive on termination of
employment their statutory entitlements
of accrued annual and long service leave,
as well as any entitlement to incentive
payments and superannuation benefits.
Performance rights
At the 2004 AGM, shareholders approved
the establishment of a Performance Rights
Plan (Plan). The Plan is designed to provide
executives with an incentive to maximise
the return to shareholders over the long
term, and to assist in the attraction and
retention of key executives.
The number of performance rights issued
represents 40% of the executives’ fixed pay
divided by the volume weighted average of
the company’s share price in the five days
after the release of the group’s annual results.
Details of performance rights granted to executives during the year are as follows:
Number of
performance
rights granted
during year
Grant
date
Fair value
per right at
grant date
(cents)
Exercise
price per
right
(cents)
Expiry
date
Number of
rights vested
during year
DIRECTORS
Mr D S McGurk
EXECUTIVES
Mr M Barton
Mr P D Charlesworth
Mr K J Kane
161,551
7 November 2011
98.4
76,414
105,008
84,006
7 November 2011
7 November 2011
7 November 2011
98.4
98.4
98.4
–
–
–
–
30 June 2015
30 June 2015
30 June 2015
30 June 2015
-
–
–
–
Details of vesting profiles of performance rights granted to executives are detailed below:
Performance rights granted
Number
Date
Percentage
vested in year
Percentage
forfeited in year
Financial years in which shares
will be issued if vesting achieved
DIRECTORS
Mr D S McGurk
EXECUTIVES
Mr M Barton
Mr P D Charlesworth
Mr K J Kane
Mr G K Shmith
146,667
132,850
136,733
161,551
11 November 2008
23 October 2009
14 December 2010
7 November 2011
64,675
76,414
146,667
132,850
88,877
105,008
84,006
120,000
108,696
68,367
14 December 2010
7 November 2011
11 November 2008
23 October 2009
14 December 2010
7 November 2011
7 November 2011
11 November 2008
23 October 2009
14 December 2010
100%
-
-
-
-
-
100%
-
-
-
-
100%
-
-
–
-
-
-
–
–
-
-
-
-
-
-
-
-
2012
2013
2014
2015
2014
2015
2012
2013
2014
2015
2015
2012
2013
2014
/ FINANCIAL REPORT
The performance rights become exercisable if
certain performance requirements are achieved. The
performance requirements are based on growth of
the group’s earnings per share over a three-year
period using the group’s earnings per share for
the year ended 30 June 2011 as the base. For the
maximum available number of performance rights to
vest, the group’s earnings per share must increase
in aggregate by at least 15% per annum over the
three-year period from the base earnings per share.
The threshold level of the group’s earnings per share
before vesting is an increase in aggregate of 10%
per annum over the three-year period from the base
earnings per share. A pro-rata vesting will occur
between the 10% and 15% levels of earnings per
share for the three-year period.
If achieved, performance rights are exercisable into
the same number of ordinary shares in the company.
In relation to the performance rights granted on 11
November 2008, the performance requirements were
based on cumulative annual compounding growth
of the group’s earnings per share over a three-year
performance period, with a maximum earnings
per share target of 25.957 cents per share. As the
maximum earnings per share target was exceeded,
on 10 August 2011 the board determined that the
performance rights would immediately become
qualifying performance rights, exercisable at any
time during the 12 months ended 10 August 2012.
All of the rights were exercised, and shares were
transferred on 30 August 2011.
In relation to the performance rights granted on 23
October 2009, the performance requirements were
based on cumulative annual compounding growth
of the group’s earnings per share over a three-year
performance period, with a maximum earnings
per share target of 29.551 cents per share. As the
maximum earnings per share target has been
exceeded to 30 June 2012, it is expected that the
performance rights will be converted into shares
before 31 August 2012.
31
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
CORPORATE
GOVERNANCE
STATEMENT
(CONTINUED)
32
32
Remuneration report - audited (continued)
Directors’ and senior executives’ remuneration
Details of the nature and amount of each major element of the remuneration paid or payable to each director of the company and other key
management personnel of the group are:
Directors
Year
Salary & fees
Short- term
bonuses
Non-monetary
benefits
Post-employment
and superannuation
contributions
NON-EXECUTIVE
Dr G D Klingner
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
Lt-Gen P F Leahy
Mr S W Davies
Mr B P Burns
Mrs C S Namblard
Total non-executives’ remuneration
EXECUTIVE
Mr D S McGurk
Mr M K Heard
Total directors’ remuneration
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2011
2012
2012
2011
2012
2011
2011
2012
2011
$
165,000
165,000
94,050
90,000
82,500
82,500
87,500
87,500
82,500
82,500
82,500
13,750
89,925
75,625
669,675
611,175
$
489,173
462,575
256,562
1,158,848
1,330,312
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
334,910
253,500
170,182
334,910
423,682
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
$
14,850
14,850
4,050
8,100
7,425
7,425
7,875
7,875
7,425
7,425
7,425
1,237
-
6,806
55,856
46,912
$
20,000
25,067
2,533
75,856
74,512
Other long term
Termination
benefits
Performance
rights
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
12,211
64,153
21,722
12,211
85,875
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
87,151
69,397
-
87,151
69,397
$
179,850
179,850
98,100
98,100
89,925
89,925
95,375
95,375
89,925
89,925
89,925
14,987
89,925
82,431
725,531
658,087
$
943,445
874,692
450,999
1,668,976
1,983,778
Proportion of
remuneration
performance related
Value of performance
rights as proportion of
remuneration
%
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
44.7
36.9
37.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
9.2
7.9
-
-
-
/ FINANCIAL REPORT
Mr Heard retired as a director on 18
November 2010, Mr Davies was appointed
as a director on 1 May 2011, Mr Burns
retired as a director on 30 June 2011
and Mrs Namblard was appointed as
a director on 1 August 2011.
33
CODAN LIMITED ANNUAL REPORT 2012
Remuneration report - audited (continued)
Directors’ and senior executives’ remuneration (continued)
Executive Officers
Year
Salary & fees
Short- term
bonuses
Non-monetary
benefits
Post-employment
and superannuation
contributions
Mr M Barton (Chief Financial Officer
and Company Secretary)
Mr R R Carpenter (President and
Executive General Manager,
Satellite Communications)
Mr P D Charlesworth (General
Manager, Minelab)
Mr K J Kane (President and Executive
General Manager,
Radio Communications)
Mr G K Shmith (General Manager,
Satellite Communications)
Total executive officers’
remuneration
$
$
2012
2011
219,013
158,412
221,561
141,900
$
-
-
2012
286,649
51,595
10,144
2011
2012
2011
102,016
33,000
2,295
317,516
238,150
308,583
195,000
-
-
2012
264,579
147,965
51,783
2011
2011
2012
2011
363,984
74,969
78,000
18,156
1,087,757
596,122
1,071,113
466,056
42,383
-
61,927
44,678
$
19,437
18,993
-
-
15,200
15,200
-
-
6,538
34,637
40,731
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
CORPORATE
GOVERNANCE
STATEMENT
(CONTINUED)
34
34
Other long term
Termination
benefits
Performance
rights
Total
Proportion of
remuneration
performance related
Value of performance
rights as proportion of
remuneration
$
5,626
8,430
-
-
9,258
12,053
5,585
3,881
3,768
20,469
28,132
$
-
-
134,147
-
-
-
-
-
-
$
41,222
16,659
-
-
56,648
57,070
$
443,710
407,543
482,535
137,311
636,772
587,906
26,272
496,184
-
17,605
488,248
121,036
134,147
124,142
2,059,201
-
91,334
1,742,044
%
45.0
38.9
10.7
24.0
46.3
42.9
35.1
16.0
29.5
-
-
%
9.3
4.1
-
-
8.9
9.7
5.3
-
14.5
-
-
/ FINANCIAL REPORT
Mr K J Kane was appointed to the position
of President and Executive General
Manager, Radio Communications on
12 July 2010. Mr G K Shmith moved
into a senior management role on 18
November 2010. Mr R R Carpenter was
appointed to the position of President
and Executive General Manager, Satellite
Communications on 14 March 2011, and
was terminated on 30 June 2012 as a
result of the sale of the company’s satellite
communications assets.
Short-term incentive bonuses which
vested during the year are as follows:
Mr D S McGurk 100%, Mr M Barton 100%,
Mr R R Carpenter 50%,
Mr P D Charlesworth 100%, and
Mr K J Kane 95% (5% forfeited).
The remuneration amounts disclosed
above have been calculated based on the
expense to the company for the financial
year, therefore items such as annual leave
and long service leave, taken and provided
for, have been considered. As a result the
remuneration disclosed may not equal
the salary package as agreed with the
executive in any one year.
Other than performance rights, no options
or shares were issued during the year as
compensation for any key management
personnel.
35
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
CORPORATE
GOVERNANCE
STATEMENT
(CONTINUED)
36
36
Remuneration report - audited (continued)
Corporate performance
As required by the Corporations Act 2001 the following information is presented:
2012
$
2011
$
2010
$
2009
$
2008
$
Net profit after tax
Dividends paid
Share price at 30 June
Change in share price at 30 June
23,146,736
14,773,138
21,792,328
13,952,408
14,394,218
11,490,222
12,006,000
10,532,955
1,009,000
10,532,955
1.40
0.20
1.20
(0.26)
1.46
0.82
0.64
0.04
0.60
(0.34)
Board Audit, Risk and
Compliance Committee
The Board Audit, Risk and Compliance
Committee has a documented charter,
approved by the board. All members must
be non-executive directors. The chairman
may not be the chairman of the board. The
committee advises on the establishment
and maintenance of a framework of internal
control and appropriate ethical standards
for the management of the group.
The members of the Board Audit, Risk and
Compliance Committee during the year were:
• Mr P R Griffiths (Chairman)
Independent Non-Executive Director
• Mr D J Klingberg
Independent Non-Executive Director
• Mr S W Davies
Independent Non-Executive Director
(resigned 5 August 2011)
• Mrs C S Namblard
Independent Non-Executive Director
(appointed 5 August 2011)
The external auditors, the managing director
and the chief financial officer are invited
to Board Audit, Risk and Compliance
Committee meetings at the discretion
of the committee.
The responsibilities of the Board, Audit,
Risk and Compliance Committee include
reporting to the board on:
• reviewing the annual and half-year
financial reports and other financial
information distributed externally. This
includes approving new accounting
policies to ensure compliance with
Australian Accounting Standards
and generally accepted accounting
principles, and assessing whether the
financial information is adequate for
shareholder needs;
• assessing management processes
supporting external reporting;
• assessing corporate risk assessment
processes;
• assessing the need for an internal
audit function;
• establishing procedures for selecting,
appointing and, if necessary, removing
the external auditor;
• assessing whether non-audit services
provided by the external auditor are
consistent with maintaining the external
auditor’s independence; the external
auditor provides an annual independence
declaration in relation to the audit;
• assessing the adequacy of the internal
control framework and the company’s
code of ethical standards;
• monitoring the procedures to ensure
compliance with the Corporations Act
2001 and the ASX Listing Rules and all
other regulatory requirements; and
• addressing any matters outstanding
with auditors, Australian Taxation Office,
Australian Securities and Investments
Commission, ASX and financial
institutions.
The Board Audit, Risk and Compliance
Committee reviews the performance of the
external auditors on an annual basis and
meets with them during the year to:
• discuss the external audit plan,
identifying any significant changes in
structure, operations, internal controls
or accounting policies likely to affect the
financial statements, and to review the
fees proposed for the audit work to be
performed;
• review the half-year and preliminary final
report prior to lodgement with the ASX,
and any significant adjustments required
as a result of the auditor’s findings, and
to recommend board approval of these
documents prior to announcement
of results;
• review the results and findings of the
auditor, the adequacy of accounting
and financial controls, and monitor the
implementation of any recommendations
made; and
• as required, organise, review and report
on any special reviews or investigations
deemed necessary by the board.
Risk Management
Material business risks arise from such
matters as actions by competitors,
government policy changes, the impact
of exchange rate movements on the price
of raw materials and sales, difficulties
in sourcing raw materials, environment,
occupational health and safety, property,
product quality, interruptions to production,
changes in international quality standards,
financial reporting and the purchase,
development and use of information
systems.
Oversight of the risk management
system
The board has in place a number of
arrangements and internal controls
intended to identify and manage areas of
significant business risk. These include
the establishment of committees, regular
budget, financial and management
reporting, established organisational
structures, procedures, manuals and
policies, external financial and safety audits,
insurance programmes and the retention of
specialised staff and external advisers.
The Board Audit, Risk and Compliance
Committee considers risk management in
order to ensure risks are identified, assessed
and appropriately managed. The committee
reports to the board on these matters on an
ongoing basis.
Risk management and compliance
and control
The group strives to ensure that its products
are of the highest standard. Towards this
aim it has certification to AS/NZS ISO 9001.
The board is responsible for the overall
internal control framework, but recognises
that no cost-effective internal control system
will preclude all errors and irregularities.
Comprehensive practices have been
established to ensure:
• capital expenditure and revenue
commitments above a certain size obtain
prior board approval;
• financial exposures are controlled,
including the use of derivatives;
• occupational health and safety standards
and management systems are monitored
and reviewed to achieve high standards
of performance and compliance with
regulations;
• business transactions are properly
authorised and executed;
• the quality and integrity of personnel;
• financial reporting accuracy and
compliance with the financial reporting
regulatory framework; and
• environmental regulation compliance.
Quality and integrity of personnel
Appraisals are conducted at least annually
for all senior employees. Training and
development and appropriate remuneration
and incentives with regular performance
reviews create an environment of co-
operation and constructive dialogue with
employees and senior management.
Financial reporting
The managing director and the chief
financial officer have provided assurance
in writing to the board that the company’s
financial reports are founded on a sound
system of internal compliance and control
and risk management practices which
implement the policies adopted by the
board. This declaration includes stating
that the financial reports present a true
and fair view, in all material respects, of
the company’s financial condition and
operational results and are in accordance
with relevant accounting standards. This
statement is required annually.
Monthly actual results are reported against
budgets approved by the directors,
/ FINANCIAL REPORT
and revised forecasts for the year are
prepared regularly.
Environmental regulation
The group’s operations are not subject to
significant environmental regulation under
either Commonwealth or State legislation.
However, the board believes that the
group has adequate systems in place
for the management of its environmental
requirements, and is not aware of any
breach of those environmental requirements
as they apply to the group.
Internal audit
The Board Audit, Risk and Compliance
Committee is responsible for determining
the need for an internal audit function for
the group. While the committee has not
implemented a formal internal audit function,
it does initiate internal control projects by
reference to the company’s risk register.
Assessment of effectiveness
of risk management
The managing director and the chief
financial officer have declared, in writing to
the board, that the financial reporting risk
management and associated compliance
and controls have been assessed and
found to be operating efficiently and
effectively. Operational and other
compliance risk management processes
have also been assessed and found to be
operating efficiently and effectively. All risk
assessments covered the whole financial
year and the period up to the signing of
the annual financial report for all material
operations in the group.
37
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
CORPORATE
GOVERNANCE
STATEMENT
(CONTINUED)
38
38
Ethical standards
All directors, managers and employees are
expected to act with the utmost integrity
and objectivity, striving at all times to
enhance the reputation and performance
of the group. Every employee has a
nominated supervisor to whom they
may refer any issues arising from their
employment. The company continues
to review and confirm its processes for
seeking to ensure that it does not trade
with parties proscribed due to illegal or
undesirable activities.
Conflict of interest
Directors must keep the board advised,
on an ongoing basis, of any interest that
could potentially conflict with those of
the company. The board has developed
procedures to assist directors to disclose
potential conflicts of interest.
Where the board believes that a significant
conflict exists for a director on a board
matter, the director concerned does not
receive the relevant board papers and is not
present at the meeting whilst the item
is considered.
Code of conduct
The group has advised each director,
manager and employee that they must
comply with the entity’s code of conduct.
The code of conduct covers the following:
• aligning the behaviour of the board
and management with the code of
conduct by maintaining appropriate core
company values and objectives;
• fulfilling responsibilities to shareholders
by delivering shareholder value;
• fulfilling responsibilities to clients,
customers and consumers by
maintaining high standards of
professionalism, product quality
and service;
• acting at all times with fairness, honesty,
following the release of an
announcement that gives informative
guidance on the company’s upcoming
results; or
- whilst in possession of price-sensitive
information not yet released to the
consistency and integrity;
market;
• employment practices such as
• raising the awareness of legal
occupational health and safety and
anti-discrimination;
• responsibilities to the community, such
as environmental protection;
• responsibilities to the individual in
respect of the use of confidential
information;
• compliance with legislation including
compliance in countries where the legal
systems and protocols are significantly
different from Australia’s;
• conflicts of interest;
prohibitions in respect of insider trading;
• prohibiting short-term or speculative
trading in the company’s shares; and
• identification of processes for unusual
circumstances where discretion may
be exercised in cases such as financial
hardship.
