CODAN Limited
Annual Report 2016

Plain-text annual report

2 0 1 6 C O D A N A N N U A L R E P O R T I N N O V A T I O N W H E R E V E R Y O U A R E INNOVATION WHEREVER YOU ARE At Codan, our purpose is to create long-term shareholder value through the design, development and manufacture of technology solutions. We work with customers in over 150 countries, creating solutions that solve communications, security and productivity problems in some of the harshest environments on earth. ANNUAL REPORT C O NTE NTS 2 6 8 10 14 15 2 8 32 3 5 _ F Y16 S U M MARY _ C HAI R MAN’S LETTE R TO S HAR E H O LD E R S _ C E O’S R E PO RT _ O U R PE O PLE AN D VALU E S _ G LO BAL LO CATI O N S _ O PE R ATI O N S _ B OAR D O F D I R E CTO R S _ LEAD E R S H I P TEAM _ FI NAN C IAL R E PO RT 102 _ ASX AD D ITI O NAL I N FO R MATI O N 104 _ C O R PO R ATE D I R E CTO RY 2 0 16 C O DAN AN N UAL R E PO RT 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 Thursday, 27 October 2016 at Codan Limited, 2 Second Avenue, Mawson Lakes, South Australia. PAGE 1 TOTAL REVENUE $XX FY16 SUMMARY TOTAL REVENUE $169.5M UNDERLYING NET PROFIT AFTER TAX $21.1M ANNUAL DIVIDEND 6.0c • Metal Detection contribution increased 55%, assisted by the successful release of the GPZ 7000® gold detector in Africa • Strategy to improve earnings stability by broadening markets and growing revenue base • • • • • • CODAN LIMITED Founded in 1959 and headquartered in South Australia, Codan Limited (ASX:CDA) is an international company that develops rugged and reliable electronics solutions for government, corporate, NGO and consumer markets across the globe. Codan’s technologies include radio communications, metal detection and tracking solutions. We have approximately 360 employees located in Australia, New Zealand, Canada, the USA, Ireland, China, the UAE and South Africa. Our marketing reach embraces activity in over 150 countries, with exports accounting for 85% of our sales. Underlying net profit after tax of $21.1 million, up 67% on 18% higher sales Statutory net profit after tax of $15.5 million, up 24% Increased annual dividend to 6.0 cents, up 71%, fully franked Underlying earnings per share of 11.9 cents, up 68% Strong balance sheet – net debt reduced to $12.6 million Broader product offering brings best Radio Communications result in seven years; contribution increased 15% ANNUAL REPORT TOTAL REVENUE $XX 2013 $244.3m 2012 $179.4m 2013 $76.3m 2013 $45.4m 2016 $169.5m 2012 $51.7m 2015 $143.9m 2014 $132.3m 2016 $41.9m 2012 $27.9m 2016 $21.1m 2015 $29.9m 2014 $22.6m 2015 $12.7m 2014 $9.0m OPE RATI NG REVE N U E U N DE RLYI NG E BITDA* U N DE RLYI NG N PAT* Underlying results for the year ended 30 June 2016 % of sales 2015 % of 2015 sales 2014 2014 % of sales 2013 % of 2013 sales 2012 % of 2012 sales REVENUE Note Communications - HF and LMR - Discontinued Satcom Metal detection Tracking solutions Other Total revenue EBITDA EBIT Interest Net profit before tax Taxation Net profit after tax Earnings per share Dividend per share Return on equity 1 $65.0m 38% $63.8m 44% $53.9m 41% $47.5m $10.5m 20% 4% $47.7m $18.7m 27% 10% $99.2m 59% $73.3m 51% $69.9m 53% $166.3m 68% $98.6m 55% $5.3m 3% $4.8m $2.0m 3% 2% $4.0m $4.5m 3% 3% $14.5m $5.5m 6% 2% $9.3m $5.1m 5% 3% $169.5m 100% $143.9m 100% $132.3m 100% $244.3m 100% $179.4m 100% $41.9m 25% $29.9m 21% $22.6m 17% $76.3m 31% $51.7m 29% $29.2m 17% $19.3m 13% $13.6m 10% $64.7m 26% $43.2m 24% ($1.7)m ($3.4)m ($2.8)m ($2.5)m ($1.7)m $27.5m 16% $16.8m 12% $10.8m ($1.8)m ($4.1)m ($6.4)m 8% $63.0m 26% $39.8m 22% ($17.6)m ($11.9)m $21.1m 12% $12.7m 7.1c 11.9c 9% 6.0c 16% 3.5c 10% $9.0m 5.1c 3.0c 7% 28% 7% $45.4m 19% $27.9m 16% 25.8c 13.0c 41% 17% 17.0c 9.5c 37% 17% 2 Gearing 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 22% 8% * 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 2016, non-recurring items related to restructuring costs and impairment of property and Minetec assets. For the prior year, non-recurring items related to the closure of a non-core business. PAGE 3 ANNUAL REPORTI N N O V A T I O N W H E R E V E R Y O U A R E WITH UP TO 40% IMPROVEMENT IN GOLD DETECTION CAPABILITY, THE GPZ 7000® IS FAST BECOMING THE DETECTOR OF CHOICE IN AFRICA, WITH MANY SMALL-SCALE GOLD MINERS UPGRADING TO THIS WORLD-LEADING GOLD DETECTOR PAGE 5 DAVID SIMMONS CHAIRMAN CHAIRMAN’S LETTER TO SHAREHOLDERS WHEN I REFLECT ON THE RESULTS FOR 2015/2016, TWO THINGS REALLY STAND OUT. THE FIRST IS THAT UNDERLYING NET PROFIT AFTER TAX IMPROVED FOR THE SECOND CONSECUTIVE YEAR, AND THE SECOND IS THAT EVEN IN A YEAR WHEN WE SPENT AROUND $15 MILLION OR 9% OF SALES ON PRODUCT DEVELOPMENT, WE GENERATED SIGNIFICANT CASH. THIS MEANT THAT OUR BORROWINGS REDUCED FROM $35.3 MILLION AT THE START OF THE YEAR TO $12.6 MILLION AT YEAR-END. BOTH OF THESE ACHIEVEMENTS WERE VERY PLEASING. of the current financial year, we expect that our results to 31st December 2016 will be well ahead of the previous year. Although it is too early to forecast our full-year results, we are very much focused on consistent improvement year-on-year. David Simmons Chairman 2015/2016 was a challenging one for our company. Our second-half results are historically stronger than our first half, but for a variety of reasons our budgeting process indicated an even greater skewing to the second half in the year just completed. This turned out to be the case. Our results for the first six months were soft, but the results for the second six months were very strong, allowing us to post an improvement in profit over the previous year of 24%. Donald has provided some commentary explaining the reasons for these improved results in his report. At last year’s AGM, I spoke about the difficulty that we have in accurately forecasting our results due to the project nature of some of our business and the volatility that we experience in our gold-detecting markets (particularly in Africa). This year’s results have again underlined this volatility. As we entered this year, we were of the view that the accelerated new product development programme would be largely completed by year-end; however, we have committed to a further year of accelerated development, as the imperative to broaden our addressable markets is our number-one priority. This decision means that we will spend around $20 million this year on new product development initiatives. This is a large investment for the future and has the potential to significantly reshape our business. We have now completed the process of board regeneration. Kathy Gramp has joined the board and is chairing the Audit, Risk and Compliance Committee. Peter Griffiths and David Klingberg retired from the board during the year. I will reflect on their excellent contributions as board members at the AGM. This year we will hold our AGM at our new facility at Mawson Lakes in Adelaide. We are very proud of this new facility. The feedback from our staff in relation to the workplace environment has been very positive. For the first time, we have all of our Adelaide-based staff on one site. After the AGM, we will be delighted to show interested shareholders through our new facility. There will be a few surprises on the day, including the opportunity to “go prospecting” on our test range. We look forward to welcoming you to the AGM. We will provide an update on our current-year trading performance at the AGM. Due to a number of major project awards that are certain to be delivered in the first half ANNUAL REPORT I N N O V A T I O N W H E R E V E R Y O U A R E INVESTMENT IN NEW PRODUCT DEVELOPMENT HAS THE POTENTIAL TO SIGNIFICANTLY RESHAPE OUR BUSINESS PAGE 7 DONALD MCGURK MANAGING DIRECTOR AND CEO CEO’S REPORT I AM PLEASED TO REPORT THAT WE CONTINUE TO MAKE GOOD PROGRESS ACROSS THE BUSINESS AS WE BEGIN TO SEE THE BENEFITS OF OUR SIGNIFICANT INVESTMENT IN NEW PRODUCT DEVELOPMENT AND INCREASED PRESENCE IN THE MARKET. Underlying net profit after tax increased 67% to $21.1 million for the year on group sales of $169.5 million. The company declared a fully franked final dividend of 4.0 cents per share, following on from the 2.0 cents per share fully franked interim dividend. This resulted in a total dividend of 6.0 cents for the full year, an increase of 71% over FY15. The balance sheet was strengthened, with net debt reduced by $22.8 million over the year and the company’s gearing ratio reduced from 22% to 8%. Net debt remains well within the company’s debt facility of $85 million and gives us flexibility to fund further growth initiatives. The company is focused on maintaining the progress made during the past two years by exploring opportunities to develop additional profitable revenue streams. The recently announced defence electronics initiative is one example which is expected to provide a growing market opportunity in Australia over the longer term. Radio Communications Radio Communications had another excellent year, increasing both sales and profitability. Revenue increased 2% to $65.0 million and segment contribution increased 15% to $17.4 million. While FY16 delivered an excellent result, we remain focused on expanding our current technology platforms to create new products that broaden our revenue base and enable us to enter adjacent markets. In FY16, we released a series of new LMR and HF products, including the Patrol™ Manpack radio and the Cyclone™ repeater. More recently, in June 2016 the division launched its Sentry-V™ handheld tactical VHF radio, the first product to be launched from Codan’s upcoming suite of military products. We are looking forward to launching further products in FY17 as we expand our product line. Sales and marketing capability has also been strengthened by adding a number of key sales resources into Africa and the Middle East. This has given the business better market reach and brought it closer to its key customers. In support of this approach, the sales headquarters for these regions has been shifted from the United Kingdom to Dubai. LMR performed strongly in FY16, delivering its highest ever sales over the 66-year history of the business. This was brought about by focusing on systems and solutions selling in the North American first-responder market (ie. police officers, firefighters, paramedics, etc.). As previously announced, the board has approved an additional engineering investment of approximately $5 million to be spent over FY17 to accelerate the development of our expanded LMR product range. We have now recruited the majority of the 25 new engineers required to deliver these products, which will be released in FY18. These LMR products are expected to drive growth in Radio Communications by enabling us to offer even higher value-add solutions to our customers. FY16 was an excellent year for Radio Communications, and we expect to deliver a similar result in FY17. Metal Detection Minelab revenue increased 35% to $99.2 million and segment contribution increased 55% to $29.8 million. While all parts of the Minelab business performed well, the largest part of this growth was driven by gold detector sales. The new GPZ 7000® has proven to be the world’s best gold detector, and while sales were strong in the developed world when the product was released last year, the most significant growth in our FY16 gold detector sales has come from the successful launch of this product into our African markets. The GPZ 7000® was launched in Africa in October 2015, and demand exceeded our initial expectations as the market quickly recognised the superior performance of this technology. We have evidence that the adoption of this product is being driven by its superior performance rather than gold surges in isolated markets, which increases our confidence for FY17. Our FY16 result was also helped by surges in demand from two key regions. While the duration of these surges can be uncertain, Minelab continues to open up new African markets and maximise opportunities as and when they arise. ANNUAL REPORT Sales of the entry level coin and treasure GO-FIND® detector strengthened during FY16 as Minelab signed a number of distribution agreements in the US and Europe which greatly improved market penetration. The GO-FIND® now represents a significant incremental revenue stream for Minelab, and this is expected to grow as we continue to broaden the product’s international distribution. The Countermine business also performed well during the year as a result of increased demining activities undertaken by humanitarian and government organisations. Our recently announced $6.7 million contract win to further develop a dual- sensor metal detector for the Australian Defence Force is a further endorsement of Minelab’s world-leading technology and engineering capability. In response to customer demand, two new products are planned for release in FY17. A larger coil for the GPZ 7000® will give a significant depth increase over the standard coil. In addition to this, an entry-level gold detector will be released to the African market at the end of 2016. This product has been specifically designed for the African market to fill a gap in our product range, and is expected to quickly take market share from competitors. Our strategy for Minelab is to maintain our competitive advantage across gold, consumer and countermine markets by continually innovating our products while expanding our critical routes to market. The Minelab business is strong due to the significant investment we have made to expand our product range and improve our distribution structure. While the African component of this business is difficult to forecast, these factors make us more confident of continued success in FY17. Tracking Solutions Integration of Adelaide facilities We have consolidated our Adelaide operations in the Technology Park precinct at Mawson Lakes, moving into a fit-for-purpose facility during December 2015. The newly renovated building has enabled the company to integrate its Minelab and Radio Communications businesses on one site and provides the right environment for the business and our staff into the future. Our people Our success is driven by our people, and I cannot speak highly enough about the way they have risen to the challenges that have faced the business in recent times. The team has worked tirelessly to design and develop the new product platforms required to stay ahead of the game and drive our sales growth. Whether a design engineer, part of the operations team, a finance professional or in a support or customer-facing role, the future depends on each one of us working closely together as one team to solve the customer’s problem. On behalf of the board, I would like to take this opportunity to acknowledge the significant efforts of our people and to formally thank them for their contribution to the improved result. Donald McGurk Managing Director and CEO The journey toward autonomous mining is a real opportunity for Minetec’s unique, high-precision tracking and integrated real-time wireless communications, made possible through the integration of WASP™ technology and SMARTS™. This enabling technology is expected to transform underground mining in the same way that Wi-Fi communications and GPS positioning transformed open-pit mining two decades ago. Minetec now has a proven capability that has been deployed in six operating mines. These deployments form critical reference sites that demonstrate the technology is proven and delivers real operational benefits. Minetec has recently secured a multi-million dollar contract to deploy its full range of high- precision tracking, safety and task-management systems in an underground gold mine in Western Australia. Minetec is focused on capitalising on these early successes and is targeting underground hard-rock gold, copper and diamond mines in Australia and South Africa. The division has unique intellectual property which we strongly believe is highly valued by our customers. Minetec incurred losses of $1.3 million in the first half of FY16 and, as forecast in our half-year announcement, achieved a break-even result in the second half. We expect the business to build on this success and deliver a full-year profit in FY17. The carrying value of Minetec’s capitalised product development, inventory and fixed assets has been reviewed and, as a result, the board has written down the value by $2.8 million after tax. This write-down relates to Minetec assets which are not based on the high-precision tracking (WASP™) technology, now the key focus of the business. PAGE 9 OUR PEOPLE AND VALUES CODAN’S CORE VALUES ARE A SHARED SET OF VALUES THAT PROVIDE THE FRAMEWORK FOR OUR ORGANISATION TO ENGAGE WITH EMPLOYEES AND STAKEHOLDERS AND SHAPE A STRONG COMPANY CULTURE. Our core values underpin our behaviours and how we work together, and guide our day- to-day decisions. They are the elements we use every day in everything we do. Our 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. Codan has an awards programme which recognises those employees in particular who have demonstrated that they live and embrace the core values within their daily work. Our core values are: Can-Do High Performing Customer Driven Openness & Integrity LIST OF RECIPIENTS Can-Do Matt Ashurst Training and Customer Service Manager, Radio Communications, Australia Leanne Bennett Administrative Coordinator, Group Operations, Australia Steve Bentham Process Improvement Coordinator, Group Operations, Australia Tina Bowen Group Systems Manager, Group Operations, Australia Tom Bozek Warehouse Manager, Minelab, USA David Isles Technical Support Officer, Minelab, Australia Christina Lake Receptionist, Group Operations, Australia Michelle Lang Receptionist, Group Operations, Australia Donny Simile Senior Buyer, Group