Codan Limited 2014 Annual Report 1
Codan engages in a process that
challenges every aspect of our business
and drives continuous improvement
across six key elements. By improving
upon the way things are done and
investing in our people and technology,
we continue to innovate and lead
our chosen markets. Our customers
worldwide trust the Codan brand
and recognise it as a commitment
to performance and reliability in the
harshest environments on the planet.
We strive to create a culture and
an environment that attracts high-
performing and entrepreneurial talent
to innovate and renew our organisation
in order to support our customers
in an ever-changing world. This
investment in our future enables
us to leverage the Codan brand
across international markets and
is aimed at delivering sustainable,
profitable growth.
INVESTMENT
People \ Technology \ Brand
People
High-Performing \ Entrepreneurial \ Diverse
Technology
Proven \ Focused \ Innovative
Brand
Trusted \ Global Performance
Markets
Diversity \ Intimacy \ Reach
Future
Sustainability \ Profitability \ Growth
INVESTMENT
People \ Technology \ Brand
People
High-Performing \ Entrepreneurial \ Diverse
Technology
Proven \ Focused \ Innovative
Brand
Trusted \ Global Performance
Markets
Diversity \ Intimacy \ Reach
Future
Sustainability \ Profitability \ Growth
CONTENTS
4
\ FY14 SUMMARY
6
\ CHAIRMAN’S AND CEO’S REPORT
10 \ GLOBAL LOCATIONS
11 \ OPERATIONS
22 \ BOARD OF DIRECTORS
26 \ LEADERSHIP TEAM
29
\ FINANCIAL REPORT
104 \ ASX ADDITIONAL INFORMATION
106 \ CORPORATE DIRECTORY
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,
29 October 2014 at the Hilton Adelaide hotel,
233 Victoria Square, Adelaide, South Australia.
Codan Limited 2014 Annual Report 1
Codan Limited 2014 Annual Report 1
People
High-Performing \ Entrepreneurial \ Diverse
Strive to create a culture and an environment that attracts a wide variety of high-performing
and entrepreneurial talent to be successful in an ever-changing world
2
2
Investment
People \ Technology \ Brand
Invest in our people and technology to keep us at the forefront of our chosen markets
and grow our brand as a trusted provider of reliable and rugged solutions
Codan Limited 2014 Annual Report 3
Codan Limited 2014 Annual Report 3
Codan Limited 2014 Annual Report 3
Codan Limited
Founded in 1959, Codan Limited (ASX:CDA)
is a group of electronics-based businesses
that capitalise on their fundamental design
and manufacturing skills to provide best-in-
class electronics solutions to global markets.
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, metal
detection and mining technology markets.
We work closely with our customers to seek
innovative ways to solve their problems and
add value to their operations.
The Codan brands are internationally
established and well regarded in the markets
we serve. Our customers include gold
prospectors, metal detection hobbyists,
aid agencies, miners, businesses and
governments, including public safety,
military and security organisations.
Our plan for growth is based on enhancing
our unique intellectual property, putting
that know-how into an expanding range
of electronics-based product solutions,
and then leveraging our operational excellence
and marketing capability across the world.
We continue to seek out opportunities to
grow the business.
The business has approximately 375 employees
located in Australia, Canada, USA, UK, Ireland,
China and UAE. Our marketing reach, largely
through a long-established network of staff and
dealerships across the world, embraces activity
in over 150 countries.
Reported profit of $9.2 million
Earnings per share of 5.2 cents
Annual dividend of 3 cents
The business has stabilised and our new product pipeline
is strong
Significant reduction in inventory and debt achieved in the
second half of FY14
Management took early action to restructure the cost base
of the organisation in the first half and maintained a cost
focus during the year
Radio Communications business delivered a much stronger
second half and goes into FY15 with good momentum
Key strategic relationships have been developed with global
blue-chip miners for mining productivity and safety solutions
Strong action taken to compete hard against the supply
of counterfeit and second-hand gold detectors in Africa
4
\ Operating revenue
\ EBITDA
\ UNDERLYING NPAT*
2010
2011
2012
2013
2014
$189.3m
$169.6m
$179.4m
$244.3m
2010
2011
2012
2013
$56.1m
$44.0m
$51.7m
2010
2011
2012
2013
$76.3m
$31.1m
$23.4m
$27.9m
$132.3m
2014
$22.6m
2014
$9.0m
\ FY14 SUMMARY
$45.4m
For year ended 30 June
REVENUE
Note
2014
%
of sales
2013
%
of sales
2012
%
of sales
2011
%
of sales
2010
%
of sales
Communications products
- HF and LMR
- Discontinued Satcom
Metal detection products
Mining technology
Other
Total revenue
EBITDA
EBIT
Interest
Net profit before tax
Tax
Net profit after tax
Earnings per share
Dividend per share
Return on equity
Gearing
$53.9m
41%
$47.5m
$10.5m
$69.9m
$4.0m
$4.5m
53%
$166.3m
3%
3%
$14.5m
$5.5m
20%
4%
68%
6%
2%
$47.7m
$18.7m
$98.6m
$9.3m
$5.1m
27%
10%
55%
5%
3%
$43.7m
$26.1m
$92.1m
26%
15%
54%
$44.6m
$25.5m
$106.6m
$7.7m
5%
$12.6m
$132.3m
100%
$244.3m
100%
$179.4m
100%
$169.6m
100%
$189.3m
$22.6m
$13.6m
($2.8)m
$10.8m
($1.8)m
$9.0m
5.1c
3.0c
7%
28%
1
2
17%
10%
8%
7%
$76.3m
$64.7m
($1.7)m
$63.0m
($17.6)m
$45.4m
25.8c
13.0c
41%
17%
31%
26%
26%
19%
$51.7m
$43.2m
($3.4)m
$39.8m
($11.9)m
$27.9m
17.0c
9.5c
37%
17%
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%
24%
13%
56%
7%
100%
30%
24%
23%
16%
Notes:
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. Non-underlying income/(expenses) are considered to be outside of the normal business activities of the group.
For 2014 and for the prior year, the net impact of non-recurring items on the profits of the company was immaterial.
Codan Limited 2014 Annual Report 5
Financial year 2014 was a very difficult
year for Codan with significantly reduced
sales of $132.3 million producing net
profit after tax of $9.2 million. This
result was particularly disappointing
following the record level of profitability
experienced in FY13. The company
declared a fully franked final dividend
of 1.5 cents per share, following on from
the 1.5 cents per share fully franked
interim dividend. This resulted in a total
dividend of 3.0 cents per share for the
full year, a significant decrease from
last year’s record 13 cents per share
dividend payout.
The company has previously announced
its intention to redevelop the Newton,
South Australia head office of Codan
Limited. This project is currently on hold
as the company considers consolidating
its South Australian operations into an
alternative leased location. If this were
to proceed, the South Australian owned
properties at Newton and Torrensville,
with carrying values of $10 million, would
be sold. Proceeds from the potential sale
of these properties would be used to
further strengthen our balance sheet
and better position us to pursue our
strategic initiatives.
Net debt increased from $25 million to
$47 million during the year, but is well
down on the $64 million half-year position,
due mainly to the significant reduction
in gold detector inventories in the second
half. The increase during the year was
primarily as a result of higher investment in
working capital, payment of the FY13 final
dividend ($12 million) and tax on last year’s
profits ($9 million). Net debt remains well
inside the company’s debt facility of $85
million. This debt facility was renegotiated
during the year and has an expiry date
of 31 October 2016.
In response to the lower sales,
management restructured the expense
base of the company. Expense reductions
of $10 million per annum were implemented
during the restructure, and these took effect
early in the first half. In addition to these
savings, a number of variable expense
reductions were also realised.
The lower level of gold detector sales into
Africa (down $80 million on FY13) was
the primary reason for the decline in the
company’s profitability in FY14. Despite
making progress across many areas of our
business during the year, Minelab faced
a new level of threat in its African markets
from competitors who used our own
brand against us and attempted to copy
our gold detector product technology.
The dramatic increase in profitability in
FY13 was driven by a significant growth
in sales of metal detectors into Africa
during that period. However this success
came at a cost, as counterfeiters were
attracted by the same opportunity.
When demand slowed as gold rush activity
subsided, there was excess supply in
the market, with second-hand machines
adding further to that oversupply. This,
along with a number of other political and
climatic factors, reduced demand for our
metal detection products in Africa late
in FY13, and this continued through FY14.
The stronger competition in the high-end
gold detection products in Africa not
only led to lower sales but also reduced
margins as prices had to be lowered.
In response to these threats to our
gold detector business, Minelab has
implemented a number of initiatives aimed
at strengthening our position in the market
and attacking the counterfeiters. Foremost
among these is a move to get closer to the
market by taking a greater involvement in
the distribution of gold detector products
into Africa. This will ensure that the flow
of information is fast and accurate, and
will enable a much better understanding
of market developments leading to the
right competitive actions being taken
as and when required.
A number of new metal detection products
will be released during FY15, and these
new technology platforms are expected
to significantly improve our position
in each of our metal detecting markets.
As a matter of vital business importance,
our new products include safeguards
in the designs that will make them very
difficult to copy.
The Minelab consumer business remains
strong and is more predictable, as its
primary markets are located in the
regulated legal environments of Australia,
the USA, Europe and Russia.
The countermine business is strategically
important in order to maintain our position
as the world’s number one provider
of metal detection technologies and
solutions. Minelab has recently won a
number of defence contracts in the USA
and Australia to develop new handheld
and vehicle-mounted dual-sensor
Dr David
Klingner
Chairman
Mr Donald
McGurk
Managing Director
and CEO
6
detectors that combine with ground-
penetrating radar.
During FY14, more than half of
Minelab’s sales came from the more
predictable consumer and countermine
business segments.
Our radio communications business has
delivered a much improved profit result in
FY14 as it begins to see the benefits from
a new leadership team and a best-in-class
radio platform in the new HF Envoy®.
The new radio communications senior
management team has implemented
a full restructure of the business, which
has resulted in a more customer-focused,
solutions-based approach. This has
helped to fast track acceptance of the
Envoy radio and, together with the cost
reduction associated with the restructure,
contributed to the profit improvement
in FY14. We enter FY15 with strong
momentum and a strategic plan to
significantly expand the revenue base
for this business.
Demand for our new Envoy radio
continues to grow as customers recognise
the benefits associated with the quality of
our digital voice and simple user interface
over conventional HF radio solutions.
We are excited by the opportunity that this
new technology provides to expand the
HF radio market, as we demonstrate what
a modern HF radio system can do to solve
a new range of communications needs.
Sales of land mobile radio products have
been impacted by the well-publicised cuts
in US government spending, causing us to
work hard to reduce the expense base of
the business. Although our entry into land
mobile radio provides a large opportunity
for new business, we will not reap the
full benefits from this acquisition without
further investment in next generation
product technology, which will allow us
to broaden our offering and ensure we
remain relevant over the longer term.
We continue to see significant
opportunities to grow the radio
communications business by integrating
land mobile radio and HF radio
communications, which will enable
expansion into new markets and
geographical regions and provide the
platform to offer a range of expanded
and different communications solutions.
Minetec has developed industry-
leading communications systems to the
mining sector, aimed at improving mine
productivity and safety. While this new
business continues to require significant
investment to position it for future growth,
much has been achieved to advance
the technology and strengthen the
international customer base.
FY14 sales declined compared to last year
as Minetec made the strategic decision
to transition away from the supply of
more traditional mining services and
focus on the commercialisation of its
own technology solutions.
In response to the challenges faced by
the Australian mining industry, Minetec
has taken its technology to global
blue-chip miners and successfully
completed a number of proof-of-concept
demonstrations, which were won in open
competition. We are now focused on
transitioning this success into a number
of full mine roll-outs during FY15.
The key to success in this business is
offering the customer a totally integrated
solution, which not only solves today’s
problems, but is flexible enough to be
configured to meet the future expectations
of the international mining community
in the critically important areas of mine
safety and productivity.
Minetec has extended its product portfolio
from underground hard-rock mines to
wireless technologies for open-pit mining.
During trials, Minetec’s collision-avoidance
system has set a new benchmark in the
marketplace, offering performance that
cannot be met with legacy GPS-based
solutions. The majority of the world’s
mining production is from open-pit mining,
and this has opened up a significantly
larger addressable market for Minetec.
As the global mining industry becomes
more regulated, Minetec is well placed
to take advantage of the legislation
that is driving demand for enhanced
collision-avoidance systems, and we
have appointed a number of international
dealers to assist our growth.
While the current economic environment
has miners focused on short-term cost
control, the mine-management and
asset-tracking systems developed by
Minetec are seen as long-term solutions
to reducing operating costs, as miners
move to more mechanised and automated
mining production techniques.
The foundation of our growth strategy
has always been to ensure that we invest
heavily in new product development, and
we have continued to do that during FY14
despite the need for expense savings. That
level of investment over many years now
\ CHAIRMAN’S AND CEO’S REPORT
stands us in very good stead, with
a number of new product platforms on
the verge of release to the market across
each of our three business units.
We continue to seek opportunities
to further strengthen our business
by capitalising on our core capabilities
and strengths to move into new markets
that are closely aligned to our existing
technologies. This element of our strategy,
along with our continued investment in
new product development, is critical to
the future success of the company, and
as such we have appointed a high-level
resource to the executive team to drive
these initiatives globally.
Our people have always been at the heart
of our success and, despite the extensive
cuts to staff numbers during the year,
have demonstrated great resilience and
a willingness to do what it takes in adverse
circumstances to meet the challenge of
doing more with less.
We sincerely thank everyone for their
contribution and support during FY14,
in what has been a very difficult year,
and we look forward to making significant
progress in FY15.