The policy also details the insider trading
provisions of the Corporations Act 2001
and is reproduced in full on the company’s
website and in the announcements
provided to the ASX.
• responsible and proper use of company
property and funds; and
• reporting of unlawful behaviour.
Communication with
shareholders
Trading in general company securities
by directors and employees
The key elements of the company’s Share
Trading Policy are:
• identification of those restricted from
trading – directors, officers, executives
and senior managers may acquire shares
in the company, but are prohibited from
dealing in company shares:
The board provides shareholders with
information in accordance with Continuous
Disclosure requirements, which includes
identifying matters that may have a material
effect on the price of the company’s
securities, notifying them to the ASX,
posting them on the company’s website
and issuing media releases.
In summary, the Continuous Disclosure
policy operates as follows:
- except between twenty four hours and
four weeks after the release of the half-
year and annual results, the holding of
the Annual General Meeting and
• the managing director and the chief
financial officer and company secretary
are responsible for interpreting the
company’s policy and where necessary
informing the board. The chief financial
officer and company secretary is
responsible for all communications
with the ASX. Reportable matters are
promptly advised to the ASX;
• the annual report is provided via the
company’s website and distributed to
all shareholders who request a copy. It
includes relevant information about the
operations of the group during the year,
changes in the state of affairs and details
of future developments;
• the half-yearly report contains
summarised financial information and
a review of the operations of the group
during the period. This review is sent to
all shareholders. The half-year reviewed
financial report is lodged with the ASX,
and sent to any shareholder who
requests it;
• all announcements made to the market,
and related information (including
information provided to analysts or the
media during briefings), are placed on
the company’s website after they are
released to the ASX; and
• the full texts of notices of meetings and
associated explanatory material are
placed on the company’s website.
All of the above information, including that
of the previous years, is made available on
the company’s website.
The board encourages full participation of
shareholders at the Annual General Meeting
to ensure a high level of accountability and
identification with the group’s strategy and
goals. The external auditor is requested
to attend the annual general meetings to
answer any questions concerning the audit
and the content of the auditor’s report.
The shareholders are requested to vote
on the appointment and aggregate
remuneration of directors, the granting
of performance rights to directors and
changes to the Constitution. A copy of the
Constitution is available to any shareholder
who requests it.
Diversity
The board is strongly committed to the
principles of diversity and to promoting
a culture that supports the development
of a diverse mix of employees throughout
all levels of the organisation. It is
considered that this will ensure the
achievement of an appropriate blend of
diversity at board, executive and senior
management levels within the group.
/ FINANCIAL REPORT
The board has established a group Diversity
and Equity Policy, which is available on the
company’s website.
The key elements of the policy include:
• ensuring all positions are filled by the
best candidates with no discrimination
by way of gender, age, ethnicity and
cultural background; and
• annual assessment by the board of
board gender diversity objectives and
performance against objectives.
The group’s performance against the Diversity and Equity Policy objectives is as follows:
30 June 2012
30 June 2011
Gender Representation
Female (%) Male (%)
Female (%)
Male (%)
Board representation
Executive & senior
management representation
Group representation
14%
17%
30%
86%
83%
70%
0%
14%
31%
100%
86%
69%
• the provision of an Accelerated
Leadership Development Programme for
identified talented female employees and
senior managers.
The board will report on progress in
achieving its objectives on an annual basis.
The board has adopted the following
initiatives to progress the objectives of its
Diversity and Equity Policy:
• qualified candidates considered for
any new board, executive or senior
management positions will include
both genders;
• a target of at least 30% female
candidates interviewed for all salaried
positions in the group;
• an equal balance of genders in the Group
Graduate Programme; and
39
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
40
40
The company announced a final dividend
of 5.5 cents per share, fully franked,
bringing the full year dividend to
9.5 cents compared to 9.0 cents
for FY11, an increase of 5.6%.
Codan has announced the acquisition
of 100% of Canadian-based land mobile
radio company, Daniels Electronics Limited
(“Daniels”), for an upfront cost of CAD $25
million (approximately AUD $24 million),
with the possibility of approximately CAD
$2 million (approximately AUD $1.9 million)
in additional payments if certain earn-out
targets are achieved over the next 18
months. The acquisition of Daniels will
be funded by a mix of debt and equity and
is consistent with Codan’s stated strategic
goal to expand the radio communications
business by investing in adjacent markets
and technologies. The board believes that
Codan’s extensive international distribution
network will deliver significant growth
opportunities to the Daniels business
which is currently focussed on the
North American market.
OPERATING AND
FINANCIAL REVIEW
FY12 highlights in
challenging economic
times:
• highest reported profit of $23.1 million;
• underlying profit increased by 19% to
$27.9 million;
• annual dividend increased to 9.5 cents;
• continued growth of metal detector sales
and major new product release;
• major new product releases in Radio
Communications;
• successfully divested Satellite
Communications’ assets; and
• acquisition of Minetec brings
diversification into resources technology
and services sector.
The board of Codan Limited has
announced a net profit after tax of
$23.1 million for the year ended 30 June
2012 compared to the prior year of
$21.8 million. Underlying net profit after
tax was $27.9 million from $179.4 million
of revenue, which compares to
$23.4 million in the prior year. The
underlying net profit after tax excludes
the loss on sale of the satellite
communications assets, restructuring
costs in relation to that transaction and
also transaction and integration costs
associated with acquisitions.
Codan summary financial performance
FY12
$m % of sales
FY11
$m % of sales
REVENUE
Communication products
Metal detection products
Mining technology
Other
Total revenue
UNDERLYING BUSINESS PERFORMANCE
EBITDA
EBIT
Net interest
Net profit before tax
Underlying net profit after tax
Non-underlying income / (expenses) after tax*:
Acquisition and integration costs
Satellite communications loss on disposal / impairments
Sale of minority interest in GroundProbe Pty Ltd
Sale of Codan Broadcast Products Pty Ltd
Net profit after tax
Underlying earnings per share, fully diluted
Dividend per share
41%
54%
5%
100%
26%
21%
19%
14%
66.4
98.6
9.3
5.1
37%
55%
5%
3%
179.4
100%
29%
24%
22%
16%
51.7
43.2
(3.4)
39.8
27.9
(1.3)
(3.5)
23.1
17.0 cents
9.5 cents
69.8
92.1
7.7
169.6
44.0
35.0
(3.0)
32.0
23.4
(1.1)
(5.3)
4.1
0.7
21.8
14.3 cents
9.0 cents
* Non-underlying income/(expenses) are considered to be outside of normal business activities of the group and for comparability reasons
have been separately identified. The methodology of identifying and quantifying these items is consistently applied from year to year.
Underlying profit is a non-IFRS measure used by management of the company to assess the operating performance of the business.
The non-IFRS measures have not been subject to review or audit.
/ FINANCIAL REPORT
41
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
OPERATING
AND FINANCIAL
REVIEW
(CONTINUED)
42
42
Codan summary financial
performance (continued)
Net borrowings decreased over the year by
$10 million to $16 million, which compares
to the company’s total available bank
facilities of $85 million. The decrease in net
borrowings was due mainly to the strong
demand for metal detectors in the second
half, which resulted in strong cash flows and
a significant run-down of inventory, and the
sale of the satellite communications assets
on 30 June 2012.
The company continues to focus on the
implementation of its strategic plan, which
consists of three major initiatives: invest
in ourselves, expand our businesses and
make further acquisitions.
The foundation of our growth strategy
is to ensure that we continue to invest
heavily in new product development and to
clearly understand that we must continue
to innovate and invest in future product
technologies to successfully grow the
business. To that end, we released three
new major product platforms in the last
quarter of FY12.
Secondly, we continue to seek opportunities
to further strengthen profitability by
expanding into related businesses offering
complementary products and technologies.
The acquisition of Daniels will significantly
broaden our product offering to our radio
communications customers, and we will
continue to seek out other opportunities
to broaden our appeal in the markets
we serve.
Finally, we are continuing with our
disciplined approach to identify acquisition
opportunities that fit our strategy of further
diversification. Codan is continuously on
the lookout for profitable businesses that
enable us to diversify into different products
and industries, but around a common
theme, enabling us to leverage off our core
capabilities and strengths. The acquisition
of Minetec in January 2012 represents an
exciting opportunity in the resources sector.
With the announcement of the acquisition of
Daniels, management are focussed on the
successful integration of the newly acquired
Daniels and Minetec businesses into the
Codan group.
Metal detection
The metal detection division again
performed very well. Strong demand for
gold detection products, supplemented
by growth in the sales of coin and treasure
machines, has reinforced Minelab’s
position as the global market leader for
handheld metal detectors. Demand for
mine clearance detectors was also boosted
during the year with the award of a major
contract in Cambodia.
The most pleasing aspect of the success
enjoyed by the metal detection division
during the year is the increased level
of sales across our African and Central
and Latin American markets for our gold
detecting products, as a direct result of the
business development work carried out
during the past 12 months. There is now
less reliance on a single region, with sales
of our gold detectors coming from many
different regions; this will provide a more
sustainable base as we enter FY13.
From this solid foundation, we expect to
have another good year from our metal
detection division in FY13, boosted by
the release of an innovative new coin and
treasure detector and a new compact land
mine detector which has taken our world’s-
best metal detection technology and placed
it in a small, rugged and tactical package.
We cannot afford to become complacent
however, as we have seen a number of
manufacturers in China attempt to copy our
products, spoil our markets and attempt to
deceive our customers. This has caused
us to take steps to further protect our
intellectual property and ensure that our
customers have access to the genuine,
world’s-best Minelab products.
Communications products
Sales and profitability of our radio
communications products increased in
FY12, despite some frustrating delays with
the awarding of major government projects
in Africa and Central Asia. This improved
performance has come from the increased
level of business development work being
conducted and the delivery of higher value-
add solutions to our customers.
The focus of this business remains to
expand beyond our current HF product
offerings and to position ourselves to
supply a more comprehensive and
complete radio communications solution,
primarily directed at our military and
security market customers. The acquisition
of Daniels, which is expected to settle
on or around 17 August 2012, represents
an exciting expansion of our radio
communications business. In addition,
Minetec has developed an exciting range
of best-in-class solutions for underground
mines directed at collision avoidance,
traffic control and situational awareness
to improve mine safety, and a planning,
scheduling and messaging system to
improve mine productivity.
This business is poised to make critical
installations of its technology operating
in underground mine situations which,
when successful, is expected to result in
significant demand for these products.
Outlook
The core Minelab business remains strong,
the sales pipeline for Radio Communications
continues to strengthen and our mining
technology business is well-placed for
significant growth.
Codan operates in the global market and the
short-term outlook for the world economy
continues to be far from clear. However, we
remain confident in the implementation of
our strategic objectives and expect another
good result in FY13.
we have formed strong partnerships with
other product suppliers during the past
year and are well positioned to meet our
customers’ total radio communications
needs.
An exciting new Codan software-defined
radio was released to the market in June
2012 and was very well received by our
dealer network and the many customers
that visited our stand at various exhibitions
in Europe and Asia Pacific. The product
is aimed at delivering first world features
and benefits to the emerging world at
the right price, and gives us a brand new
HF technology platform from which to
continue the growth of this business.
Business conditions in FY12 remained very
difficult for our satellite communications
products. The Board evaluated the
strategic options for these products and
realised that our market position was too
narrow in a large, highly competitive and
rapidly consolidating US-centric industry.
It was decided that the best option was to
sell to a buyer with a broader position in
the industry, and the sale of our satellite
communications assets was announced
in May 2012, with the transaction being
successfully settled on 30 June 2012.
Mining technology
The acquisition of Minetec, a mining
communications and technology company
specialising in mine safety and productivity
solutions, has further diversified the
business and provides Codan with another
strong area for growth, focussed at the
rapidly expanding resources sector.
/ FINANCIAL REPORT
43
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
DIVIDENDS
Dividends paid or declared by the company to members since the end of the previous financial year were:
Cents per share
Total amount
($000)
Franked Date of payment
Codan Limited and
its Controlled Entities
DECLARED AND PAID DURING THE YEAR
ENDED 30 JUNE 2012:
Final 2011 ordinary
Interim 2012 ordinary
DECLARED AFTER THE END OF THE YEAR:
Final 2012 ordinary
5.0
4.0
5.5
8,207
6,566
100%
100%
3 October 2011
2 April 2012
9,028
100%
2 October 2012
All dividends paid or declared by the company since the end of the previous financial year were fully franked.
EVENTS SUBSEQUENT
TO REPORTING DATE
Subsequent to reporting date, Codan has
announced the acquisition of Canadian-
based land mobile radio company,
Daniels Electronics Limited (Daniels),
for an upfront cost of CAD $25 million
(approximately AUD $24 million), with
the possibility of approximately CAD $2
million (approximately AUD $1.9 million)
in additional payments if certain earn-out
targets are achieved over the next 18
months. The acquisition of Daniels will be
funded by a mix of debt and equity and is
consistent with Codan’s stated strategic
goal to expand the radio communications
business by investing in adjacent markets
and technologies. Codan’s extensive
international distribution network is
expected to deliver significant growth
opportunities to the Daniels business,
which is currently focussed on the North
American market.
Funding for the acquisition will be partially
sourced via an institutional placement
to raise up to $12.5 million, along with a
share purchase plan to raise a maximum
of $5 million. Shares will be issued at
a fixed price of $1.40 per new share.
Shareholders eligible under the share
purchase plan will be able to acquire up
to a maximum of $10,000 of new shares.
Other than the matter discussed above,
there has not arisen in the interval between
the end of the financial 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, the results of
those operations, or the state of affairs
of the group, in future financial years.
LIKELY
DEVELOPMENTS
The group will continue to pursue its policy
of increasing the profitability and market
share of its major business sectors during
the next financial year.
Further information about likely
developments in the operations of the
group and the expected results of those
operations in future financial years has
not been included in this report because
disclosure of the information would be
likely to result in unreasonable prejudice
to the group.
44
44
DIRECTORS’
INTERESTS
The relevant interest of each director in the
shares issued by the company as notified
by the directors to the Australian Securities
Exchange in accordance with S205G(1) of
the Corporations Act 2001, at the date of
this report is as follows:
Ordinary shares
Dr G D Klingner
Mr D S McGurk
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
467,840
147,667
148,065
66,765
-
Lt-Gen P F Leahy
44,065
Mr S W Davies
Mrs C S Namblard
-
-
INDEMNIFICATION
AND INSURANCE OF
OFFICERS
Indemnification
The company has agreed to indemnify
the current and former directors and
secretaries of the company and certain
controlled entities against all liabilities to
another person (other than the company
or a related body corporate) that may
arise from their position as directors
and secretaries of the company and its
controlled entities, except where the
liability arises out of conduct involving
a lack of good faith. The Deed of Access,
Indemnity and Insurance stipulates that the
company and certain controlled entities will
meet the full amount of any such liabilities,
including costs and expenses.
•
Insurance premiums
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 and
legal expenses insurance contracts, as
such disclosure is prohibited under the
terms of the contract.
NON-AUDIT SERVICES
During the year KPMG, the company’s
auditor, has performed 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 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 company and have
been reviewed by the Board Audit,
Risk and Compliance Committee to
ensure that they do not have an impact
on 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 the company, acting as
an advocate for the company or jointly
sharing risks and rewards.
/ FINANCIAL REPORT
Refer page 47 for a copy of the auditor’s
independence declaration as required under
Section 307C of the Corporations Act.
Details of the amounts paid or payable to
the auditor of the company, KPMG, and its
related practices for audit and non-audit
services provided during the year are set
out below.
STATUTORY AUDIT
Audit and review of financial reports (KPMG Australia)
Audit of financial reports (overseas KPMG firms)
SERVICES OTHER THAN STATUTORY AUDIT
Other assurance services
Due diligence and corporate finance services
Other
Other services
Taxation compliance services (KPMG Australia)
Taxation compliance services (overseas KPMG firms)
Consolidated
2012
($)
2011
($)
181,300
33,581
214,881
180,850
36,948
217,798
272,239
38,229
144,799
100,807
556,074
47,338
33,043
116,984
178,242
375,607
45
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
DIRECTORS’
REPORT
Codan Limited and
its Controlled Entities
ROUNDING OFF
The company is of a kind referred to in ASIC
Class Order 98/100 dated 10 July 1998
and, in accordance with that Class Order,
amounts in the financial report and directors’
report have been rounded off to the nearest
thousand dollars, unless otherwise stated.
This report is made with a resolution of
the directors:
Dr G D Klingner
Director
D S McGurk
Director
Dated at Newton this
6th day of August 2012.