Operations, Australia Megan Slater Administration Assistant, Radio Communications, Australia Peter Sommer HF Technician, Radio Communications, Australia Customer Driven Roy Bateman Freight and Logistics Coordinator, Group Operations, Australia Ben Bayly Human Resources Systems Manager, Corporate Services, Australia Anne Ocampo Sales Administrator, Minelab, Dubai Andrew Summers ICT Operations Supervisor, Group Operations, Australia Zhen Yong Helpdesk/Desktop Support, Group Operations, Australia Openness and Integrity Nino Caporella Manufacturing Product Manager, Group Operations, Australia Paul Hischausen Team Supervisor Hardware, Radio Communications, Australia Ben Lai Test Engineer, Group Operations, Australia TETRA Installation Team Pawel Karnicki, Josh Kelly and Andrew Walton, Minetec, Australia High Performing Adam Diggens Creative Brand Manager, Radio Communications, Australia Martin Foran Technical Sales Representative, Minelab, Australia Alan Keam AMTC Technical Team Member, Group Operations, Australia PC1 Project Team Greg Niedzwiadek-Sanecki, Aleksandar Pechkov, Stephen Pilkington, Evan Pryce, Sunil Sanganbatte and Sashko Vuchkov, Minetec, Australia Nick Schultz Mechanical Design Engineer, Minelab, Australia Ruzhdi Shkodra CAD Engineer, Radio Communications, Canada Philip Wahrlich Principal Technology Physicist, Minelab, Australia Kah Wai Yong Product Manager, Minetec, Australia ANNUAL REPORT Can-Do Award Customer Driven Award Tom Bozek Warehouse Manager, Minelab, USA Anne Ocampo Sales Administrator, Minelab, Dubai High Performing Award Openness and Integrity Award Ruzhdi Shkodra CAD Engineer, Radio Communications, Canada Ben Lai Test Engineer, Group Operations, Australia PAGE 11 ANNUAL REPORTI N N O V A T I O N W H E R E V E R Y O U A R E MINETEC HAS SUCCESSFULLY IMPLEMENTED FULL-SCALE OPERATIONAL DEPLOYMENTS ACROSS A VARIETY OF UNDERGROUND GOLD, COPPER AND PLATINUM MINES PAGE 13 GLOBAL LOCATIONS SELLING INTO 150 COUNTRIES WITH OPERATIONS ACROSS THE GLOBE Victoria Cork Beijing Washington Chicago Penang Johannesburg Dubai Perth Adelaide Christchurch C O DAN O FFI C E S MAN U FACTU R I N G O PE R ATI O N S E N G I N E E R I N G TEAM S ANNUAL REPORT ANNUAL REPORT OPERATIONS R AD I O C O M M U N I CATI O N S M ETAL D ETE CTI O N TR AC KI N G S O LUTI O N S E N G I N E E R I N G AN D O PE R ATI O N S PAGE 15 RADIO COMMUNICATIONS 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 COMMUNICATIONS SOLUTIONS THAT ENABLE OUR CUSTOMERS TO SAVE LIVES, CREATE SECURITY AND SUPPORT PEACEKEEPING WORLDWIDE. WITH MORE THAN 50 YEARS IN THE BUSINESS, CODAN RADIO COMMUNICATIONS HAS GARNERED A REPUTATION FOR RELIABILITY AND CUSTOMER SATISFACTION, PRODUCING INNOVATIVE AND INDUSTRY-LEADING TECHNOLOGY SOLUTIONS. FY16 SUMMARY • Achieved best profit result in seven years • Delivered highest LMR sales in the history of the company • Increased profit contribution 15% beyond FY15 • Launched Cyclone™ and Sentry™ product lines • Embedded agile engineering practices FY17 OBJECTIVES • Complete new LMR product suite, delivering a full system solution, for release in FY18 • Establish Cyclone™ as the “go- to” legacy repeater replacement • Launch military standard Sentry™ family of software-defined radios (SDR) to include tactical HF and Very High Frequency (VHF) • Focus on providing higher-value communications solutions ANNUAL REPORT ANNUAL REPORT SUCCESS STORY PAGE 17 Codan Radio Communications has increased market share in its major markets, including key North American accounts. FY16 results were further bolstered by one-off projects for the US Army in Afghanistan and the US Coast Guard in Alaska. Investment in the underlying technology and product portfolio continued throughout the year, with the Stratus™ tactical Long-Term Evolution (LTE) compatible repeater and the Cyclone™ drop-in Quantar replacement gaining much attention and success in the LMR marketplace. The digitally enhanced Patrol™ HF Manpack and the Military Standard Sentry-V™ tactical radio kept Codan at the forefront of our customers’ consideration and continued to improve brand recognition. Envoy® software release 3 enhanced and maintained Codan as the radio provider of choice in the humanitarian and NGO market. Offering an extended suite of Wi-Fi networking functions as part of an already easy-to-use radio has further cemented our reputation as the best infrastructure-free communications tool on the market. Voice quality, unparalleled reliability and an affordable price remain the hallmark rationale for governments and agencies using Codan radios worldwide.The HF Roadrunner and LMR Wombat agile engineering teams became an essential, embedded element of our technical core competency during the year. Responding to real-time customer input and rapidly shifting market demands, the teams generated major legacy-product improvements in a compressed time frame. Rapid response engineering has been a key element of the Stratus™, Cyclone™, Sentry™ and Patrol™ initiatives. Codan Radio Communications continues to enhance its world-class product design and development capability. Our focus is firmly fixed on delivery to our customers, as we 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 which overcome local or long-haul communications challenges anywhere in the world. To our customers, we are the “trusted platform”.Codan Stratus™ extends communications coverage for US intelligence and security agency.In August 2015, Codan Radio Communications announced the award of a $1.1 million order for its new Stratus™ network by an intelligence and security agency in the United States. The award marked the first significant sale of Stratus™ since its launch at the International Wireless Communications Expo (IWCE) in March 2015. Stratus™ is being trialled by multiple US agencies, with smaller Stratus™ sales already completed, demonstrating its wide-scale adoption within the public safety industry.Stratus™ is a hybrid P25 and LTE (3G/4G) deployable network that integrates the strengths of the two technologies to provide secure wide-area voice networks. A complete Stratus™ network consists of the Stratus™ repeater, power centre, tactical server and rapid antenna, and a complete network can be deployed by a single person within only five minutes.“Agencies are impressed by the ability of Stratus™ to be deployed instantaneously, without any technical training required. With its quick integration into an existing P25 network, Stratus™ enables communication within their networks from any location, from on the street to within buildings, eliminating black spots experienced so frequently,” said Paul Sangster, Director of Sales at Codan Radio Communications.The LTE link within the Stratus™ provides reliable P25 network connectivity anywhere with cellular coverage, while providing the highest level of encryption and a secure VPN connection into a local area network. Interoperable with all P25 subscriber units, Stratus™ is an investment in the safety and security of its users and the community.METAL DETECTION 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. FY16 SUMMARY • New top-of-range gold detector – the GPZ 7000® – released into Africa • Sales into Africa delivered a significantly stronger second half • Our Dubai base continues to bring us closer to the African market • Continued to build the treasure market with the GO-FIND® series • Increased full-year profit contribution by 55% over the prior year • Continued investment in new product development FY17 OBJECTIVES • Release two exciting new products – lower-priced gold machine for Africa and improved larger coil for GPZ 7000® • Business development in Africa to entrench the GPZ 7000® as the detector of choice • Convert more African gold mining regions to use Minelab gold detectors • Grow retail distribution channels for the GO-FIND® detector series • Continue investment in product development to create next wave of new products in FY18 ANNUAL REPORT ANNUAL REPORT PAGE 19 Minelab is the world leader in metal detection technologies for hobbyists and prospectors, small-scale gold miners and for demining and military needs. Minelab’s profit contribution in FY16 increased 55% over the prior year from sales of $99.2 million. This improved result was delivered from a strong underlying base of metal detector sales into the developed world markets of Australia, Europe and America, supplemented by growth of gold detector sales into Africa.The increased African demand was driven by two factors. Firstly, the newly released GPZ 7000® is fast becoming the detector of choice in Africa, with many small-scale gold miners upgrading to this world-leading gold detector. Secondly, some regions in Africa experienced surges in demand for our gold detectors as a result of large gold finds. While these surges are not predictable and may not be sustainable, they do deliver significant sales and profitability to Minelab when they occur.Minelab employs the largest and world’s best metal detection engineering team, developing technology that is consistently superior to that of our competitors. Our new products, including the GPZ 7000® gold machine and the GO-FIND®, were a great success in FY16 and are a reflection of the world-leading engineering development that is undertaken at Minelab.Recreation – adventure, treasure and goldMinelab is built on the success of selling metal detectors into the major world economies of Australia, the USA, Europe and Russia. Our customers metal detect for the fun of it, with metal detecting being an interest, a hobby, a sport or, in some cases, a source of income. Our comprehensive range includes gold detectors and coin and treasure detectors used to find jewellery and artefacts. This part of the business represents a significant portion of the total Minelab business and is well placed for growth as Minelab continues to release new, improved products to this market.The key driver of our success in FY16 was the strength of demand for our new products.Minelab released its flagship gold detector, the GPZ 7000®, in February 2015 and, following the extraordinary success of its initial launch, sales settled to a strong and sustainable level in FY16. The GPZ 7000® uses new metal detection technology developed and patented by Minelab to find the deepest gold in mineralised ground. With up to a 40% improvement in gold detection capability, the GPZ 7000® continues to revolutionise the pursuit of searching for gold.Minelab has for many years dominated the top-end price points of the metal detecting market and has fought hard against its competitors at mid-tier price points. Until recently, Minelab had not sold products at the lower price end of the market, leaving this market space to its competitors. This changed with the release of the GO-FIND® series of detectors in May 2015. While these detectors sell from only US$150, the Minelab engineering team has designed them using Minelab’s market-leading technology to produce a category-leading product. The GO-FIND® is now Minelab’s highest unit seller, and Minelab continues to expand its relationships with large retail chains in the USA, Europe, Russia and Australia, which are best suited to selling large volumes of this product.Minelab continues to invest in new product development for these markets and has a number of new, improved metal detectors in the pipeline.Small-scale gold mining – prospecting, community and environmentMinelab’s world-leading gold detection technology continues to revolutionise how small-scale gold miners around the world prospect for gold. The strongest demand for gold detectors comes from Africa, with the primary driver being the adoption of metal detection technology by a large number of small-scale gold miners, and the demonstrated success they have in finding gold with our detectors. 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.Minelab implemented a key strategic move in January 2015 by establishing a showroom and distribution centre in Dubai to service the large African market. We have taken control of our distribution channels, broadened our customer base and are now closer than ever to the end users of our detectors. The establishment of our facility in Dubai and the customer relationships we are developing are critical to ensuring that Minelab maximises its opportunities in the African region, and this has been a major contributor to our success.The release of the GPZ 7000® into the African goldfields in FY16 exceeded our expectations and was a key contributor to the increased sales result. The demand for this product is expected to continue into FY17 as African small-scale gold miners upgrade to own the world’s best handheld gold detector.We continue to invest in the development of small-scale gold mining markets inside and outside of Africa, and believe that, in time, good markets may develop in Central and Latin America and across Asia-Pacific. METAL DETECTION Countermine – all mines, all soils, all conditions Minelab’s detectors are also considered to be the best in the world for locating landmines and the explosive remnants of war. Consequently, Minelab has become the detector of choice for many humanitarian demining organisations and government bodies. The Countermine business has always been strategically important to Minelab. Our continual development of leading-edge technology to rid the world of landmines and improvised explosive devices carries over to the business’ other products and generates brand recognition globally. The world-leading engineering capability of the Countermine team is highlighted by the fact that Minelab continues to receive external funding from a number of parties to develop metal detection technology in order to advance the detection of landmines and unexploded ordnance. 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, to name but a few. SUCCESS STORIES The future of gold detection In early 2015, after dominating the gold-detecting market for more than 20 years with its superior MPS Pulse Induction technology, Minelab introduced a breakthrough new technology called ZVT™ with its latest flagship gold detector, the GPZ 7000®. While many “hard-core” detectorists were initially sceptical that anything could surpass the proven performance of MPS, the GPZ 7000® has gained a loyal following from early adopters in the western world. It is now widely regarded as the best detector available for finding gold that all other detectors miss, in locations that have too much “ground noise” for other detectors to operate in. Eighteen months on from its launch, the GPZ 7000® is being taken up in Africa in large numbers and changing people’s fortunes in artisanal mining communities across the continent. First find with GPZ 7000® “First day out using my newly purchased GPZ 7000, couldn’t believe how sensitive this machine was; picked up 25 grams of the best nuggets in no time at all - luv the new machine!” Clint – Western Australia “After you programmed the GPZ 7000, the next day I found a 30 gram gold piece in soil more than a meter deep – I’ve worked as a maintenance technician and programmer in Sudan since 2010.” Mujahid - Sudan In late 2016, Minelab will release a large GPZ 19 coil for the GPZ 7000®. Larger coils detect deeper, and GPZ owners are eagerly awaiting this new coil with an expected 30% depth improvement. “Lots of prospectors who have had success with the existing GPZ 14 coil – like me – are looking forward to trying out the new coil when it becomes available. I have a few places in mind where I am sure some deep gold is hiding. So the future seems very bright for the GPZ 7000® and its ZVT™ technology, and like last year there will be some great new gold coming to light here soon – I’m looking forward to it!” Chris – USA ANNUAL REPORT I N N O V A T I O N W H E R E V E R Y O U A R E FINDING MORE GOLD REALLY DOES DEPEND UPON HAVING THE BEST TECHNOLOGY AVAILABLE PAGE 21 TRACKING SOLUTIONS MINETEC OFFERS A SINGLE UNIFIED PLATFORM FOR TRACKING, PRODUCTIVITY AND SAFETY SOLUTIONS IN UNDERGROUND HARD-ROCK MINES. FY16 SUMMARY • Deployed products in six operating mines • Commissioned traffic- management system based on high-precision tracking • Delivered a productivity- management system that integrates voice and task despatch • Difficult economic environment continued for the global mining industry • Focused on gold, copper and diamond mines • Break-even financial position in the second half FY17 OBJECTIVES • Focus on underground hard-rock gold, copper and diamond mines in Australia and South Africa • Build scale by broadening our customer base, including mining contractors • Commission more applications of Minetec’s proprietary solutions • Deliver improved financial performance ANNUAL REPORT ANNUAL REPORT CASE STUDY Minetec’s enabling technology helps create a safer working environment and boost production at Rio Tinto’s Argyle Diamond Mine. The Argyle underground mine and processing plant operates 24 hours a day, 365 days of the year. Surface operations moved underground, and “block-cave” mining was introduced in 2013. It is expected to generate up to 20 million carats per year until at least 2020. With over 40km of tunnels, the underground environment is challenging. Actions taken for granted on the surface, like real-time physical visibility, positional tracking and quality communications, create a multitude of challenges when they take place “in the dark”. Situation A safety incident at a mine, such as an unintended vehicle interaction, will be measured first in impact to personnel, then to production. An investigation into such an incident will take time, with day-to-day costs still being incurred as normal. Argyle was experiencing bottlenecks at