Dr David Klingner
Chairman
Mr Donald McGurk
Managing Director and CEO
Codan Limited 2014 Annual Report 7
Technology
Proven \ Focused \ Innovative
Bring innovative technology to our defined markets by engineering solutions that add
value to our customers in a variety of difficult and mission-critical environments
8
BRAND
Trusted \ global Performance
Grow our brand as a globally-trusted and recognised provider of innovative products and solutions
that deliver outstanding performance in some of the harshest environments on the planet
Codan Limited 2014 Annual Report 9
Codan Limited 2014 Annual Report 9
VICTORIA
CHICAGO
ROCHESTER
LONDON
BEIJING
CORK
DUBAI
PENANG
PERTH
ADELAIDE
CODAN OFFICES
MANUFACTURING CENTRES
10
Codan Limited 2014 Annual Report 11
Codan Limited 2014 Annual Report 11
Codan Radio Communications is a leading
international designer and manufacturer
of premium High Frequency (HF) radio and
Land Mobile Radio (LMR) communications
systems. We deliver our capability
worldwide for the security, military,
humanitarian and public safety markets.
Our mission is to provide communication
solutions that enable our customers to
save lives, create security and support
peacekeeping worldwide. With more
than 50 years in the business, Radio
Communications has garnered a reputation
for reliability and customer satisfaction,
producing innovative and industry-leading
technology solutions.
12
12
FY14 SUMMARY
Released upgraded digital voice
capability for Envoy®
Restructured the business under
a new management team
Won multi-year contracts with major
agencies worldwide
Achieved highly successful new
product releases in both HF radio
and LMR businesses
FY15 OBJECTIVES
Consolidate on improved
financial performance
Upgrade and expand the
LMR product portfolio
Deliver education sessions on the
new Digital HF radio systems
Identify adjacent products and markets
for expansion opportunities
CASE STUDIES
The Envoy Evolution
The Envoy evolution represents a quantum
leap forward in HF radio communications
following the launch of the Codan Envoy
smart radio in June 2012.
At the launch in Paris, the Envoy changed
the face of the commercial HF radio
communications market with its colour
screen, icon-based user interface and
software upgradeability. The Envoy evolution
continued over the next 12 months with
the release of upgrades for first-generation
Digital Voice, Ethernet and USB connectivity,
a high-speed modem, IP-linking technology
and powerful antenna options.
The successful reception of Envoy was led
by one of the world’s most trusted global
humanitarian organisations which, with
headquarters in Geneva, Switzerland,
and with a mandate to help victims of
war, provides humanitarian aid for people
across 80 countries who are affected by
conflict and armed violence.
The humanitarian organisation deploys
Envoy radios to provide vital communications
in war-torn areas that have limited
communications infrastructure. The
radios help ensure the safety of their
personnel, providing them with a reliable
communications link back to base. The GPS
tracking on Envoy also helps base operations
\ RADIO COMMUNICATIONS
know the location of their personnel and
allows tracking of their movements.
“Envoy exceeds our expectations in
specifications and is easy to use for end-
users…Codan was listening to customer
needs,” said a communications specialist
from the humanitarian organisation.
“Envoy can be nicely customised to
our needs; this means we could almost
immediately switch over to Envoy [from
Codan NGT]. I am convinced of great
Envoy success.”
Two years after the launch, Envoy has
continued to live up to its promise of
continuous capability improvement, with the
launch of second-generation Digital Voice
which provides voice clarity unparalleled
on the HF radio communication medium,
providing a voice quality experience that
is similar to cellular phones, and ensures
continued operation in degraded and fading
HF radio channels.
During a recent communications trial of
Digital Voice by the South Australian Police,
one of the officers was quoted as saying,
“The latest generation digital voice over
HF gives us the ability to talk securely, and
the digital quality of the audio enables easy
and clear communications. This makes
HF a much more operator-friendly option
than ever before.”
The Envoy evolution continues globally, with
delivery of the radios to the New South Wales
and South Australian Police, Ambulance
Services New South Wales and the State
Emergency Service, Fiji Meteorological
Services, Bank of Tanzania, Bangladesh
Police, and with radios being deployed by
security organisations in Libya, Afghanistan,
Angola, Mali and Uganda.
Codan Limited 2014 Annual Report 13
Codan Limited 2014 Annual Report 13
Codan Radio Communications underwent a major restructure this year, following the recruitment of Paul McCarter as Executive General Manager, and a new senior management team. During the year, the team updated the vision and strategy for the business and made important changes to key management positions and technical staff. The new team has had a significant impact. Focus on the front end of the business has delivered improved financial performance and a good order backlog for the coming financial year.The continued focus on new technology has produced several releases in the year, including upgraded digital voice which is providing world-leading voice quality for over-the-horizon communications. The new Hivenet product is providing wide-area multiple-repeater capability, with complete AES 256 bit encryption, self-healing repeater networking and Codan’s superb low-current-draw expertise. The HF radio and LMR integration product, MRAY, is proving a success with customers from around the globe who are interested in deploying the radio interconnect solution that provides true wide-area coverage without the need for infrastructure, satellite systems and, most importantly, with no costly fees.The radio communications business has further improved its long-standing relationship with global non-government organisations (NGOs). During the year, we have extended multi-year contracts and won new contracts to support NGOs worldwide. The relationships we have developed continue to be strengthened by our great service-delivery culture and partnership strategy. Recent deliveries at short notice and to exacting standards have helped to cement our brand as the premier HF radio communications provider to this market. We have also continued our stance of only delivering to approved security forces and peacekeepers worldwide, to ensure that our advanced technology solutions do not fall into the wrong hands.The business is undertaking a major investment programme to develop new land mobile radio products for both our North American and global customers. The private radio network landscape is changing. P25 has a new standard, the Digital Mobile Radio (DMR) market is growing and mobile phone systems are changing the face of private networks. The old industry landscape is evolving and Codan is transitioning its business model to deliver higher value-add, customer-focused radio solutions to best utilise that evolving technology and meet the emerging need of customers with a world-class LMR radio system.Codan Radio Communications continues to enhance its world-class product design and development capability. Our focus is firmly fixed on delivery to our customers, and Radio Communications will continue to provide leading-edge systems and radio solutions with a customer-oriented service platform. We have the ability to deliver quality, best-value, dependable, field-supported systems, overcoming local or long-haul communication challenges almost anywhere in the world. Codan Radio Communications provides the trusted platform for our customers and partners.
FY14 SUMMARY
WHY we do what we do:
We change people’s fortunes.
HOW we do it:
By creating innovative technologies
and products that allow people to
explore every surface of the planet
and discover what lies beneath,
knowing our experts are supporting
them every step of the way.
WHAT we do:
We make the world’s best
metal detectors.
Sales declined significantly in Africa
after the record FY13 year
Continued to invest in the next
generation of Minelab products
Counterfeit Minelab products
continued to be a significant issue
in the African market
Took further direct and aggressive
action against counterfeiters
Expense base was reduced
in response to lower sales
FY15 OBJECTIVES
Increase connectivity with the small-
scale gold mining market globally
Successfully launch the next
generation of Minelab products
Continue to invest in this world-
leading business
Continue to fight hard in the market
14
Minelab is the world leader in providing
metal detection technologies to small-
scale gold miners, hobbyists and
prospectors, and for demining and
military needs.
Minelab’s financial performance in FY14
was significantly down on the record year
of FY13, largely as a result of a decline in
the African small-scale gold mining market,
coupled with increased counterfeit activity
in that market. FY15 will see major new
releases across the Minelab product range,
beginning with the new mid-range compact
gold machine, the SDC 2300™, which was
released in June.
Minelab has recently celebrated its 25th
anniversary and also launched its “Why”
statement, “We Change People’s Fortunes”.
Small-scale gold mining
Minelab’s world-leading gold detecting
technology continues to revolutionise how
small-scale gold miners from around the
world prospect for gold.
While Minelab continues to develop other
geographic regions, the largest source of
demand for gold detectors comes from
Africa. The primary driver of demand for
gold detection machines in Africa is the
adoption of metal detection technology by
the large number of small-scale gold miners,
and the demonstrated success they have
in finding gold. These small-scale gold
miners have previously used traditional
and often environmentally damaging mining
techniques to find gold. Minelab’s metal
detectors are changing the way gold is
found by these miners.
The African market for gold detectors
can be volatile, with peaks in demand
being driven by gold finds. Gold detector
sales declined significantly in FY14, and
represented only approximately 30% of
the record sales achieved in FY13.
There are many factors which influence
the demand for new gold detectors in
Africa. Some of these factors include civil
unrest and political instability, weather
patterns and events, religious events, the
development of an active second-hand
market and, to some extent, the gold price.
However, the biggest threat and competition
that we face in this African market is from
Chinese-made counterfeit products bearing
the Minelab trademarks, and this impacted
our business significantly in FY14.
The great success of the Minelab business
in Africa over recent years has attracted
these new competitors, who use our own
product technology and branding against
us. Counterfeiters copy the look and
feel of our products and benefit from our
strong brand and the market development
work that we do in Africa. While we are
taking action across a number of fronts,
ultimately our future success rests with the
development of new product technologies
and our ability to outmarket, outcompete
and outperform competitors, no matter
what form they take.
We continue to invest in the development
of small-scale gold mining markets outside
of Africa, and believe that, in time, good
markets will develop in Central and Latin
America and Asia.
Hobbyists and Prospectors
The foundation of the Minelab business
has been built on the success that it has
achieved in selling metal detectors into
the mainly developed world economies of
Australia, the USA, Europe and Russia, for
individuals who metal detect for the fun of
it and for whom metal detecting is an
interest, a hobby and a sport.
These metal detectors include those aimed
at finding gold and those that are for the
detection of coin and treasure such as
jewellery and artefacts. This part of the
business represents a significant portion of
the total Minelab business, and is well placed
for growth as the hobby of metal detection
becomes increasingly familiar and accepted
across the world, and Minelab continues
to release new products to the market.
A key driver of growth in this first-world
market is the release of new products. While
FY14 was one of continued investment in the
development of new products, there were no
major product releases. However, in FY15
there will be major new product releases,
starting with the release of a new mid-priced,
compact and fully waterproof gold detector.
Pre-production reviews on this machine have
been excellent, with best-in-class detection
performance for fine gold. The June 2014
release of this machine was eagerly awaited
and has been well received by customers.
We are also developing a unique metal
detecting platform that will position Minelab
at the lower end of the coin and treasure
price scale — a new market space for
Minelab. This product, to be released in the
second half of FY15, will introduce features,
levels of performance and value that haven’t
previously been seen in this market.
Minelab has invested heavily in new product
development in recent years, and these
products are coming to market in FY15
and will drive the next wave of success
for the business.
Countermine
Minelab’s detectors are also considered
to be 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, and military and
government bodies.
The countermine business remains
strategically important in order to maintain
our position as the world’s number one
provider of metal detection technologies and
solutions. Supporting our continuing market
lead are the recent awards of technology
development contracts comprising:
• Australian Department of Defence -
Development contract issued for the
provision of a Counter Improvised
Explosive Device Handheld Detector
to satisfy ADF operational requirements;
• US Department of Defense - Development
contract for potentially the next generation
of handheld dual-sensor mine detectors
for the US Army; and
• US Department of Defense - Development
contract to integrate Minelab’s vehicle-
mounted metal detection array with
the ground-penetrating radar sensor
currently operational with the Husky Mine
Detection System used in tactical route
clearance activities.
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 Cambodia, Angola, Sri Lanka,
Vietnam, Mozambique, Colombia, Lebanon
and Afghanistan.
CASE STUDIES
Minelab is changing
people’s FORTUNES
in Gold
In January 2014, Minelab featured in
a six-minute news report broadcast
across 50 countries worldwide. Filmed
in Burkina Faso, Africa and Dubai, UAE,
the news report outlined the innovative
and practical genuine-product verification
systems developed by Minelab in the
fight against counterfeit dealers who
target and exploit small-scale miners
with fake product. It also tells of the
meaningful impact of gold-finding
success through the real-life stories
and experiences of Minelab customers
who use genuine Minelab product.
One such customer, Badra Ali Ouattara,
shared his story. “Finding gold changed many
things in my life. I built a house and now I can
get by in life quite well. It allows me to make
a good living.” Badra’s haul of gold netted
him over US$60,000. In a country where the
average annual income is US$300, Badra is
now considered a very wealthy man indeed!
Sulieman Ouedraogo from Burkina Faso
shared his story with Minelab. “With the
harvest of nuggets that I have found, I was able
\ METAL DETECTION
to buy 3 plots of land, 3 motorbikes
and 3 more detectors and, most importantly,
I can now afford to send all 10 of my children
to school.”
Full report can be viewed on: https://www.
youtube.com/watch?v=zUeNozYadNU.
Every day, genuine Minelab products
find gold in ALL sizes, from sub-gram
to kilograms across ALL gold zones!
Consumer business find
story of the year
Minelab CTX 3030 unearths
major treasure in Mexico
March 2014 Guerrero, Mexico
A large silver cache, which is
possibly dated from the early
19th century Spanish trade, was
unearthed at nearly 6 feet (1.8m)
below the surface in southern
Mexico using a Minelab
CTX 3030 metal detector.
The finder reported to Minelab,
“I have used other metal detectors
in the past and they did not work.
Only the Minelab CTX 3030 was
able to pick up the signal and
without it, I would never have
found this cache.”
The current market value of
silver is approximately US$21
per troy ounce, which puts the
estimated value of the cache
at over US$100,000. However,
if the cache is confirmed to
have historical significance, the
estimated amount would likely
result in an even higher value.
6 feet
(1.8m)
Codan Limited 2014 Annual Report 15
Codan Limited 2014 Annual Report 15
Minetec has developed industry-leading
communications systems for the mining
sector, aimed at improving mine
productivity and safety.