46
46
FINANCIAL REPORT /
LEAD
AUDITOR’S
INDEPENDENCE
DECLARATION
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
ABCD
Independent auditor’s report to the members of Codan Limited
Report on the financial report
We have audited the accompanying financial report of Codan Limited (the company), which
comprises the consolidated balance sheet at 30 June 2012, and consolidated income statement
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
/ FINANCIAL REPORT
Directors’ responsibility for the financial report
ABCD
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
Independent auditor’s report to the members of Codan Limited
The directors of the company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether
due to fraud or error. In note 1(a), the directors also state, in accordance with Australian
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements of the Group comply with International Financial Reporting Standards.
To: the directors of Codan Limited
Report on the financial report
Auditor’s responsibility
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial
year ended 30 June 2012 there have been:
We have audited the accompanying financial report of Codan Limited (the company), which
comprises the consolidated balance sheet at 30 June 2012, and consolidated income statement
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
Our responsibility is to express an opinion on the financial report based on our audit. We
(a) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether
due to fraud or error. In note 1(a), the directors also state, in accordance with Australian
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements of the Group comply with International Financial Reporting Standards.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the financial
report.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
firms affiliated with KPMG International Cooperative
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
(“KPMG International”), a Swiss entity.
estimates made by the directors, as well as evaluating the overall presentation of the financial
report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Page 66
Liability limited by a scheme approved under
Professional Standards Legislation
47
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
Liability limited by a scheme approved under
(“KPMG International”), a Swiss entity.
Professional Standards Legislation
Page 66
CODAN LIMITED ANNUAL REPORT 2012Page 67 ABCDIndependenceIn conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.Auditor’s opinion In our opinion: (a) the financial report of the Group is 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 2012 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1(a). Report on the remuneration report We have audited the remuneration report included in pages 5 to 12 of the directors’ report for the year ended 30 June 2012. 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 responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Codan Limited for the year ended 30 June 2012, complies with Section 300A of the Corporations Act 2001.KPMG N T Faulkner PartnerAdelaide 6 August 2012
FINANCIAL REPORT /
CONSOLIDATED
INCOME
STATEMENT
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
48
48
Note
Consolidated
2012
($000)
2011
($000)
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Sales and marketing expenses
Engineering expenses
Net financing costs
Other expenses
Profit before tax
Income tax expense
Profit from continuing operations
DISCONTINUED OPERATION
Loss on disposal of the satellite
communications assets and its operating
results, net of tax
PROFIT FOR THE PERIOD
Earnings per share for profit attributable to the ordinary
equity holders of the company:
Basic earnings per share
Diluted earnings per share
Earnings per share from continuing
operations:
Basic earnings per share
Diluted earnings per share
3
6
7
9
4
30
30
30
30
160,732
(63,301)
97,431
493
(15,032)
(29,986)
(8,117)
(3,236)
(34)
41,519
(12,346)
29,173
143,484
(59,692)
83,792
6,373
(15,090)
(27,714)
(6,156)
(3,819)
(722)
36,664
(8,509)
28,155
(6,027)
23,146
(6,363)
21,792
14.1 cents
14.0 cents
17.8 cents
17.7 cents
13.3 cents
13.2 cents
17.2 cents
17.1 cents
The consolidated income statement is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 53 to 102.
FINANCIAL REPORT /
CONSOLIDATED
STATEMENT OF
COMPREHENSIVE
INCOME
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
Profit for the period
Other comprehensive income
Changes in fair value of cash flow hedges, net of tax
Exchange differences on translation of foreign operations, net of tax
Recognised through sale of discontinued operation
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Note
21
21
21
/ FINANCIAL REPORT
Consolidated
2012
($000)
2011
($000)
23,146
21,792
(105)
(413)
(555)
(1,073)
22,073
1,592
(1,880)
-
(288)
21,504
The consolidated statement of comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements set out on
pages 53 to 102.
49
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
CONSOLIDATED
BALANCE
SHEET
As at 30 June 2012
Codan Limited and
its Controlled Entities
Note
Consolidated
2012
($000)
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Equipment held for sale
Other assets
Total current assets
NON-CURRENT ASSETS
Property, plant and equipment
Product development
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Loans and borrowings
Current tax payable
Provisions
Total current liabilities
NON-CURRENT LIABILITIES
Loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Retained earnings
Total equity
10
11
12
9
4
13
14
15
16
9
17
18
9
19
18
9
19
20
21
22
23,081
22,785
11,979
75
1,747
2,206
61,873
18,238
23,286
66,886
-
108,410
170,283
35,933
113
4,226
5,702
45,974
39,168
1,196
4,536
44,900
90,874
79,409
24,839
(2,935)
57,505
79,409
2011
($000)
8,643
14,594
23,320
80
-
1,882
48,519
20,691
20,340
57,876
-
98,907
147,426
26,438
-
3,856
5,438
35,732
34,150
2,189
3,476
39,815
75,547
71,879
24,609
(1,862)
49,132
71,879
50
50
The consolidated balance sheet is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 53 to 102.
FINANCIAL REPORT /
/ FINANCIAL REPORT
CONSOLIDATED
STATEMENT OF
CHANGES IN
EQUITY
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
2012
Balance as at 1 July 2011
Change in fair value of cash flow hedges
Reserves through sale of discontinued operation
Exchange differences on translation of
foreign operations
Profit for the period
Dividends recognised during the period
Performance rights expensed
Shares purchased
Balance at 30 June 2012
2011
Balance as at 1 July 2010
Change in fair value of cash flow hedges
Exchange differences on translation of foreign
operations
Profit for the period
Dividends recognised during the period
Performance rights expensed
Shares purchased
Balance at 30 June 2011
Consolidated
Share
capital
($000)
Translation
reserve
($000)
24,609
(3,199)
-
-
-
-
-
230
-
-
341
(413)
-
-
-
-
Hedging
reserve
Retained
earnings
Total
($000)
1,337
(105)
(896)
-
-
-
-
-
($000)
($000)
49,132
71,879
-
-
-
(105)
(555)
(413)
23,146
23,146
(14,773)
(14,773)
-
-
230
-
24,839
(3,271)
336
57,505
79,409
Consolidated
Share
capital
($000)
Translation
reserve
($000)
25,328
(1,319)
-
-
-
-
236
(955)
-
(1,880)
-
-
-
-
Hedging
reserve
($000)
(255)
1,592
-
-
-
-
-
Retained
earnings
($000)
41,292
-
-
Total
($000)
65,046
1,592
(1,880)
21,792
21,792
(13,952)
(13,952)
-
-
236
(955)
24,609
(3,199)
1,337
49,132
71,879
The consolidated statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 53 to 102.
51
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
CONSOLIDATED
STATEMENT OF
CASH FLOWS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
Note
Consolidated
2012
($000)
2011
($000)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
26(II)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of a subsidiary
Proceeds from sale of property, plant and equipment
Dividends received
Payments for capitalised product development
Payments for intellectual property
Acquisition of property, plant and equipment
Acquisition of intangibles (computer software and licences)
Proceeds from disposal of shares in GroundProbe Pty Ltd
Proceeds from disposal of Codan Broadcast Products Pty Ltd
Proceeds from disposal of discontinued operation
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayments of borrowings
Payment for shares required for performance rights plan
Dividends paid
Net cash from / (used in) financing activities
Net increase / (decrease) in cash held
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the financial year
26(I)
169,272
(115,201)
245
(3,626)
(10,613)
40,077
(7,004)
1,277
-
(10,330)
(1,523)
(2,429)
(1,349)
-
-
8,606
(12,752)
1,887
-
-
(14,773)
(12,886)
14,439
8,643
(1)
23,081
171,698
(131,078)
294
(3,334)
(11,195)
26,385
-
787
680
(7,436)
(847)
(3,610)
(1,886)
3,795
727
-
(7,790)
-
(16,558)
(980)
(13,952)
(31,490)
(12,895)
21,745
(207)
8,643
The consolidated statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 53 to 102.
52
52
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
26(II)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of a subsidiary
Proceeds from sale of property, plant and equipment
Dividends received
Payments for capitalised product development
Payments for intellectual property
Acquisition of property, plant and equipment
Acquisition of intangibles (computer software and licences)
Proceeds from disposal of shares in GroundProbe Pty Ltd
Proceeds from disposal of Codan Broadcast Products Pty Ltd
Proceeds from disposal of discontinued operation
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayments of borrowings
Payment for shares required for performance rights plan
Dividends paid
Net cash from / (used in) financing activities
Net increase / (decrease) in cash held
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the financial year
26(I)
Consolidated
Note
2012
($000)
169,272
(115,201)
245
(3,626)
(10,613)
40,077
(7,004)
1,277
-
(10,330)
(1,523)
(2,429)
(1,349)
-
-
8,606
(12,752)
1,887
-
-
(14,773)
(12,886)
14,439
8,643
(1)
23,081
2011
($000)
171,698
(131,078)
294
(3,334)
(11,195)
26,385
-
787
680
(7,436)
(847)
(3,610)
(1,886)
3,795
727
-
(7,790)
-
(16,558)
(980)
(13,952)
(31,490)
(12,895)
21,745
(207)
8,643
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
1. SIGNIFICANT
ACCOUNTING POLICIES
Codan Limited (the “company”) is a
company domiciled in Australia. The
consolidated financial report of the
company as at and for the year ended 30
June 2012 comprises the company and
its subsidiaries (together referred to as the
“group” and individually as “group entities”).
The financial report was authorised for issue
by the directors on 6 August 2012.
(a) Statement of compliance
The financial report is a general purpose
financial report which has been prepared
in accordance with Australian Accounting
Standards (AASBs) (including Australian
Interpretations) adopted by the Australian
Accounting Standards Board (AASB) and
the Corporations Act 2001.
The consolidated financial report of
the group complies with International
Financial Reporting Standards (IFRSs) and
interpretations adopted by the International
Accounting Standards Board (IASB).
(b) Basis of preparation
The consolidated financial report is prepared
in Australian dollars (the company’s
functional currency and the functional
currency of the majority of the group) on the
historical costs basis except that derivative
financial instruments are stated at their
fair value.
A number of new standards, amendments
to standards and interpretations, effective
for annual periods beginning after 1 July
2012, were available for early adoption, and
have not been applied in preparing these
consolidated financial statements. None
of these standards is expected to have
a significant effect on the consolidated
financial statements of the group, except for
AASB 9 Financial Instruments, which could
change the classification and measurement
of financial assets. The amendments to
AASB 119 Employee Benefits alter the
definitions for short-term and long-term
benefits which may impact the current
versus non-current split, and requires
leave not expected to be taken within a
year to be discounted, which might impact
the valuation of the group’s employee
benefits. Both AASB 9 and AASB 119
become mandatory for the group’s 2014
consolidated financial statements; however
the group does not plan to adopt these
standards early and the full extent of the
impact has not been determined.
The group is of a kind referred to in ASIC
Class Order 98/100 dated 10 July 1998
and, in accordance with the Class Order,
amounts in the financial report have been
rounded off to the nearest thousand dollars,
unless otherwise stated.
Use of estimates and judgements
The preparation of a financial report in
conformity with Australian Accounting
Standards requires management to make
judgements, estimates and assumptions
that affect the application of policies and
reported amounts of assets, liabilities,
income and expenses. These estimates
and associated assumptions are based
on historical experience and various other
factors that are believed to be reasonable
under the circumstances, the results
of which form the basis of making the
judgements about carrying values of assets
/ FINANCIAL REPORT
and liabilities that are not readily apparent
from other sources. Actual results may
differ from these estimates. Estimates and
underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting
estimates are recognised in the period in
which the estimate is revised and in any
future periods affected. The estimates
and judgments that have a significant
risk of causing a material adjustment to
the carrying amounts of assets within the
next financial year relate to impairment
assessments of non-current assets,
including product development
and goodwill.
Changes in accounting policies
For the year ended 30 June 2012 the group
has not changed any of its significant
accounting policies.
The accounting policies set out below
have been applied consistently to all
periods presented in these consolidated
financial statements, and have been applied
consistently by group entities.
(c) Basis of consolidation
Subsidiaries are entities controlled by the
group. Control exists when the group has
the power, directly or indirectly, to govern
the financial and operating policies of an
entity so as to obtain benefits from its
activities. In assessing control, potential
voting rights that currently are exercisable
are taken into account. The financial
statements of subsidiaries are included in
the consolidated financial statements from
the date control commences until the date
control ceases.
53
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
54
54
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
(c) Basis of consolidation
(continued)
The accounting policies of subsidiaries
have been changed when necessary to
align them with the policies adopted by
the group.
Unrealised gains and losses and inter-
entity balances resulting from transactions
with or between subsidiaries are eliminated
in full on consolidation.
Business combinations are accounted for
using the acquisition method as at the
acquisition date, which is the date on which
control is transferred to the group.
Transaction costs, other than those
associated with the issue of debt or
equity securities, that the group incurs in
connection with a business combination are
expensed as incurred.
Upon the loss of control, the group
derecognises the assets and liabilities of
the subsidiary, and non-controlling interests
and the other components of equity related
to the subsidiary. Any surplus or deficit
arising on the loss of control is recognised
in the income statement.
(d) Revenue recognition
Revenues are recognised at the fair value
of the consideration received or receivable,
net of the amount of goods and services
tax (GST) payable to taxation authorities.
Sale of goods
Rendering of services
Revenue from the sale of goods is measured
at the fair value of the consideration received
or receivable (net of rebates, returns,
discounts and other allowances). Revenue
is recognised when the significant risks and
rewards of ownership pass to the customer,
recovery of the consideration is probable,
the associated costs and possible return
of goods can be estimated reliably, there
is no continuing management involvement
with the goods and the amount of revenue
can be measured reliably. Control usually
passes when the goods are shipped to
the customer.
Construction contracts
Contract revenue includes the initial
amount agreed in the contract plus any
variations in contract work, claims and
incentive payments, to the extent that it
is probable that they will result in revenue
and can be measured reliably. As soon
as the outcome of a construction contract
can be estimated reliably, contract revenue
is recognised in the income statement
in proportion to the stage of completion
of the contract. Contract expenses are
recognised as incurred unless they create
an asset related to future contract activity.
The stage of completion is assessed by
reference to professional judgement of
work performed. When the outcome
of a construction contract cannot be
estimated reliably, contract revenue
is recognised only to the extent of
contract costs incurred that are likely
to be recoverable. An expected loss
on a contract is recognised immediately
in the income statement.
Revenue from rendering services is
recognised in the period in which the
service is provided.
(e) Expenses
Operating lease payments
Payments made under operating leases
are recognised in the income statement
on a straight-line basis over the term of
the lease. Lease incentives received are
recognised in the income statement as
an integral part of the total lease expense,
and are spread over the lease term.
Finance lease payments
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.
Net financing costs
Net financing costs include interest
paid relating to borrowings, interest
received on funds invested, unwinding
of discounts, foreign exchange gains and
losses, and gains and losses on hedging
instruments that are recognised in the
income statement. Qualifying assets are
assets that take more than 12 months to
get ready for their intended use or sale.
In these circumstances, borrowing costs
are capitalised to the cost of the qualifying
assets. Interest income and borrowing
costs are recognised in the income
statement on an accruals basis, using the
effective interest method. Foreign currency
gains and losses are reported on a net basis.
(f) Foreign currency
Foreign currency transactions are
translated to Australian dollars at the
rates of exchange ruling at the dates
of the transactions. Monetary assets
and liabilities denominated in foreign
currencies at the reporting date are
translated to Australian dollars at the
foreign exchange rate ruling at that date.
Foreign exchange differences arising on
translation are recognised in the income
statement, except for differences arising
on the retranslation of a financial liability
designated as a hedge of a net investment
in a foreign operation, or qualifying cash
flow hedges, which are recognised in other
comprehensive income and presented
within equity, to the extent that the hedge
is effective.
Foreign operations
The assets and liabilities of foreign
operations, including goodwill and fair-
value adjustments arising on acquisition,
are translated to Australian dollars at
the foreign exchange rates ruling at
the reporting date. Equity items are
translated at historical rates. The income
and expenses of foreign operations are
translated to Australian dollars at the
foreign exchange rates ruling at the dates
of the transactions. Foreign exchange
differences arising on translation are taken
directly to the foreign currency translation
reserve until the disposal, or partial
disposal, of the foreign operations.
Foreign exchange gains and losses arising
from a monetary item receivable 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 on consolidation they are
recognised in other comprehensive income,
and are presented within equity in the
foreign currency translation reserve.
Foreign currency differences arising on the
retranslation of a financial liability designated
as a hedge of a net investment in a foreign
operation are recognised directly in other
comprehensive income to the extent that the
hedge is effective, and are presented within
equity in the hedging reserve. To the extent
that the hedge is ineffective, such differences
are recognised in the income statement.