certain congestion points in the mine. The situation was affecting safety and production. Heavy equipment, laden with ore, was being slowed and congested in key zones while operations were slowed to detect other equipment in the vicinity. Then, once another presence became detected, more time was needed to make qualified decisions relating to the best course of action and traffic flow. Argyle had trialled traditional technology solutions such as “presence-detection devices”, but none met the high safety standard required from Rio Tinto. All were augmented by voice radio systems and none could reliably solve the issue. Task Argyle required a reliable and non-obtrusive system by which to safely manage their traffic in a more efficient manner. Improved safety and efficiency would then result in improved output. Action Minetec worked on site at Argyle to assess first hand their requirements and better comprehend the issue with operators and management. All too often, what works well in concept does not migrate easily to reality; Minetec wanted to determine the best, and therefore most reliable, safety solution with the lowest negative impact on the operation. Delivered within a Trax™ node, Minetec implemented a pilot of its enabling technology platform. • First WASP™, the world’s most accurate, sub-metre, real-time, 3D tracking technology. This technology was first conceived by the inventors of commercial grade Wi-Fi, the CSIRO. • Then, housed in the same compact, low-power node, was the ability to communicate this and other data back and forth, wirelessly in real time. Trax™ nodes were placed around the traffic zones as well as on the vehicles. Minetec then integrated it to a physical set of traffic lights with logic provided by Argyle. The pilot became an operational deployment soon afterwards. Result Deployed in just 12 days, a working system was delivered that could locate the heavy equipment on the production level, and met all baseline requirements. After embedding the system across eight weeks, it seamlessly allows Argyle to use the loader tracking information to safely control traffic on the production level. To date there have been no unintended vehicle interactions, and traffic congestion is a thing of the past. Equally significantly, Argyle has managed to attain something really special; after just one month’s use, production was up. This is merely the beginning. The platform underlying the Traffic Management System is truly an enabling technology. Think what surface mining achieved with the advent of accurate GPS and reliable Wi-Fi; now think what can be achieved when the same “lights” get turned on in the dark of an underground mine. Minetec thanks Rio Tinto for its foresight in investing in such a platform and for continuing to do so in an effort to make the underground mining environment a safer place to work. PAGE 23 Minetec was acquired by Codan in 2012 and has effectively been a start-up technology business. The company has a long history of providing communications services to the mining industry; however, over recent years Codan has invested in Minetec’s intellectual property to transition the company to a high-value-add technology solutions provider. Minetec delivers high-precision tracking and integrated wireless communications in underground mines where GPS-based tracking systems do not work. The industry trend is toward autonomous mine operations, and this requires high-precision tracking. Minetec provides high-precision tracking data in real time to mine operators, along with fully integrated safety and task-management systems. With the right data available at the right time, underground miners can now resolve issues, eliminate bottlenecks and manage constraints as they arise, which in turn enables them to be much more productive.Minetec’s proprietary technology is based upon WASP™ (Wireless Ad Hoc System for Positioning), originally developed by CSIRO. WASP™ provides world-class sub-metre tracking accuracy in the harsh environments of an underground mine. WASP™ technology sits at the core of our tracking (TRAX™) and proximity detection (SafeDetect™) systems. These systems are complemented by Minetec’s software productivity tool (SMARTS™) and configuration management tool (MineOffice™) which seamlessly integrate to provide tracking, safety and productivity solutions based upon a single, unified platform. Globally, resource companies are focused on improving operational performance in an environment of lower commodity prices. Minetec’s solutions give customers the ability to monitor and track assets in real time and communicate task changes directly to the operator, delivering a step change in operational efficiency.The technology is now proven, and Minetec has successfully implemented full-scale operational deployments across a variety of underground gold, copper and platinum mines. The challenge now is to build scale in the business, and this will be the focus for FY17. ENGINEERING AND OPERATIONS ENGINEERING AND OPERATIONS ENHANCE CODAN’S GROWTH AND CONTINUOUS IMPROVEMENT BY DRIVING TECHNICAL EXCELLENCE ACROSS THE COMPANY. WE OPERATE HIGHLY DISCIPLINED AND EFFICIENT ENGINEERING, ADVANCED MANUFACTURING AND SUPPLY CHAIN MANAGEMENT TO ENSURE PROGRAMME SUCCESS. ANNUAL REPORTDefence capabilityCodan has a long history of supplying the defence sector, with the company’s HF radio systems and landmine detectors used by military organisations worldwide. We have a core technical competency in the area of RF subsystem design, which is the basis of our metal detection and HF radio technologies.These capabilities have the company well placed to provide further engineering solutions and manufacturing expertise to the Australian defence sector, which has announced numerous, multi-billion dollar defence projects for Australia. In May 2016, Codan established a new subsidiary, Codan Defence Electronics, which will explore opportunities to build on our defence experience and thereby generate future growth.EngineeringCodan maintains a world-class team of research, engineering and technical staff, employing more than 170 engineers across the globe. With teams in Adelaide, Perth, Christchurch and Victoria, Canada, our capabilities span a cross section of engineering disciplines, including software, electronics and mechanical engineering. We have a number of PhD-qualified physicists and software, electronics and signal processing engineers on staff, recruited from Australia and overseas. Our engineering teams ensure that technology is released to specification, on schedule and with appropriate intellectual property (IP) protection.We also utilise a number of field testers from around the world, as well as a network of service providers when required. This combination of core competencies allows us to continuously develop unique IP to solve our customers’ problems in communications, metal detection and underground tracking.Advanced manufacturingThe ability to manufacture precision electronics products and associated software is a core competency of Codan’s, and remains a sustainable competitive advantage driving our future growth. The company is committed to pursuing ongoing efficiencies, flexibility and investment in its production capabilities.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, Minelab’s landmine detectors and Minetec’s mine-safety products, which retain local manufacture. The Adelaide manufacturing capability will be a critical element in our defence capability as we seek to capitalise on future defence spending by the Commonwealth government.Codan’s relationship with one of the world’s leading sub-contract electronics manufacturers, Plexus Corp, continues to remain a cornerstone of the company’s manufacturing strategy. The majority of manufacturing continues in Malaysia, while manufacture of land mobile radio products takes place at a Plexus facility in Chicago, Illinois, 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 ISO 9001.Supply chain managementCodan has an extensive global supply chain in place, sourcing product and material from most regions in the world. We work with suppliers who meet stringent quality standards, are innovative and work in safe and responsible ways. Our dealings with our suppliers reflect Codan’s core values, and as such we have built collaborative, honest and trusting relationships which have resulted in reliable supply over the long term. Our supply chain is responsive to the changing needs of our customers and markets. All Codan suppliers must provide agility, flexibility and speed to market. At the end of our supply chain are global distribution centres located in Dubai, Chicago, Penang and Adelaide, which ensure product is regionally distributed for the fastest route to market. Manufacturing and distributing our world-class products demands a strong, cohesive and responsive supply chain, and at Codan we have experienced professionals dedicated to the delivery of supply chain excellence. 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. 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. Thousands of individual initiatives have been implemented, enabling Codan to dramatically lower production costs and reduce delivery lead times. Initiatives continue to this day, including improvements to global manufacturing sites run by Plexus and other key suppliers. Workplace health, safety and environment 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 those travelling to remote locations. As such, Codan engages experts to ensure the safety and welfare of its travellers. We maintain an effective Work Health, Safety and Environmental Management System that is integral to our business processes and are accredited to OHSAS 18001 Occupational Health and Safety and ISO 14001 Environmental Management Systems. FACILITIES In December 2015, Codan centralised its Adelaide operations at a new global head office located in the Technology Park precinct at Mawson Lakes, South Australia. Codan entered into a long-term lease and co-located around 200 Codan, Minelab and Minetec staff at the facility. The facility is home to the company’s world-class advanced manufacturing facilities, focusing on new product development and manufacture of its security- featured radios and mine- clearance products. It allows capacity for future growth and includes extensive training and demonstration facilities which will be used to showcase our products to a global customer base. PAGE 25 ANNUAL REPORTI N N O V A T I O N W H E R E V E R Y O U A R E PAGE 27 BOARD OF DIRECTORS Mr Simmons is a former director of Lighting Investments Australia Holdings Pty Ltd. He is Chairman of Commercial Motor Vehicles Group and a board member of the Detmold Group. Mr David Simmons BA (Acc) Chairman Independent Non-Executive Director Mr Simmons was appointed by the board as Chairman in February 2015 and has been a director of Codan since May 2008. He 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. Mr Donald McGurk HNC (Mech Eng), MBA, FAICD, Harvard AMP Managing Director and Chief Executive Officer 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 board member of Bedford Phoenix Incorporated. Mr McGurk was appointed to the board as a 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. ANNUAL REPORTMr Peter Griffiths B.Ec (Hons), CPA, FAICD Independent Non-Executive Director Mr Griffiths retired from the board at the end of May 2016. He was appointed to the 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 Soft Drink 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 retired from the board in October 2015. He 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. PAGE 29 BOARD OF DIRECTORS He is Chairman of Total Construction Pty Ltd and a director of Austal Limited. Mr McDowell is Chancellor of the University of South Australia. Lt-Gen Peter Leahy AC BA (Military Studies), MMAS, GAICD Independent Non-Executive Director Lt-Gen 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. In August 2014, he was appointed to the Australian Federal Government’s First Principles Review Team, an initiative designed to ensure that the Australian Department of Defence is fit for purpose and able to promptly respond to future challenges. Lt-Gen 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 Citadel Group Limited and a director of Electro Optic Systems Holdings Limited. Mr Jim McDowell LLB (Hons) Independent Non-Executive Director Mr McDowell was appointed to the board in September 2014. He joined British Aerospace in Singapore in August 1996 and, during his time with British Aerospace, served as the Managing Director – Asia and Chief Executive Officer of BAE Systems Australia Limited. He was Chief Executive Officer of BAE Systems Saudi Arabia from September 2011 until December 2013. Mr McDowell is Chair of Australian Nuclear Science & Technology Organisation and, in August 2014, was appointed to the Australian Federal Government’s First Principles Review Team, an initiative designed to ensure that the Australian Department of Defence is fit for purpose and able to promptly respond to future challenges. ANNUAL REPORT Mr Graeme Barclay MAICD, F Fin, CA, MA (Hons) Independent Non-Executive Director Mr Barclay was appointed to the board in February 2015. He has 30 years of international business experience in professional services, broadcast and telecommunications, and extensive knowledge of business in the communications services, technology and infrastructure markets. He was Group Chief Executive Officer of the Broadcast Australia group for 11 years, following three years as Chief Financial Officer and Chief Operating Officer, retiring in April 2013. In his time with Broadcast Australia, the business grew domestically and expanded internationally and diversified into private networks, transit location communications and data centre operation and managed hosting services. From July 2010 until September 2013, he was Chairman of Transit Wireless LLP, which has the exclusive rights to install and operate cellular and Wi-Fi systems in the New York subway. From 2002 to 2009, he was an executive director in Macquarie Group’s infrastructure team and was involved in several acquisitions and capital raising transactions for the then listed Macquarie Communications Infrastructure Group. He is currently Non-Executive Chairman and Director of Nextgen Group Holdings Pty Ltd, a Non-Executive Director of BSA Limited and Axicom Holdings Pty Limited, and the founder and Executive Director of First Horizon Advisory. Mr Barclay is a chartered accountant, holding membership of the Institute of Chartered Accountants of Scotland and of Chartered Accountants Australia and NZ. Ms Kathy Gramp BA (Acc), CA, FAICA, FAICD Independent Non-Executive Director Ms Gramp was appointed to the board in November 2015. She has had a long and distinguished executive career and over 17 years of board experience across a diverse range of Australian organisations and industry sectors. She has had exposure to international markets and has a wealth of experience in corporate finance at both strategic and operational levels. In 1989, Ms Gramp joined Austereo Ltd, Australia’s largest commercial radio network, at a senior corporate level, and her career with Austereo spanned 22 years. As Chief Financial Officer and a member of the Executive Committee, she was closely involved in Austereo’s national and international expansion and its successful move into digital and online radio. Ms Gramp was previously a director and member of the Audit & Risk and Remuneration Committees of Southern Cross Media Group Limited. She is a director on a number of corporate and not-for-profit boards and has significant audit committee experience. Ms Gramp is a chartered accountant and a Fellow of the Australian Institute of Company Directors and Chartered Accountants Australia and New Zealand. PAGE 31 LEADERSHIP TEAM Mr Donald McGurk HNC (Mech Eng), MBA, FAICD, Harvard AMP Managing Director and Chief Executive Officer Donald was appointed to the board as a 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 28. Mr Michael Barton BA (Acc), CA Chief Financial Officer and Company Secretary Mr Peter Charlesworth BEEEng (Hons), MBA, GAICD, Harvard AMP Executive General Manager, Minelab Michael joined Codan in May 2004 as Group Finance Manager and was appointed Company Secretary in May 2008. In September 2009, Michael was promoted to the position of Chief Financial Officer and Company Secretary and is responsible for financial control and reporting across the Codan group. He holds a Bachelor of Arts in Accountancy from the University of South Australia and is a member of Chartered Accountants Australia and New Zealand. Prior to joining Codan, Michael worked with KPMG for 13 years. Peter holds a Degree in Electrical and Electronic Engineering with First Class Honours and a Masters Degree in Business Administration, both from Adelaide University, is a Graduate Member of the Australian Institute of Company Directors and completed the Harvard University Advanced Management Program in Boston in 2014. Peter was appointed General Manager of the subsidiary, Minelab Electronics Pty Limited, in 2008 following the Codan acquisition of Minelab that same year. He 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 Vision Systems. He was Chairman of the Technology Industry Association and has worked in the electronics industry for more than 25 years. ANNUAL REPORT Mr Rory Linehan BSc (Hons), MSc, PhD Executive General Manager, Minetec & Codan Defence Electronics Mr Charlie Stuff MBA, BSc Executive General Manager, Radio Communications Rory joined Codan in 2014, working across the group to leverage technology and