FY14 SUMMARY
Difficult economic environment
for the Australian mining industry
Successfully broadened our
customer base outside of Australia
Won competitive tender processes
Major investment in product and
technology road-maps
Introduction of non-GPS based
collision-avoidance and proximity-
detection technology for surface
mining operations
FY15 OBJECTIVES
Deliver on opportunities with key
global mining customers
Stabilise the financial performance
of the business
Continue to develop best-in-class
products and technologies
16
The acquisition of Perth-based company, Minetec Pty Ltd, in January 2012 has allowed Codan to enter the mining communications and technology services industry. While this new business continues to require significant investment to position it for future growth, much has been achieved to advance the technology and strengthen the international customer base.FY14 sales declined compared to last year, as Minetec made the decision to transition from the supply of more traditional, low-margin mining services to the commercialisation of its own technology solutions. In response to the challenges faced by the Australian mining industry, Minetec has taken its technology to global blue-chip miners and successfully completed a number of proof-of-concept trials and demonstrations which were won in open competition. We are now focused on transitioning this success into a number of full mine roll-outs during FY15.Minetec’s technology suite includes mine management and control systems (SMARTS™), a tracking system that can locate miners and machinery in real time (Trax+Tags™) and also collision avoidance systems (SafeDetect™).Minetec has extended its product portfolio from applications in underground hard-rock mines to collision-avoidance and proximity-detection technologies for open-pit mining. During trials, Minetec’s collision avoidance systems have set a new benchmark in the marketplace, offering high levels of precision and performance that cannot be met with legacy GPS-based solutions. The majority of the world’s mining operations. This technology has been
developed for mining in partnership with
the Australian Government CSIRO, and
delivers real-time, peer-to-peer safety for
personnel, vehicles and machinery.
SafeDetect II features state-of-the-art
high-precision tracking to sub-metre
accuracy, and delivers a number of
critical advantages over legacy GPS-
based techniques, where satellite channel
availability is typically limited to 60%.
Advantages include the ability to operate
under and around obstacles, differentiate
vertical spatial distance and operate in bad
weather (foggy) conditions. Minetec has
delivered this technology within proof-
of-concept programmes to a number of
customers and has gained significant
interest as a solution to a current capability
gap in surface-mining operations.
production is from open-pit mining, and
this has opened up a significantly larger
addressable market for Minetec.
As the mining industry becomes more
regulated, Minetec is well placed to take
advantage of the legislation that is driving
demand for enhanced collision avoidance
and proximity detection systems. While
the current economic environment has
miners focused on short-term cost control,
the mine-management and asset-tracking
systems developed by Minetec are seen
as a medium-term to long-term solution
to reducing operating costs as miners
move to more mechanised and automated
mining-production techniques.
Collision Avoidance and
Proximity Detection for
Surface-Mining Operations
Minetec successfully introduced its
latest version of SafeDetect II™ to
provide collision avoidance and proximity
detection for open-pit, surface-mining
CASE Study
Barrick Porgera Gold
Mine — Communications
and Infrastructure
Upgrade
Aerial view of Porgera Gold Mine
The Porgera open-pit and underground
gold mine is a joint venture operation
located in the Enga Province in Papua New
Guinea (PNG). The mine is located 600
kilometres northwest of the capital, Port
Moresby. The Porgera operation is 95%
owned and operated by a subsidiary of
Barrick Gold Corporation, in partnership
with the PNG government. Headquartered
in Toronto, Canada, and with operations
extending across the globe, Barrick is the
largest gold mining company in the world.
As part of the company’s portfolio
optimisation plan, Barrick has revised
its mine plan and operation at Porgera
to focus on the higher grade gold ore
found in the underground portion of the
mine. Critical to this plan was the need
to invest in infrastructure to provide
effective communications and asset-
tracking capabilities for daily mining
\ MINING TECHNOLOGY
operations. Minetec was selected through
a competitive tender process to deliver its
market-leading technology.
Delivered as a suite of integrated Minetec
products, the system comprised ELF™,
Trax+Tags and Mine Office™. This provided
a range of critical capabilities including
real-time situational awareness and
high-accuracy tracking for continuous
monitoring of mine operations and mobile/
personnel assets. The installed leaky feeder
system provided a complete underground
mine infrastructure solution, supporting full
60MB Ethernet WiFi data and advanced
digital radio communications. The system
was completed and commissioned in
May 2014 and quickly proved its ability to
significantly increase mine efficiency and
provide critical vehicle fleet management
and asset tracking.
“Minetec was our partner of choice for
this project for its ability to deliver critical
capability against tight timelines and
budget. Delivery to an offshore mine
site such as Porgera presents many
operational and logistical issues and I
commend Minetec for its professionalism
and commitment to make this happen.
Fleet management and dispatch are
critical for productivity and safety in any
underground mine operation. Minetec’s
ELF and Trax+Tags technology delivers this
capability and enables our team to maintain
real time asset management and 24/7
visibility of the operation.”
Barrick Porgera Operations
Codan Limited 2014 Annual Report 17
Codan Limited 2014 Annual Report 17
Future
Sustainability \ Profitability \ Growth
Focus investment in our people, technology and brand to maintain our leadership position
across our chosen markets and deliver sustainable, profitable growth
18
18
Markets
Diversity \ Intimacy \ Reach
Bring customer-defined solutions to market by continuing to grow our
international presence and distribution channels globally
Codan Limited 2014 Annual Report 19
Codan Limited 2014 Annual Report 19
Codan Limited 2014 Annual Report 19
Core Values
Core values are what support Codan’s
vision and culture, and reflect what the
business values.
In 2013 the Codan Core Values were
refreshed, and have been embraced
by employees globally as guiding
principles to assist with forming the
foundation on which we perform work
and conduct business.
The values underlie our work, how
we interact with each other, and
which strategies we employ to fulfill our
mission. They are the practices we use
every day in everything we do.
For Codan, the company’s core values
underpin our core purpose of delivering
superior shareholder value by growing
a lasting and innovative organisation
that consistently creates outstanding
customer experiences.
An awards programme has been
implemented to recognise those
employees who have demonstrated
that they embrace the core values
and apply them in their daily work.
The 4 Codan Core Values are:
Can-Do
High Performing
Customer Driven
Openness & Integrity
“The can-do core value represents
a willingness to go the extra mile to help
my colleagues and customers, adopting
a positive approach to challenging tasks
to achieve success for all concerned.”
Bronwyn Blake
Commercial Administrator
Codan Group Operations
“Being customer driven isn’t just a
profession, or a role for me – it’s a lifestyle.
Having the ability to delight someone is
very gratifying.”
Nadia J. Mosley
Customer Care Administrator
Minelab Americas
“To me high performance comes from
within my team – having their respect and
trust brings out the best, not just in me
but in the whole team – I could not ask
for better mates!”
Gabriele Iannella
NPI Buyer
Codan Group Operations
“I was honored to win the award for
openness and integrity. Openness and
integrity to me is being considerate to
others in all aspects of my day and being
able to adapt to new ideas while respecting
others’ views.”
Larry Freeman
System Administration
Codan Radio Communications Canada
20
Manufacturing
The ability of Codan 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 supply chain and
production capabilities for global markets.
Manufacturing facility at Newton, South Australia
Codan’s Adelaide manufacturing facility
remains an integral and strategic element
of the company’s operations, serving as a
technology hub, particularly for new product
development and the manufacture of “IP-
sensitive” and high-complexity products.
Of particular note are Codan’s security-
featured radios and Minelab’s landmine
detectors, which retain local manufacture.
Codan’s relationship with one of the
world’s leading sub-contract electronics
manufacturers, Plexus Corp, expanded
in FY14. While the vast majority of
manufacturing continues to take place in
Malaysia, Codan has recently commenced
the manufacture of land mobile radio
products in a Plexus facility in Chicago,
Illionis, for supply into the US market.
The partnership with Plexus, a US-
owned company specialising in defence,
aerospace and medical electronics
manufacturing, will ensure that Codan’s
well-proven manufacturing processes
and exceptional performance, quality
and delivery standards continue.
Codan has adopted stringent testing
and quality control procedures, and
both Codan and Plexus maintain
quality assurance systems approved
to International Standard ISO9001.
Continuous improvement
Continuous improvement remains core
to the company’s success, and is a key
strategy in the company’s commitment
to supplying high-quality electronics
solutions, competitive pricing, excellent
customer service and on-time delivery.
reduce delivery lead times, and continues
to this day, including improvements to
global manufacturing sites run by Plexus
and other key suppliers.
Occupational Health
and Safety
Codan is committed to a philosophy of
zero harm to all persons in all areas of the
business and the environment during the
manufacture, distribution, use and disposal
of our products. We are particularly
conscious of exposing employees to
critical risk, especially with respect to
employees travelling to remote locations.
As such, Codan engages experts to ensure
the safety and welfare of its travellers.
Environment
While the business is a “low-impact
industry” from an environmental point
of view, Codan continues to look at ways
to minimise its impact on the environment.
A result of this focus will be the formal
accreditation to ISO14001, Environmental
Management Systems, which will be
achieved in FY15.
Facilities
For 15 years, Codan’s continuous
improvement ethos has been underpinned
by the Codan Production System, our
own highly successful version of lean
manufacturing, which harnesses the ideas
and creativity of all employees in order
to generate continuous improvement
in systems, processes and culture.
The implementation of thousands of
individual initiatives has enabled Codan
to dramatically lower product costs and
Consideration is being given to the
consolidation of Codan’s South Australian
operations into an alternative leased
location. If this proceeds, the South
Australian properties at Newton and
Torrensville, with carrying values of
$10 million, would be sold. Proceeds
from the potential sale of these properties
would be used to further strengthen
our balance sheet and better position
us to pursue our strategic initiatives.
\ OUR PEOPLE, VALUES AND PROCESSES
Codan Limited 2014 Annual Report 21
Dr David Klingner
B.Sc (Hons), PhD, FAusIMM
Chairman, Independent
Non-Executive Director
Dr Klingner was appointed by the
board as Chairman in May 2007
and 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,
the World Coal Institute and Energy
Resources of Australia Limited.
He was appointed Chairman of the
board of Turquoise Hill Resources
Ltd (formerly Ivanhoe Mines Ltd),
Canada in May 2012.
Mr Donald McGurk
HNC (Mech Eng), MBA, FAICD
Managing Director and
Chief Executive Officer
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.
He is a member of the South
Australian Government’s
Advanced Manufacturing
Council and a board member
of the Phoenix Society.
22
Mr Peter Griffiths
B.Ec (Hons), CPA, FAICD
Independent Non-Executive
Director
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 had previously 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.
Mr David Klingberg AO
FTSE, BTech (Civil), DUniSA,
FIEAust, FAusIMM, FAICD
Independent Non-Executive
Director
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. He is
Chairman of Centrex Metals Limited
and a director of E & A Limited.
He has previously held the positions
of Chairman of Barossa Infrastructure
Limited and the South Australian
Premier’s Climate Change Council,
and was a member of the boards
of Snowy Hydro Limited and Invest
in SA. He is a patron of the Cancer
Council of South Australia and the
St Andrew’s Hospital Foundation.
In 2009 Mr Klingberg 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.
\ BOARD OF DIRECTORS
Codan Limited 2014 Annual Report 23
Mr David Simmons
BA (Acc)
Independent Non-Executive
Director
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 Lighting
Investments Australia Holdings Pty
Ltd and the Detmold Group.
Lt-Gen Peter Leahy AC
BA (Military Studies), MMAS, GAICD
Independent Non-Executive
Director
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.
24
Mr Scott Davies
LLB
Independent Non-Executive
Director
Mr Davies resigned from the board on
31 December 2013. He 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 a former
director of the DUET Group.
Mrs Corinne Namblard
PhD (Pol Sci), HEC CAP
Independent Non-Executive
Director
Mrs Namblard retired from the board on
30 June 2014. She was appointed to the
board in August 2011. Mrs Namblard has
had 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.
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
previously held a number of board
positions including Flinders Ports Pty
Ltd, Qantas Airways Ltd, Invest in SA
and Chair of the Geneva-based United
Nations PPP Alliance. She also sits on
the Council of the University of South
Australia and the board of the National
Heart Foundation of Australia, and
is a former member of the Economic
Development Board of South Australia.
\ BOARD OF DIRECTORS
Codan Limited 2014 Annual Report 25
Mr Donald McGurk
HNC (Mech Eng), MBA, FAICD
Managing Director and
Chief Executive Officer
Mr Michael Barton
Mr Peter Charlesworth
BA (Acc), CA
BEEE (Hons), MBA, GAICD
Chief Financial Officer and
Company Secretary
Executive General Manager,
Minelab
Donald 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.
Michael 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
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.
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 Limited, in 2008 following
the Codan acquisition of Minelab that
same year. Peter joined Codan in 2003
as General Manager of Engineering,
and subsequently 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 25 years.
26
26
\ LEADERSHIP TEAM
Mr Matthew Csortan
Mr Rory Linehan
Mr Paul McCarter
BEng (Mech Eng) (Hons),
MEng (Mfg Mgmt)
General Manager Group
Operations
BSc (Hons), MSc, PhD
BEng (Hons), MBA, CEng, MIET
Executive General Manager,
Business Development
and Minetec
Executive General Manager,
Codan Radio Communications
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.
Rory joined Codan in 2014, working
across the group to leverage technology
and market strategies. He has a technical
background, with qualifications in physics,
engineering and mathematics, coupled
with a range of commercial skills including
strategy, sales, marketing and business
development. Prior to Codan, Rory held a
number of business development positions
for blue-chip companies, including
McLaren, Cobham and Goodrich. He lived
for 5 years in Seattle, working for Boeing on
the product development for Sonic Cruiser
and 787 flight control systems.
Paul is an entrepreneurial executive and
communications professional with over 24
years of experience in the technology and
communications sectors. He served 12 years
in the military as a Royal Signals Officer, and
has since held executive positions in operations,
strategy, marketing and general management
with several large multinational companies,
including British Telecom, Racal, Thales and
Cobham. He has a Bachelor Degree in Software
Engineering, a Masters Degree/MBA from
London Business School, and is a Chartered
Engineer with the IET. Prior to Codan, Paul was
Managing Director of the Technology Group,
and the Group Managing Director of Tactical
Communications and Surveillance International
at Cobham. Paul also advises and provides
communication equipment for expeditions. In
2013 he was the Technology Advisor for Sir
Ranulph Fiennes in the ground-breaking attempt
to cross the Antarctic during polar winter.