When the hedged part of a net investment
is disposed of, the associated cumulative
amount in equity is transferred to the income
statement as an adjustment to the income
statement on disposal.
(g) Derivative financial
instruments
The group has used derivative financial
instruments to hedge its exposure to foreign
exchange and interest rate movements. In
accordance with its policy, the group does
not hold derivative financial instruments
for trading purposes. However, derivatives
that do not qualify for hedge accounting
are accounted for as trading instruments.
Derivative financial instruments are
recognised initially at fair value. Attributable
transaction costs are recognised in
the income statement when incurred.
Subsequent to initial recognition, derivative
financial instruments are stated at fair
value. The gain or loss on remeasurement
to fair value is recognised immediately in
the income statement unless the derivative
qualifies for hedge accounting.
/ FINANCIAL REPORT
Hedging
(h) Taxation
On initial designation of the hedge, the
group formally documents the relationship
between the hedging instrument and
hedged item, including the risk management
objectives and strategy in undertaking
the hedge transaction, together with the
methods that will be used to assess the
effectiveness of the hedging relationship.
Where a derivative financial instrument is
designated as a hedge of the variability in
cash flows of a highly probable forecasted
transaction, the effective part of any gain
or loss on the derivative financial
instrument is recognised directly in
comprehensive income and presented
within equity. When the forecast
transaction subsequently results in the
recognition of a financial asset or liability,
then the associated gains and losses that
were recognised directly in equity are
reclassified into the income statement.
When a hedging instrument expires or
is sold, terminated or exercised, or the
entity revokes designation of the hedge
relationship but the hedged forecast
transaction is still expected to occur,
the cumulative gain or loss at that point
remains in equity and is recognised in
accordance with the above policy when
the transaction occurs. If the hedged
transaction is no longer expected to
take place, then the unrealised gain or
loss recognised in equity is recognised
immediately in the income statement.
Income tax expense on the income
statement comprises a current and
deferred tax expense. Income tax expense
is recognised in the income statement
except to the extent that it relates to items
recognised directly in equity, or in other
comprehensive income.
Current tax expense is the expected tax
payable on the taxable income for the year
using tax rates enacted or substantially
enacted at the reporting date, adjusted
for any prior year under or over provision.
The movement in deferred tax assets
and liabilities results in the deferred tax
expense, unless the movement results from
a business combination, in which case the
tax entry is recognised in goodwill, or a
transaction has impacted equity, in which
case the tax entry is also reflected in equity.
Deferred tax assets and liabilities arise from
temporary differences between the carrying
amount of assets and liabilities for financial
reporting purposes and the amounts used
for taxation purposes.
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.
55
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
56
56
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
(h) Taxation (continued)
A deferred tax asset is recognised for
unused tax losses, tax credits and
deductible temporary differences 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.
Tax consolidation
The company is the head entity in the tax
consolidated group comprising all the
Australian wholly-owned subsidiaries.
The company recognises the current tax
liability of the tax consolidated group. The
tax consolidated group has determined
that subsidiaries will account for deferred
tax balances and will make contributions
to the head entity for the current tax
liabilities as if the subsidiary prepared its
tax calculation on a stand-alone basis.
The company recognises deferred tax
assets arising from unused tax losses of the
tax consolidated group to the extent that
it is probable that future taxable profits of
the tax consolidated group will be available
against which the asset can be utilised.
Any subsequent period adjustments
to deferred tax assets arising from
unused tax losses as a result of revised
assessments of the probability of
recoverability, are recognised by the
head entity only.
(i) Goods and services tax
Revenues, expenses and assets are
recognised net of the amount of GST,
except where the amount of GST
incurred is not recoverable from the
Australian Taxation Office (ATO). In these
circumstances the GST is recognised as
part of the cost of acquisition of the asset
or is expensed.
Receivables and payables are stated
with the amount of GST included. The
net amount of GST recoverable from, or
payable to, the ATO is included as a current
asset or liability in the balance sheet.
Cash flows are included in the Statement
of Cash Flows on a gross basis. The GST
components of cash flows arising from
investing and financing activities which are
recovered from, or payable to, the ATO
are classified as operating cash flows.
(j) Cash and cash equivalents
Cash and cash equivalents comprise
cash balances and call deposits with an
original maturity of three months or less.
Bank overdrafts form an integral part of
the group’s cash management and are
included as a component of cash and
cash equivalents for the purpose of the
Statement of Cash Flows.
(k) Trade and other receivables
Trade debtors are to be settled within
agreed trading terms, typically less than
60 days, and are measured at fair value
and then subsequently at amortised cost,
less any impairment losses. Impairment of
receivables is not recognised until objective
evidence is available that a loss event may
occur. Significant receivables are individually
assessed for impairment. Non-significant
receivables are not individually assessed,
instead impairment testing is performed by
considering the risk profile of that group
of receivables. All impairment losses are
recognised in the income statement.
(l) Inventories
Raw materials and stores, work in
progress and finished goods are measured
at the lower of cost (determined on a first-
in first-out basis) and net realisable value.
Net realisable value is the estimated selling
price in the ordinary course of business,
less the estimated costs of completion
and selling expenses. In the case of
manufactured inventories and work in
progress, costs comprise direct materials,
direct labour, other direct variable costs
and allocated factory overheads necessary
to bring the inventories to their present
location and condition.
(m) Project work in progress
Project work in progress represents the
gross unbilled amount expected to be
collected from customers for project
work performed to date. It is measured
at cost plus profit recognised to date less
progress billings and recognised losses.
Cost includes all expenditure related
directly to specific projects. Project work
in progress is presented as part of other
assets in the balance sheet for all projects
in which costs incurred plus recognised
profits exceed progress billings.
(n) Intangible assets
Measuring goodwill
Licences and other intangible assets
(o) Property, plant and equipment
/ FINANCIAL REPORT
Product development costs
Expenditure on research activities,
undertaken with the prospect of gaining
new scientific or technical knowledge and
understanding, is recognised in the income
statement as an expense when incurred.
Expenditure on development activities,
whereby research findings are applied
to a plan or design for the production of
new or substantially improved products,
is capitalised only if development costs
can be measured reliably, the product is
technically and commercially feasible,
future economic benefits are probable and
the group intends to and has sufficient
resources to complete development and
to use or sell the asset.
The expenditure capitalised includes the
cost of materials, direct labour and an
appropriate proportion of overheads that
are directly attributable to preparing the
asset for its intended use less accumulated
amortisation and accumulated impairment
losses. Other development expenditure
is recognised in the income statement
when incurred.
Goodwill
All business combinations are accounted
for by applying the acquisition method and
goodwill may arise upon the acquisition of
subsidiaries. Goodwill is stated at cost,
less any accumulated impairment losses.
It is allocated to cash-generating units and
is not amortised but is tested annually
for impairment.
The group measures goodwill as the fair
value of the consideration transferred
including the recognised amount of any non-
controlling interest in the acquiree, less the
net recognised amount (generally fair value)
of the identifiable assets acquired (including
intangible assets) and liabilities assumed,
all measured as of the acquisition date.
Licences and other intangible assets
that are acquired by the group, which
have finite useful lives, are stated at
cost, less accumulated amortisation
and accumulated impairment losses.
Expenditure on internally generated
goodwill and brands is recognised in
the income statement as incurred.
Consideration transferred includes the fair
values of the assets transferred, liabilities
incurred by the group to the previous
owners of the acquiree, and equity interests
issued by the group. Consideration
transferred also includes the fair value of any
contingent consideration and share-based
payment awards of the company.
Contingent liabilities
A contingent liability of the acquiree is
assumed in a business combination only
if such a liability represents a present
obligation and arises from a past event,
and its fair value can be measured reliably.
Non-controlling interest
The group measures any non-controlling
interest at its proportionate interest in the
identifiable net assets of the acquiree.
Transaction costs
Transaction costs that the group incurs in
connection with a business combination,
such as finder’s fees, legal fees, due
diligence fees, and other professional and
consulting fees, are expensed as incurred.
Subsequent expenditure
Subsequent expenditure is capitalised
only when it increases the future economic
benefits embodied in the specific asset
to which it relates. All other expenditure,
including expenditure on internally
generated goodwill and brands, is
recognised in the income statement
as incurred.
Amortisation
Amortisation is calculated on the cost of
the asset, less its residual value.
Amortisation is charged to the income
statement on a straight line basis over the
estimated useful lives of intangible assets,
other than goodwill, from the date that
they are available for use. The estimated
useful lives in the current and comparative
periods are as follows:
Product development,
licences and intellectual
property:
2 - 15 years
Computer software:
3 - 7 years
Amortisation methods, useful lives and
residual values are reviewed at each
reporting date.
Owned assets
Items of property, plant and equipment
are measured at cost, less accumulated
depreciation and impairment losses. Cost
includes expenditures that are directly
attributable to the acquisition of the
asset. The cost of self-constructed assets
includes the cost of materials, direct labour
and 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.
Land and buildings that had been revalued
to fair value prior to the transition to AIFRS,
being 1 July 2004, are measured on the
basis of deemed cost, being the revalued
amount at the date of that revaluation.
Gains and losses on disposal of an item
of property, plant and equipment are
determined by comparing the proceeds
from disposal with the carrying amount
of property, plant and equipment and are
recognised net within “other income” or
“other expenses” in the income statement.
When parts of an item of property, plant
and equipment have different useful lives,
they are accounted for as separate items
(major components) of property, plant
and equipment.
57
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
58
58
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
(o) Property, plant and
equipment (continued)
Subsequent costs
The cost of replacing part of an item of
property, plant and equipment is recognised
in the carrying amount of the item if it is
probable that the future economic benefits
embodied within the part will flow to the
group and its cost can be measured reliably.
The carrying amount of the replaced part is
derecognised. The costs of the day-to-day
servicing of property, plant and equipment
are recognised in the income statement
as incurred.
Leased assets
Leases in terms of which the group 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.
Other leases are operating leases and the
leased assets are not recognised in the
balance sheet.
Depreciation
Depreciation is calculated on the
depreciable amount, which is the cost
of an asset, less its residual value.
Depreciation is charged to the income
statement on property, plant and
equipment on a straight-line basis over
the estimated useful life of the assets.
Capitalised leased assets are amortised
on a straight-line basis over the term of
the relevant lease, or where it is likely
the group will obtain ownership of the
asset, the life of the asset. Land is not
depreciated. The main depreciation rates
used for each class of asset for current
and comparative periods are as follows:
Buildings
4%
Leasehold property
33%
Plant and equipment
5% to 40%
Depreciation methods, useful lives and
residual values are reviewed at each
reporting date.
(p) Impairment
The carrying amounts of the group’s
assets, other than inventories and deferred
tax assets, are reviewed at each reporting
date to determine whether there is any
indication of impairment. A financial asset
is considered to be impaired if objective
evidence indicates that one or more
events have had a negative effect on the
estimated future cash flows of that asset.
If any such impairment exists, the asset’s
recoverable amount is estimated.
For goodwill and intangible assets that
have an indefinite useful life or are not yet
available for use, the recoverable amount
is estimated annually.
The recoverable amount of assets is the
greater of their fair value less costs to sell
pre-tax, or their value in use. In assessing
value in use, the estimated future cash
flows are discounted to their present value
using a pre-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.
The group’s corporate assets do not
generate separate cash inflows. If there is
an indication that a corporate asset may
be impaired, then the recoverable amount
is determined for the cash-generating units
to which the corporate asset belongs.
An impairment loss is recognised
whenever the carrying amount of an asset
exceeds its recoverable amount. A cash-
generating unit is the smallest identifiable
asset group that generates cash inflows that
are largely independent from other assets
or groups of assets. Impairment losses
are recognised in the income statement.
Impairment losses recognised in respect of
cash-generating units are allocated first to
reduce the carrying amount of any goodwill
and then to reduce the carrying amount of
the other assets in the cash-generating unit
on a pro rata basis.
An impairment loss in respect of goodwill
is not reversed. In respect of other assets,
impairment losses recognised in prior
periods are assessed at each reporting
date for any indications that the loss has
decreased or no longer exists.
An impairment loss is reversed if there has
been a change in the estimate 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.
(q) Payables
Liabilities are recognised for amounts to
be paid in the future for goods or services
received. Trade accounts payable are
normally settled within 60 days.
(r) Interest bearing borrowings
Interest bearing borrowings are recognised
initially at their 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 income
statement over the period of the
borrowings on an effective interest basis.
Long service leave
Dividends
The provision for employee benefits for long
service leave represents the present value of
the estimated future cash outflows resulting
from the employees’ services provided to the
reporting date. The provision is calculated
using expected future increases in wage
and salary rates, including related on-costs,
and expected settlement dates based on
turnover history, and is discounted using
the rates attaching to Commonwealth
Government bonds at the reporting date
which most closely match the terms of
maturity of the related liabilities.
A provision for dividends payable is
recognised in the reporting period in which
the dividends are declared.
Restructuring and employee
termination benefits
A provision for restructuring is recognised
when the group has approved a detailed
and formal restructuring plan, and the
restructuring either has commenced or has
been announced publicly. Future operating
costs are not provided for.
Defined contribution superannuation
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. The group contributes to
defined contribution superannuation plans
and these contributions are expensed in
the income statement as incurred.
Warranty
A provision is made for the group’s
estimated liability on all products sold and
still under warranty, and includes claims
already received. The estimate is based on
the group’s warranty cost experience over
previous years.
Onerous contracts
A provision for onerous contracts is
recognised when the expected benefits to
be derived by the group from a contract
are lower than the unavoidable cost of
meeting its obligations under the contract.
The provision is measured at the present
value of the lower of the expected cost of
terminating the contract and the expected
net cost of continuing with the contract.
(s) Employee benefits
(t) Provisions
Wages, salaries and annual leave
Liabilities for employee benefits for wages,
salaries, incentives and annual leave
represent present obligations resulting
from employees’ services provided to the
reporting date, calculated at undiscounted
amounts based on remuneration rates that
the group expects to pay as at the reporting
date, including related on-costs such as
workers’ compensation insurance and
payroll tax.
A provision is recognised when there is a
present legal or constructive obligation as
a result of a past event, it can be estimated
reliably, and it is probable that a future
sacrifice of economic benefits will be
required to settle the obligation. Provisions
are determined by discounting the expected
future cash flows required to settle the
obligation at a pre-tax rate that reflects the
current market assessments of the time
value of money and the risks specific to the
liability. The unwinding of the discount is
recognised as a finance cost.
/ FINANCIAL REPORT
(u) Share capital
Ordinary shares
Ordinary shares are classified as equity.
Incremental costs directly attributable to
the issue of ordinary shares and share
options are recognised as a deduction
from equity, net of any tax effects.
(v) Share-based payment
transactions
Share-based payments in which the
group receives goods or services
as consideration for its own equity
instruments are accounted for as equity-
settled share-based payment transactions,
regardless of how the equity instruments
are obtained from the group.
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.
(w) Discontinued operations
Classification as a discontinued operation
occurs on disposal or when the operation
is determined to be held for sale, if earlier.
When an operation is classified as a
discontinued operation, the comparative
income statement is re-presented as if the
operation had been discontinued from the
start of the comparative year.
59
CODAN LIMITED ANNUAL REPORT 2012
2. DIVIDENDS
i. An ordinary final dividend of 4.5 cents per share, franked to 100% with
30% franking credits, was paid on 1 October 2010
ii. An ordinary interim dividend of 4.0 cents per share, franked to 100% with
30% franking credits, was paid on 1 April 2011
iii. An ordinary final dividend of 5.0 cents per share, franked to 100% with
30% franking credits, was paid on 3 October 2011
iv. An ordinary interim dividend of 4.0 cents per share, franked to 100% with
30% franking credits, was paid on 2 April 2012
Consolidated
2012
($000)
-
-
8,207
6,566
14,773
2011
($000)
7,387
6,565
-
-
13,952
Subsequent events
Since the end of the financial year, the directors declared an ordinary final dividend of 5.5 cents per share, franked to 100% with 30%
franking credits. Based upon the shares on issue at 30 June 2012, the dividend would be $9,028,029 and is expected to be paid on
2 October 2012. The financial effect of this dividend has not been brought to account in the financial statements for the year ended
30 June 2012 and will be recognised in subsequent financial reports.
Dividend franking account
Franking credits available to shareholders for subsequent financial years (30%)
13,856
9,472
The franking credits available are based on the balance of the dividend franking account at year-end adjusted for the franking credits that
will arise from the payment of the current tax liability. The ability to utilise the franking account credits is dependent upon there being
sufficient available profits to declare dividends. Based upon the above assumed dividend, the impact on the dividend franking account
of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $3,869,155 (2011: $3,517,413).