innovation to develop strategies for growth. He has a technical background with degrees in Physics and Engineering and a PhD in Mathematics; this is coupled with a range of commercial skills spanning strategy, marketing, business development, systems engineering and programme management. In addition to this group role, Rory is Executive General Manager of Minetec and Codan Defence Electronics. Minetec develops the underlying technology for mechanised and autonomous mining, providing high-precision tracking, safety and task-management systems that unleash the benefits of a data-driven mining operation. Codan Defence Electronics is a newly created division that offers radio frequency, communications and electronics expertise to the Australian Defence market. Prior to Codan, Rory held a number of positions with blue-chip firms in the UK, including McLaren Formula One, Cobham and Goodrich. He lived for five years in Seattle working on the product development of the Boeing 787 flight control system. Charlie holds an MBA from Central Michigan University and a Bachelor of Science Degree in Business from Auburn University. He is a retired US Army Officer and has held senior management positions with Rockwell Collins and Cobham PLC. Charlie is based in Victoria, British Columbia and has led the turnaround in Codan’s Land Mobile Radio business following the acquisition of Daniels Electronics in 2013. With his wide range of experience and success in numerous senior executive roles, he was appointed to the role of Executive General Manager, Radio Communications in 2015. PAGE 33 ANNUAL REPORT ANNUAL REPORTFINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 3 6 _ D I R E CTO R S’ R E PO RT 57 _ LEAD AU D ITO R’S I N D E PE N D E N C E D E C LAR ATI O N 5 8 _ C O N S O LI DATE D I N C O M E STATE M E NT 5 9 6 0 _ C O N S O LI DATE D STATE M E NT O F C O M PR E H E N S IVE I N C O M E _ C O N S O LI DATE D BALAN C E S H E ET 6 1 _ C O N S O LI DATE D STATE M E NT O F C HAN G E S I N E Q U ITY 62 63 _ C O N S O LI DATE D STATE M E NT O F CAS H FLOWS _ N OTE S TO AN D FO R M I N G PART O F TH E FI NAN C IAL STATE M E NTS 9 9 _ D I R E CTO R S’ D E C LAR ATI O N 100 _ I N D E PE N D E NT AU D ITO R’S R E PO RT 102 _ ASX AD D ITI O NAL I N FO R MATI O N 104 _ C O R PO R ATE D I R E CTO RY I N N O V A T I O N W H E R E V E R Y O U A R E PAGE 35 PAGE 37 CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT 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 2016 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: David Simmons Donald McGurk Peter Griffiths David Klingberg AO Peter Leahy AC Jim McDowell Graeme Barclay Kathy Gramp Details of directors and their qualifications and experience are set out on pages 28 to 31. COMPANY SECRETARY Mr Michael Barton BA (Acc), CA Michael joined Codan in May 2004 as Group Finance Manager and was appointed Company Secretary in May 2008. In September 2009, Michael was promoted to the position of Chief Financial Officer and Company Secretary and is responsible for financial control and reporting across the Codan group. He holds a Bachelor of Arts in Accountancy from the University of South Australia and is a member of Chartered Accountants Australia and New Zealand. Prior to joining Codan, Michael worked with KPMG for 13 years. DIRECTORS’ MEETINGS The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the company during the financial year are set out below: CORPORATE GOVERNANCE STATEMENT This statement outlines the main corporate governance practices in place throughout the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated. BOARD OF DIRECTORS Role of the board The board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the board is responsible for the overall corporate governance of the group, including formulating its strategic direction, approving and monitoring the annual plan, budget and capital expenditure, setting senior executive and director remuneration, establishing and monitoring the achievement of management’s goals and ensuring the integrity Board meetings Board Audit, Risk and Compliance Committee meetings B A B 10 10 9 3 10 10 10 7 2 3 1 2 2 3 2 3 1 2 2 3 DIRECTOR Mr D J Simmons Mr D S McGurk Mr P R Griffiths Mr D J Klingberg Lt-Gen P F Leahy Mr J W McDowell Mr G R C Barclay Ms K J Gramp A 10 10 8 3 10 10 10 7 Remuneration Committee meetings Nomination Committee meetings Remuneration & Nomination Committee meetings A 1 1 B A B 1 1 1 1 1 1 1 1 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 The Remuneration and Nomination Committees were consolidated into one committee on 18 May 2016. ANNUAL REPORT of risk management, internal control, legal compliance and management information systems. It is also responsible for approving and monitoring financial and other reporting. The board has delegated responsibility for operation and administration of the company to the managing director. Board processes To assist in the execution of its responsibilities, the board has established a Nomination Committee, a Remuneration Committee and a Board Audit, Risk and Compliance Committee. During the year, the board consolidated the Nomination Committee and Remuneration Committee and formed a combined Remuneration and Nomination Committee. The 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. Director performance evaluation The Remuneration and Nomination Committee is responsible for developing the board evaluation process. A performance evaluation took place during the year ended 30 June 2016. 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 PAGE 37 knowledge of the group’s industries and/or extensive expertise in significant aspects of financial management or general management; • an independent director as chairman; • enough directors to serve on various committees without overburdening the directors or making it difficult for them to fully discharge their responsibilities; and • at each annual general meeting, one-third of the directors, 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 mirror the environment in which the group operates. The board uses a skills matrix to ensure that the directors collectively have a combination of skills and experience in the areas of leadership, general management, listed company, finance, accounting, risk management, international business, equity markets and major transactions, as well as relevant industry and business knowledge in the areas of technology and engineering, communications, military and security, mining and government. The board considers that collectively the directors have the range of skills, knowledge, personal attributes and experience necessary to direct the company. 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 A - Number of meetings attended B – Number of meetings held during the time the director held office during the year The Remuneration and Nomination Committees were consolidated into one committee on 18 May 2016. CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT (continued) BOARD OF DIRECTORS (continued) Composition of the board (continued) company or another group member, or been a director after ceasing to hold any such employment; • within the last three years has not been a principal or employee of a material professional adviser or a material consultant to the company or another group member; • is not a material supplier or customer of the company or another group member, or an officer of or otherwise associated, directly or indirectly, with a material supplier or customer; • has no material contractual relationship with the company or another group member other than as a director of the company; and • is free from any interest and any business or other relationship that could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company. The board is regularly addressing succession in order to ensure that its composition going forward is appropriate. Company secretary The board is responsible for the appointment of the company secretary, who is accountable directly to the board, through the Chairman, on all matters to do with the proper functioning of the board. REMUNERATION AND NOMINATION COMMITTEE The Remuneration and Nomination Committee assists the board in reviewing remuneration structures, 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 remuneration strategies for directors and executives; • approving remuneration structures and payments for directors and executives; • 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; • 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 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; and • making recommendations to the board on the appointment and performance of directors. The members of the Nomination Committee were Mr D J Klingberg (Chair), Mr P R Griffiths and Mr D J Simmons, all independent non-executive directors. The members of the Remuneration Committee were Mr D J Simmons (Chair) and Lt-Gen P F Leahy, both independent non-executive directors. The members appointed to the new Remuneration and Nomination Committee on 18 May 2016 were: • Mr D J Simmons (Chair) Independent Non-Executive Director • Lt-Gen P F Leahy Independent Non-Executive Director • Mr J W McDowell Independent Non-Executive Director The managing director is invited to Remuneration and Nomination Committee meetings, as required, to discuss executives’ performance and remuneration packages. The Remuneration and Nomination Committee’s charter is available on the company’s website. REMUNERATION REPORT - AUDITED 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 and Nomination Committee may obtain independent advice on the appropriateness of remuneration packages, given ANNUAL REPORT trends in comparative companies both locally and internationally. Remuneration packages can include a mix of fixed remuneration and performance- based remuneration. The remuneration structures explained below are designed to attract suitably qualified candidates, and to achieve the broader outcome of increasing the group’s net profit. The remuneration structures take into account: • the overall level of remuneration for each director and executive; • the executive’s ability to control the relevant segment’s performance; and • the amount of incentives within each key management person’s remuneration. Certain executives may receive 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 salaries 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 2016 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. Service contracts It is the group’s policy that service contracts for key management personnel are unlimited in term but capable of termination on three 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. Details of performance rights granted to executives during the year are as follows: The performance rights granted on 25 November 2015 and 25 May 2016 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 2015 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. PAGE 39 Number of performance rights granted during yearGrant dateFair value per right at grant date (cents)Exercise price per right (cents)Expiry dateNumber of rights vested during yearDIRECTORSMr D S McGurk 236,94825 November 201564.0-30 June 2019- EXECUTIVESMr M Barton120,70925 May 201691.0-30 June 2019-Mr P D Charlesworth154,24025 May 201691.0-30 June 2019-Mr R D Linehan154,24025 May 201691.0-30 June 2019- CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT (continued) REMUNERATION REPORT - AUDITED (continued) Performance rights (continued) Details of vesting profiles of performance rights granted to executives are detailed below: Performance rights granted Number Date Percentage vested in year Percentage Percentage forfeited forfeited in year in year Financial years Financial years in which shares in which shares will be will be issued if issued if vesting achieved vesting achieved DIRECTORS Mr D S McGurk EXECUTIVES Mr M Barton 111,655 296,877 236,948 22 November 2013 26 November 2014 25 November 2015 52,813 22 November 2013 145,638 120,709 26 November 2014 25 May 2016 - - - - - - 100% - - 100% - - n/a 2018 2019 n/a 2018 2019 Mr P D Charlesworth 72,575 193,250 154,240 187,998 22 November 2013 26 November 2014 25 May 2016 n/a 2018 2019 Mr R D Linehan 26 November 2014 - - 2018 154,240 25 May 2016 - - 2019 Mr P McCarter n/a n/a 22 November 2013 26 November 2014 100% - - 89,919 259,952 100% 100% - - - - - The performance rights granted on 22 November 2013 lapsed on 30 June 2016, as the three-year aggregate performance target was not reached. ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) REMUNERATION REPORT - AUDITED (continued) Number Date Percentage vested in year Percentage forfeited in year Financial years in which shares will be issued if vesting achieved DIRECTORS EXECUTIVES Mr M Barton Mr D S McGurk 111,655 22 November 2013 100% 52,813 22 November 2013 100% 296,877 236,948 26 November 2014 25 November 2015 145,638 120,709 26 November 2014 25 May 2016 193,250 154,240 26 November 2014 25 May 2016 - - - - - - - - - - - - - - - - - n/a 2018 2019 n/a 2018 2019 n/a 2018 2019 n/a n/a Mr R D Linehan 187,998 26 November 2014 - - 2018 154,240 25 May 2016 - - 2019 Mr P McCarter 89,919 22 November 2013 259,952 26 November 2014 100% 100% Mr P D Charlesworth 72,575 22 November 2013 100% 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 2015 Issued Vested Lapsed Held at 30 June 2016 DIRECTORS Mr D S McGurk EXECUTIVES Mr M Barton Mr P D Charlesworth Mr R D Linehan Mr P McCarter 408,532 236,948 198,451 265,825 187,998 349,871 120,709 154,240 154,240 - - - - - - 111,655 533,825 52,813 72,575 - 349,871 266,347 347,490 342,238 - Mr McCarter’s performance rights lapsed on 7 September 2015 upon his cessation as Executive General Manager, Codan Radio Communications. 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. 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 2015 Received on exercise of rights Other changes* Held at 30 June 2016 DIRECTORS Mr D J Simmons Mr D S McGurk Mr P R Griffiths Mr D J Klingberg Lt-Gen P F Leahy Mr J W McDowell Mr G R C Barclay Ms K J Gramp 61,532 312,517 199,416 120,908 57,708 - - n/a SPECIFIED EXECUTIVES Mr M Barton 5,000 Mr P D Charlesworth 312,790 Mr R D Linehan Mr P McCarter Mr C P Stuff - - n/a - - - - - - - - - - - - - - - - - - - 21,052 21,052 - - - 135,825 - - 61,532 312,517 n/a n/a 57,708 - 21,052 - 5,000 312,790 135,825 n/a - * Other changes represent shares that were purchased or sold during the year Mr D J Klingberg retired as a director on 28 October 2015, Ms K J Gramp was appointed as a director on 18 November 2015 and Mr P R Griffiths retired as a director on 31 May 2016. Mr C P Stuff was appointed to the position of Executive General Manager, Radio Communications on 1 September 2015 and Mr P McCarter ceased in the position of Executive General Manager, Codan Radio Communications on 7 September 2015. PAGE 41 CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT 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 Other long term Termination benefits rights Performance Total Proportion of remuneration performance related NON-EXECUTIVE Mr D J Simmons Mr P R Griffiths Mr D J Klingberg Lt-Gen P F Leahy Mr J W McDowell Mr G R C Barclay Ms K J Gramp Total non-executives’ renumeration 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 $ 162,974 106,612 81,487 84,662 26,640 77,606 81,487 77,606 81,487 64,672 81,487 32,336 50,972 - 566,534 443,494 $ $ $ $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ $ $ $ 15,483 10,128 7,741 8,043 2,531 7,373 7,741 7,373 7,741 6,144 7,741 3,072 4,842 - 53,820 42,133 $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - $ $ 178,457 116,740 89,228 92,705 29,171 84,979 89,228 84,979 89,228 70,816 89,228 35,408 55,814 - 620,354 485,627 $ % - - - - - - - - - - - - - - - - % ANNUAL REPORTEXECUTIVEMr D S McGurk2016516,203410,088-18,33716,933-165,5031,127,06451.12015509,274135,153-20,34813,669-68,592747,03627.3Total directors’remuneration20161,082,737410,088-72,15716,933-165,5031,747,418-2015952,768135,153-62,48113,669-68,5921,232,663- CORPORATE GOVERNANCE STATEMENT (continued) REMUNERATION REPORT - AUDITED (continued) Directors Year Salary & fees Short-term incentives Other short term Post-employment and superannuation contributions Other long term Termination benefits Performance rights Total Proportion of remuneration performance related NON-EXECUTIVE Mr D J Simmons Mr P R Griffiths Mr D J Klingberg Lt-Gen P F Leahy Mr J W McDowell Mr G R C Barclay Ms K J Gramp Total non-executives’ renumeration 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 $ 162,974 106,612 81,487 84,662 26,640 77,606 81,487 77,606 81,487 64,672 81,487 32,336 50,972 - 566,534 443,494 $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ $ $ 15,483 10,128 7,741 8,043 2,531 7,373 7,741 7,373 7,741 6,144 7,741 3,072 4,842 - 53,820 42,133 $ $ $ $ - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - - - $ $ 178,457 116,740 89,228 92,705 29,171 84,979 89,228 84,979 89,228 70,816 89,228 35,408 55,814 - 620,354 485,627 $ % - - - - - - - - - - - - - - - - % Mr J W McDowell was appointed as a director on 1 September 2014 and Mr G R C Barclay was appointed as a director on 1 February 2015. Mr D J Simmons was appointed as chairman of the board on 18 February 2015, Mr D J Klingberg retired as a director on 28 October 2015, Ms K J Gramp was appointed as a director on 18 November 2015 and Mr P R Griffiths retired as a director on 31 May 2016. PAGE 43 EXECUTIVEMr D S McGurk2016516,203410,088-18,33716,933-165,5031,127,06451.12015509,274135,153-20,34813,669-68,592747,03627.3Total directors’remuneration20161,082,737410,088-72,15716,933-165,5031,747,418-2015952,768135,153-62,48113,669-68,5921,232,663- CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT 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 Other long Termination term benefits Performance rights Total Proportion of remuneration performance related Mr M Barton (Chief Financial Officer and Company Secretary) Mr P D Charlesworth (Executive General Manager, Minelab) Mr R D Linehan * (Executive General Manager, Mr P McCarter ** (Executive General Manager, Codan Radio Communications) Mr C P Stuff (Executive General Manager, Radio Communications) Total executive officers’ remuneration 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 $ $ 256,802 241,489 335,496 328,709 402,137 329,318 75,612 443,391 208,913 73,668 322,920 100,534 240,250 85,423 - 222,186 287,518 221,783 - - 1,357,565 1,342,907 993,866 481,811 $ - - - - 46,694 1,297 272 1,229 673 - 47,639 2,526 * Mr R D Linehan relocated from the UK to Australia in January 2016. Until that time, he was paid in UK pounds, with the Australian dollar equivalents calculated using an average exchange rate. ** Mr P McCarter was paid in UK pounds, with the Australian dollar equivalents calculated using an average exchange rate. $ $ $ $ $ 23,362 22,478 19,308 18,783 15,652 24,119 8,195 37,701 - - 11,711 8,484 12,665 8,947 4,002 - - - - - - - - - - - - - - - 82,046 95,167 33,649 124,112 44,650 135,014 43,436 85,513 60,061 - - 595,955 379,768 814,501 501,623 843,749 483,593 251,638 764,568 509,974 - % 51.0 28.3 54.9 28.9 44.5 26.6 34.0 36.9 43.5 - 66,517 103,081 28,378 17,431 82,046 439,806 181,796 3,015,817 2,129,552 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) REMUNERATION REPORT - AUDITED (continued) Mr M Barton (Chief Financial Officer and Company Secretary) Mr P D Charlesworth (Executive General Manager, Minelab) Mr R D Linehan * (Executive General Manager, Mr P McCarter ** (Executive General Manager, Codan Radio Communications) Mr C P Stuff (Executive General Manager, Radio Communications) Total executive officers’ remuneration 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 256,802 241,489 335,496 328,709 402,137 329,318 75,612 443,391 - 208,913 73,668 322,920 100,534 240,250 85,423 222,186 - - 287,518 221,783 1,357,565 1,342,907 993,866 481,811 $ - - - - 46,694 1,297 272 1,229 673 - 47,639 2,526 Year Salary & fees Short-term incentives Post-employment and superannuation contributions Other long term Termination Termination benefits benefits Performance rights Total Proportion of remuneration performance related $ $ $ $ $ $ $ 23,362 22,478 19,308 18,783 15,652 24,119 8,195 37,701 - - 11,711 8,484 12,665 8,947 4,002 - - - - - - - - - - - 82,046 - - - 95,167 33,649 124,112 44,650 135,014 43,436 85,513 60,061 - - 595,955 379,768 814,501 501,623 843,749 483,593 251,638 764,568 509,974 - 66,517 103,081 28,378 17,431 82,046 - 439,806 181,796 3,015,817 2,129,552 % 51.0 28.3 54.9 28.9 44.5 26.6 34.0 36.9 43.5 - Mr C P Stuff was appointed to the position of Executive General Manager, Radio Communications on 1 September 2015 and Mr P McCarter ceased in the position of Executive General Manager, Codan Radio Communications on 7 September 2015. Short-term incentives which vested during the year are as follows: Mr D S McGurk 83% (17% forfeited), Mr M Barton 83% (17% forfeited), Mr P D Charlesworth 100%, Mr R D Linehan 74% (26% forfeited) and Mr C P Stuff 79% (21% forfeited). 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. As no performance rights vested during FY16 or during the prior year, the amounts disclosed above as “Performance rights” do not represent take-home pay. Other than performance rights, no options or shares were issued during the year as compensation for any key management personnel. PAGE 45 CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT (continued) REMUNERATION REPORT - AUDITED (continued) Corporate performance As required by the Corporations Act 2001, the following information is presented: 2016 $ 2015 $ 2014 $ 2013 $ 2012 $ 15,494,607 12,507,609 9,196,580 45,416,716 23,146,736 7,082,530 5,310,509 15,039,383 20,343,012 14,773,138 1.18 0.03 1.15 0.40 0.75 (0.77) 1.52 0.12 1.40 0.20 Profit attributable to shareholders Dividends paid Share price at 30 June Change in share price at 30 June 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: • Ms K J Gramp (Chair from 1 June 2016) Independent Non-Executive Director (appointed 19 November 2015) • Mr P R Griffiths (Chair until 31 May 2016) Independent Non-Executive Director (retired 31 May 2016) • Mr G R C Barclay Independent Non-Executive Director (appointed 29 January 2016) • Mr D J Klingberg Independent Non-Executive Director (retired 28 October 2015) • Mr J W McDowell Independent Non-Executive Director (resigned 19 November 2015) • Mr D J Simmons Independent Non-Executive Director (appointed 29 January 2016) The external auditors, the managing director and the chief financial officer are invited to Board Audit, Risk and Compliance Committee meetings at the discretion of the committee. The responsibilities of the Board Audit, Risk and Compliance Committee include reporting to the board on: • reviewing the annual and half- year financial reports and other financial information distributed externally; this includes approving new accounting policies to ensure compliance with Australian Accounting Standards and generally accepted accounting principles, and assessing whether the financial information is adequate for shareholder needs; • assessing management processes supporting external reporting; • assessing corporate risk assessment processes; • assessing 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 ANNUAL REPORT CORPORATE GOVERNANCE STATEMENT (continued) REMUNERATION REPORT - AUDITED (continued) 2016 $ 2015 $ 2014 $ 2013 $ $ 15,494,607 12,507,609 9,196,580 45,416,716 23,146,736 7,082,530 5,310,509 15,039,383 20,343,012 14,773,138 1.18 0.03 1.15 0.40 0.75 (0.77) 1.52 0.12 1.40 0.20 Profit attributable to shareholders Dividends paid Share price at 30 June Change in share price at 30 June • addressing any matters outstanding with auditors, Australian Taxation Office, Australian Securities and Investments Commission, ASX and financial institutions. The Board Audit, Risk and Compliance Committee reviews the performance of the external auditors on an annual basis and meets with them during the year to: • discuss the external audit plan, identifying any significant changes in structure, operations, internal controls or accounting policies likely to affect the financial statements, and to review the fees proposed for the audit work to be performed; • review the half-year and preliminary final report prior to lodgement with the ASX, and any significant adjustments required as a result of the auditor’s findings, and to recommend board approval of these documents prior to announcement of results; • review the results and findings of the auditor, the adequacy of accounting and financial controls, and monitor the implementation of any recommendations made; and • as required, organise, review and report on any special reviews or investigations deemed necessary by the board. The Board Audit, Risk and Compliance Committee’s charter is available on the company’s website. RISK MANAGEMENT Material business risks arise from such matters as actions by competitors, government policy changes, the impact of exchange rate movements on the price of raw materials and sales, difficulties in sourcing raw materials, environment, occupational health and safety, property, product quality, interruptions to production, changes in international quality standards, financial reporting and the purchase, development and use of information systems. Oversight of the risk management system The board has in place a number of arrangements and internal controls intended to identify and manage areas of significant business risk. These include the establishment of committees, regular budget, financial and management reporting, established organisational structures, procedures, manuals and policies, external financial and safety audits, insurance programmes and the retention of specialised staff and external advisers. The Board Audit, Risk and Compliance Committee considers risk management in order to ensure risks are identified, assessed and appropriately managed. The committee reports to the board on these matters on an ongoing basis. During the year ended 30 June 2016, the committee reviewed the company’s risk management framework in order to ensure the effective management of the group’s material business risks. Risk management and compliance and control The group strives to ensure that its products are of the highest standard. Towards this aim, it has certification to AS/ NZS ISO 9001. The board is responsible for the overall internal control framework, but recognises that no cost-effective internal control system will preclude all errors and irregularities. Comprehensive practices have been established to ensure: • capital expenditure and revenue commitments above a certain size obtain prior board approval; • financial exposures are controlled, including the use of derivatives; • occupational health and safety standards and management systems are PAGE 47 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. A performance evaluation of all executives and senior employees took place during the year ended 30 June 2016. Financial reporting The managing director and the chief financial officer have provided assurance in writing to the board that the company’s financial records have been properly maintained and that the 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. Economic, environmental and social sustainability risks The group is exposed to material economic risks associated with global economic conditions, developing countries, government spending and exchange rate movements. The Board Audit, Risk and Compliance Committee regularly reviews all material business risks and is satisfied that appropriate risk treatment strategies and controls have been developed and implemented. The company is not exposed to material environmental or social sustainability risks. Environmental regulation The group’s operations are not subject to significant environmental regulation under either Commonwealth or State legislation. However, formal accreditation to ISO 14001, Environmental Management Systems, was achieved in FY15. 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 a process 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 AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT (continued) ETHICAL STANDARDS All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the group. Every employee has a nominated supervisor to whom they may refer any issues arising from their employment. The company continues to review and confirm its processes 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 conduct by maintaining appropriate core company values and objectives; • fulfilling responsibilities to shareholders by delivering shareholder value; • fulfilling responsibilities to clients, customers and consumers by maintaining high standards of professionalism, product quality and service; • acting at all times with fairness, honesty, consistency and integrity; • employment practices such as occupational health and safety and anti-discrimination; • responsibilities to the community, such as environmental protection; • responsibilities to the individual in respect of the use of confidential information; • compliance with legislation including compliance in countries where the legal systems and protocols are significantly different from Australia’s; • conflicts of interest; • 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, and their closely related parties, may acquire shares in the company, but are prohibited from dealing in company shares: - 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; or - whilst in possession of price- sensitive information not yet released to the market; • an additional approval process for directors, officers and executives; • raising the awareness of legal prohibitions in respect of insider trading; • prohibiting short-term or speculative trading in the company’s shares; • prohibiting employees from entering into transactions which would have the effect of limiting their exposure to risk relating to unvested Codan securities or vested Codan securities which are subject to holding locks; and • identification of processes for unusual circumstances where discretion may be exercised in cases such as financial hardship. The policy also details the insider trading provisions of the Corporations Act 2001 and is reproduced in full on the company’s website and in the announcements provided to the ASX. 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, ANNUAL REPORT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. 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 diversity objectives and performance against objectives. The group’s performance against the Diversity and Equity Policy objectives is as follows: * Senior executives are defined as those executives who report directly to the CEO. 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; and • a target of at least 30% female candidates interviewed for all salaried positions in the group. The board assesses the performance against its objectives on an annual basis. PAGE 49 30 June 201630 June 2015Gender representationFemale (%)Male (%)Female (%)Male (%)Board representation17%83%0%100%Senior executive representation *0%100%0%100%Senior management representation26%74%22%78%Group representation26%74%25%75% Steps have been taken to get even closer to customers by establishing a significant presence in Dubai in order to maximize sales and margins in the high-growth African and Middle East markets. DIVIDEND The company announced a final dividend of 4.0 cents per share, fully franked, bringing the full year dividend to 6.0 cents. The dividend has a record date of 15 September 2016 and will be paid on 4 October 2016. CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT 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 360 people, located in Australia, USA, Ireland, Canada, China, United Arab Emirates, South Africa and New Zealand, 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. FY16 HIGHLIGHTS: • Underlying profit after tax of $21.1 million, up 67% on 18% higher sales • Statutory net profit after tax of $15.5 million, up 24% • Increased annual dividend to 6.0 cents, up 71%, fully franked • Underlying earnings per share of 11.9 cents, up 68% • Strong balance sheet - net debt reduced to $12.6 million • Broader product offering brings best Radio Communications result in seven years; contribution increased 15% • Metal Detection contribution increased 55%, assisted by successful release of the GPZ 7000® gold detector in Africa • Strategy to improve earnings stability by broadening markets and growing revenue base The net profit after tax attributable to shareholders increased by 24% to $15.5 million for the year ended 30 June 2016. Group sales of $169.5 million were 18% higher than in the prior year. Underlying net profit after tax for the year ended 30 June 2016 was $21.1 million, a 67% increase over FY15. Codan is beginning to see the benefits of its significant investment in new product development across the Minelab, LMR and HF product platforms. ANNUAL REPORT FINANCIAL PERFORMANCE AND OTHER MATTERS FY16 % of sales $m FY15 % of sales $m REVENUE Communications Metal detection Tracking solutions Other Total revenue UNDERLYING BUSINESS PERFORMANCE EBITDA EBIT Interest Net profit before tax Taxation Underlying net profit after tax Non-recurring (expenses) after tax:* Loss on closure of business Restructuring expenses Newton building impairment Minetec asset impairment Net profit after tax 65.0 99.2 5.3 - 38% 59% 3% - 169.5 100% 44% 51% 3% 2% 100% 21% 13% 12% 9% 63.8 73.3 4.8 2.0 143.9 29.9 19.3 (2.5) 16.8 (4.1) 25% 17% 16% 12% 12.7 (0.3) - - - 41.9 29.2 (1.7) 27.5 (6.4) 21.1 - (1.8) (1.0) (2.8) 15.5 Underlying earnings per share, fully diluted Statutory earnings per share, fully diluted 11.9 cents 8.7 cents - 12.4 7.1 cents 7.0 cents Dividend per share wwwww * 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 audit. 