Codan Limited 2014 Annual Report 27
1828
30
\ DIRECTORS’ REPORT
51
\ LEAD AUDITOR’S INDEPENDENCE DECLARATION
52
\ CONSOLIDATED INCOME STATEMENT
53 \ CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
54 \ CONSOLIDATED BALANCE SHEET
55 \ CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
56 \ CONSOLIDATED STATEMENT OF CASH FLOWS
57
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
101 \ DIRECTORS’ DECLARATION
102 \ INDEPENDENT AUDITOR’S REPORT
104 \ ASX ADDITIONAL INFORMATION
106 \ CORPORATE DIRECTORY
Codan Limited 2014 Annual Report 29
Codan Limited 2014 Annual Report 29
Codan Limited 2014 Annual Report 29
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 2014
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 25.
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 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 directors of the company during
the financial year are:
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
management’s goals and ensuring the
integrity of risk management, internal
Board meetings
Board Audit, Risk
and Compliance
Committee meetings
Remuneration
Committee meetings
Nomination 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
11
11
11
11
11
6
10
B
11
11
11
11
11
11
6
11
A
-
-
4
4
-
-
-
3
B
-
-
4
4
-
-
-
4
A
2
-
-
-
2
2
-
-
B
2
-
-
-
2
2
-
-
A
-
-
1
1
1
-
-
-
B
-
-
1
1
1
-
-
-
A - Number of meetings attended B – Number of meetings held during the time the director held office during the year
30
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 Nomination Committee, 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 independent directors;
• directors having extensive knowledge
of the group’s industries and/or
extensive expertise in significant
aspects of financial management
or general management;
• an independent director as chairman;
\ DIRECTORS’ REPORT
• 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;
• enough directors to serve on various
committees without overburdening the
directors or making it difficult for them to
fully discharge their responsibilities; and
• has no material contractual relationship
with the company or another group
member other than as a director of the
company; and
• at each annual general meeting, one-
third of the directors, including any
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;
• 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;
• 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 Nomination Committee assists the
board in reviewing board composition,
performance and succession planning.
This includes identifying, evaluating
and recommending candidates for
appointment to the board. The duties
of the committee include:
• reviewing the size and composition
of the board, and succession plans,
to enable an appropriate mix of skills,
experience, expertise and diversity
to be maintained;
Codan Limited 2014 Annual Report 31
CORPORATE GOVERNANCE
STATEMENT (continued)
Nomination Committee (continued)
• identifying, interviewing and evaluating
board candidates, and recommending
to the board individuals for board
appointment;
• ensuring that there is an appropriate
induction process in place for
new directors, and reviewing
its effectiveness;
• developing and carrying out the
appropriate process for evaluation
of the performance of the board and
its committees, each non-executive
director, the chairman and the chief
executive officer;
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:
packages, given trends in comparative
companies both locally and internationally.
Remuneration packages can include a mix
of fixed remuneration and performance-
based remuneration.
There were no increases in executive salary
packages in the year ended 30 June 2014.
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;
• Mr D J Simmons (Chairman)
• the executive’s ability to control the
Independent Non-Executive Director
relevant segment’s performance; and
• Dr G D Klingner
• making recommendations to the board
on the appointment and performance of
directors; and
Independent Non-Executive Director
• Lt-Gen P F Leahy
Independent Non-Executive Director
• ensuring that there is appropriate
succession planning for the chief
executive officer and the executive
positions reporting to the chief
executive officer.
The members of the Nomination
Committee during the year were:
• Mr D J Klingberg (Chairman)
Independent Non-Executive Director
(appointed 23 April 2014)
• Mr P R Griffiths
Independent Non-Executive Director
(appointed 23 April 2014)
• Mr D J Simmons
Independent Non-Executive Director
(appointed 23 April 2014)
The Nomination Committee’s charter
is available on the company’s website.
The managing director is invited to
Remuneration Committee meetings,
as required, to discuss executives’
performance and remuneration packages.
The Remuneration Committee’s charter is
available on the company’s website.
Principles of remuneration
Key management personnel comprise 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
32
• the amount of incentives within each key
management person’s remuneration.
Certain executives may receive incentive
payments based on the achievement of
performance hurdles. The performance
hurdles relate to measures of profitability.
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 incentive payable
to certain executives is based on up to 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 2014 the
above performance-linked remuneration
structure was appropriate.
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.
The directors resolved to reduce their fees
by 10% effective 1 January 2014.
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
nominated 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 nominated
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.
\ DIRECTORS’ REPORT
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 P McCarter
111,655
22 November 2013
110.8
52,813
72,575
89,919
22 November 2013
22 November 2013
22 November 2013
110.8
110.8
110.8
-
-
-
-
30 June 2017
30 June 2017
30 June 2017
30 June 2017
-
-
-
-
The performance rights granted on 22 November 2013 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 2013 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.
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 P McCarter
161,551
139,981
111,655
7 November 2011
5 November 2012
22 November 2013
76,414
66,211
52,813
105,008
90,988
72,575
89,919
7 November 2011
5 November 2012
22 November 2013
7 November 2011
5 November 2012
22 November 2013
22 November 2013
-
-
-
-
-
-
-
-
-
-
100%
-
-
100%
-
-
100%
-
-
-
n/a
2016
2017
n/a
2016
2017
n/a
2016
2017
2017
Codan Limited 2014 Annual Report 33
CORPORATE GOVERNANCE STATEMENT (continued)
Remuneration report - audited (continued)
Performance rights (continued)
The performance rights granted on 7 November 2011 lapsed on 30 June 2014, as the three-year aggregate performance target was
not reached.
The movements during the reporting period in the number of performance rights over ordinary shares in Codan Limited, held directly,
indirectly or beneficially by each key management person, including their related parties, is as follows:
Held at
1 July 2013
Issued
Vested
Lapsed
Held at
30 June 2014
DIRECTORS
Mr D S McGurk
EXECUTIVES
Mr M Barton
Mr P D Charlesworth
Mr P McCarter
301,532
111,655
142,625
195,996
-
52,813
72,575
89,919
-
-
-
-
161,551
251,636
76,414
105,008
-
119,024
163,563
89,919
Other transactions with key management personnel
There have been no loans to key management personnel or their related parties 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.
34
Movements in shares
The movement during the reporting period in the number of ordinary shares in Codan Limited, held directly, indirectly or beneficially by
each key management person, including their related parties, is as follows:
Held at
1 July 2013
Received on
exercise of rights
Other changes*
Held at
30 June 2014
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 P D Charlesworth
Mr R D Linehan
Mr P McCarter
534,983
312,517
199,416
120,908
-
57,708
12,420
-
5,000
312,790
n/a
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
534,983
312,517
199,416
120,908
-
57,708
n/a
n/a
5,000
312,790
-
-
* Other changes represent shares that were purchased or sold during the year
Mr S W Davies resigned as a director on 31 December 2013 and Mrs C S Namblard retired as a director on 30 June 2014.
Mr R D Linehan was appointed to the position of Executive General Manager, Business Development on 31 March 2014.
\ DIRECTORS’ REPORT
Codan Limited 2014 Annual Report 35
CORPORATE GOVERNANCE STATEMENT (continued)
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
incentives
Other short
term
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
Mrs C S Namblard
Total non-executives’ remuneration
EXECUTIVE
Mr D S McGurk
Total directors’ remuneration
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
$
164,211
172,562
89,570
102,596
82,106
86,281
87,082
91,510
82,106
86,281
43,214
86,281
82,106
86,281
630,395
711,792
$
497,281
488,644
1,127,676
1,200,436
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
469,401
-
469,401
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
$
15,190
15,531
8,285
-
7,595
7,766
8,055
8,236
7,595
7,766
3,997
7,766
7,595
7,766
58,312
54,831
$
17,775
16,470
76,087
71,301
36
Other long
term
Termination
benefits
Performance
rights
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
12,422
17,635
12,422
17,635
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
(219,234)*
96,864
(219,234)
96,864
$
179,401
188,093
97,855
102,596
89,701
94,047
95,137
99,746
89,701
94,047
47,211
94,047
89,701
94,047
688,707
766,623
$
308,244
1,089,014
996,951
1,855,637
Proportion of
remuneration
performance related
Value of performance
rights as proportion of
remuneration
%
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
(71.1)
52.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
(71.1)
8.9
-
-
\ DIRECTORS’ REPORT
Mr S W Davies resigned as a director
on 31 December 2013 and Mrs C S
Namblard retired as a director on
30 June 2014.
* The expense relating to unvested performance
rights granted to key management personnel
was reversed in the current year, as the rights
are not expected to vest.
Codan Limited 2014 Annual Report 37
CORPORATE GOVERNANCE STATEMENT (continued)
Remuneration report - audited (continued)
Directors’ and senior executives’ remuneration (continued)
Executive officers
Year
Salary & fees
Short-term
incentives
Other short
term
Post-employment
and superannuation
contributions
Mr M Barton (Chief Financial Officer
and Company Secretary)
Mr P D Charlesworth (Executive
General Manager, Minelab)
Mr R D Linehan (Executive General
Manager, Business Development)
Mr P McCarter (Executive General
Manager, Codan Radio Communications)
2014
2013
2014
2013
2014
2014
2013
$
219,398
$
-
228,038
222,026
310,842
331,745
378,788
$
-
-
-
-
81,043
42,425
400
$
20,958
20,332
17,775
16,470
1,886
426,183
305,789
2,129
35,368
96,713
-
-
-
75,987
36,802
Total executive officers’ remuneration
2014
1,037,466
348,214
2,529
2013
656,496
600,814
-
38
Other long
term
Termination
benefits
Performance
rights
Total
Proportion of
remuneration
performance related
Value of performance
rights as proportion of
remuneration
$
5,545
7,908
7,741
11,721
-
-
-
13,286
19,629
$
-
-
-
-
-
-
-
-
-
$
$
(103,698)*
142,203
45,817
524,121
(142,503)*
193,855
62,962
801,686
-
-
-
125,754
769,469
96,713
(246,201)
1,231,281
108,779
1,422,520
%
(72.9)
51.1
(73.5)
55.1
33.7
39.7
-
-
-
%
(72.9)
8.7
(73.5)
7.9
-
-
-
-
-
* The expense relating to unvested performance rights granted to key management personnel was reversed in the current year, as the rights are
not expected to vest.
\ DIRECTORS’ REPORT
Mr P McCarter was appointed to the
position of Executive General Manager,
Codan Radio Communications on 3 June
2013. Mr R D Linehan was appointed to
the position of Executive General Manager,
Business Development on 31 March 2014.
Short-term incentives which vested during
the year are as follows: Mr D S McGurk
0% (100% forfeited), Mr M Barton 0%
(100% forfeited), Mr P D Charlesworth
0% (100% forfeited), Mr R D Linehan
100% and Mr P McCarter 100%.
The remuneration amounts disclosed
above have been calculated based on
the expense to the company for the
financial year. Therefore items such as
performance rights, annual leave and long
service leave taken and provided for, have
been included in the calculations. 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.
Codan Limited 2014 Annual Report 39
CORPORATE GOVERNANCE STATEMENT (continued)
Remuneration report - audited (continued)
Corporate Performance
As required by the Corporations Act 2001, the following information is presented:
2014
$
2013
$
2012
$
2011
$
2010
$
Net profit after tax
Dividends paid
Share price at 30 June
Change in share price at 30 June
9,196,580
15,039,383
45,416,716
20,343,012
23,146,736
14,773,138
21,792,328
13,952,408
14,394,218
11,490,222
0.75
(0.77)
1.52
0.12
1.40
0.20
1.20
(0.26)
1.46
0.82
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
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;
• Mr D J Klingberg
• assessing management processes
Independent Non-Executive Director
supporting external reporting;
• Mrs C S Namblard
• assessing corporate risk assessment
Independent Non-Executive Director
(retired on 30 June 2014)
processes;
• assessing and establishing an
appropriate 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:
40
• 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.
The Board Audit, Risk and Compliance
Committee’s charter is available on the
company’s website.
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.
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.
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
implements 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, and revised forecasts for
the year are prepared regularly.
\ DIRECTORS’ REPORT
Environmental regulation
The group’s operations are not subject to
significant environmental regulation under
either Commonwealth or State legislation.
However, it is expected that formal
accreditation to ISO14001, Environmental
Management Systems, will be achieved
in the 2014-15 financial year. 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. The committee has
implemented an internal audit function
whereby internal control reviews are
completed on the high risk areas of the
business as identified on 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.
Codan Limited 2014 Annual Report 41
CORPORATE GOVERNANCE
STATEMENT (continued)
Ethical standards
conduct by maintaining appropriate core
company values and objectives;
• fulfilling responsibilities to shareholders
by delivering shareholder value;
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 company’s code of
conduct. The code of conduct is available
on the company’s website and covers the
following:
• aligning the behaviour of the board
and management with the code of
42
- between 1 January and the close of
trading on the next ASX trading day
after the half-year results are released
to the ASX;
- between 1 July and the close of trading
on the next ASX trading day after the
full-year results are released to the ASX;
- during any additional blackout periods
imposed by the board from time to
time; or
- whilst in possession of price-sensitive
information not yet released to the
market;
• an additional approval process for
directors, officers and executives;
• fulfilling responsibilities to clients,
customers and consumers by
maintaining high standards of
professionalism, product quality and
service;
• acting at all times with fairness, honesty,
consistency and integrity;
• employment practices such as
occupational health and safety and anti-
discrimination;
• responsibilities to the community, such
as environmental protection;
• raising the awareness of legal
• responsibilities to the individual in
respect of the use of confidential
information;
prohibitions in respect of insider trading;
• prohibiting short-term or speculative
trading in the company’s shares; and
• compliance with legislation including
compliance in countries where the legal
systems and protocols are significantly
different from Australia’s;
• identification of processes for unusual
circumstances where discretion may
be exercised in cases such as
financial hardship.