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
60
60
i. An ordinary final dividend of 4.5 cents per share, franked to 100% with
30% franking credits, was paid on 1 October 2010
ii. An ordinary interim dividend of 4.0 cents per share, franked to 100% with
30% franking credits, was paid on 1 April 2011
iii. An ordinary final dividend of 5.0 cents per share, franked to 100% with
30% franking credits, was paid on 3 October 2011
iv. An ordinary interim dividend of 4.0 cents per share, franked to 100% with
30% franking credits, was paid on 2 April 2012
Consolidated
2012
($000)
-
-
8,207
6,566
14,773
2011
($000)
7,387
6,565
-
-
13,952
Franking credits available to shareholders for subsequent financial years (30%)
13,856
9,472
3. SEGMENT ACTIVITIES
Business segments
Geographical segments
/ FINANCIAL REPORT
In presenting information on the basis of
geographical segments, segment revenue
has been based on the geographic location
of the invoiced customer. Segment assets
are based on the geographic location of the
assets. The group has manufacturing and
corporate offices in Australia, with overseas
representative offices in the United States of
America, England, India, China and Ireland.
Two or more operating segments may
be aggregated into a single operating
segment if they are similar in nature.
The group comprises four business
segments. The communications
equipment segment includes the design,
development, manufacture and marketing
of communications equipment. The metal
detection segment includes the design,
development, manufacture and marketing
of metal detection equipment. With the
acquisition of Minetec in January 2012, the
group now has a mining technology segment
which includes the design, manufacture,
maintenance and support of a range of
electronic products and associated software
for the mining sector. The “other” business
segment includes the manufacture and
marketing of printed circuit boards.
During the prior year the “other” business
segment also included a specialist
component manufacturing business which
was divested, and a broadcast electronic
equipment manufacturing business which
was sold.
The group determines and presents
operating segments based on the information
that is internally provided to the CEO, who is
the group’s chief operating decision-maker.
An operating segment is a component of
the group that engages in business activities
from which it may earn revenues and incur
expenses, including revenues and expenses
that relate to transactions with any of the
group’s other components. All operating
segments’ operating results are regularly
reviewed by the group’s CEO to make
decisions about resources to be allocated to
the segments and assess their performance,
and for which discrete financial information
is available.
Segment results that are reported to the
CEO include items directly attributable to
a segment as well as those that can be
allocated on a reasonable basis. Unallocated
items comprise mainly corporate assets
(primarily the company’s headquarters and
cash balances), head office expenses and
income tax assets and liabilities.
Segment capital expenditure is the total
cost incurred during the period to acquire
property, plant and equipment, and intangible
assets other than goodwill.
The group’s primary format for segment
reporting is based on business segments.
61
CODAN LIMITED ANNUAL REPORT 2012
3. SEGMENT ACTIVITIES (CONTINUED)
Information about reportable segments
REVENUE
External segment revenue
Inter-segment revenue
Total segment revenue
RESULT
Segment result before impairment
and restructure costs
Communications *
2011
$000
2012
$000
66,339
-
66,339
69,783
-
69,783
Metal detection
Mining Technology
2012
$000
98,639
-
98,639
2011
$000
92,105
-
92,105
2012
$000
9,330
-
9,330
12,262
10,624
41,112
36,302
501
Impairment charge (non-cash)
-
(6,000)
(2,586)
(1,252)
8,424
-
(1,248)
3,376
-
-
-
41,112
-
-
(270)
36,032
-
-
(787)
(286)
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
62
62
Loss on disposal of discontinued
operation
Restructure costs
Segment result
Unallocated corporate expenses and
other income
Profit from operating activities
Income tax expense
Net Profit
NON-CASH ITEMS
INCLUDED ABOVE
Depreciation and amortisation
Unallocated depreciation and
amortisation
Total depreciation
and amortisation
ASSETS
Segment assets
Unallocated corporate assets
Consolidated total assets
2,980
4,710
3,587
2,551
165
33,078
32,792
85,478
84,500
15,690
Communications *
Metal detection
2012
$000
66,339
-
66,339
2011
$000
69,783
-
69,783
(2,586)
(1,252)
8,424
-
(1,248)
3,376
2012
$000
98,639
-
98,639
-
-
-
41,112
2011
$000
92,105
-
92,105
-
-
(270)
36,032
2012
$000
9,330
-
9,330
-
-
(787)
(286)
Impairment charge (non-cash)
-
(6,000)
12,262
10,624
41,112
36,302
501
Mining Technology
2011
$000
Other
2012
$000
-
-
-
-
-
-
-
-
5,089
358
5,447
64
-
-
(189)
(125)
Elimination
Consolidated *
2011
$000
7,719
2,105
9,824
62
-
-
(453)
(391)
2012
$000
-
(358)
(358)
-
-
-
-
-
2011
$000
-
(2,105)
(2,105)
2012
$000
179,397
-
179,397
100
53,939
-
-
-
100
-
(2,586)
(2,228)
49,125
(14,175)
34,950
(11,804)
23,146
2011
$000
169,607
-
169,607
47,088
(6,000)
-
(1,971)
39,117
(9,520)
29,597
(7,805)
21,792
2,980
4,710
3,587
2,551
165
-
149
175
-
-
33,078
32,792
85,478
84,500
15,690
-
1,985
2,970
-
-
6,881
1,660
7,436
1,595
8,541
9,031
136,231
34,052
170,283
120,262
27,164
147,426
REVENUE
External segment revenue
Inter-segment revenue
Total segment revenue
RESULT
Segment result before impairment
and restructure costs
Loss on disposal of discontinued
operation
Restructure costs
Segment result
Unallocated corporate expenses and
other income
Profit from operating activities
Income tax expense
Net Profit
Depreciation and amortisation
Unallocated depreciation and
amortisation
Total depreciation
and amortisation
ASSETS
Segment assets
Unallocated corporate assets
Consolidated total assets
/ FINANCIAL REPORT
The group derived its revenues from a
number of countries. The three significant
countries where revenue was 10% or more
of total revenue were Australia totalling
$22,426,735 (2011: $21,788,346), the United
States of America totalling $41,412,244
(2011: $26,022,791), and to a customer
in Turkey totalling $29,780,874 (2011:
$25,849,129).
The group’s non-current assets excluding
financial instruments and deferred tax
assets were located as follows: Australia
$110,163,547 (2011: $97,272,841), the
United States of America $161,043
(2011: $967,041), Ireland $485,992 (2011:
$550,913) and United Kingdom $102,712
(2011: $116,959).
* Inclusive of discontinued operation,
refer to Note 4.
63
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
64
64
4. DISCONTINUED OPERATION
Codan reached agreement on 31 May 2012 to sell its satellite communications assets to Communications & Power Industries Canada Inc
and its related corporate entities (collectively CPI) for a payment of USD $9 million cash, subject to certain adjustments, and a maximum of
USD $4.5 million in additional payments if certain earn-out objectives and financial targets are achieved over the next two years.
The sale consists of Codan’s Australian-based satellite communications assets and 100% of the shares of Locus Microwave, Inc.
The sale was successfully settled on 30 June 2012. Codan will assist CPI with manufacturing, training and support for
a period of approximately 9 months following settlement to ensure continuous supply to customers.
The satellite communication assets were not a discontinued operation, or classified as held for sale, as at 30 June 2011 and therefore
the comparative consolidated income statement has been re-presented to show the discontinued operation separately from
continuing operations.
RESULTS OF DISCONTINUED OPERATION
Revenue
Expenses
Loss from operating activities
Tax
Loss from operating activities, net of tax
Non-operating activities, net of tax
Impairment of goodwill and intangible assets
Loss on sale of discontinued operation
Transaction and restructure costs relating to sale
Loss for the year
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
CASH FLOWS FROM/(USED IN) DISCONTINUED OPERATION
Net cash from operating activities
Net cash used in investing activities
Net cash from financing activities
Net cash flows for the year
Consolidated
2012
($000)
2011
($000)
18,665
(21,898)
(3,233)
652
(2,581)
-
(2,850)
(596)
(6,027)
(3.7)
(3.7)
2,004
(1,485)
-
519
26,122
(27,190)
(1,068)
48
(1,020)
(5,343)
-
-
(6,363)
(3.9)
(3.9)
545
(2,101)
-
(1,556)
RESULTS OF DISCONTINUED OPERATION
Revenue
Expenses
Tax
Loss from operating activities
Loss from operating activities, net of tax
Non-operating activities, net of tax
Impairment of goodwill and intangible assets
Loss on sale of discontinued operation
Transaction and restructure costs relating to sale
Loss for the year
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
Net cash from operating activities
Net cash used in investing activities
Net cash from financing activities
Net cash flows for the year
CASH FLOWS FROM/(USED IN) DISCONTINUED OPERATION
Consolidated
2012
($000)
18,665
(21,898)
(3,233)
652
(2,581)
-
(2,850)
(596)
(6,027)
(3.7)
(3.7)
2,004
(1,485)
-
519
2011
($000)
26,122
(27,190)
(1,068)
48
(1,020)
(5,343)
-
-
(6,363)
(3.9)
(3.9)
545
(2,101)
-
(1,556)
EFFECT OF DISPOSAL
Consideration and loan received in cash
Working capital adjustment to be paid to purchaser
Total consideration less adjustments
Plant and equipment
Equipment held for sale
Intellectual property and product development
Inventories
Trade and other receivables
Deferred tax liabilities
Trade and other payables
Foreign currency reserves
Net assets and liabilities disposed of
Loss on sale of discontinued operation
Consolidated
2012
($000)
8,606
(1,069)
7,537
(1,358)
(1,747)
(4,593)
(4,159)
(309)
629
595
555
(10,387)
(2,850)
/ FINANCIAL REPORT
65
CODAN LIMITED ANNUAL REPORT 2012 5. ACQUISITION OF A SUBSIDIARY
On 3 January 2012, the company acquired all of the shares in Perth-based companies, Minetec Pty Ltd and Minetec Wireless Technologies
Pty Ltd (collectively Minetec). Minetec designs, manufactures, maintains and supports a range of electronics products and associated
software for the mining sector and is closely aligned to Codan’s core competencies of developing and manufacturing electronics
products and distributing them almost anywhere in the world. While Minetec’s products are different from those offered by Codan’s radio
communications and metal detection divisions, they are based on similar engineering principles and are closely aligned to Codan in that
they provide critical technical solutions in difficult operating environments.
For the six months ended 30 June 2012, Minetec has been shown as the mining technology segment in Note 3. If the acquisition had
occurred on 1 July 2011, management estimates that Minetec’s profit before tax would not have been significantly different.
The following summary provides current estimates of the major classes of consideration transferred, the expected recognised amounts
of assets acquired and liabilities assumed and the estimated goodwill at the acquisition date.
ESTIMATED FAIR VALUE OF CONSIDERATION TRANSFERRED
Deposit paid
Cash paid on completion
Completion adjustments
Contingent consideration, at net present value
($000)
250
6,635
66
2,747
9,698
Contingent consideration
The earn-out payable to a former shareholder of Minetec is contingent on the achievement of profit targets over the oncoming two years.
While the earn-out is not capped, it has been estimated to be $3.0 million based on Minetec’s estimated earnings over this period.
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
66
66
ESTIMATED FAIR VALUE OF IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED,
ON A PROVISIONAL BASIS
Cash
Trade and other receivables
Inventories
Other assets (e.g. project work in progress)
Property, plant and equipment
Product development and/or intangible assets
Trade and other payables
Loans and borrowings
ESTIMATED FAIR VALUE OF CONSIDERATION TRANSFERRED
Deposit paid
Cash paid on completion
Completion adjustments
Contingent consideration, at net present value
($000)
250
6,635
66
2,747
9,698
ESTIMATED GOODWILL AS A RESULT OF THE ACQUISITION
Estimated fair value of consideration
Less payment of Minetec liabilities deducted from consideration
Add estimated fair value of identifiable net liabilities assumed
This goodwill amount is not expected to be deductible for tax purposes.
($000)
253
1,470
398
480
980
246
(4,552)
(1,620)
(2,345)
9,698
(3,252)
2,345
8,791
Minetec acquisition-related costs
During the year the group incurred acquisition costs ($528,000) and integration costs ($259,000), related largely to external legal fees,
consulting, due diligence costs, travel and accommodation. These costs have been included as administrative expenses within the
consolidated income statement, but have been excluded from the underlying profit result of the group.