3.5 cents 6.0 cents The board completed its succession planning during the year with the appointment of Kathy Gramp in November 2015. Ms Gramp now chairs the Board Audit, Risk and Compliance Committee. Mr David Klingberg and Mr Peter Griffiths retired from the board during the year. EBITDA and EBIT margins increased as a result of stronger gross margins in Communications and improved expense ratios on higher FY16 sales. The company has successfully negotiated the renewal of its $85 million debt facility for a further three years. Net borrowings decreased by $28.2 million to $12.6 million since 31 December 2015 due to our strong performance and good working capital management. In December 2015, Codan completed the move of all Adelaide operations to its new global headquarters in the Technology Park precinct at Mawson Lakes, South Australia. This world-class facility is now home to around 200 staff. The company continues to pursue the sale of its vacant property at Newton, South Australia. It has been on the market since mid-2015 and, in light of current market conditions, the carrying value has been reassessed and written down by $1.0 million. While the timing of this sale is uncertain, management anticipates that a transaction will be completed in FY17. PAGE 51 CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT OPERATING AND FINANCIAL REVIEW (continued) FINANCIAL PERFORMANCE AND OTHER MATTERS (continued) Performance by business unit: Radio Communications – High Frequency (HF) Radios and Land Mobile Radios (LMR) Radio Communications is a leading designer and manufacturer of premium communications equipment for High Frequency (HF) and Land Mobile Radio (LMR) applications. It provides communications solutions that allow customers to save lives, enhance security and support peacekeeping activities worldwide. Radio Communications revenue increased 2% to $65.0 million, and segment contribution increased 15% to $17.4 million. While FY16 delivered an excellent result, we are focused on our strategy to continually broaden our revenue base by expanding our current technology platforms to create new products that enable us to enter adjacent markets. In FY16, we released a series of new LMR and HF products, including the Patrol® Manpack radio and the Cyclone® repeater, both of which enabled us to broaden our revenue base. More recently, in June 2016 the division launched its Sentry-V™ handheld tactical VHF radio, the first to launch from Codan’s upcoming suite of military products. Sales and marketing capability has also been strengthened by adding a number of key sales resources into Africa and the Middle East. This has given the business better market reach and brought it closer to its key customers and end users. In support of this approach, the sales headquarters for these regions has shifted from the United Kingdom to Dubai. LMR performed strongly in FY16, delivering its highest ever sales over the 66 year history of the business, brought about by moving our focus to systems and solutions selling in the North American first responder market (ie police officers, firefighters, paramedics, etc). As previously announced, the board has approved an additional engineering investment of approximately $5 million to be spent over FY17 to accelerate the development of our expanded LMR product range. We have now recruited the majority of the 25 new engineers required to deliver these products, which will be released early in FY18. These LMR products are expected to drive growth in Radio Communications by enabling us to offer even higher value-add solutions to our customers. FY16 was an excellent year for Radio Communications and, given the level of instability and conflict in some of our key markets, we expect to deliver a similar result in FY17 as we support our customers’ ongoing efforts to promote security and peacekeeping in those regions. We have had a strong start to the year given the favourable timing of some large projects. Metal Detection – Consumer, Gold Mining and Countermine Minelab is the world leader in handheld metal detecting technologies for the consumer, gold mining, demining and military markets. Over the past 30 years, Minelab has introduced more innovative technology than any of its competitors and has taken the metal detection industry to new levels of technological excellence. Minelab revenue increased 35% to $99.2 million, and segment contribution increased 55% to $29.8 million. While all parts of the Minelab business performed well, the largest part of this growth was driven by gold detector sales. While sales of our newly released top of the range gold detector, the GPZ 7000®, were strong in the developed world, the most significant growth in our gold detector sales has come from the successful launch of this product into our African markets. The GPZ 7000® was launched in Africa in October 2015, and demand exceeded our initial expectations as the market quickly recognised the superior performance of this technology. We have evidence that the adoption of this product is being driven by its superior performance rather than gold surges in isolated markets, which increases our confidence that sales will remain strong as we enter FY17. Our improved result in FY16 was also helped by surges in demand from two key regions. While the duration of these surges can be uncertain, Minelab will continue to open up new African markets and maximise opportunities as and when they arise. Sales of the entry level coin & treasure GO-FIND® detector strengthened during FY16 as Minelab signed a number of distribution agreements in the US and Europe which greatly improved market penetration. The GO-FIND® now represents a significant incremental revenue stream for Minelab, and this is expected to grow as we continue to broaden the product’s international distribution. The Countermine business also performed well during the year as a result of increased demining activities undertaken by humanitarian and government organisations. Our strategy for Minelab is to maintain our competitive advantage across gold, consumer and countermine markets by continually innovating our products while expanding our critical routes to market. In response to customer demand, two new products are planned for release in FY17. A larger coil for the ANNUAL REPORTOUTLOOK The board and management remain committed to delivering more stable results for shareholders with profit improvement over the long term. This will be achieved by continuing to develop new innovative product platforms, broadening our customer base and seeking further investment opportunities aligned with our core business. Due to a number of major project awards that are certain to be delivered in the first half of FY17, the board expects the company to have a stronger first half in FY17 compared to last year. The board intends to provide a further business update at the Annual General Meeting in October. The carrying value of Minetec’s capitalised product development, inventory and fixed assets has been reviewed and, as a result, the board has written down the value by $2.8 million after tax. This write-down relates to Minetec’s assets which are not based on the high- precision tracking (WASP™) technology which is now the key focus of the business. Leveraging our Defence capability Codan has a long history of supplying the defence sector, with the company’s HF radio systems and landmine detectors being used by military organisations worldwide. We have a core technical competency in the area of RF subsystem design, which is the basis of our metal detection and HF radio technologies. These core design, manufacturing and support capabilities mean the company is well placed to provide further engineering solutions and manufacturing expertise to the Australian Defence sector, which has announced numerous, multi- billion dollar defence projects for Australia over the next 10+ years. Defence contracts have long sales cycles and, as a consequence, we do not expect this new initiative to generate sales in FY17. GPZ 7000® will give a significant depth increase over the standard coil. In addition to this, an entry level gold detector will be released to the African market at the end of 2016. This product has been specifically designed for the African market to fill a gap in our product range and is expected to quickly take market share from competitors. The Minelab business is strong due to the significant investment we have made to expand our product range and improve our distribution structure. While the African component of this business is difficult to forecast, these factors make us more confident of continued success in FY17. Tracking Solutions – Minetec Minetec offers tracking, productivity and safety solutions, predominantly for underground hard-rock mines. These solutions are based upon CSIRO’s leading- edge WASP™ technology (Wireless Ad hoc System for Positioning) and Minetec’s SMARTS™ proprietary software application suite which provides the core tracking and communication capability to enable real-time monitoring and control of mine operations. For the first time, underground miners can “see” the whole mine and manage issues, bottlenecks and constraints as they arise. The journey toward autonomous mining is a real opportunity for Minetec’s unique, high- precision tracking and integrated real-time wireless communications, made possible by the integration of WASP™ technology and SMARTS™. This enabling technology is expected to transform underground mining in the same way that Wi-Fi and GPS transformed open-pit mining two decades ago. Minetec now has a mine- ready, miner-proof suite of products that have been deployed in six operating mines. These deployments form critical reference sites that demonstrate the technology is proven and delivers real operational benefits. Further to these successes, as announced in August 2016, Minetec has recently secured a multi-million dollar contract to deploy its full range of high-precision tracking, safety and task-management systems for an underground gold mine in Western Australia. Minetec is focused on capitalising on its early successes and is targeting underground hard-rock gold, copper and diamond mines in Australia and South Africa. The division has unique intellectual property which we strongly believe is highly valued by these customers. Minetec incurred losses of $1.3 million in the first half and, as forecast in our half-year announcement, achieved a break-even result in the second half. We expect the business to build on this result and deliver a full year profit in FY17. PAGE 53 CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT DIVIDENDS Dividends paid or declared by the company to members since the end of the previous financial year were: Cents per share Total amount $000 Franked Date of payment DECLARED AND PAID DURING THE YEAR ENDED 30 JUNE 2016: FY15 final FY16 interim DECLARED AFTER THE END OF THE YEAR: 2.0 2.0 3,541 3,541 100% 100% 1 October 2015 1 April 2016 FY16 final 4.0 7,088 100% 4 October 2016 All dividends paid or declared by the company since the end of the previous financial year were fully franked. 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. 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 The group will continue with its strategy of continuing to invest in new product development and to seek opportunities to further strengthen profitability by expanding into related businesses offering complementary products and technologies. 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. DIRECTORS’ INTERESTS The relevant interest of each director in the shares issued by the company as notified by the directors to the Australian Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Mr D J Simmons Mr D S McGurk Lt-Gen P F Leahy Mr J W McDowell Ordinary shares 61,532 312,517 57,708 - Mr G R C Barclay 21,052 Ms K J Gramp - 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 ANNUAL REPORT DIVIDENDS Dividends paid or declared by the company to members since the end of the previous financial year were: Cents per share $000 Total amount Franked Date of payment DECLARED AND PAID DURING THE YEAR ENDED 30 JUNE 2016: FY15 final FY16 interim DECLARED AFTER THE END OF THE YEAR: 2.0 2.0 3,541 3,541 100% 100% 1 October 2015 1 April 2016 FY16 final 4.0 7,088 100% 4 October 2016 All dividends paid or declared by the company since the end of the previous financial year were fully franked. NON-AUDIT SERVICES During the year KPMG, the company’s auditor, has performed certain other services in addition to their statutory duties. The board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services were subject to the corporate governance procedures adopted by the company and have been reviewed by the Board Audit, Risk and Compliance Committee to ensure that they do not have an impact on the integrity and objectivity of the auditor; and • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as an advocate for the company or jointly sharing risks and rewards. Refer page 57 for a copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001. 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: Consolidated 2016 $ 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 Other Other services Taxation compliance services (KPMG Australia) Taxation compliance services (overseas KPMG firms) w 192,667 15,077 207,744 2,430 87,111 135,683 225,224 2015 $ 185,000 15,293 200,293 - 123,563 101,367 224,930 PAGE 55 CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ REPORT ROUNDING OFF The company is of a kind referred to in ASIC Legislative Instrument 2016/191 dated 1 April 2016 and, in accordance with that Legislative Instrument, 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: D J Simmons Director D S McGurk Director Dated at Mawson Lakes this 23rd day of August 2016. ANNUAL REPORT CODAN LIMITED AND ITS CONTROLLED ENTITIES LEAD AUDITOR’S INDEPENDENCE DECLARATION FOR THE YEAR ENDED 30 JUNE 2016 PAGE 57 CODAN LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2016 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 for the period Attributable to: Equity holders of the company Non-controlling interests EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY Basic earnings per share Diluted earnings per share Note 2 3 4 7 6 6 Consolidated 2016 $000 2015 $000 169,540 (74,609) 94,931 (19,457) (34,167) (13,750) (2,187) (5,944) 19,426 (3,923) 15,503 15,495 8 15,503 143,863 (65,519) 78,344 (15,043) (35,258) (11,088) (1,386) 615 16,184 (3,775) 12,409 12,508 (99) 12,409 8.8 cents 8.7 cents 7.1 cents 7.0 cents www 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 63 to 98. ANNUAL REPORT CODAN LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Consolidated Consolidated 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 Other comprehensive income for the period, net of income tax Total comprehensive income for the period Note 21 21 Attributable to: Equity holders of the company Non-controlling interests 2016 $000 15,503 (66) 20 (46) 1,444 1,398 16,901 16,893 8 16,901 2015 $000 12,409 (97) 29 (68) 738 670 13,079 13,178 (99) 13,079 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 63 to 98. 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 for the period Attributable to: Equity holders of the company Non-controlling interests 2016 $000 169,540 (74,609) 94,931 (19,457) (34,167) (13,750) (2,187) (5,944) 19,426 (3,923) 15,503 15,495 8 15,503 2015 $000 143,863 (65,519) 78,344 (15,043) (35,258) (11,088) (1,386) 615 16,184 (3,775) 12,409 12,508 (99) 12,409 Note 2 3 4 7 6 6 EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY Basic earnings per share Diluted earnings per share www 8.8 cents 8.7 cents 7.1 cents 7.0 cents PAGE 59 CODAN LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2016 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventory Current tax assets Assets held for sale 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 Loans and borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Retained earnings Total equity Total equity attributable to the equity holders of the company Non-controlling interests Note 8 11 12 7 14 13 15 16 17 18 9 7 19 9 7 19 20 21 Consolidated 2016 $000 2015 $000 14,333 19,099 28,478 279 5,003 1,500 68,692 10,799 45,336 87,639 143,774 212,466 30,438 13 2,177 6,577 39,205 26,922 6,808 609 34,339 73,544 138,922 42,605 63,043 33,274 138,922 139,012 (90) 138,922 7,156 20,437 31,309 472 - 1,593 60,967 16,019 42,429 89,254 147,702 208,669 25,195 36 54 6,684 31,969 42,505 5,198 642 48,345 80,314 128,354 41,856 61,645 24,853 128,354 128,453 (99) 128,354 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 63 to 98. ANNUAL REPORTCODAN LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Consolidated 2016 Balance as at 1 July 2015 Profit for the period attributable to: Equity holders of the company Non-controlling interests Performance rights expensed Change in fair value of cash flow hedges Exchange differences on translation of foreign operations Transactions with owners of the company Dividends recognised during the period Employee share plan, net of issue costs Consolidated Share capital $000 Translation reserve $000 41,856 2,732 Hedging reserve $000 (68) Profit reserve $000 Retained earnings $000 Total $000 58,981 24,853 128,354 - - 567 - - 42,423 - 182 182 - - - - 1,444 4,176 - - - - - - (46) - - - - - - 15,495 15,495 8 - - - 8 567 (46) 1,444 (114) 58,981 40,356 145,822 - - - - - - (7,082) (7,082) - 182 (7,082) (6,900) Balance at 30 June 2016 42,605 4,176 (114) 58,981 33,274 138,922 2015 Balance as at 1 July 2014 Profit for the period attributable to: Equity holders of the company Non-controlling interests Performance rights expensed 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 41,560 Translation reserve $000 1,994 - - 296 - - - - - - - 738 - - - - - (68) - - Consolidated Hedging reserve $000 Profit reserve $000 Retained earnings $000 Total $000 48,481 28,256 120,291 12,508 12,508 - - - - - (99) - - - 10,500 (10,500) (99) 296 (68) 738 - 41,856 2,732 (68) 58,981 30,164 133,665 - - - - - - - - - - - - (5,311) (5,311) - - (5,311) (5,311) Balance at 30 June 2015 41,856 2,732 (68) 58,981 24,853 128,354 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 63 to 98. PAGE 61 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventory Current tax assets Assets held for sale 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 Loans and borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Retained earnings Total equity Total equity attributable to the equity holders of the company Non-controlling interests Note 8 11 12 7 14 13 15 16 17 18 9 7 19 9 7 19 20 21 2016 $000 14,333 19,099 28,478 279 5,003 1,500 68,692 10,799 45,336 87,639 143,774 212,466 30,438 13 2,177 6,577 39,205 26,922 6,808 609 34,339 73,544 138,922 42,605 63,043 33,274 138,922 139,012 (90) 138,922 2015 $000 7,156 20,437 31,309 472 - 1,593 60,967 16,019 42,429 89,254 147,702 208,669 25,195 36 54 6,684 31,969 42,505 5,198 642 48,345 80,314 128,354 41,856 61,645 24,853 128,354 128,453 (99) 128,354 CODAN LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Interest received Interest paid Income taxes paid (net) Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES 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 Dividends paid Net cash provided by/(used in) financing activities Consolidated 2016 Note $000 2015 $000 175,299 (125,369) 44 (2,013) (50) 157,366 (123,677) 86 (2,470) (633) 10 47,911 30,672 275 (11,971) (1,569) (4,658) (222) (18,145) (15,536) (7,082) (22,618) 7,148 7,156 29 14,333 5,369 (12,890) (1,138) (3,493) (1,281) (13,433) (17,929) (5,311) (23,240) (6,001) 13,031 126 7,156 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 8 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 63 to 98. ANNUAL REPORT CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 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 2016 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 23 August 2016. (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 2016, were available for early adoption, but have not been applied in preparing these consolidated financial statements. The company has not yet decided when to adopt AASB 9 Financial Instruments, AASB 15 Revenue from Contracts with Customers or AASB 16 Leases and has not yet determined the potential effect of these standards. The company is of a kind referred to in ASIC Legislative Instrument 2016/191 dated 1 April 2016 and, in accordance with that Legislative Instrument, amounts in the financial report and directors’ 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 judgements 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 (refer note 17). Changes in accounting policies For the year ended 30 June 2016, the group has not changed any of its significant accounting policies. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by group entities. (C) BASIS OF CONSOLIDATION Subsidiaries are entities controlled by the group. Control exists when the group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases. The PAGE 63 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. SIGNIFICANT ACCOUNTING POLICIES (continued) (C) BASIS OF CONSOLIDATION (continued) 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. Non-controlling interests are measured at their proportionate share of the subsidiaries’ net assets. (D) REVENUE RECOGNITION Revenues are recognised at the fair value of the consideration received or receivable, net of the amount of goods and services tax (GST) payable to taxation authorities. Sale of goods Revenue from the sale of goods is measured at the fair value of the consideration received or receivable (net of rebates, returns, discounts and other allowances). Revenue is recognised when the significant risks and rewards of ownership pass to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Control usually passes when the goods are shipped to the customer. Construction contracts Contract revenue includes the initial amount agreed in the contract, plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in the income statement in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity. The stage of completion is assessed by reference to professional judgement of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in the income statement. 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 assets. Interest income and borrowing costs are recognised in the income statement on an accruals basis, using the effective-interest method. Foreign currency gains ANNUAL REPORT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 PAGE 65 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 forecast 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 (continued) CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. SIGNIFICANT ACCOUNTING POLICIES (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) (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 a 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 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 the tax liabilities and assets on a net basis, or their tax assets and liabilities will be realised simultaneously. 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. ANNUAL REPORT (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. (N) INTANGIBLE ASSETS 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 PAGE 67 an indefinite useful life. It is allocated to cash-generating units and is not amortised but is tested annually for impairment. Measuring goodwill 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. CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. SIGNIFICANT ACCOUNTING POLICIES (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) (N) INTANGIBLE ASSETS (continued) Licences and other intangible assets Licences and other intangible assets that are acquired by the group, which have finite useful lives, are stated at cost, less accumulated amortisation and accumulated impairment losses. Expenditure on internally generated goodwill and brands is recognised in the income statement as incurred. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the income statement as incurred. Amortisation Amortisation is calculated on the cost of the asset, less its residual value. Amortisation is charged to the income statement on a straight- line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives in the current and comparative periods are as follows: Product development, licences and intellectual property 2 - 15 years Computer software 3 - 7 years Amortisation methods, useful lives and residual values are reviewed at each reporting date. (O) ASSETS HELD FOR SALE Non-current assets, or disposal groups comprising assets and liabilities, are classified as held- for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets are generally measured at the lower of their carrying amount and fair value less costs to sell. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated. (P) PROPERTY, PLANT AND EQUIPMENT Owned assets Items of property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Land and buildings that had been revalued to fair value prior to the transition to AIFRS, being 1 July 2004, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” or “other expenses” in the income statement. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. Leased assets Leases where 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 ANNUAL REPORTare not recognised in the balance sheet. for use, the recoverable amount is estimated annually. Depreciation Depreciation is calculated on the depreciable amount, which is the cost of an asset, less its residual value. Depreciation is charged to the income statement on property, plant and equipment on a straight-line basis over the estimated useful life of the assets. Capitalised leased assets are amortised on a straight- line basis over the term of the relevant lease, or where it is likely the group will obtain ownership of the asset, the life of the asset. Land is not depreciated. The main depreciation rates used for each class of asset for current and comparative periods are as follows: Buildings Leasehold property 4% 10% Plant and equipment 5% to 40% Depreciation methods, useful lives and residual values are reviewed at each reporting date. (Q) 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 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 PAGE 69 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. (R) 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. (S) 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. (T) 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. CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1. SIGNIFICANT ACCOUNTING POLICIES (continued) (T) EMPLOYEE BENEFITS (continued) 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 high quality corporate bond rates 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. (U) 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. (V) 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. (W) SHARE-BASED PAYMENT TRANSACTIONS Share-based payments in which the group receives goods or services as consideration for its own equity instruments are accounted for as equity- settled share-based payment transactions, regardless of how the equity instruments are obtained from the group. The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards which vest. Restructuring and employee termination benefits A provision for restructuring is recognised when the group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for. 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. ANNUAL REPORT GROUP PERFORMANCE 2. 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. 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. 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. 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 tracking solutions 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. This business was sold in the prior financial year. 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, China, United Arab Emirates, South Africa and Ireland. PAGE 71 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 GROUP PERFORMANCE (continued) 2. SEGMENT ACTIVITIES (continued) Information about reportable segments REVENUE External segment revenue Inter-segment revenue Total segment revenue RESULT Segment result Impairment Net financing costs Restructuring expenses 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 Capital expenditure Unallocated capital expenditure Total capital expenditure Segment assets Unallocated corporate assets Consolidated total assets Communications Metal detection Tracking solutions Other Elimination Consolidated 2016 $000 64,996 - 64,996 2015 $000 63,841 - 63,841 2016 $000 99,203 - 99,203 2015 $000 73,262 - 73,262 2016 $000 5,341 - 5,341 2015 $000 4,751 - 4,751 17,428 15,212 29,819 19,204 (1,229) (3,320) 4,380 4,296 7,290 4,923 209 209 1,183 651 987 2,394 150 219 72,098 60,832 98,099 107,863 15,343 17,420 2016 $000 2015 $000 2016 $000 2016 $000 2015 $000 - - - - - - - 2,009 103 2,112 (565) 48 - 20 2015 $000 - (103) (103) - - - - - - - - - - - 169,540 143,863 - - 169,540 143,863 46,018 (5,535) (2,187) (2,512) (16,358) 19,426 (3,923) 15,503 11,879 830 12,709 2,320 2,338 4,658 185,540 26,926 212,466 30,531 - (1,386) (197) (12,764) 16,184 (3,775) 12,409 9,476 1,091 10,567 3,264 300 3,564 186,135 22,534 208,669 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 $26,239,966 (2015: $30,078,925), the United States of America totalling $42,397,860 (2015: $29,268,017) and United Arab Emirates totalling $40,536,369 (2015: $15,933,018). The group’s non-current assets, excluding financial instruments and deferred tax assets, were located as follows: Australia $113,894,137 (2015: $121,421,258), the United States of America $175,780 (2015: $185,084), Ireland $13,078 (2015: $210,495), England $30,113 (2015: $99,045), Canada $29,511,819 (2015: $25,811,482) and United Arab Emirates $148,764 (2015: $222,203). ANNUAL REPORT ty Information about reportable segments REVENUE External segment revenue Inter-segment revenue Total segment revenue RESULT Segment result Impairment Net financing costs Restructuring expenses 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 Capital expenditure Unallocated capital expenditure Total capital expenditure Segment assets Unallocated corporate assets Consolidated total assets Communications Metal detection Tracking solutions Other 2016 $000 64,996 - 64,996 2015 $000 63,841 - 63,841 2016 $000 99,203 - 99,203 2015 $000 73,262 - 73,262 2016 $000 5,341 - 5,341 2015 $000 4,751 - 4,751 17,428 15,212 29,819 19,204 (1,229) (3,320) 4,380 4,296 7,290 4,923 209 209 1,183 651 987 2,394 150 219 72,098 60,832 98,099 107,863 15,343 17,420 2016 $000 - - - - - - - PAGE 73 2015 $000 2,009 103 2,112 (565) 48 - 20 Elimination 2016 $000 2015 $000 Consolidated 2016 $000 2015 $000 - - - - - - - - (103) (103) - - - - 169,540 - 143,863 - 169,540 143,863 46,018 (5,535) (2,187) (2,512) (16,358) 19,426 (3,923) 15,503 11,879 830 12,709 2,320 2,338 4,658 185,540 26,926 212,466 30,531 - (1,386) (197) (12,764) 16,184 (3,775) 12,409 9,476 1,091 10,567 3,264 300 3,564 186,135 22,534 208,669 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 GROUP PERFORMANCE (continued) 3. EXPENSES Consolidated 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 Increase in liability for long service leave Increase in liability for annual leave Additional expenses disclosed: Impairment of trade receivables Operating lease rental expense Restructuring expenses 2016 $000 (44) 459 1,772 2,187 3 131 2,164 2,298 7,311 1,849 588 663 10,411 36,355 3,090 2,982 438 1,293 44,158 272 4,056 2,512 2015 $000 (86) (1,120) 2,592 1,386 473 29 2,176 2,678 5,340 1,175 761 613 7,889 35,479 2,499 2,877 377 1,659 42,891 (57) 2,717 197 ANNUAL REPORT4. OTHER EXPENSES / (INCOME) Impairment of building Impairment of Minetec property, plant and equipment Impairment of Minetec inventory Impairment of Minetec product development Impairment of Minetec product intellectual property (Gain)/loss on sale of property, plant and equipment Other expenses/(income) 5. DIVIDENDS i. An ordinary final dividend of 2.0 cents per share, franked to 100% with 30% franking credits, was paid on 1 October 2015 ii. An ordinary interim dividend of 2.0 cents per share, franked to 100% with 30% franking credits, was paid on 1 April 2016 iii. An ordinary final dividend of 1.5 cents per share, franked to 100% with 30% franking credits, was paid on 1 October 2014 iv. An ordinary interim dividend of 1.5 cents per share, franked to 100% with 30% franking credits, was paid on 1 April 2015 Consolidated 2016 $000 1,379 524 1,287 1,753 592 364 45 5,944 3,541 3,541 - - 7,082 2015 $000 - - - - - (299) (316) (615) - - 2,655 2,656 5,311 Subsequent events Since the end of the financial year, the directors declared an ordinary final dividend of 4.0 cents per share, fully franked. Based upon the shares on issue at 30 June 2016, the dividend would be $7,088,492 and is expected to be paid on 4 October 2016. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2016 and will be recognised in subsequent financial reports. Dividend franking account Franking credits available to shareholders for subsequent financial years (30%) 11,954 12,864 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 $3,037,925 (2015: $1,517,685). PAGE 75 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 GROUP PERFORMANCE (continued) 6. 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 Consolidated 2016 $000 2015 $000 15,495 12,508 The weighted average number of shares used as the denominator number for basic earnings per share was 177,066,095 (2015: 177,014,155). The calculation of diluted earnings per share at 30 June 2016 was based on profit attributable to shareholders of $15.5 million and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 178,134,784 (2015: 177,985,408). TAXATION 7. 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 Reconciliation between tax expense and pre-tax net profit: The prima facie income tax expense calculated at 30% on the profit from ordinary activities Decrease in income tax expense due to: Additional deduction for research and development expenditure Over/(under) provision for taxation in previous years Effect of tax rates in foreign jurisdictions Utilisation of overseas carried forward R&D tax credits 2,286 (1,067) 1,219 2,704 3,923 346 (458) (112) 3,887 3,775 5,828 4,855 845 1,067 319 323 3,274 930 458 5 - 3,462 ANNUAL REPORT  Consolidated 2016 $000 2015 $000 Increase in income tax expense due to: Non-deductible expenses Non-deductible capital loss Sundry items Income tax expense B. CURRENT TAX LIABILITIES / ASSETS Balance at the beginning of the year Net foreign currency differences on translation of foreign entities Income tax paid (net) 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 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 Set-off of tax in relation to deferred tax assets: Difference in depreciation of property, plant and equipment Payments for intellectual property not currently deductible Provisions for employee benefits not currently deductible Provisions and accruals not currently deductible Sundry items Carry forward tax losses 86 413 150 3,923 418 10 (50) 10 (2,286) (1,898) 279 (2,177) (1,898) 13,658 - (412) (2,430) (1,652) (2,147) (209) - 6,808 289 - 24 3,775 1,055 102 (633) 240 (346) 418 472 (54) 418 12,204 153 (79) (2,293) (1,761) (1,721) - (1,305) 5,198 W CASH MANAGEMENT 8. CASH AND CASH EQUIVALENTS Petty cash Cash at bank W PAGE 77 52 14,281 14,333 52 7,104 7,156 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CASH MANAGEMENT (continued) 9. 