• conflicts of interest;
• responsible and proper use of company
property and funds; and
• reporting of unlawful behaviour.
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 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.
Communication
with shareholders
The board provides shareholders with
information in accordance with Continuous
Disclosure requirements, which include
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:
• 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. The half-year
reviewed financial report is lodged
with the ASX and is available on the
company’s website;
• 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.
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 those objectives.
The group’s performance against the Diversity and Equity Policy objectives is as follows:
\ DIRECTORS’ REPORT
30 June 2014
30 June 2013
Gender representation
Female (%) Male (%)
Female (%)
Male (%)
Board representation
Executive & senior
management representation
Group representation
Group graduate programme
17%
22%
24%
0%
83%
78%
76%
0%
14%
18%
26%
0%
86%
82%
74%
100%
As a result of the introduction of a
number of cost-cutting initiatives during
the year, the group is not currently running
a Graduate or Accelerated Leadership
Development Programme.
The board will report on progress in
achieving its objectives on an annual basis.
The board has the following initiatives
in place 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
• the provision of an Accelerated
Leadership Development Programme
for identified female employees and
senior managers.
Codan Limited 2014 Annual Report 43
OPERATING AND
FINANCIAL REVIEW
Codan is a group of electronics-based
businesses that capitalise on their
fundamental design and manufacturing
skills to provide best-in-class electronics
solutions to global markets. Codan
employs approximately 375 people,
located in Australia, USA, UK, Ireland,
Canada, China and United Arab Emirates,
and has a network of dealerships across
the world.
Our marketing reach embraces over 150
countries and our customers include gold
prospectors, metal detection hobbyists,
aid agencies, miners, businesses and
governments, including public safety,
military and security organisations. We
work closely with our customers to seek
innovative ways to solve their problems
and add value to their operations.
FY14 highlights
• Reported profit of $9.2 million
• Earnings per share of 5.2 cents
• Annual dividend of 3.0 cents
• The business has stabilised and our new
product pipeline is strong
• Significant reduction in inventory and
debt achieved in the second half of FY14
• Management took early action to
restructure the cost base of the
organisation in the first half and
maintained a cost focus during
the year
• Radio Communications business
delivered a much stronger second
half and goes into FY15 with
good momentum
• FY15 will see major new product releases
across the Minelab product range
• Key strategic relationships have been
developed with global blue-chip
miners for mining productivity and
safety solutions
• Strong action taken to compete hard
against the supply of counterfeit and
second-hand gold detectors in Africa
The net profit after tax was $9.2 million for
the year ended 30 June 2014, compared to
the prior year of $45.4 million. The prior year
was a record for the company, following
unprecedented demand for our gold
detector products in the African market.
Underlying net profit after tax for the year
ended 30 June 2014 was $9.0 million from
$132 million of revenue.
Dividend
The company announced a final dividend of
1.5 cents per share, fully franked, bringing
the full-year dividend to 3.0 cents. The
dividend has a record date of 12 September
2014 and will be paid on 1 October 2014.
The board’s objective is to continue to pay
a dividend that is considered sustainable
and that has a payout ratio of at least 50%.
Financial Performance
Significant growth in sales of metal
detectors into Africa drove record sales
and profitability over the four years to
FY13. Unfortunately, counterfeiters were
attracted by the same opportunity, and
when demand slowed in the absence of
gold rushes, there was excess supply in
the market, with second-hand machines
adding further to the oversupply. This,
along with a number of other factors,
reduced demand for our metal detection
products in Africa late in FY13 and this
continued throughout FY14. The lower
level of gold detector sales into Africa
was the primary reason for the decline
in the company’s profitability in FY14.
Margins also decreased over the prior year
due to stronger competition in the market,
which resulted in lower prices on our high-
end gold detector products in Africa.
In response to the lower sales performance
in the first half, management restructured
the expense base of the company.
Expense reductions of $10 million per
annum were implemented during the
restructure, and these took effect early in
the first half. In addition to these savings,
a number of variable expense reductions
were also realised.
Despite this restructure, investment in
new product development was maintained
to ensure that we continue to bring our
extensive suite of new product platforms to
market as soon as possible.
In the second half of FY14, inventory has
been reduced by $12 million and net debt
has been reduced by $18 million. As at
30 June 2014, net debt was $47 million,
44
which is well inside the company’s debt
facility of $85 million. This debt facility was
renegotiated during the year and has an
expiry date of 31 October 2016.
The company has previously announced
the intention to redevelop the Newton,
South Australia head office of Codan
Limited. This project, which resulted in
the demolition of a run-down building,
is currently on hold as the company
considers consolidating its South
Australian operations into an alternative
leased location. If this were to proceed,
the South Australian owned properties
at Newton and Torrensville, with carrying
values of $10 million, would be sold.
Proceeds from the potential sale of these
properties would be used to further
strengthen our balance sheet and better
position the company to pursue its
strategic initiatives.
REVENUE
Communications products – HF and LMR
Communications products – Discontinued Satcom
Metal detection products
Mining technology
Other
Total revenue
UNDERLYING BUSINESS PERFORMANCE
EBITDA
EBIT
Interest
Net profit before tax
Underlying net profit after tax
Non-recurring income/(expenses) after tax:*
Net profit after tax
Underlying earnings per share, fully diluted
Dividend per share
\ DIRECTORS’ REPORT
FY14
FY13
$m % of sales $m % of sales
53.9
-
69.9
4.0
4.5
132.3
22.6
13.6
(2.8)
10.8
9.0
0.2
9.2
5.1 cents
3.0 cents
41%
-
47.5
10.5
53% 166.3
3%
3%
14.5
5.5
20%
4%
68%
6%
2%
100%
244.3
100%
17%
10%
-
8%
76.3
64.7
(1.7)
63.0
7% 45.4
-
-
-
-
-
45.4
25.8 cents
13.0 cents
31%
26%
-
26%
19%
-
-
-
-
* 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. For the years ended 30 June 2014 and 30 June 2013, the net impact
of non-recurring items on the profits of the company was immaterial.
Codan Limited 2014 Annual Report 45
OPERATING AND
FINANCIAL REVIEW
(continued)
Financial Performance (continued)
An update on the trading conditions being
experienced by each of the company’s key
business units is as follows:
Radio Communications – High
Frequency (HF) Radios and Land
Mobile Radios (LMR)
Our radio communications business
delivered a much improved segment result
of $11.5 million compared to $8.9 million in
FY13, an improvement of 29%. This result
was achieved on sales of $53.9 million,
an improvement of 13% on the prior year.
The new senior management team
has implemented a full restructure of
the business, which has resulted in
a more customer-focused, solutions-
based approach. This has helped to
fast track acceptance of our new Envoy
HF radio platform and, together with
the cost reduction associated with the
restructure, contributed to the profit
improvement in FY14. We enter FY15
with strong momentum and a strategic
plan for success.
Demand for our new Envoy HF radio
continues to grow as customers recognise
the benefits associated with the quality of
our digital voice and simple user interface
over conventional HF radio solutions. We
are excited by the opportunity that this
new technology provides to expand the
HF radio market, as we demonstrate what
a modern HF radio system can do to solve
a new range of communications needs.
Sales of land mobile radio products have
been impacted by the well-publicised cuts
in US government spending, causing us
to work hard to reduce the expense base
of the business. Although our entry into
LMR provides a large opportunity, we
will not reap the benefits without further
investment in next generation product
technology to broaden our offering and
ensure we remain relevant over the
longer term.
We continue to see significant
opportunities to grow the radio
communications business by integrating
LMR and HF radio communications,
which will enable expansion into new
geographical regions and provide the
platform to offer a range of new and
different communications solutions.
Metal Detection
The Minelab business operates in three
different markets: gold mining metal
detection (artisanal small-scale mining),
consumer (gold prospecting and coin, relic
& treasure hunting) and countermine (land
mine detection).
Minelab faced a new level of threat in its
African markets from competitors who
used our brand and our gold detector
product technology against us. While
the threat from counterfeiters is not
a new one, it became increasingly
aggressive during the past 12 months,
particularly in the area of pricing.
Minelab gold detector sales into Africa
reduced significantly following the record
demand across the previous four years
and particularly FY13. The variability in
demand from multiple gold rushes and
the increasingly aggressive competition
from counterfeiters are challenges we will
continue to face in Africa. These factors
limit our ability to accurately forecast
demand in this market.
The combination of all these factors
resulted in our gold detector sales being
approximately $80 million (or 70%) down
on the prior year.
Minelab has taken a number of actions to
strengthen our position in Africa. These
actions have seen us significantly increase
the volume of detectors sold over the last
few months of FY14, albeit at reduced
price and margin.
The Minelab consumer business remains
strong and is more predictable, as its
primary markets are located in the
regulated legal environments of Australia,
United States, Europe and Russia.
This market supplies hobbyists and
prospectors who seek genuine and
best-in-class metal detection products
and solutions.
Since 2009, Minelab has invested heavily
in new product development and, as
a result, the consumer business is well
positioned for growth as a range of
exciting new products are released
to the market.
These new products include a mid-
priced, compact and fully waterproof gold
detector. Pre-production reviews on this
machine have been excellent, with best-in-
class detection performance for fine gold.
46
The June 2014 release of this machine
was eagerly awaited and has been well
received by the market.
We are also developing a unique metal
detecting platform that will position Minelab
in the lower end of the price scale, a new
market space for Minelab. This consumer
product, to be released in the second half
of FY15, will introduce features, levels
of performance and value that haven’t
previously been seen in this market.
The countermine business remains
strategically important in order to maintain
our position as the world’s number one
provider of metal detection technologies
and solutions. Minelab has recently
won a number of Defence contracts in
the USA and Australia to develop new
handheld and vehicle-mounted, dual-
sensor detectors that combine ground-
penetrating radar.
More than half of Minelab’s sales last year
came from the more predictable consumer
and countermine business segments.
We are at the beginning of a period of new
product releases for Minelab and, while the
decline in FY14 sales has been dramatic,
the Minelab business remains our most
profitable business segment.
Mining Technology
Minetec has developed industry-
leading communications systems to the
mining sector, aimed at improving mine
productivity and safety. While this new
business continues to require significant
investment to position it for future growth,
much has been achieved to advance
the technology and strengthen the
international customer base.
FY14 sales declined versus last year
as Minetec made the strategic decision
to transition from the supply of more
traditional mining services to the
commercialisation of its own
technology solutions.
In response to the challenges faced by
the Australian mining industry, Minetec
has taken its technology to global
blue-chip miners and successfully
completed a number of proof-of-concept
demonstrations, which were won in open
competition. We are now focused on
transitioning this success into a number
of full mine roll-outs during FY15.
Minetec has extended its product portfolio
from underground hard-rock mines to
wireless technologies for open-pit mining.
During trials, Minetec’s collision avoidance
systems have set a new benchmark in the
marketplace, offering performance that
cannot be met with legacy GPS-based
solutions. The majority of the world’s
production is from open-pit mining, and
this has opened up a significantly larger
addressable market for Minetec.
As the global mining industry becomes
more regulated, Minetec is well placed
to take advantage of the legislation that
is driving demand for enhanced collision-
avoidance systems.
While the current economic environment
has miners focused on short-term cost
control, the mine-management and asset-
tracking systems developed by Minetec
are seen as a long-term solution to reduce
operating costs as miners move to more
mechanised and automated mining-
production techniques.
Outlook
While results in FY14 fell well short of our
expectations, clear and strong actions
have been taken to respond to the
changing market conditions.
Inventory and net debt have been reduced
significantly in the second half of FY14
resulting in a much stronger balance sheet,
and this has us better positioned to pursue
strategic initiatives.
Progress has been made to strengthen
our position in Africa for the sale of gold
detectors, and significant investment in
new metal detecting products has us
positioned for growth.
Radio Communications delivered a much
improved result and enters FY15 with
strong momentum and a plan to further
grow the business.
Minetec has developed technologies that
are being recognised by world-leading
miners as best-in-class, and significant
opportunities are expected to progress
over FY15.
Our gold detecting business remains very
difficult to forecast. However we have
a solid baseline business from which to
grow, and we continue to supplement this
with significant investment in new product
development and professional marketing.
While management and the board are
focused on increasing profit, FY15 is
expected to be a year of consolidation
with all the benefit of actions taken during
the past 12 months and a full year of new
product sales to be realised in FY16.
\ DIRECTORS’ REPORT
The challenge presented by some of our
markets makes it difficult to provide
profit guidance.
Codan Limited 2014 Annual Report 47
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
DECLARED AND PAID DURING THE YEAR
ENDED 30 JUNE 2014:
Final 2013 ordinary
Interim 2014 ordinary
DECLARED AFTER THE END OF THE YEAR:
Final 2014 ordinary
7.0
1.5
1.5
12,385
2,654
100%
100%
1 October 2013
1 April 2014
2,654
100%
1 October 2014
All dividends paid or declared by the company since the end of the previous financial year were fully franked.
EVENTS SUBSEQUENT
TO REPORTING DATE
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
DIRECTORS’ INTERESTS
The group will continue with its strategy
of continuing to invest in new product
development, to seek opportunities
to further strengthen profitability by
expanding into related businesses
offering complementary products and
technologies, and to identify acquisition
opportunities that fit our strategy of
further diversification.
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.
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:
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
Ordinary shares
534,983
312,517
199,416
120,908
-
57,708
48
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.
Refer page 51 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
as follows.