/ FINANCIAL REPORT
67
CODAN LIMITED ANNUAL REPORT 2012
6. OTHER INCOME
Dividend income from GroundProbe Pty Ltd
Other items
Gain on sale of minority interest in GroundProbe Pty Ltd
Gain from the disposal of Codan Broadcast Products Pty Ltd
Insurance recoveries
7. EXPENSES
Net financing costs:
Interest income
Net foreign exchange (gain) / loss
Interest expense
Depreciation of:
Buildings
Leasehold property
Plant and equipment
Amortisation of:
Product development
Intellectual property
Computer software
Licences
Consolidated
2012
($000)
-
237
-
-
256
493
(245)
(147)
3,628
3,236
524
49
1,813
2,386
2,728
1,899
1,194
335
6,156
2011
($000)
680
312
3,745
727
909
6,373
(294)
779
3,334
3,819
526
23
1,747
2,296
3,863
1,710
1,162
-
6,735
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
68
68
Personnel expenses:
Wages and salaries
Other associated personnel expenses
Contributions to defined contribution superannuation plans
Increase in liability for long service leave
Increase in liability for annual leave
Additional expenses disclosed:
Impairment of trade receivables
Operating lease rental expense
Loss on sale of property, plant and equipment
Acquisition, integration and restructuring
Consolidated
2012
($000)
36,166
2,555
2,569
1,250
2,077
44,617
267
1,515
34
2,228
2011
($000)
28,204
2,371
2,321
609
1,731
35,236
(120)
1,648
722
1,971
/ FINANCIAL REPORT
69
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
8. AUDITOR’S REMUNERATION
Audit services:
KPMG Australia - audit and review of financial reports
Overseas KPMG firms - audit of financial reports
Other services:
KPMG Australia - taxation services
KPMG Australia - other assurance services
Overseas KPMG firms - taxation services
KPMG related practices - due diligence and corporate finance services
9. INCOME TAX
A. INCOME TAX EXPENSE
Current tax expense:
Current tax paid or payable for the financial year
Adjustments for prior years
Deferred tax expense:
Origination and reversal of temporary differences
Income tax recognised directly in equity
Total income tax expense in income statement
Income tax expense from continuing operations
Income tax expense from discontinuing operation
70
70
Consolidated
2012
($)
2011
($)
181,300
33,581
144,799
38,229
100,807
272,239
770,955
180,850
36,948
116,984
33,043
178,242
47,338
593,405
Consolidated
2012
($000)
10,205
269
10,474
1,330
-
11,804
12,346
(542)
11,804
2011
($000)
7,845
(1,047)
6,798
756
251
7,805
8,509
(704)
7,805
Reconciliation between tax expense and pre-tax net profit:
The prima facie income tax expense calculated at 30% on the profit
from ordinary activities
Decrease in income tax expense due to:
Additional deduction for research and development expenditure
Over/(under) provision for taxation in previous years
Rebate on dividend income
Effect of tax rates in foreign jurisdictions
Recognition of previously unrecognised tax losses
Sundry items
Increase in income tax expense due to:
Non-deductible expenses
Non-deductible overseas losses
Capital loss through sale of discontinued operation
Impairment of goodwill
Income tax expense
B. CURRENT TAX LIABILITIES / ASSETS
Balance at the beginning of the year
Net foreign currency differences on translation of foreign entities
Income tax paid
Adjustments from prior year
Current year's income tax paid or payable on operating profit
Disclosed in balance sheet as:
Current tax asset
Current tax payable
/ FINANCIAL REPORT
Consolidated
2012
($000)
2011
($000)
10,485
8,879
703
(269)
-
-
-
17
10,034
557
437
776
-
11,804
(3,776)
21
10,613
(804)
(10,205)
(4,151)
75
(4,226)
(4,151)
392
1,047
204
465
1,097
109
5,565
789
308
-
1,143
7,805
(7,448)
(31)
11,195
353
(7,845)
(3,776)
80
(3,856)
(3,776)
71
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
9. INCOME TAX (CONTINUED)
C. DEFERRED TAX LIABILITIES
Provision for deferred income tax comprises the estimated expense
at the applicable rate of 30% on the following items:
Expenditure currently tax deductible but deferred and amortised for accounting
Sundry items
Hedging reserve
Difference in depreciation of property, plant and equipment
Set-off of tax in relation to deferred tax assets:
Difference in intellectual property
Provisions for employee benefits not currently deductible
Provisions and accruals not currently deductible
10. CASH AND CASH EQUIVALENTS
Petty cash
Cash at bank
Short-term deposits
Consolidated
2012
($000)
2011
($000)
6,962
(71)
382
(246)
(1,748)
(2,089)
(1,994)
1,196
30
23,051
-
23,081
6,102
430
430
249
(1,176)
(1,857)
(1,989)
2,189
14
8,611
18
8,643
72
72
11. TRADE AND OTHER RECEIVABLES CURRENT
Consolidated
2012
($000)
Trade receivables
Less: Provision for impairment losses
Other debtors
12. INVENTORIES
Raw materials
Work in progress
Finished goods
13. OTHER ASSETS
Prepayments
Net foreign currency hedge receivable
Project work in progress
Other
22,516
(506)
22,010
775
22,785
5,566
225
6,188
11,979
907
670
498
131
2,206
2011
($000)
13,561
(365)
13,196
1,398
14,594
15,090
1,782
6,448
23,320
1,170
476
-
236
1,882
/ FINANCIAL REPORT
73
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
74
74
14. PROPERTY, PLANT AND EQUIPMENT
Note
Consolidated
2012
($000)
Freehold land and buildings at cost
Accumulated depreciation
Leasehold property at cost
Accumulated amortisation
Plant and equipment at cost
Accumulated depreciation
Capital work in progress at cost
Total property, plant and equipment
Reconciliations
Reconciliations of the carrying amounts for each class of property,
plant and equipment are set out below:
Freehold land and buildings
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Net foreign currency differences on translation of foreign entities
Carrying amount at end of year
Leasehold property improvements
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Disposals
Depreciation
Net foreign currency differences on translation of foreign entities
Carrying amount at end of year
15,182
(4,674)
10,508
494
(385)
109
25,158
(17,700)
7,458
163
18,238
10,869
163
-
(524)
-
10,508
153
17
-
(6)
(49)
(6)
109
2011
($000)
15,019
(4,150)
10,869
475
(322)
153
32,792
(23,335)
9,457
212
20,691
11,975
106
(660)
(526)
(26)
10,869
151
-
28
-
(23)
(3)
153
Plant and equipment
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Transfers
Transfer to equipment held for sale
Disposals
Depreciation
Net foreign currency differences on translation of foreign entities
Carrying amount at end of year
Capital work in progress at cost
Carrying amount at beginning of year
Additions
Transfers
Carrying amount at end of year
Total carrying amount at end of year
4
15. PRODUCT DEVELOPMENT
Product development at cost
Accumulated amortisation
Reconciliation
Carrying amount at beginning of year
Capitalised in current period
Disposals
Impairment
Amortisation
Note
Consolidated
2012
($000)
2011
($000)
8,913
-
3,264
-
-
(820)
(1,747)
(153)
9,457
95
212
(95)
212
9,457
880
2,218
23
(1,747)
(1,497)
(1,813)
(63)
7,458
212
48
(97)
163
18,238
20,691
50,269
(26,983)
23,286
20,340
10,330
(4,656)
-
(2,728)
23,286
64,327
(43,987)
20,340
18,956
7,436
-
(2,189)
(3,863)
20,340
/ FINANCIAL REPORT
75
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
16. INTANGIBLE ASSETS
Goodwill
Impairment
Intellectual property at cost
Accumulated amortisation
Computer software at cost
Accumulated amortisation
Licences at cost
Accumulated amortisation
Total intangible assets
Reconciliations
Goodwill
Carrying amount at beginning of year
Acquisitions through entity acquired
Net foreign currency differences on translation of foreign entities
Impairment
Intellectual property
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Amortisation
Net foreign currency differences on translation of foreign entities
Impairment
76
76
Consolidated
2012
($000)
62,748
-
62,748
6,875
(6,133)
742
11,463
(10,182)
1,281
2,450
(335)
2,115
66,886
53,957
8,791
-
-
62,748
402
246
1,993
(1,899)
-
-
742
2011
($000)
57,545
(3,588)
53,957
4,636
(4,234)
402
11,285
(9,068)
2,217
1,300
-
1,300
57,876
58,457
-
(912)
(3,588)
53,957
692
-
1,709
(1,710)
(66)
(223)
402
/ FINANCIAL REPORT
Computer software
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Transfers from capital work in progress
Amortisation
Disposals
Net foreign currency differences on translation of foreign entities
Licences
Carrying amount at beginning of year
Acquisitions
Amortisation
The following segments have significant carrying amounts of goodwill:
Mining technology
Minelab products
Consolidated
2012
($000)
2,217
83
199
73
(1,194)
(97)
-
1,281
1,300
1,150
(335)
2,115
8,791
53,957
62,748
2011
($000)
2,748
-
586
95
(1,162)
(23)
(27)
2,217
-
1,300
-
1,300
-
53,957
53,957
Goodwill
Intellectual Property
Licences
The recoverable amount of a cash-generating unit is the
higher of its fair value less costs to sell and its value-in-use.
The value-in-use calculations use cash flow projections
based on the oncoming year’s budget. Key assumptions
for future years relate to sales, gross margin and expense
levels. Sales are based on management assessments which
allow for future growth. Gross margins and expense levels
are largely consistent with past experience. A terminal
value has been determined at the conclusion of five years
assuming a growth rate of 3.0%. Pre-tax discount rates
of 12% to 16% (2011: 15% to 17%) have been used in
discounting the projected cash flows.
Subsequent to the acquisition of Minelab Electronics Pty
Ltd by Codan Limited in 2008, Minelab Electronics Pty
Ltd acquired ownership of the intellectual property that
forms the basis for its metal detection products. The
consideration payable under the agreement is based on the
sales of metal detection products over a ten-year period.
An asset in relation to the acquired intellectual property
will be recognised as Minelab Electronics Pty Ltd becomes
liable to the payments under the contract.
The company entered into a licence agreement on
30 June 2011 with a leading provider of advanced
technology for high frequency radio communication
products. Over a three-year period licence payments
will be made as technology is delivered to the company.
The licenced technology will allow the company access
to implementations of next-generation radio waveforms
for high-speed data transmission, automatic link
establishment and digital voice.
77
CODAN LIMITED ANNUAL REPORT 2012
17. TRADE AND OTHER PAYABLES
CURRENT
Trade payables
Other payables and accruals
18. LOANS AND BORROWINGS
CURRENT
Finance lease liabilities
NON-CURRENT
Cash advance
Finance lease liabilities
Unsecured loans
The group has access to the following lines of credit:
Total facilities available at balance date:
Multi-option facility
Commercial credit card
Cash advance facility
Facilities utilised at balance date:
Multi-option facility
Commercial credit card
Cash advance facility
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
78
78
Consolidated
2012
($000)
14,884
21,049
35,933
113
113
38,879
289
-
39,168
10,000
120
75,000
85,120
3,039
8
38,879
41,926
2011
($000)
12,191
14,247
26,438
-
-
34,140
-
10
34,150
10,000
120
75,000
85,120
1,222
8
34,140
35,370
Facilities not utilised at balance date:
Multi-option facility
Commercial credit card
Cash advance facility
/ FINANCIAL REPORT
Consolidated
2012
($000)
6,961
112
36,121
43,194
2011
($000)
8,778
112
40,860
49,750
Bank Facilities
Facilities are supported by interlocking
guarantees between the company and its
subsidiaries. The facilities have a term of
three years expiring July 2014, and are
subject to compliance with certain financial
covenants over that term.
In addition to these facilities, the group has access to cash at bank and short-term deposits of $23,081,000 as set out in note 10.
WEIGHTED AVERAGE INTEREST RATES:
Cash at bank
Short-term deposits
Bank overdraft
Cash advance
19. PROVISIONS
CURRENT
Employee benefits
Warranty repairs
NON-CURRENT
Employee benefits
Reconciliation of warranty provision
Carrying amount at beginning of year
Provisions made during the year
Payments made during the year
Consolidated
2012
(%)
2.28
4.16
9.50
5.56
Consolidated
2012
($000)
2,942
2,760
5,702
2011
(%)
3.22
4.95
11.08
5.66
2011
($000)
2,592
2,846
5,438
4,536
3,476
2,846
1,216
(1,302)
2,760
2,496
1,860
(1,510)
2,846
79
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
80
80
20. SHARE CAPITAL
SHARE CAPITAL
Opening balance (164,145,980 ordinary shares fully paid)
Performance rights expensed
Shares purchased
Closing balance (164,145,980 ordinary shares fully paid)
Terms and conditions
Consolidated
2012
($000)
24,609
230
-
24,839
2011
($000)
25,328
236
(955)
24,609
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
shareholders’ meetings. In the winding up of the company, ordinary shareholders rank after all creditors and are fully entitled to any
proceeds on liquidation. During the prior year the group funded the purchase of shares for the purpose of satisfying the obligation to
transfer shares to certain executives under the Performance Rights Plan (refer to note 28).
21. RESERVES
Foreign currency translation
Hedging reserve
Foreign currency translation
(3,271)
336
(2,935)
(3,199)
1,337
(1,862)
The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations.
Balance at beginning of year
Reserves recognised through sale of discontinued operation
Net translation adjustment
Balance at end of year
Hedging reserve
(3,199)
341
(413)
(3,271)
The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments
(net of tax) related to hedged transactions that have not yet occurred.
Balance at beginning of year
Reserves recognised through sale of discontinued operation
Gains / (losses) on cash flow hedges taken to / from hedging reserve
Balance at end of year
1,337
(896)
(105)
336
(1,319)
-
(1,880)
(3,199)
(255)
-
1,592
1,337
/ FINANCIAL REPORT
22. RETAINED EARNINGS
Retained earnings at beginning of year
Net profit attributable to members of the parent entity
Dividends recognised during the year
Retained earnings at end of year
Consolidated
2012
($000)
2011
($000)
49,132
23,146
(14,773)
57,505
41,292
21,792
(13,952)
49,132
23. COMMITMENTS
I. CAPITAL EXPENDITURE COMMITMENTS
Aggregate amount of contracts for capital expenditure on property, plant and
equipment and intangibles:
Within one year
481
134
II. NON-CANCELLABLE OPERATING LEASE EXPENSE
AND OTHER COMMITMENTS
Future operating lease commitments not provided for in the financial
statements which are payable:
Within one year
One year or later and no later than five years
Later than five years
III. FINANCE LEASE AND HIRE PURCHASE PAYMENT COMMITMENTS
Within one year
One year or later and no later than five years
Later than five years
Less: future finance charges
Finance lease and hire purchase liabilities provided for in the
financial statements:
Current
Non-current
1,515
1,220
297
3,032
151
309
-
460
(58)
402
113
289
402
1,486
2,115
146
3,747
-
-
-
-
-
-
-
-
-
The group leases property under non-
cancellable operating leases expiring
from one to ten years. Leases generally
provide the group with a right of renewal,
at which time all terms are renegotiated.
Lease payments comprise a base amount
and an adjustment for the consumer
price index.
Finance leases and hire purchase
agreements are entered into as a means
of funding the acquisition of plant and
equipment. Repayments are generally
fixed and no leases have escalation
clauses other than in the event of
payment default. No lease arrangements
create restrictions on other financing
transactions.
81
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
82
82
24. ADDITIONAL FINANCIAL
INSTRUMENTS DISCLOSURE
Financial risk management
Overview
The group has exposure to the following
risks from its use of financial instruments:
• credit risk
•
liquidity risk
• market risk
• operational risk
This note presents information about the
group’s exposure to each of the above
risks, its objectives, policies and processes
for measuring and managing risk, and its
management of capital. Further quantitative
disclosures are included throughout these
consolidated financial statements.
The board of directors has overall
responsibility for the establishment
and oversight of the risk management
framework. The Board Audit, Risk and
Compliance Committee is responsible
for developing and monitoring risk
management policies. The committee
reports regularly to the board on
its activities.
Risk management policies are established
to identify and analyse the risks faced by
the group, to set appropriate risk limits and
controls, and to monitor risk and adherence
to limits. Risk management policies and
systems are reviewed regularly to reflect
changes in market conditions and the
group’s activities. The group, through its
training and management standards and
procedures, aims to develop a disciplined
and constructive control environment
in which all employees understand their
roles and obligations.
The Board Audit, Risk and Compliance
Committee oversees how management
monitors compliance with the group’s risk
management policies and procedures
and reviews the adequacy of the risk
management framework in relation to
the risk faced by the group.
(a) Credit risk
Credit risk is the risk of financial loss to
the group if a customer or counterparty
to a financial instrument fails to meet
its contractual obligations, and arises
principally from the group’s receivables
from customers.
The credit risk on the financial assets
of the consolidated entity is the
carrying amount of the asset, net of
any impairment losses recognised.
The group minimises concentration of
credit risk by undertaking transactions
with a large number of customers in
various countries. The group is not
materially exposed to any individual
overseas region or customer as at
30 June 2012.
Trade and other receivables
The group’s exposure to credit risk
is influenced mainly by the individual
characteristics of each customer. The
demographics of the group’s customer
base, including the default risk of the
industry and country in which customers
operate, has less of an influence on
credit risk.
The group has established a credit policy
under which each new customer is
analysed individually for credit worthiness
before the group’s standard payment and
delivery terms and conditions are offered.
Goods are sold subject to retention of
title clauses, so that in the event of non-
payment the group may have a secured
claim. The group does not normally
require collateral in respect of trade
and other receivables.
The group has established an allowance
for impairment that represents its
estimate of incurred losses in respect of
trade and other receivables.
The main components of this allowance
are a specific loss component that relates
to individually significant exposures, and
a collective loss component established
for groups of similar assets in respect of
losses that have been incurred but not
yet identified.
Guarantees
Group policy is to provide financial
guarantees only to wholly-owned
subsidiaries.
The carrying amount of the group’s financial assets represents the maximum credit exposure. The group’s maximum exposure to credit risk
at the reporting date was:
/ FINANCIAL REPORT
Carrying amount
Consolidated
Note
2012
($000)
2011
($000)
Cash and cash equivalents
Trade and other receivables
Forward exchange contracts used for hedging
10
11
13
23,081
22,785
670
The group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Australia / Oceania
Europe
Americas
Asia
Africa / Middle East
6,194
4,253
4,641
5,730
1,698
22,516
8,643
14,594
476
3,582
3,932
3,422
1,437
1,188
13,561
Impairment losses
The aging of the group’s trade receivables at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-120 days
More than 120 days
Consolidated
Gross
2012
($000)
18,460
2,358
1,255
443
22,516
Impairment
2012
($000)
(181)
(10)
(65)
(250)
(506)
Gross
2011
($000)
11,155
1,577
793
36
13,561
Impairment
2011
($000)
(184)
(136)
(9)
(36)
(365)
Trade receivables that are not past
due have been reviewed, taking into
consideration letters of credit held and
the credit assessment of the individual
customers. The impairment recognised
is considered appropriate for the credit
risk remaining.
83
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
84
84
24. ADDITIONAL FINANCIAL
INSTRUMENTS DISCLOSURE (CONTINUED)
(a) Credit risk (continued)
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 July
Impairment loss recognised as an expense
Trade receivables written off to the allowance for impairment
Balance at 30 June
(b) Liquidity risk
Consolidated
2012
($000)
365
268
(127)
506
2011
($000)
584
(120)
(99)
365
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions and without incurring unacceptable losses or risking damage to the group’s reputation. Refer to
note 18 for a summary of banking facilities available.
The following are the contractual maturities of financial liabilities:
30 June 2012
Non-derivative financial liabilities
Trade and other payables
Unsecured loans
Finance leases
Cash advance
30 June 2011
Non-derivative financial liabilities
Trade and other payables
Unsecured loans
Finance leases
Cash advance
Carrying
amount
($000)
35,933
-
402
38,879
75,214
26,438
10
-
34,140
60,588
Contractual
cash flows
12 months
or less
1-5 years
More than
5 years
($000)
($000)
($000)
($000)
(35,933)
-
(460)
(42,266)
(78,659)
(26,438)
(10)
-
(39,687)
(66,135)
(33,186)
-
(151)
(1,693)
(35,030)
(26,070)
-
-
(1,849)
(27,919)
(2,747)
-
(309)
(40,572)
(43,628)
(368)
(10)
-
(37,838)
(38,216)
-
-
-
-
-
-
-
-
-
-
(c) Market risk
Profile
/ FINANCIAL REPORT
Market risk is the risk that changes in market
prices, such as foreign exchange rates,
interest rates and equity prices, will affect the
group’s income or the value of its holdings of
financial instruments. The objective of market
risk management is to manage and control
market risk exposures within acceptable
parameters, while optimising the return.
The group enters into derivatives, and also
incurs financial liabilities, in order to manage
market risks. All such transactions are
carried out within the policy set by the board.
Generally the group seeks to apply hedge
accounting in order to manage volatility in
the income statement.