INDEMNIFICATION AND
INSURANCE OF OFFICERS
Indemnification
The company has agreed to indemnify the
current and former directors and officers 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
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)
\ DIRECTORS’ REPORT
Consolidated
2014
$
2013
$
185,000
39,604
224,604
242,450
37,091
279,541
-
-
231,650
164,818
396,468
312,503
12,000
268,215
346,519
939,237
Codan Limited 2014 Annual Report 49
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
20th day of August 2014.
50
\ LEAD AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Codan Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2014 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Scott Fleming
Partner
Adelaide
20 August 2014
Codan Limited 2014 Annual Report 51
\ CONSOLIDATED INCOME STATEMENT
Consolidated
2014
$000
2013
$000
Note
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Administrative expenses
Sales and marketing expenses
Engineering expenses
Net financing costs
Other (expenses)/income
Profit before tax
Income tax expense
Profit from continuing operations
DISCONTINUED OPERATION
Satellite communications operating
results, net of income 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
5
6
8
4
28
28
28
28
132,268
(67,792)
64,476
(14,464)
(29,646)
(9,327)
(3,291)
2,522
10,270
(1,073)
9,197
233,836
(90,722)
143,114
(19,116)
(42,029)
(15,741)
(1,941)
(766)
63,521
(17,749)
45,772
-
9,197
(355)
45,417
5.2 cents
5.2 cents
5.2 cents
5.2 cents
25.9 cents
25.8 cents
26.1 cents
26.0 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 57 to 100.
52
Profit for the period
Items that may be reclassified subsequently to profit or loss
Changes in fair value of cash flow hedges
less tax effect
Changes in fair value of cash flow hedges, net of income tax
Exchange differences on translation of foreign operations
Recognised through sale of discontinued operation
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
\ CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Note
20
20
20
Consolidated
2014
$000
2013
$000
9,197
45,417
1,607
(482)
1,125
589
-
1,714
10,911
(2,087)
626
(1,461)
3,697
979
3,215
48,632
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 57 to 100.
Codan Limited 2014 Annual Report 53
\ CONSOLIDATED BALANCE SHEET
Note
Consolidated
2014
$000
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventory
Current tax assets
Other assets
Total current assets
NON-CURRENT ASSETS
Property, plant and equipment
Product development
Intangible 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
Other payables
Loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
TOTAL LIABILITIES
Net assets
EQUITY
Share capital
Reserves
Retained earnings
Total equity
9
10
11
8
12
13
14
15
16
17
8
18
17
8
18
19
20
13,031
22,141
31,298
1,112
1,847
69,429
20,128
34,879
87,993
143,000
212,429
23,391
33
57
6,426
29,907
-
59,947
1,601
683
62,231
92,138
120,291
41,560
50,475
28,256
120,291
2013
$000
8,638
21,137
43,336
226
2,244
75,581
19,940
27,498
88,519
135,957
211,538
29,357
201
11,370
10,448
51,376
600
33,641
332
857
35,430
86,806
124,732
41,873
34,953
47,906
124,732
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 57 to 100.
54
\ CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Consolidated
2014
Balance as at 1 July 2013
Profit for the period
Performance rights expensed/reversed
Change in fair value of cash flow hedges
Exchange differences on translation
of foreign operations
Transfers to and from reserves
Transactions with owners of the company
Dividends recognised during the period
Employee share plan, net of issue costs
Share
capital
$000
41,873
Translation
reserve
$000
1,405
-
(391)
-
-
-
-
-
-
589
-
41,482
1,994
-
78
78
-
-
-
Balance at 30 June 2014
41,560
1,994
Hedging
reserve
$000
(1,125)
-
-
1,125
-
-
-
-
-
-
-
Profit
reserve
$000
34,673
-
-
-
-
Retained
earnings
$000
47,906
9,197
-
-
-
13,808
(13,808)
Total
$000
124,732
9,197
(391)
1,125
589
-
48,481
43,295
135,252
-
-
-
(15,039)
(15,039)
-
78
(15,039)
(14,961)
48,481
28,256
120,291
2013
Balance as at 1 July 2012
Profit for the period
Performance rights expensed
Change in fair value of cash flow hedges
Reserves through sale of discontinued operation
Exchange differences on translation
of foreign operations
Transfers to and from reserves
Transactions with owners of the company
Dividends recognised during the period
Issue of share capital, net of issue costs
Employee share plan, net of issue costs
Consolidated
Share
capital
$000
24,839
Translation
reserve
$000
(3,271)
Hedging
reserve
$000
336
Profit
reserve
$000
-
-
204
-
-
-
-
-
-
-
-
-
(1,461)
979
3,697
-
-
-
-
Retained
earnings
$000
57,505
45,417
-
-
-
-
Total
$000
79,409
45,417
204
(1,461)
979
3,697
-
-
-
-
-
34,673
(34,673)
-
25,043
1,405
(1,125)
34,673
68,249
128,245
-
16,660
170
-
-
-
-
-
-
-
-
-
(20,343)
(20,343)
-
-
16,660
170
Balance at 30 June 2013
41,873
1,405
(1,125)
34,673
47,906
124,732
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 57 to 100.
Codan Limited 2014 Annual Report 55
Note
24(II)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of a subsidiary
Proceeds from disposal of property, plant and equipment
Payments for capitalised product development
Payments for intellectual property
Acquisition of property, plant and equipment
Acquisition of intangibles (computer software and licences)
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdowns/(repayments) of borrowings
Issue of share capital
Dividends paid
Net cash provided by/(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
24(I)
\ CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated
2014
$000
2013
$000
142,037
(115,524)
67
(2,832)
(12,326)
11,422
-
27
(12,467)
(2,251)
(3,112)
(1,014)
(18,817)
26,800
-
(15,039)
11,761
4,366
8,638
27
13,031
258,221
(209,498)
206
(1,896)
(10,751)
36,282
(23,417)
1,060
(10,248)
(3,669)
(4,340)
(1,706)
(42,320)
(5,439)
16,660
(20,343)
(9,122)
(15,160)
23,081
717
8,638
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 57 to 100.
56
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1. SIGNIFICANT
ACCOUNTING POLICIES
Codan Limited (the “company”) is
a company domiciled in Australia and
is a for-profit entity. The consolidated
financial report of the company as at and
for the year ended 30 June 2014 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 20 August 2014.
(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
2014, were available for early adoption but
only Accounting Standard AASB 2013-3
Amendments to AASB 136 – Recoverable
Amount Disclosures for Non-Financial
Assets was applied in preparing these
consolidated financial statements. The
amendments remove the requirement
to disclose the recoverable amount of
every cash-generating unit to which
significant goodwill or indefinite-lived
intangible assets have been allocated,
when first adopting AASB 13 Fair Value
Measurement. The amendments result
in the recoverable amount of a cash-
generating unit with significant goodwill
or indefinite-lived intangible assets being
disclosed only when an impairment loss
has been recognised or reversed.
None of the other standards are 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. AASB 9 is applicable for annual
reporting periods beginning on or after
1 January 2015, with early adoption
permitted. AASB 9 will supersede AASB
139 from 1 January 2015.
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 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 2014,
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
Codan Limited 2014 Annual Report 57
1. SIGNIFICANT
ACCOUNTING POLICIES
(continued)
(c) Basis of consolidation
(continued)
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. 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.
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.
Sale of goods
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
Rendering of services
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
58
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
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 re-measurement
to fair value is recognised immediately in
the income statement unless the derivative
qualifies for hedge accounting.
Hedging
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.
(h) Taxation
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.
Codan Limited 2014 Annual Report 59
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 initially recognised
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.
60
(n) Intangible assets
Measuring goodwill
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 has
a finite useful life and 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, and has an indefinite
useful life. 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.
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.
Licences and other intangible assets
Licences and other intangible assets
that are acquired by the group, which
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
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.
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:
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.
Product development,
licences and intellectual
property:
2 - 15 years
Subsequent costs
Computer software:
3 - 7 years
Amortisation methods, useful lives and
residual values are reviewed at each
reporting date.
(o) Property, plant and
equipment
Owned assets
Items of property, plant and equipment
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.
Codan Limited 2014 Annual Report 61
1. SIGNIFICANT
ACCOUNTING POLICIES
(continued)
(o) Property, plant and
equipment (continued)
The main depreciation rates used for each
class of asset for current and comparative
periods are as follows:
Buildings
4%
Leasehold property
10%
Leased assets
Plant and equipment
5% to 40%
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.
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.
62
(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.
(s) Employee benefits
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.
Long service leave
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.
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.
(t) Provisions
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.
Dividends
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
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
has been announced publicly. Future
operating costs are not provided for.
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.
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.
(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.
Codan Limited 2014 Annual Report 63
2. DIVIDENDS
i. An ordinary final dividend of 7.0 cents per share, franked to 100% with
30% franking credits, was paid on 1 October 2013
ii. An ordinary interim dividend of 1.5 cents per share, franked to 100% with
30% franking credits, was paid on 1 April 2014
iii. An ordinary final dividend of 5.5 cents per share, franked to 100% with
30% franking credits, was paid on 2 October 2012
iv. An ordinary interim dividend of 6.0 cents per share, franked to 100% with
30% franking credits, was paid on 2 April 2013
Consolidated
2014
$000
12,385
2,654
-
-
15,039
2013
$000
-
-
9,727
10,616
20,343
Subsequent events
Since the end of the financial year, the directors declared an ordinary final dividend of 1.5 cents per share, franked to 100% with 30%
franking credits. Based upon the shares on issue at 30 June 2014, the dividend would be $2,654,549 and is expected to be paid on
1 October 2014. The financial effect of this dividend has not been brought to account in the financial statements for the year ended
30 June 2014 and will be recognised in subsequent financial reports.
Dividend franking account
Franking credits available to shareholders for subsequent financial years (30%)
14,052
22,104
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 declared 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 $1,137,664 (2013: $5,307,783 ).
64
Business segments
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. The mining
technology segment 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.
Geographical segments
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 and Canada,
with overseas representative offices in the
United States of America, England, China,
United Arab Emirates and Ireland.
3. SEGMENT ACTIVITIES
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’ 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 relate to the underlying
operations of a segment and are as
reported to the CEO and include the
expense from functions that are 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), corporate
expenses, non-underlying other income
and expense, 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.
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Codan Limited 2014 Annual Report 65
3. SEGMENT ACTIVITIES (continued)
Information about reportable segments
REVENUE
External segment revenue
Discontinued operation (refer Note 4)
Inter-segment revenue
Total segment revenue
RESULT
Segment result
Unallocated income and expenses
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
Communications
Metal detection
2014
$000
53,875
-
716
54,591
2013
$000
47,581
10,500
-
58,081
2014
$000
69,895
-
-
69,895
2013
$000
166,258
-
-
166,258
11,474
8,891
16,029
78,645
3,200
3,041
4,374
7,035
52,828
56,951
109,382
113,658
66
REVENUE
External segment revenue
Discontinued operation (refer Note 4)
Inter-segment revenue
Total segment revenue
RESULT
Segment result
Unallocated income and expenses
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
Communications
Metal detection
Mining technology
2014
$000
53,875
-
716
2013
$000
47,581
10,500
-
2014
$000
2013
$000
69,895
166,258
-
-
-
-
54,591
58,081
69,895
166,258
2014
$000
4,007
-
-
4,007
2013
$000
14,480
-
-
14,480
Other
2014
$000
4,491
-
267
4,758
2013
$000
5,517
-
369
5,886
2014
$000
-
-
(983)
(983)
2013
$000
-
-
(369)
(369)
11,474
8,891
16,029
78,645
(2,917)
(2,577)
(122)
172
-
-
3,200
3,041
4,374
7,035
239
247
146
151
52,828
56,951
109,382
113,658
14,170
14,885
2,296
2,621
-
-
-
-
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Elimination
Consolidated
2014
$000
2013
$000
132,268
-
-
132,268
24,464
(14,194)
10,270
(1,073)
9,197
7,959
1,072
9,031
233,836
10,500
-
244,336
85,131
(22,117)
63,014
(17,597)
45,417
10,474
1,169
11,643
178,676
33,752
212,428
188,115
23,423
211,538
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
$15,334,118 (2013: $29,972,235),
the United States of America totalling
$31,087,193 (2013: $38,041,994) and
Turkey totalling $28,750,323 (2013:
$86,682,585).
The group’s non-current assets,
excluding financial instruments
and deferred tax assets, were located
as follows: Australia $120,244,534
(2013: $114,193,645), the United
States of America $178,892
(2013: $220,232), Ireland $528,480
(2013: $594,559), United Kingdom
$76,061 (2013: $93,421), Canada
$22,102,419 (2013: $20,854,850)
and Middle East $141,440 (2013:Nil).
Codan Limited 2014 Annual Report 67
4. DISCONTINUED OPERATION
Effective 30 June 2012, Codan sold its satellite communications assets to Communications & Power Industries Canada Inc and its
related corporate entities (collectively CPI). The sale consisted of Codan’s Australian-based satellite communications assets and
100% of the shares of Locus Microwave, Inc.
Through most of the prior financial year, Codan assisted CPI with manufacturing, training and support to ensure continuous supply
to customers.
RESULTS OF DISCONTINUED OPERATION
Revenue
Expenses
Loss from operating activities
Tax
Loss from operating activities, net of tax
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
2014
$000
2013
$000
-
-
-
-
-
-
-
-
-
-
-
10,500
(11,007)
(507)
152
(355)
(0.2)
(0.2)
224
-
-
224
68
RESULTS OF DISCONTINUED OPERATION
Revenue
Expenses
Tax
Loss from operating activities
Loss from operating activities, net of tax
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
2014
$000
2013
$000
10,500
(11,007)
(507)
152
(355)
(0.2)
(0.2)
224
-
-
224
-
-
-
-
-
-
-
-
-
-
-
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
5. 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
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
(Gain)/loss on sale of property, plant and equipment
Acquisition, integration and restructuring
Consolidated
2014
$000
(67)
511
2,847
3,291
543
36
2,042
2,621
4,312
1,170
498
430
6,410
33,163
2,578
2,660
117
1,604
40,122
(294)
2,634
(10)
2,701
2013
$000
(206)
251
1,896
1,941
531
15
1,906
2,452
4,430
3,694
615
452
9,191
40,804
3,134
3,128
336
2,314
49,716
504
2,265
(42)
1,784
Codan Limited 2014 Annual Report 69
6. OTHER Expenses (INCOME)
Insurance recoveries
Mining technology earn-out liability no longer required
Communications earn-out liability no longer required
Communications acquisition retention recovery
Impairment of building
Provision for onerous contract no longer required
Provision for legal dispute no longer required
Impairment of mining technology product development
Impairment of acquired communications brand name
Product development income
Other expenses/(income)
Consolidated
2014
$000
(38)
(600)
-
(328)
272
(990)
(1,284)
774
-
(255)
(73)
(2,522)
2013
$000
(1,009)
(2,465)
(1,789)
-
1,100
1,310
1,450
1,606
510
-
53
766
70
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
7. 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
8. 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
Total income tax expense in income statement
Income tax expense from continuing operations
Income tax recovery from discontinuing operation
Consolidated
2014
$
2013
$
185,000
39,604
231,650
-
164,818
-
621,072
242,450
37,091
268,215
12,000
346,519
312,503
1,218,778
Consolidated
2014
$000
701
(587)
114
959
1,073
1,073
-
1,073
2013
$000
17,672
(185)
17,487
110
17,597
17,749
(152)
17,597
Codan Limited 2014 Annual Report 71
8. INCOME TAX (continued)
Reconciliation between tax expense and pre-tax net profit:
The prima facie income tax expense calculated at 30% on the profit from ordinary
activities (including discontinued operations)
Decrease in income tax expense due to:
Additional deduction for research and development expenditure
Over/(under) provision for taxation in previous years
Non-assessable income
Sundry items
Increase in income tax expense due to:
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
Income tax expense
B. CURRENT TAX LIABILITIES / ASSETS
Balance at the beginning of the year
Acquired through business combination
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
Consolidated
2014
$000
2013
$000
3,081
18,904
964
587
635
29
866
127
80
1,073
(11,144)
-
(13)
12,326
587
(701)
1,055
1,112
(57)
1,055
961
185
1,276
63
16,419
1,010
168
17,597
(4,151)
(250)
(7)
10,751
185
(17,672)
(11,144)
226
(11,370)
(11,144)
72
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Consolidated
2014
$000
2013
$000
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:
Payments for intellectual property not currently deductible
Provisions for employee benefits not currently deductible
Provisions and accruals not currently deductible
Carry forward tax losses
9. CASH AND CASH EQUIVALENTS
Petty cash
Cash at bank
9,899
(131)
-
(119)
(2,969)
(1,641)
(1,922)
(1,516)
1,601
27
13,004
13,031
8,605
(25)
(482)
(242)
(2,939)
(2,104)
(2,481)
-
332
28
8,610
8,638
Codan Limited 2014 Annual Report 73
10. TRADE AND OTHER RECEIVABLES
Consolidated
2014
$000
CURRENT
Trade receivables
Less: Provision for impairment losses
Other debtors
11. INVENTORY
Raw materials
Work in progress
Finished goods
12. OTHER ASSETS
Prepayments
Project work in progress
Other
22,326
(741)
21,585
556
22,141
2,678
10,859
17,761
31,298
1,327
267
253
1,847
2013
$000
23,196
(2,424)
20,772
365
21,137
4,861
10,489
27,986
43,336
573
785
886
2,244
74
13. PROPERTY, PLANT AND EQUIPMENT
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Consolidated
2014
$000
2013
$000
15,554
(6,239)
9,315
532
(386)
146
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
Transfers
Impairment of building
Disposals
Depreciation
Carrying amount at end of year
Leasehold property improvements
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Transfers
Depreciation
Net foreign currency differences on translation of foreign entities
Carrying amount at end of year
16,263
(5,837)
10,426
675
(423)
252
30,486
(22,403)
8,083
1,367
20,128
9,315
1,438
488
(272)
-
(543)
10,426
146
-
132
7
(36)
3
252
31,281
(22,350)
8,931
1,548
19,940
10,508
438
-
(1,100)
-
(531)
9,315
109
45
5
-
(15)
2
146
Codan Limited 2014 Annual Report 75
13. PROPERTY, PLANT AND EQUIPMENT (continued)
Consolidated
2014
$000
Plant and equipment
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Transfers
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, net of transfers
Carrying amount at end of year
Total carrying amount at end of year
14. PRODUCT DEVELOPMENT
Product development at cost
Accumulated amortisation
Reconciliation
Carrying amount at beginning of year
Capitalised in current period
Impairment of mining technology product development
Amortisation
8,931
-
857
371
(17)
(2,042)
(17)
8,083
1,548
(181)
1,367
20,128
72,974
(38,095)
34,879
27,498
12,467
(774)
(4,312)
34,879
76
2013
$000
7,458
847
2,512
-
(120)
(1,906)
140
8,931
163
1,385
1,548
19,940
60,508
(33,010)
27,498
23,286
10,248
(1,606)
(4,430)
27,498
15. INTANGIBLE ASSETS
Goodwill
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
Adjustment on prior year's acquisition
Net foreign currency differences on translation of foreign entities
Intellectual property
Carrying amount at beginning of year
Acquisitions through entity acquired
Additions
Amortisation
Net foreign currency differences on translation of foreign entities
Impairment of acquired Communications brand name
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Consolidated
2014
$000
2013
$000
83,130
82,396
12,872
(11,377)
1,495
12,474
(11,658)
816
4,503
(1,217)
3,286
87,993
83,130
-
-
(734)
82,396
1,373
-
1,348
(1,170)
(56)
-
1,495
11,790
(10,417)
1,373
12,125
(11,301)
824
3,979
(787)
3,192
88,519
62,748
19,352
(253)
1,283
83,130
742
1,210
3,608
(3,694)
17
(510)
1,373
Codan Limited 2014 Annual Report 77
15. INTANGIBLE ASSETS (continued)
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
Metal detection
Communications
Consolidated
2014
$000
824
-
199
291
(498)
-
-
816
3,192
524
(430)
3,286
8,538
53,957
19,901
82,396
2013
$000
1,281
17
177
49
(615)
(87)
2
824
2,115
1,529
(452)
3,192
8,538
53,957
20,635
83,130
78
Intellectual Property
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.
Licences
The company entered into a licence
agreement on 30 June 2011 with a leading
provider of advanced technology for high
frequency radio communication products.
Licence payments are being made as
technology is delivered to the company.
The licenced technology allows the
company access to next-generation
radio waveforms for high-speed data
transmission, automatic link establishment
and digital voice.
Goodwill
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 10% to 13% (2013: 12%
to 13%) have been used in discounting
the projected cash flows.
In assessing the recoverable amount
of the Mining Technology business, a
number of valuation scenarios have been
considered. The recoverable amount has
been estimated to exceed the business
unit’s carrying amount of $14 million by
$5 million. Given the products and
technologies developed by this business
are at the early stage of adoption by the
mining industry, the key variable to the
recoverable amount assessments is the
level of future sales. FY15 will continue
to see the key technologies developed by
Minetec being evaluated by a number of
global miners. The success of these trials
will be a key determinant in establishing the
global acceptance and hence future sales
of Minetec’s solutions. If sales beyond the
FY15 plan do not grow by 15% per annum
the business unit may be impaired.
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Codan Limited 2014 Annual Report 79
16. TRADE AND OTHER PAYABLES
CURRENT
Trade payables
Other payables and accruals
Net foreign currency hedge payable
17. LOANS AND BORROWINGS
CURRENT
Finance lease liabilities
NON-CURRENT
Cash advance
Finance lease liabilities
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 - cash advance
Multi-option facility - other
Commercial credit card
Cash advance facility
Consolidated
2014
$000
11,670
11,721
-
23,391
33
33
59,898
49
59,947
85,000
200
-
85,200
59,898
2,686
15
-
62,599
2013
$000
13,909
13,719
1,729
29,357
201
201
33,559
82
33,641
10,000
200
75,000
85,200
-
2,371
13
33,559
35,943
80
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Facilities not utilised at balance date:
Multi-option facility
Commercial credit card
Cash advance facility
Consolidated
2014
$000
22,416
185
-
22,601
In addition to these facilities, the group has cash at bank and short-term deposits of $13,031,000 as set out in note 9.
WEIGHTED AVERAGE INTEREST RATES:
Cash at bank
Cash advance
18. PROVISIONS
CURRENT
Employee benefits
Warranty repairs
Other
NON-CURRENT
Employee benefits
Reconciliation of warranty provision
Carrying amount at beginning of year
Provisions released
Payments made
Consolidated
2014
%
1.59
3.55
Consolidated
2014
$000
5,005
1,101
320
6,426
683
2,842
(596)
(1,145)
1,101
2013
$000
7,629
187
41,441
49,257
2013
%
1.84
3.51
2013
$000
6,296
2,842
1,310
10,448
857
2,760
846
(764)
2,842
Bank Facilities
Facilities are supported by interlocking
guarantees between the company and its
subsidiaries. The facilities have a term of
three years expiring October 2016, and
are subject to compliance with certain
financial covenants over that term.
Codan Limited 2014 Annual Report 81
18. PROVISIONS (continued)
Reconciliation of other provision
Carrying amount at beginning of year
Provisions made/(reversed) during the year
19. SHARE CAPITAL
SHARE CAPITAL
Opening balance (176,926,104 ordinary shares fully paid)
Performance rights expensed/(reversed)
Issue of share capital, net of $619,000 in issue costs
Issue of share capital through employee share plan
Closing balance (176,969,924 ordinary shares fully paid)
Terms and conditions
Consolidated
2014
$000
1,310
(990)
320
41,873
(391)
-
78
41,560
2013
$000
-
1,310
1,310
24,839
204
16,660
170
41,873
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.
20. RESERVES
Foreign currency translation
Hedging reserve
Profit reserve
Foreign currency translation
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
1,994
-
48,481
50,475
1,405
-
589
1,994
1,405
(1,125)
34,673
34,953
(3,271)
979
3,697
1,405
82
Hedging reserve
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.
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Consolidated
2014
$000
Balance at beginning of year
Gains/(losses) on cash flow hedges taken to/from hedging reserve
Balance at end of year
Profit reserve
The profit reserve comprises Codan Limited’s accumulated profits.
Balance at beginning of year
Current year profit after tax attributed to the parent entity
Balance at end of year
21. COMMITMENTS
I. CAPITAL EXPENDITURE COMMITMENTS
Aggregate amount of contracts for capital expenditure on property, plant and
equipment and intangibles:
Within one year
One year or later and no later than five years
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
(1,125)
1,125
-
34,673
13,808
48,481
988
1,216
2,204
2,588
4,893
552
8,033
2013
$000
336
(1,461)
(1,125)
-
34,673
34,673
3,348
800
4,148
2,796
6,769
1,227
10,792
The group leases property under non-cancellable operating leases expiring from one to seven 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.
Codan Limited 2014 Annual Report 83
21. COMMITMENTS (continued)
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
Consolidated
2014
$000
39
52
-
91
(9)
82
33
49
82
2013
$000
218
91
-
309
(26)
283
201
82
283
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.
84
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
22. 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.
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 risks 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, sand 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. For the year ended 30 June
2014, the group had one customer in the
Metal Detection segment with sales of
$28.8 million.
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
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.
Codan Limited 2014 Annual Report 85
22. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued)
(a) Credit risk (continued)
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:
Carrying amount
Consolidated
Cash and cash equivalents
Trade and other receivables
Note
9
10
2014
$000
13,031
22,141
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
Impairment losses
The aging of the group’s trade receivables at the reporting date was:
3,962
2,753
7,322
1,212
7,077
22,326
2013
$000
8,638
21,137
5,958
3,362
6,133
1,847
5,896
23,196
Not past due
Past due 0-30 days
Past due 31-120 days
More than 120 days
Consolidated
Gross
2014
$000
13,564
6,145
1,024
1,593
22,326
Impairment
2014
$000
(38)
(23)
(4)
(676)
(741)
Gross
2013
$000
14,999
2,622
3,499
2,076
23,196
Impairment
2013
$000
(182)
(86)
(11)
(2,145)
(2,424)
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.
86
The group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Balance at 1 July
Provision for legal dispute
Impairment loss/(reversal) recognised
Trade receivables written off to the allowance for impairment
Balance at 30 June
(b) Liquidity risk
Consolidated
2014
$000
2,424
(1,284)
(294)
(105)
741
2013
$000
506
1,450
504
(36)
2,424
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
17 for a summary of banking facilities available.
The following are the contractual maturities of financial liabilities:
30 June 2014
Non-derivative financial liabilities
Trade and other payables
Finance leases
Cash advance
Derivative financial liabilities
Net foreign currency hedge payable
30 June 2013
Non-derivative financial liabilities
Trade and other payables
Finance leases
Cash advance
Carrying
amount
Contractual
cash flows
12 months
or less
1-5 years
More than
5 years
$000
$000
$000
$000
$000
23,391
82
59,898
83,371
-
-
28,228
283
33,559
62,070
(23,391)
(91)
(62,192)
(85,674)
-
-
(28,228)
(309)
(34,806)
(63,343)
(23,391)
(39)
(2,294)
(25,724)
-
-
(27,628)
(218)
(1,247)
(29,093)
-
(52)
(59,898)
(59,950)
-
-
(600)
(91)
(33,559)
(34,250)
-
-
-
-
-
-
-
-
-
-
Codan Limited 2014 Annual Report 87
22. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued)
(c) Market risk
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.
Profile
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
2014
$000
-
(91)
(91)
13,031
(59,898)
(46,867)
2013
$000
-
(309)
(309)
8,638
(33,559)
(24,921)
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 2013.