The net fair values of monetary financial
assets and financial liabilities not readily
traded in an organised financial market are
determined by valuing them at the present
value of the contractual future cash flows on
amounts due from customers (reduced for
expected credit losses), or due to suppliers.
The carrying amount of financial assets and
financial liabilities approximates their net
fair values.
Interest rate risk
The group reduced its exposure to interest
rate risk by entering into a three-year interest
rate cap in 2009. The cap was for a principal
amount of $60 million, reducing to $50 million
over its three-year term, with a capped
interest rate of 9.5%. This cap expired in
March 2011 and under current circumstances
the board has decided not to enter into any
interest rate hedging instruments.
At the reporting date, the interest rate profile of the group’s interest-bearing financial instruments was:
Carrying amount
Consolidated
FIXED RATE INSTRUMENTS
Financial assets
Financial liabilities
VARIABLE RATE INSTRUMENTS
Financial assets
Financial liabilities
Cash flow sensitivity
2012
($000)
-
(460)
(460)
23,081
(38,879)
(15,798)
2011
($000)
-
-
-
8,643
(34,140)
(25,497)
If interest rates varied by 100 basis points for the full financial year, then based on the balance of variable rate instruments held at
the reporting date, profit and equity would have been affected as shown below. This analysis assumes that all other variables, in
particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2011.
Profit / (loss) before tax
Equity
100 bp
increase
$000
100 bp
decrease
$000
100 bp
increase
$000
100 bp
decrease
$000
30 JUNE 2012
Variable rate instruments
30 JUNE 2011
Variable rate instruments
(158)
158
(255)
255
-
-
-
-
85
Non-derivative financial liabilities
Trade and other payables
35,933
(35,933)
(33,186)
Unsecured loans
Finance leases
Cash advance
30 June 2011
Unsecured loans
Finance leases
Cash advance
Non-derivative financial liabilities
Trade and other payables
Carrying
amount
($000)
Contractual
cash flows
($000)
12 months
1-5 years
More than
5 years
($000)
($000)
or less
($000)
-
(151)
(1,693)
(35,030)
-
402
38,879
75,214
-
(460)
(42,266)
(78,659)
26,438
(26,438)
(26,070)
10
-
34,140
60,588
(10)
-
(39,687)
(66,135)
-
-
(1,849)
(27,919)
(2,747)
-
(309)
(40,572)
(43,628)
(368)
(10)
-
(37,838)
(38,216)
-
-
-
-
-
-
-
-
-
-
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
24. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)
(c) Market risk (continued)
Currency risk
The group is exposed to currency risk on sales, purchases and balance sheet accounts that are denominated in a currency other than
the respective functional currencies of group entities, primarily the Australian dollar (AUD). The currencies in which these transactions
are denominated are primarily USD, Euro and GBP.
The group enters into foreign currency hedging instruments or borrowings denominated in a foreign currency to hedge certain anticipated
highly probable sales denominated in foreign currency (principally US dollars and Euro). The terms of these commitments are less than
12 months.
As at the reporting date, the group has entered into effective collar cash flow hedge instruments which will limit the foreign exchange risk
on USD $18,000,000 of FY13 sales, which represents just under half of the estimated USD exposure for FY13. The cap has been set at
an average of 99.6 cents, while the floor is set at 90.0 cents. Therefore, the group will be protected from an increase in the USD foreign
exchange rate above 99.6 cents, but will not participate if the USD foreign exchange rate falls below 90 cents.
The group’s exposure to foreign currency risk (in AUD equivalent) after taking into account hedge transactions at reporting date was
as follows:
Consolidated
30 JUNE 2012
Cash and cash equivalents
Trade receivables
Trade payables
Cash advance
Gross balance sheet exposure
Hedge transactions relating to balance sheet exposure
Cash advance designated as a hedge of foreign subsidiary
Net exposure at the reporting date
30 JUNE 2011
Cash and cash equivalents
Trade receivables
Trade payables
Cash advance
Gross balance sheet exposure
Hedge transactions relating to balance sheet exposure
Cash advance designated as a hedge of foreign subsidiary
Net exposure at the reporting date
Euro
($000)
797
246
(217)
-
826
-
-
826
355
631
(386)
-
600
-
-
600
GBP
($000)
94
14
(51)
-
57
-
-
57
336
39
(158)
-
217
-
-
217
USD
($000)
7,021
11,997
(9,270)
(7,879)
1,869
(3,925)
-
(2,056)
5,380
7,581
(7,004)
(9,460)
(3,503)
(1,855)
2,821
(2,537)
86
86
Sensitivity analysis
Given the foreign currency balances included in the balance sheet as at reporting date, if the Australian dollar at that date strengthened
by 10%, then the impact on profit and equity arising from the balance sheet exposure would be as follows:
Consolidated
Equity / reserve
$000
Profit/(loss) before tax
$000
/ FINANCIAL REPORT
2012
EURO
GBP
USD
2011
EURO
GBP
USD
-
-
974
974
-
-
464
464
93
8
158
259
(74)
(30)
217
113
A 10% weakening of the Australian dollar against the above currencies at 30 June would have had the equal but opposite effect on the
above currencies to the amounts shown above, on the basis that all other variables remain constant.
(d) Fair value hierarchy
The group’s financial instruments carried at fair value have been valued by using a “level 2” valuation method. Level 2 valuations are
obtained from inputs, other than quoted prices, that are observable for the asset or liability either directly or indirectly. At the end of the
current year, financial instruments valued at fair value were limited to net foreign currency hedge receivables ($670,000), for which an
independent valuation was obtained from the relevant banking institution.
87
CODAN LIMITED ANNUAL REPORT 2012 25. GROUP ENTITIES
Name
PARENT ENTITY
Codan Limited
CONTROLLED ENTITIES
IMP Printed Circuits Pty Ltd
Codan (UK) Ltd
Codan (Qld) Pty Ltd
Codan (US) Inc
Country of
incorporation
Class of
share
Interest held
2012
Interest held
2011
%
%
Australia
Ordinary
Australia
England
Australia
Ordinary
Ordinary
Ordinary
United States of America
Ordinary
Codan Telecommunications Pty Ltd
Australia
Minetec Pty Ltd*
Minetec Wireless Technologies Pty Ltd*
Minelab Electronics Pty Ltd
Minelab Americas Inc (previously Minelab USA Inc)
Minelab International Ltd
Parketronics Pty Ltd
Codan Holdings US Inc
Locus Microwave, Inc**
Codan Executive Share Plan Pty Ltd
Australia
Australia
Australia
United States of America
Ireland
Australia
United States of America
United States of America
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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
* On 3 January 2012, the group acquired 100% of Minetec Pty Ltd and Minetec Wireless Technologies Pty Ltd in an arm’s length
transaction. The financial result of the group’s interest in these entities has been accounted for from this date. Refer to note 5.
** On 30 June 2012, the group sold 100% of its interest in Locus Microwave, Inc in an arm’s length transaction. The financial results
of the group’s interest in this entity have been accounted for until that date. Refer to note 4.
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
88
88
26. NOTES TO THE STATEMENT OF CASH FLOWS
I. Reconciliation of cash
For the purposes of the statement of cash flows, cash includes cash on hand and at bank and short-term deposits, net of outstanding
bank overdrafts. Cash as at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the
balance sheet as follows:
Petty cash
Cash at bank
Short-term deposits
Consolidated
2012
($000)
30
23,051
-
23,081
2011
($000)
14
8,611
18
8,643
/ FINANCIAL REPORT
89
CODAN LIMITED ANNUAL REPORT 2012
26. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
II. Reconciliation of profit after income tax to net cash provided by operating activities
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
Profit after income tax
Add/(less) items classified as investing or financing activities:
Loss on sale of non-current assets
Loss on sale of discontinued operation
Profit on disposal of shares in GroundProbe Pty Ltd
Profit on disposal of Codan Broadcast Products Pty Ltd
Dividend income
Performance rights expensed
Add/(less) non-cash items:
Depreciation of:
Buildings
Leasehold property
Plant and equipment
Amortisation
Impairment of goodwill and intangible assets
Increase/(decrease) in income taxes
Increase/(decrease) on net assets affected by translation
Net cash from operating activities before changes in assets and liabilities
35,241
Change in assets and liabilities during the financial year:
Reduction/(increase) in receivables
Reduction/(increase) in inventories
Reduction/(increase) in other assets
Increase/(reduction) in payables
Increase/(reduction) in provisions
Net cash from operating activities
(7,698)
7,641
329
3,312
1,252
40,077
90
90
Consolidated
2012
($000)
2011
($000)
23,146
21,792
34
2,850
-
-
-
230
524
49
1,813
6,155
-
439
1
722
-
(3,795)
(727)
(680)
236
526
23
1,747
6,735
6,000
(3,499)
(2,049)
27,031
(1,675)
1,794
1,784
(2,879)
330
26,385
27. EMPLOYEE BENEFITS
Aggregate liability for employee benefits, including on-costs:
Current - other creditors and accruals
Current - employee entitlements
Non-current - employee entitlements
The present values of employee entitlements not expected to be settled within 12 months
of the reporting date have been calculated using the following weighted averages:
Assumed rate of increase in wage and salary rates
Discount rate
Settlement term
Performance Rights Plan
Consolidated
2012
($000)
4,220
2,942
4,536
11,698
4.00%
2.95%
2011
($000)
2,682
2,592
3,476
8,750
4.00%
5.03%
10 years
10 years
At the 2004 AGM, shareholders approved the establishment of a Performance Rights Plan (Plan). The Plan is designed to provide executives
with an incentive to maximise the return to shareholders over the long term, and to assist in the attraction and retention of key executives.
Performance rights issued in financial year 2009
The company issued 893,334 performance rights in November 2008 to certain executives. The fair value of the rights was 44.5 cents based on
the Black-Scholes formula. The model inputs were: the share price of 60 cents, no exercise price, expected volatility 50%, dividend yield 10%,
a term of three years and a risk-free rate of 5.75%. The total expense recognised as employee costs in 2012 in relation to the performance
rights issued was $nil (2011: $nil).
The performance rights become exercisable if certain performance thresholds are achieved. The performance threshold was based on growth
of the group’s earnings per share over a three-year period. For executives to receive the total number of performance rights, the group’s
earnings per share must have increased by at least 15% per annum over the three-year period. One of the executives left the group and
his 160,000 performance rights were cancelled. All of the remaining performance rights became qualifying performance rights and as a result
the company has transferred 733,334 shares to the relevant executives.
/ FINANCIAL REPORT
91
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
27. EMPLOYEE BENEFITS (CONTINUED)
Performance rights issued
in financial year 2010
Performance rights issued
in financial year 2011
Performance rights issued
in financial year 2012
The company issued 664,251 performance
rights in October 2009 to certain
executives. The fair value of the rights was
on average 68.5 cents based on the Black-
Scholes formula. The model inputs were:
the share price of 91 cents, no exercise
price, expected volatility 64%, dividend
yield 8%, a term of three years and a
risk-free rate of 5.7%. The total expense
recognised as employee costs in 2012 in
relation to the performance rights issued
was $nil (2011: $96,319).
The company issued 358,652 performance
rights in November 2010 to certain
executives. The fair value of the rights
was on average $1.11 based on the Black-
Scholes formula. The model inputs were:
the share price of $1.46, no exercise price,
expected volatility 48%, dividend yield 5%,
a term of three-years and a risk-free rate
of 5.6%. The total expense recognised as
employee costs in 2012 in relation to the
performance rights issued was $96,076
(2011: $92,380).
The company issued 426,979 performance
rights in November 2011 to certain
executives. The fair value of the rights
was on average $0.98 based on the
Black-Scholes formula. The model inputs
were: the share price of $1.31, no exercise
price, expected volatility 41%, dividend
yield 7%, a term of three-years and a
risk-free rate of 4.3%. The total expense
recognised as employee costs in 2012 in
relation to the performance rights issued
was $133,531.
The performance rights become exercisable
if certain performance thresholds are
achieved. The performance threshold is
based on growth of the group’s earnings
per share over a three-year period. For
executives to receive the total number of
performance rights, the group’s earnings
per share must increase by at least 15%
per annum over the three-year period.
The performance rights become
exercisable if certain performance
thresholds are achieved. The performance
threshold is based on growth of the
group’s earnings per share over a three-
year period. For executives to receive the
total number of performance rights, the
group’s earnings per share must increase
by at least 15% per annum over the
three-year period.
If achieved, performance rights are
exercisable into the same number of
ordinary shares in the company. No
performance rights have been issued
since the end of the financial year.
The performance rights become
exercisable if certain performance
thresholds are achieved. The performance
threshold is based on growth of the group’s
earnings per share over a three-year
period. For executives to receive the total
number of performance rights, the group’s
earnings per share must increase by at
least 15% per annum over the three year
period. During the prior year Mr M K Heard
(Chief Executive Officer) retired from Codan
and the performance rights issued to him
in 2010 became qualifying performance
rights. As a result the company transferred
289,855 shares to Mr M K Heard during
the prior year.
The group’s earnings per share over
the three year period to 30 June 2012
has exceeded the performance target.
Therefore it is expected that 374,396
shares will be issued to the relevant
executives by 31 August 2012.
92
92
28. KEY MANAGEMENT PERSONNEL DISCLOSURES
Key management personnel compensation
The key management personnel compensation included in “personnel expenses” (see note 7) is as follows:
/ FINANCIAL REPORT
Short-term employee benefits
Post-employment benefits
Share-based payments
Other long term
Termination benefits
Consolidated
2012
($)
2011
($)
3,239,564
3,335,841
110,493
211,293
32,680
134,147
115,243
160,731
114,007
-
3,728,177
3,725,822
Individual directors’ and executives’ compensation disclosures
Information regarding individual directors’ and executives’ compensation, and some equity instruments disclosures as permitted by
Corporations Regulation 2M.3.03, is provided in the remuneration report section of the directors’ report.
Apart from the details disclosed in this note, no director has entered into a material contract with the group since the end of the previous
financial year and there were no material contracts involving directors’ interest existing at year-end.
93
CODAN LIMITED ANNUAL REPORT 2012
28. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
Equity holdings and transactions
The movement during the reporting period in the number of ordinary shares of Codan Limited, held directly, indirectly or beneficially
by key management personnel, including their personally-related entities is as follows:
Directors
Dr G D Klingner
Mr D S McGurk
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
Lt-Gen P F Leahy
Mr S W Davies
Mrs C S Namblard
Specified executives
Mr M Barton
Mr R R Carpenter
Mr P D Charlesworth
Mr K J Kane
Held at
1 July 2011
Purchases
Received on
exercise of
rights
Sales
Held at
30 June 2012
467,840
1,000
138,065
66,765
-
44,065
-
n/a
5,000
-
26,130
-
-
-
10,000
-
-
-
-
-
-
-
-
3,500
-
146,667
-
-
-
-
-
-
-
-
146,667
-
-
-
-
-
-
-
-
-
-
-
-
-
467,840
147,667
148,065
66,765
-
44,065
-
-
5,000
-
172,797
3,500
Mrs C S Namblard was appointed as a director on 1 August 2011.
Mr R R Carpenter was terminated on 30 June 2012 as a result of the sale of the group’s satellite communications assets.
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
94
94
Directors
Dr G D Klingner
Mr D S McGurk
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
Lt-Gen P F Leahy
Mr S W Davies
Mrs C S Namblard
Specified executives
Mr M Barton
Mr R R Carpenter
Mr P D Charlesworth
Mr K J Kane
Held at
Purchases
Received on
Sales
Held at
30 June 2012
1 July 2011
exercise of
rights
146,667
-
-
-
-
-
-
-
-
-
-
10,000
-
-
-
-
-
-
-
-
-
-
146,667
3,500
467,840
1,000
138,065
66,765
44,065
n/a
5,000
26,130
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
467,840
147,667
148,065
66,765
44,065
5,000
172,797
3,500
-
-
-
-
Directors
Dr G D Klingner
Mr D S McGurk
Mr P R Griffiths
Mr D J Klingberg
Mr D J Simmons
Lt-Gen P F Leahy
Mr S W Davies
Mr M K Heard
Mr B P Burns
Specified executives
Mr M Barton
Mr R R Carpenter
Mr P D Charlesworth
Mr K J Kane
Mr G K Shmith
Held at
1 July 2010
Purchases
Received on
exercise of
rights
Sales
Held at
30 June 2011
417,840
1,000
138,065
66,765
-
44,065
n/a
4,407,587
11,671,424
5,000
n/a
26,130
n/a
28,491
50,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
467,840
1,000
138,065
66,765
-
44,065
-
n/a
11,671,424
5,000
-
26,130
-
n/a
Mr M K Heard retired as a director on 18 November 2010, Mr S W Davies was appointed as a director on 1 May 2011 and Mr B P Burns
retired as a director on 30 June 2011.