88
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Profit/(loss) before tax
100 bp
decrease
$000
100 bp
increase
$000
Reserve
100 bp
increase
$000
100 bp
decrease
$000
(469)
469
(249)
249
-
-
-
-
30 JUNE 2014
Variable rate instruments
30 JUNE 2013
Variable rate instruments
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, EUR, CAD 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 USD and EUR). The terms of these commitments are usually less than
12 months. As at the reporting date, the group has not entered into any hedging instruments.
The group’s exposure to foreign currency risk (in AUD equivalent) after taking into account hedge transactions at reporting date
was as follows:
30 JUNE 2014
Cash and cash equivalents
Trade receivables
Trade payables
Gross balance sheet exposure
Hedge transactions relating to balance sheet exposure
Net exposure at the reporting date
30 JUNE 2013
Cash and cash equivalents
Trade receivables
Trade payables
Cash advance
Gross balance sheet exposure
Hedge transactions relating to balance sheet exposure
Net exposure at the reporting date
Consolidated
EUR
$000
GBP
$000
USD
$000
464
78
(5)
537
-
537
703
355
(293)
765
-
765
5
(1)
(18)
(14)
-
(14)
43
2
(44)
1
-
1
7,601
16,377
(6,328)
17,650
-
17,650
4,567
12,663
(10,004)
7,226
(1,855)
5,371
CAD
$000
-
9
(37)
(28)
-
(28)
668
924
(195)
1,397
-
1,397
Codan Limited 2014 Annual Report 89
22. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued)
(c) Market risk (continued)
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
Reserve credit/(debit)
$000
Profit/(loss) before tax
$000
2014
EUR
GBP
USD
CAD
2013
EUR
GBP
USD
CAD
-
-
-
-
-
-
-
812
-
812
(49)
1
(1,605)
3
(1,650)
(70)
-
(590)
(127)
(787)
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 nil.
90
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Country of
incorporation
Class of
share
Interest held
2014
Interest held
2013
%
%
23. GROUP ENTITIES
Name
PARENT ENTITY
Codan Limited
CONTROLLED ENTITIES
IMP Printed Circuits Pty Ltd
Codan (UK) Limited
Codan (Qld) Pty Ltd
Codan (US) Inc
Australia
Ordinary
Australia
England
Australia
Ordinary
Ordinary
Ordinary
United States of America
Ordinary
Codan Radio Communications Pty Ltd
Daniels Electronics Ltd
Australia
Canada
Codan Radio Communications ME JLT
United Arab Emirates
Minetec Pty Ltd
Minetec Wireless Technologies Pty Ltd
Minelab Electronics Pty Limited
Minelab Americas Inc
Minelab International Limited
Parketronics Pty Ltd
Codan Holdings US Inc
Codan Executive Share Plan Pty Ltd
Australia
Australia
Australia
United States of America
Ireland
Australia
United States of America
Australia
Ordinary
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
100
100
100
100
100
Codan Limited 2014 Annual Report 91
24. 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
2014
$000
27
13,004
-
13,031
2013
$000
28
8,610
-
8,638
II. Reconciliation of profit after income tax to net cash provided by operating activities
Profit after income tax
9,197
45,417
Add/(less) items classified as investing or financing activities:
Insurance recoveries
(Gain)/loss on sale of non-current assets
Add/(less) non-cash items:
Depreciation of:
Buildings
Leasehold property
Plant and equipment
Impairment of building
Amortisation
Performance rights and employee share plan expensed/(reversed)
Impairment of mining technology product development
Impairment of acquired communications brand name
Increase/(decrease) in income taxes
Increase/(decrease) on net assets affected by translation
-
(10)
(1,009)
(42)
543
36
2,042
273
6,410
(312)
774
-
(11,530)
705
531
15
1,906
1,100
9,191
374
1,606
510
6,491
(717)
Net cash from operating activities before changes in assets and liabilities
8,128
65,373
92
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Consolidated
2014
$000
2013
$000
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 trade and other payables
Increase/(reduction) in provisions
Net cash from operating activities
25. 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
(1,004)
12,037
397
(3,940)
(4,196)
11,422
1,971
5,005
683
7,659
3.50%
3.47%
5,411
(27,663)
(544)
(6,859)
565
36,283
4,993
6,296
857
12,146
4.00%
3.55%
10 years
10 years
Codan Limited 2014 Annual Report 93
25. EMPLOYEE BENEFITS
(continued)
Employee Share Plan
On 19 December 2012, the directors
approved the establishment of an
Employee Share Plan (ESP). The ESP
is designed to recognise the contribution
made by employees to the group, and
provides eligible employees with an
opportunity to share in the future growth
and profitability of the company by offering
them the opportunity to acquire shares
in the company.
ESP shares issued in financial
year 2013
The company issued 63,531 shares to
eligible employees in February 2013.
The fair value of the shares was $2.75
per share, based on the volume weighted
average price at which Codan shares
were traded on the ASX for the five days
immediately preceding the date of issue
of the shares. The exercise price was nil.
The total expense recognised as employee
costs in 2013 in relation to the ESP shares
issued was $174,710. The shares are
restricted from sale until the earlier of three
years from the acquisition date, or upon
the date on which an employee is no longer
employed by the group.
ESP shares issued in financial
year 2014
The company issued 43,820 shares to
eligible employees in November 2013.
The fair value of the shares was $1.78
per share, based on the volume weighted
average price at which Codan shares
were traded on the ASX for the five days
immediately preceding the date of issue
of the shares. The exercise price was nil.
The total expense recognised as employee
costs in 2014 in relation to the ESP shares
issued was $78,000. The shares are
restricted from sale until the earlier of three
years from the acquisition date, or upon
the date on which an employee is no longer
employed by the group.
Performance Rights Plan
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 2011
The company issued 358,652 performance
rights in December 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 2014 in relation to the
performance rights issued was nil (2013:
$188,346 recovery).
The group’s earnings per share over the
three-year period to 30 June 2013 did not
meet the performance target and therefore
these performance rights have lapsed and
no shares were issued.
Performance rights issued in
financial year 2012
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%. Due to the departure of an executive
in FY13, 84,006 performance rights were
cancelled. The total recovery recognised as
employee costs in 2014 in relation to the
performance rights issued was $267,792
(2013: $134,261 expense).
The group’s earnings per share over the
three-year period to 30 June 2014 has not
met the performance target and therefore
these performance rights have lapsed and
no shares will be issued.
Performance rights issued in
financial year 2013
The company issued 369,970 performance
rights in November 2012 to certain
executives. The fair value of the rights was
on average $1.77 based on the Black-
Scholes formula. The model inputs were:
the share price of $2.25, no exercise price,
expected volatility 37%, dividend yield
4.2%, a term of three years and a risk-free
rate of 3.1%. Due to the departure of an
executive in FY13, 72,790 performance
rights were cancelled. The total recovery
recognised as employee costs in 2014 in
relation to the performance rights issued
was $197,643 (2013: $197,643 expense).
The performance rights become exercisable
if certain performance thresholds are
94
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.
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.
Additional performance rights
issued in financial year 2013
The company issued 93,320 performance
rights in December 2012 to an employee.
The fair value of the rights was on average
$1.95 based on the Black-Scholes
formula. The model inputs were: the share
price of $2.37, no exercise price, expected
volatility 38.3%, dividend yield 4.01%, a
term of two years and a risk-free rate of
3.3%. The total expense recognised as
employee costs in 2014 in relation to the
performance rights issued was $75,686
(2013: $60,549 expense).
The performance rights become
exercisable if the employee remains with
the group until 31 December 2014, and
there is no performance hurdle.
Performance rights issued in
financial year 2014
The company issued 326,962 performance
rights in November 2013 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 $1.51, no exercise price,
expected volatility 86%, dividend yield
8.6%, a term of three years and a risk-free
rate of 4.2%. The total expense recognised
as employee costs in 2014 in relation to the
performance rights issued was nil.
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Codan Limited 2014 Annual Report 95
26. KEY MANAGEMENT PERSONNEL DISCLOSURES
Transactions with key management personnel
(a) Loans to directors
There have been no loans to directors during the financial year.
(b) Key management personnel compensation
The key management personnel compensation included in “personnel expenses” (refer note 5) is as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
Other long term
Termination benefits
Consolidated
2014
$
2013
$
2,515,885
3,235,799
152,074
(465,435)
25,708
-
108,103
179,371
27,798
295,210
2,228,232
3,846,281
(c) Key management personnel transactions
From time to time, directors and specified executives, or their related parties, may purchase goods from the group. These purchases occur
within a normal employee relationship and are considered to be trivial in nature.
96
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
27. 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.
28. 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
9,197
Consolidated
2014
$000
2013
$000
45,417
The weighted average number of shares used as the denominator number for basic earnings per share was 176,955,157 (2013: 175,095,002).
The calculation of diluted earnings per share at 30 June 2014 was based on profit attributable to shareholders of $9.2 million and a weighted
average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 177,886,599
(2013: 176,039,493).
29. NET TANGIBLE ASSET / LIABILITY PER SHARE
Net tangible asset/(liability) per share
2014
(0.6 cents)
2013
5.1 cents
Codan Limited 2014 Annual Report 97
30. CAPITAL MANAGEMENT
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 second half of the year the group’s gearing level improved as inventory levels were reduced.
Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements.
31. DEED OF CROSS GUARANTEE
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.
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 Limited is the only subsidiary subject to the Deed. Minelab Electronics Pty Limited 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
Consolidated
2014
$000
7,920
(64)
7,856
27,062
6,069
2013
$000
25,933
(18,648)
7,285
40,120
27,062
98
Balance sheet
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
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
\ NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Consolidated
2014
$000
10,757
36,854
13,031
2,120
62,762
26,388
18,256
32,951
57,019
7,542
142,156
204,918
15,849
32,776
-
4,894
53,519
42,000
9,897
596
52,493
106,012
98,906
42,674
50,163
6,069
98,906
2013
$000
5,017
36,354
20,107
2,046
63,524
26,388
16,941
28,720
57,195
7,069
136,313
199,837
23,864
26,660
12,474
7,787
70,785
15,000
8,766
757
24,523
95,308
104,529
42,986
34,481
27,062
104,529
Codan Limited 2014 Annual Report 99
32. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 30 June 2014, the parent company of the group was Codan Limited.
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
Company
2014
$000
13,808
280
14,088
71,718
189,738
45,966
94,421
42,674
48,374
4,269
95,317
2013
$000
34,673
(387)
34,286
50,999
168,021
51,349
71,473
42,986
33,392
20,171
96,549
100
\ DIRECTORS’ DECLARATION
In the opinion of the directors of Codan Limited (“the company”):
(a)
the consolidated financial statements and notes, set out on pages 52 to 100, 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 2014 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 31 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 2014.
Dated at Newton this 20th day of August 2014.
Signed in accordance with a resolution of the directors:
Dr G D Klingner
Director
D S McGurk
Director
Codan Limited 2014 Annual Report 101
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 as at
30 June 2014, 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 32 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.
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.
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.
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.
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.
102
Independence
In 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 2014 and of its performance for the year ended
on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(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 page 32 to 40 of the directors’ report for the year ended 30 June 2014. 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 2014, complies with Section 300A of the
Corporations Act 2001.
KPMG
Scott Fleming
Partner
Adelaide
20 August 2014
\ INDEPENDENT AUDITOR’S REPORT
Codan Limited 2014 Annual Report 103
Additional information required by the Australian Stock Exchange Limited Listing Rules not disclosed elsewhere in this report is set out below.
Shareholdings as at 19 August 2014
Substantial shareholders
The numbers 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
Interests associated with Kynola Pty Ltd and Warren Glen 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
34,808,151
24,068,636
12,320,566
Number of equity
security holders
Ordinary shares
1,345
1,968
995
1,113
103
5,524
The number of shareholders holding less than a marketable parcel of ordinary shares is 945.
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.
104
\ ASX ADDITIONAL INFORMATION
Twenty largest shareholders
Name
I B Wall and P M Wall
Starform Pty Ltd
Kynola Pty Ltd
Dareel Pty Ltd
Griffinna Pty Ltd
M K and M C Heard
J P Morgan Nominees Australia Limited
G Bettison
A Bettison
RBC Investor Services Australia Nominees Pty Limited
National Nominees Limited
Warren Glen Pty Ltd
Orley Pty Ltd
Mitranikitan Pty Ltd
Bond Street Custodians Limited
Citicorp Nominees Pty Limited
Pinara Group Pty Ltd
HSBC Custody Nominees (Australia) Limited
Cedara Pty Ltd
J A Uhrig
Total
Offices and officers
Number of ordinary
shares held
34,808,151
11,404,224
9,118,356
8,854,251
8,276,003
4,764,585
4,549,537
3,562,125
3,562,124
3,279,291
3,246,086
3,202,210
2,999,050
2,522,458
2,514,052
2,282,827
2,046,937
1,946,784
1,314,508
1,205,143
Percentage of
capital held
19.7%
6.4%
5.2%
5.0%
4.7%
2.7%
2.6%
2.0%
2.0%
1.8%
1.8%
1.8%
1.7%
1.4%
1.4%
1.3%
1.2%
1.1%
0.7%
0.7%
115,458,702
65.2%
Company Secretary
Principal registered office
Location of share registry
Mr Michael Barton BA (ACC), CA
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
Codan Limited 2014 Annual Report 105
\ CORPORATE DIRECTORY
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
Company Secretary
Mr Michael Barton
Principal registered office
81 Graves Street
Newton South Australia 5074
Auditor
KPMG
151 Pirie Street
Adelaide South Australia 5000
Location of share registry
Computershare Investor Services Pty Limited
GPO Box 1903
Adelaide South Australia 5001
106
Codan Limited 2014 Annual Report 107
Codan Limited 2014 Annual Report 107
108
Codan Limited 2014 Annual Report 109
www.codan.com.au