Mr K J Kane was appointed as President and Executive General Manager, Radio Communications on 12 July 2010, Mr G K Shmith moved
into a senior management role on 18 November 2010 and Mr R R Carpenter was appointed as President and Executive General Manager,
Satellite Communications on 14 March 2011.
/ FINANCIAL REPORT
95
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
96
96
28. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
Performance rights
The movement during the reporting period in the number of performance rights held directly, indirectly or beneficially by key management
personnel, including their personally-related entities is as follows:
Specified executives
Mr D S McGurk
Mr M Barton
Mr P D Charlesworth
Mr K J Kane
Specified executives
Mr D S McGurk
Mr M K Heard
Mr M Barton
Mr P D Charlesworth
Mr G K Shmith
Held at
1 July 2011
Issued
Vested
Held at
30 June 2012
416,250
64,675
368,394
-
161,551
76,414
105,008
84,006
146,667
-
146,667
-
431,134
141,089
326,735
84,006
Held at
1 July 2010
Issued
Vested
Held at
30 June 2011
279,517
609,855
-
279,517
228,696
136,733
-
416,250
-
609,855
64,675
88,877
68,367
-
-
-
n/a
64,675
368,394
n/a
Mr M K Heard retired as a director and Mr G K Shmith moved into a senior management role on 18 November 2010.
Other transactions with the company or its controlled entities
There have been no loans to key management personnel during the financial year.
From time to time, directors and specified executives, or their personally-related entities, may purchase goods from the group.
These purchases occur within a normal employee relationship and are considered to be trivial in nature.
29. OTHER RELATED PARTIES
All transactions with non-key management personnel related parties are on normal terms and conditions.
Companies within the group purchase materials from other group companies. These transactions are on normal commercial terms.
Loans between entities in the wholly-owned group are repayable at call and no interest is charged.
30. EARNINGS PER SHARE
The group presents basic 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 performance rights granted to employees.
Net profit used for the purpose of calculating basic and diluted earnings per share
23,146
Consolidated
2012
($000)
2011
($000)
21,792
The weighted average number of shares used as the denominator number for basic earnings per share was 164,145,980 (2011: 164,145,980).
The calculation of diluted earnings per share at 30 June 2012 was based on profit attributable to shareholders of $23.1 million and a weighted
average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 165,155,514
(2011: 164,714,932).
/ FINANCIAL REPORT
97
CODAN LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
31. NET TANGIBLE LIABILITY PER SHARE
Net tangible liability per share
32. CAPITAL MANAGEMENT
2012
5.8 cents
2011
2.5 cents
The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business. The board of directors monitors the level of dividends paid to ordinary shareholders and the
overall return on capital.
The board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings, and the
advantages and security afforded by a sound capital position. This approach has not changed from previous years.
During the year the group’s gearing level improved significantly as net debt levels dropped from $25.5 million to $15.8 million.
Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements.
98
98
Net tangible liability per share
2012
5.8 cents
2011
2.5 cents
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiary listed below is relieved from the
Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and directors’ report.
33. DEED OF CROSS GUARANTEE
/ FINANCIAL REPORT
It is a condition of the Class Order that the company and its subsidiary enter into a Deed of Cross Guarantee. The effect of the Deed is that
the company guarantees to each creditor payment in full of any debt in the event of the winding up of the subsidiary under certain provisions
of the Corporations Act 2001. If a winding up occurs under the 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 subsidiary has also given similar guarantees in the event that the company is wound up.
Minelab Electronics Pty Ltd is the only subsidiary subject to the Deed. Minelab Electronics Pty Ltd became a party to the Deed on 22 June
2009, by virtue of a Deed of Assumption.
A summarised consolidated income statement and a consolidated balance sheet, comprising the company and controlled entity which is a
party to the Deed, after eliminating all transactions between the parties to the Deed of Cross Guarantee, is set out as follows:
Summarised income statement and retained earnings
Profit before tax
Income tax expense
Profit after tax
Retained earnings at beginning of the year
Retained earnings at end of the year
2012
($000)
26,195
(11,013)
15,182
39,711
40,120
2011
($000)
26,341
(5,648)
20,693
32,971
39,711
99
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
100
100
33. DEED OF CROSS GUARANTEE (CONTINUED)
Balance sheet
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Equipment held for sale
Other assets
Total current assets
NON-CURRENT ASSETS
Investments
Property, plant and equipment
Product development
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Other liabilities
Current tax payable
Provisions
Total current liabilities
NON-CURRENT LIABILITIES
Loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Retained earnings
Total equity
2012
($000)
16,904
17,458
7,713
1,747
1,031
44,853
21,087
15,890
23,641
57,351
6,255
124,224
169,077
29,185
14,109
4,091
5,024
52,409
38,879
7,735
4,152
50,766
103,175
65,902
25,951
(169)
40,120
65,902
2011
($000)
7,486
25,855
14,031
-
1,053
48,425
14,641
18,592
20,340
57,250
4,981
115,804
164,229
18,564
26,285
3,778
5,014
53,641
34,140
7,167
3,324
44,631
98,272
65,957
25,722
524
39,711
65,957
34. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 30 June 2012, the parent company of the group was Codan Limited.
/ FINANCIAL REPORT
Result of parent entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of parent entity at year-end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising:
Share capital
Reserves
Retained earnings
Total equity
35. SUBSEQUENT EVENTS
Company
2012
($000)
17,573
(893)
16,680
32,226
141,447
28,531
74,472
25,952
77
40,946
66,975
2011
($000)
23,791
816
24,607
41,275
144,918
38,965
80,241
25,722
809
38,146
64,677
Subsequent to reporting date Codan has announced the acquisition of Canadian-based land mobile radio company, Daniels Electronics Limited
(Daniels), for an upfront cost of CAD $25 million (approximately AUD $24 million) with the possibility of CAD $2 million (approximately AUD $1.9
million) in additional payments if certain earn-out targets are achieved over the next 18 months. The acquisition of Daniels will be funded by
a mix of debt and equity and is consistent with Codan’s stated strategic goal to expand the radio communications business by investing in
adjacent markets and technologies. Codan’s extensive international distribution network is expected to deliver significant growth opportunities
to the Daniels business, which is currently focussed on the North American market.
Apart from the expenses associated with this acquisition (which have been excluded from the underlying profit result), the impact of this
transaction has not been brought to account in the group’s financial report for the year ended 30 June 2012 and will be recognised in
subsequent financial reports.
101
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
NOTES TO
AND FORMING
PART OF THE
FINANCIAL
STATEMENTS
For the year ended
30 June 2012
Codan Limited and
its Controlled Entities
102102
35. SUBSEQUENT EVENTS (CONTINUED)
The following summary provides current estimates of the major classes of consideration transferred, the expected recognised amounts
of assets acquired and liabilities assumed and the estimated goodwill at the acquisition date.
Estimated fair value of consideration transferred
Cash to be paid on completion
Contingent consideration, at net present value
Contingent consideration
The earn out payable to the former shareholders of Daniels is contingent on the achievement of profit targets
over the oncoming 18 months.
Estimated fair value of identifiable assets acquired and liabilities assumed, on a provisional basis
Trade and other receivables
Inventories
Property, plant and equipment
Trade and other payables
Estimated goodwill as a result of the acquisition
Estimated fair value of consideration
Less estimated fair value of identifiable net assets assumed
This goodwill amount is not expected to be deductible for tax purposes.
($000)
23,810
1,750
25,560
5,143
4,095
762
(2,667)
7,333
25,560
(7,333)
18,227
Daniels acquisition-related costs
During the year the group incurred acquisition-related costs of $501,000 related largely to external legal fees, consulting and due diligence
costs, travel and accommodation. These costs have been included as administrative expenses within the consolidated income statement,
but have been excluded from the underlying profit result of the group. No other acquisition-related costs were incurred.
Equity Raising
Funding for the acquisition will be partially sourced through an institutional placement to raise up to $12.5 million along with a share
purchase plan to raise a maximum of $5.0 million. Shares will be issued at a fixed price of $1.40 per new share. Shareholders eligible
under the share purchase plan will be able to acquire up to a maximum of $10,000 of new shares.
FINANCIAL REPORT /
/ FINANCIAL REPORT
In the opinion of the directors of Codan Limited (“the company”):
DIRECTORS’
DECLARATION
Codan Limited and
its Controlled Entities
(a) the consolidated financial statements and notes, set out on pages 48 to 102, are in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the financial position of the consolidated entity as at 30 June 2012 and its performance,
as represented by the results of its operations and its cash flows, for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a);
(c) the remuneration disclosures that are contained in the Remuneration report in the Directors’ report comply with Australian Accounting
Standards AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001;
(d) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable;
(e) there are reasonable grounds to believe that the company and the group entity identified in Note 33 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 the group entity pursuant to ASIC Class Order 98/1418; and
(f) the directors have been given the declaration required by Section 295A of the Corporations Act 2001 by the chief executive officer and
the chief financial officer for the financial year ended 30 June 2012.
Dated at Newton this 6th day of August 2012.
Signed in accordance with a resolution of the directors:
Dr G D Klingner
Director
D S McGurk
Director
103
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
INDEPENDENT
AUDITOR’S
REPORT
To the members of
Codan Limited
ABCD
Independent auditor’s report to the members of Codan Limited
Report on the financial report
We have audited the accompanying financial report of Codan Limited (the company), which
comprises the consolidated balance sheet at 30 June 2012, and consolidated income statement
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
ABCD
Directors’ responsibility for the financial report
Independent auditor’s report to the members of Codan Limited
Report on the financial report
Independent auditor’s report to the members of Codan Limited
The directors of the company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether
due to fraud or error. In note 1(a), the directors also state, in accordance with Australian
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements of the Group comply with International Financial Reporting Standards.
Report on the financial report
Directors’ responsibility for the financial report
We have audited the accompanying financial report of Codan Limited (the company), which comprises the consolidated balance sheet at 30
June 2012, and consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35 comprising a summary of significant accounting
Auditor’s responsibility
policies and other explanatory information and the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
We have audited the accompanying financial report of Codan Limited (the company), which
comprises the consolidated balance sheet at 30 June 2012, and consolidated income statement
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable
the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 1(a), the directors also state,
in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group
comply with International Financial Reporting Standards.
The directors of the company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether
due to fraud or error. In note 1(a), the directors also state, in accordance with Australian
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements of the Group comply with International Financial Reporting Standards.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
Auditor’s responsibility
due to fraud or error. In making those risk assessments, the auditor considers internal control
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures
estimates made by the directors, as well as evaluating the overall presentation of the financial
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due
report.
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial
report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the
financial report.
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
Auditor’s responsibility
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations
Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position
and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
An audit involves performing procedures to obtain audit evidence about the amounts and
basis for our audit opinion.
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
KPMG, an Australian partnership and a member
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
estimates made by the directors, as well as evaluating the overall presentation of the financial
(“KPMG International”), a Swiss entity.
report.
Page 66
Liability limited by a scheme approved under
Professional Standards Legislation
104
104104
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
Liability limited by a scheme approved under
(“KPMG International”), a Swiss entity.
Professional Standards Legislation
Page 66
ABCD
Independence
Independent auditor’s report to the members of Codan Limited
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Report on the financial report
Auditor’s opinion
We have audited the accompanying financial report of Codan Limited (the company), which
comprises the consolidated balance sheet at 30 June 2012, and consolidated income statement
In our opinion:
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
(i) giving a true and fair view of the Group’s financial position as at 30 June 2012 and of its performance for the year
ended on that date; and
Directors’ responsibility for the financial report
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
The directors of the company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1(a).
Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether
due to fraud or error. In note 1(a), the directors also state, in accordance with Australian
Report on the remuneration report
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements of the Group comply with International Financial Reporting Standards.
We have audited the remuneration report included in pages 30 to 36 of the directors’ report for the year ended 30 June 2012. The
directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section
Auditor’s responsibility
300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted in accordance with auditing standards.
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
Auditor’s opinion
financial report is free from material misstatement.
In our opinion, the remuneration report of Codan Limited for the year ended 30 June 2012, complies with Section 300A of the
An audit involves performing procedures to obtain audit evidence about the amounts and
Corporations Act 2001.
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the financial
report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
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.
Page 66
Liability limited by a scheme approved under
Professional Standards Legislation
/ FINANCIAL REPORT
105
CODAN LIMITED ANNUAL REPORT 2012Page 67 ABCDIndependenceIn conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.Auditor’s opinion In our opinion: (a) the financial report of the Group is 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 2012 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1(a). Report on the remuneration report We have audited the remuneration report included in pages 5 to 12 of the directors’ report for the year ended 30 June 2012. 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 responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Codan Limited for the year ended 30 June 2012, complies with Section 300A of the Corporations Act 2001.KPMG N T Faulkner PartnerAdelaide 6 August 2012
FINANCIAL REPORT /
ASX
ADDITIONAL
INFORMATION
Codan Limited and
its Controlled Entities
106
106
Additional information required by the Australian Stock Exchange Limited Listing Rules not disclosed elsewhere in this report is set out below.
Shareholdings as at 6 August 2012
SUBSTANTIAL SHAREHOLDERS
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
I B Wall and P M Wall
Interests associated with Starform Pty Ltd, Pinara Pty Ltd and Pinara Group Pty Ltd
J P Morgan Nominees Australia Limited
Interests associated with Kynola Pty Ltd and Warren Glen Pty Ltd
Griffinna Pty Ltd
Otterpaw Pty Ltd
A J Wood
Orley Pty Ltd
DISTRIBUTION OF EQUITY SECURITY HOLDERS
Number of
shares held
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - over
Total
Number of
ordinary shares
34,801,008
19,918,995
14,727,070
11,671,424
10,623,682
10,623,682
9,433,682
8,921,501
Number of equity
security holders
Ordinary shares
405
815
400
468
49
2,137
The number of shareholders holding less than a marketable parcel of ordinary shares is 51.
SECURITIES EXCHANGE
OTHER INFORMATION
ON-MARKET BUY-BACK
The company is listed on the Australian
Securities Exchange. The home exchange
is Sydney.
Codan Limited, incorporated and domiciled
in Australia, is a publicly listed company
limited by shares.
There is no current on-market
buy-back.
TWENTY LARGEST SHAREHOLDERS
Name
I B Wall and P M Wall
J P Morgan Nominees Australia Limited
Starform Pty Ltd
Griffinna Pty Ltd
Otterpaw Pty Ltd
A J Wood
Kynola Pty Ltd
Orley Pty Ltd
Pinara Pty Ltd
M K and M C Heard
G Bettison
A Bettison
S Bettison
Mitranikitan Pty Ltd
Warren Glen Pty Ltd
S Vinall
L F Choate
B H Candy
Pinara Group Pty Ltd
Bond Street Custodians Limited
Total
OFFICES AND OFFICERS
COMPANY SECRETARY
Mr Michael Barton BA (ACC), CA
/ FINANCIAL REPORT
Number of ordinary
shares held
34,801,008
14,727,070
11,397,081
10,623,682
10,623,682
9,433,682
9,111,213
8,921,501
7,715,775
5,017,442
3,562,125
3,562,124
3,562,124
2,632,526
2,560,211
1,259,630
843,339
678,081
545,359
494,840
Percentage of
capital held
21.2%
9.0%
6.9%
6.5%
6.5%
5.7%
5.6%
5.4%
4.7%
3.1%
2.2%
2.2%
2.2%
1.6%
1.5%
0.8%
0.5%
0.4%
0.3%
0.3%
142,072,495
86.6%
PRINCIPAL REGISTERED
OFFICE
LOCATION OF SHARE
REGISTRY
81 Graves Street
Newton South Australia 5074
Telephone: (08) 8305 0311
Facsimile: (08) 8305 0411
Internet address: www.codan.com.au
Computershare Investor Services Pty Limited
GPO Box 1903
Adelaide South Australia 5001
107
CODAN LIMITED ANNUAL REPORT 2012
FINANCIAL REPORT /
CORPORATE
DIRECTORY
Codan Limited and
its Controlled Entities
Directors
Dr David Klingner (Chairman)
Mr Donald McGurk (Managing Director and Chief Executive Officer)
Mr Peter Griffiths
Mr David Klingberg, AO
Mr David Simmons
Lt-Gen Peter Leahy, AC
Mr Scott Davies
Mrs Corinne Namblard
Company Secretary
Mr Michael Barton
Registered Office
81 Graves Street
Newton South Australia 5074
Auditor
KPMG
151 Pirie Street
Adelaide South Australia 5000
Registry
Computershare Investor Services Pty Limited
GPO Box 1903
Adelaide South Australia 5001
108
108
2012
ANNUAL
REPORT
www.codan.com.au