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 Facilities utilised at balance date: Multi-option facility - cash advance Multi-option facility - other Commercial credit card Facilities not utilised at balance date: Multi-option facility Commercial credit card Consolidated 2016 $000 2015 $000 13 13 26,922 - 26,922 85,000 200 85,200 26,922 3,528 78 30,528 54,550 122 54,672 36 36 42,492 13 42,505 85,000 200 85,200 42,492 2,410 26 44,928 40,098 174 40,272 In addition to these facilities, the group has cash at bank and short-term deposits of $14,333,000 as set out in note 8. Bank Facilities Facilities are supported by interlocking guarantees between the company and its subsidiaries. The facilities have a term of three years expiring in December 2018, and are subject to compliance with certain financial covenants over that term. WEIGHTED AVERAGE INTEREST RATES: Cash at bank Cash advance Consolidated 2016 % 0.49 3.04 2015 % 1.12 3.00 ANNUAL REPORT 10. NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of profit after income tax to net cash provided by operating activities Profit after income tax Add/(less) items classified as investing or financing activities: (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 Impairment of Minetec assets Increase/(decrease) in income taxes Increase/(decrease) in net assets affected by translation Net cash from operating activities before changes in assets and liabilities 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 OPERATING ASSETS AND LIABILITIES 11. TRADE AND OTHER RECEIVABLES CURRENT Trade receivables Less: Provision for impairment losses Other debtors Consolidated 2016 $000 15,503 2015 $000 12,409 364 (299) 3 131 2,164 1,379 10,411 749 4,156 3,925 1,575 40,360 1,338 1,544 93 4,716 (140) 47,911 19,859 (808) 19,051 48 19,099 473 29 2,176 - 7,889 295 - 4,264 (239) 26,997 1,704 (11) 255 1,510 217 30,672 20,808 (600) 20,208 229 20,437 WEIGHTED AVERAGE INTEREST RATES: Cash at bank Cash advance Consolidated 2016 % 0.49 3.04 2015 % 1.12 3.00 PAGE 79 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OPERATING ASSETS AND LIABILITIES (continued) 12. INVENTORY Consolidated 2016 $000 2015 $000 Raw materials Work in progress Finished goods 13. OTHER ASSETS Prepayments Project work in progress Other 14. ASSETS HELD FOR SALE Freehold land and buildings Reconciliation Carrying amount at beginning of the year Transfer Impairment Carrying amount at end of the year 15. PROPERTY, PLANT AND EQUIPMENT 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 4,546 12,156 11,776 28,478 1,301 - 199 1,500 5,003 - 6,382 (1,379) 5,003 - - - 1,190 (358) 832 27,552 (18,218) 9,334 633 10,799 2,680 12,202 16,427 31,309 1,214 27 352 1,593 - - - - - 9,462 (3,374) 6,088 599 (289) 310 28,972 (20,057) 8,915 706 16,019 ANNUAL REPORT 12. INVENTORY Raw materials Work in progress Finished goods Prepayments Project work in progress Other Carrying amount at beginning of the year Freehold land and buildings Reconciliation Transfer Impairment Carrying amount at end of the year 2016 $000 4,546 12,156 11,776 28,478 1,301 - 199 1,500 5,003 - 6,382 (1,379) 5,003 2015 $000 2,680 12,202 16,427 31,309 1,214 27 352 1,593 - - - - - OPERATING ASSETS AND LIABILITIES (continued) 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 Asset held for sale transfer Disposals Depreciation Consolidated Carrying amount at end of year Leasehold property improvements Carrying amount at beginning of year Additions Transfers Disposals Depreciation Net foreign currency differences on translation of foreign entities Carrying amount at end of year Plant and equipment Carrying amount at beginning of year Additions Transfers Impairment 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 16. PRODUCT DEVELOPMENT Product development at cost Accumulated amortisation Reconciliation Carrying amount at beginning of year Capitalised in current period Impairment Amortisation PAGE 81 Consolidated 2016 $000 2015 $000 6,088 141 156 (6,382) - (3) - 310 278 404 (34) (131) 5 832 8,915 3,579 123 (524) (595) (2,164) - 9,334 706 (73) 633 10,799 97,835 (52,499) 45,336 42,429 11,971 (1,753) (7,311) 45,336 10,426 2 546 - (4,413) (473) 6,088 252 140 - (74) (29) 21 310 8,083 3,330 137 - (584) (2,176) 125 8,915 1,367 (661) 706 16,019 85,864 (43,435) 42,429 34,879 12,890 - (5,340) 42,429 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OPERATING ASSETS AND LIABILITIES (continued) 17. INTANGIBLE ASSETS Consolidated 2016 $000 2015 $000 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 Net foreign currency differences on translation of foreign entities Intellectual property Carrying amount at beginning of year Additions Amortisation Net foreign currency differences on translation of foreign entities Computer software Carrying amount at beginning of year Additions Transfers from capital work in progress Amortisation Disposals 83,274 16,328 (14,390) 1,938 10,273 (9,851) 422 5,106 (3,101) 2,005 87,639 83,525 (251) 83,274 1,725 2,096 (1,849) (34) 1,938 847 169 4 (588) (10) 422 83,525 14,277 (12,552) 1,725 12,894 (12,047) 847 5,003 (1,846) 3,157 89,254 82,396 1,129 83,525 1,495 1,335 (1,175) 70 1,725 816 92 705 (761) (5) 847 ANNUAL REPORT OPERATING ASSETS AND LIABILITIES (continued) 17. INTANGIBLE ASSETS Consolidated 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 Net foreign currency differences on translation of foreign entities Intellectual property Carrying amount at beginning of year Additions Amortisation Net foreign currency differences on translation of foreign entities Computer software Carrying amount at beginning of year Transfers from capital work in progress Additions Amortisation Disposals 2016 $000 83,274 16,328 (14,390) 1,938 10,273 (9,851) 422 5,106 (3,101) 2,005 87,639 83,525 (251) 83,274 1,725 2,096 (1,849) (34) 1,938 847 169 4 (588) (10) 422 2015 $000 83,525 14,277 (12,552) 1,725 12,894 (12,047) 847 5,003 (1,846) 3,157 89,254 82,396 1,129 83,525 1,495 1,335 (1,175) 70 1,725 816 92 705 (761) (5) 847 Licences Carrying amount at beginning of year Acquisitions Transfers Impairment Amortisation The following segments have significant carrying amounts of goodwill: Tracking solutions Metal detection Communications Consolidated 2016 $000 3,157 53 50 (592) (663) 2,005 8,538 53,957 20,779 83,274 2015 $000 3,286 412 72 - (613) 3,157 8,538 53,957 21,030 83,525 Goodwill The recoverable amount of cash generating units has been determined using value-in-use calculations. The Communications and Metal Detection cash generating units are well established businesses, and the approach to the value- in-use calculations for these units is similar. The first year of the cash flow forecasts is based on the oncoming year’s budget, and cash flows are forecast for a 5-year period. The key assumption driving the value-in-use valuation is the level of sales, which is based on management assessments having regard to the demand expected from customers, the global economy and the businesses’ competitive position. Other assumptions relate to the level of gross margins achieved on sales and the level of expense required to run the business. These assumptions reflect past experience. A terminal value has been determined at the conclusion of five years assuming a long-term growth rate of 3%. A pre-tax discount rate of 12% has been applied to the forecast cash flows. Minetec was acquired by Codan in 2012 and is in the early stages of developing a mining technology business, which forms the basis of the tracking solutions segment. It had a history of providing relatively basic communication services to the mining industry. However, over the past four years, Codan has invested in the best of Minetec’s intellectual property in order to transition the company to a high-value-add technology solutions provider. Over FY16, Minetec has continued to progress the technical maturity of its products and made significant progress with mining customers to successfully transition from delivery of pilot demonstration projects to full-scale implementation of tracking, safety and productivity technologies in operational environments. From a technology perspective, FY16 has seen Minetec transition from the product development phase to the systems integration of solutions that have been successfully demonstrated in operating mines. The business is now “product ready”. Having now proven the technology and demonstrated our solutions, the challenge is to secure further market acceptance and commitment to full-scale operational deployments. While the task has been made more difficult by low commodity prices and cuts to miners’ capital expenditure budgets, the Minetec value proposition is well aligned to the challenges of sectors such as underground hard-rock mining, which is moving toward increased mechanisation. PAGE 83 During FY16, the transition from the development to implementation phase and the ongoing volatile nature of commodity markets resulted in management critically assessing the carrying value of all capitalised product development, fixed assets and inventory for this business unit. This process identified assets that are no longer considered to be core to Minetec’s value proposition and therefore a write-down of $4.2 million was recorded against these assets. In performing the value-in-use calculations for the Minetec business, the first year of the cash flow forecasts is based on the oncoming year’s budget. Cash flows are forecast for a 5-year period. As the business is in the early stage of its development, historical data is not reflective of the possible future outcomes. A number of scenarios have been prepared in order to understand the range of valuation outcomes, and these alternatives have then been assessed to determine a weighted average recoverable amount. The key assumption to the valuation scenarios is the level of sales achieved by this business. To prepare the sales forecasts, management has determined the number of mines that are expected to adopt productivity and safety technology, the average sales value expected per mine and the market share that will be won by Minetec. Other assumptions relate to the level of gross margins achieved on sales, the level of expense to run the business and working capital requirements, and these assumptions are reflective of Codan’s past experience with technology-based businesses. A terminal value has been determined at the conclusion of five years assuming a long term growth rate of 3%. A pre-tax discount rate of 16% has been applied to the forecast cash flows. The key risk to the value- in-use calculations is that the mining industry does not adopt the productivity and safety solutions that are being developed and sold by Minetec, and this possibility has been included as one of the valuation scenarios. The valuation scenarios identify the number of mines in the two most prospective countries for Minetec’s safety and productivity solutions. Over the five-year forecast period, the weighted average valuation has Minetec achieving 7% of that market. If that share were to reduce to 4%, the recoverable amount of the Minetec cash generating unit would be approximately equal to its carrying amount. CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OPERATING ASSETS AND LIABILITIES (continued) 17. INTANGIBLE ASSETS (continued) 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 for 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 communications 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. 18. TRADE AND OTHER PAYABLES Consolidated 2016 $000 2015 $000 CURRENT Trade payables Other payables and accruals Net foreign currency hedge payable 19. PROVISIONS CURRENT Employee benefits Warranty repairs Other NON-CURRENT Employee benefits Reconciliation of warranty provision Carrying amount at beginning of year Provisions made/(released) Payments made w 9,655 20,620 163 30,438 5,097 1,160 320 6,577 609 1,077 1,437 (1,354) 1,160 11,935 13,163 97 25,195 5,287 1,077 320 6,684 642 1,101 637 (661) 1,077 ANNUAL REPORT OPERATING ASSETS AND LIABILITIES (continued) 17. INTANGIBLE ASSETS (continued) CURRENT Trade payables Other payables and accruals Net foreign currency hedge payable CURRENT Employee benefits Warranty repairs Other NON-CURRENT Employee benefits Reconciliation of warranty provision Carrying amount at beginning of year Provisions made/(released) Payments made w Consolidated 2016 $000 9,655 20,620 163 30,438 5,097 1,160 320 6,577 609 1,077 1,437 (1,354) 1,160 2015 $000 11,935 13,163 97 25,195 5,287 1,077 320 6,684 642 1,101 637 (661) 1,077 Consolidated 2016 $000 320 - 320 2015 $000 320 - 320 Reconciliation of other provision Carrying amount at beginning of year Provisions made/(reversed) during the year w CAPITAL MANAGEMENT 20. SHARE CAPITAL Share capital Opening balance (177,063,244 ordinary shares fully paid) Performance rights expensed Issue of share capital through employee share plan Closing balance (177,212,302 ordinary shares fully paid) 41,856 567 182 42,605 41,560 296 - 41,856 Terms and conditions 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. 21. RESERVES Foreign currency translation Hedging reserve Profit reserve 4,176 (114) 58,981 63,043 2,732 (68) 58,981 61,645 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 Net translation adjustment Balance at end of year w Hedging reserve 2,732 1,444 4,176 1,994 738 2,732 The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments (net of tax) related to hedged transactions that have not yet occurred. Balance at beginning of year Gains/(losses) on cash flow hedges taken to/from hedging reserve Balance at end of year (68) (46) (114) Profit reserve The profit reserve comprises Codan Limited’s accumulated profits. Balance at beginning of year Transfer of profit after tax attributed to the parent entity Balance at end of year 58,981 - 58,981 - (68) (68) 48,481 10,500 58,981 PAGE 85 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 CAPITAL MANAGEMENT (continued) 22. 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. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements. GROUP STRUCTURE 23. GROUP ENTITIES Name PARENT ENTITY Codan Limited CONTROLLED ENTITIES Codan (Qld) Pty Ltd * Codan (UK) Limited Codan Defence Electronics Pty Ltd ** Codan Executive Share Plan Pty Ltd Codan US Inc Codan Radio Communications ME DMCC Codan Radio Communications Pty Ltd Codan Holdings US Inc Daniels Electronics Ltd A.C.N. 007 912 558 Pty Ltd (previously IMP Printed Circuits Pty Ltd) * Minelab Americas Inc Minelab Electronics Pty Limited Minelab International Limited Minelab MEA General Trading LLC Minetec Pty Ltd Minetec RSA (Pty) Ltd Minetec Wireless Technologies Pty Ltd * Parketronics Pty Ltd * Country of incorporation Class of share Interest held 2016 Interest held 2015 % % Australia Ordinary Australia England Australia Australia USA UAE Australia USA Canada Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Australia Ordinary USA Australia Ireland UAE Australia South Africa Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 * A.C.N. 007 912 558 Pty Ltd, Codan (Qld) Pty Ltd, Minetec Wireless Technologies Pty Ltd and Parketronics Pty Ltd are inactive entities and are in the process of being liquidated. ** Codan Defence Electronics Pty Ltd was incorporated on 10 May 2016. ANNUAL REPORT CAPITAL MANAGEMENT (continued) 22. CAPITAL MANAGEMENT GROUP STRUCTURE 23. GROUP ENTITIES Name PARENT ENTITY Codan Limited CONTROLLED ENTITIES Codan (Qld) Pty Ltd * Codan (UK) Limited Codan Defence Electronics Pty Ltd ** Codan Executive Share Plan Pty Ltd Codan US Inc Codan Radio Communications ME DMCC Codan Radio Communications Pty Ltd Codan Holdings US Inc Daniels Electronics Ltd Minelab Americas Inc Minelab Electronics Pty Limited Minelab International Limited Minelab MEA General Trading LLC Minetec Pty Ltd Minetec RSA (Pty) Ltd Minetec Wireless Technologies Pty Ltd * Parketronics Pty Ltd * Country of incorporation Class of share Interest held Interest held 2016 % 2015 % Australia Ordinary Australia England Australia Australia USA UAE Australia USA Canada USA Australia Ireland UAE Australia South Africa Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 A.C.N. 007 912 558 Pty Ltd (previously IMP Printed Circuits Pty Ltd) * Australia Ordinary 24. 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 Consolidated Profit before tax Income tax expense Profit after tax Retained earnings at beginning of the year Retained earnings at end of the year Balance sheet CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Assets held for sale Other assets Total current assets NON-CURRENT ASSETS Investments Property, plant and equipment Product development Intangible assets Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Other liabilities 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 PAGE 87 2016 $000 27,862 (3,632) 24,230 1,043 18,191 8,636 69,091 22,429 5,003 1,103 106,262 26,458 9,185 36,036 56,046 127,725 233,987 19,901 69,914 5,103 94,918 8,753 7,092 531 16,376 111,294 122,693 43,718 60,784 18,191 122,693 2015 $000 15,163 (4,379) 10,784 6,069 1,043 2,612 48,988 17,000 - 1,467 70,067 26,458 14,357 35,973 56,722 133,510 203,577 18,071 45,922 5,015 69,008 24,104 5,595 549 30,248 99,256 104,321 42,970 60,308 1,043 104,321 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 GROUP STRUCTURE (continued) 25. PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ending 30 June 2016, the parent company of the group was Codan Limited. Result of parent entity Profit after tax 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 2016 $000 2015 $000 24,661 (305) 24,356 98,200 214,205 81,621 97,635 43,718 55,846 17,005 116,569 10,968 (2,830) 8,138 74,270 190,953 60,918 92,126 42,970 56,431 (574) 98,827 During the year, Codan Limited entered into contracts to purchase plant and equipment for $597,146 (2015:$340,799). OTHER NOTES 26. 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 Consolidated 2016 $ 2015 $ 192,667 15,077 87,111 2,430 135,683 432,968 185,000 15,293 123,563 - 101,367 425,223 ANNUAL REPORT GROUP STRUCTURE (continued) 25. PARENT ENTITY DISCLOSURES As at, and throughout, the financial year ending 30 June 2016, the parent company of the group was Codan Limited. 27. 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 Consolidated 2016 $000 2015 $000 1,353 - 1,353 805 349 1,154 3,149 12,850 22,252 38,251 2,748 10,854 24,962 38,564 The group leases property under non-cancellable operating leases expiring from one to fifteen years. Leases generally provide the group with a right of renewal, at which time all terms are renegotiated. Lease payments normally comprise a base amount and an adjustment for the consumer price index. 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 13 - - 13 - 13 13 - 13 39 13 - 52 (3) 49 36 13 49 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. KPMG Australia - audit and review of financial reports Overseas KPMG firms - audit of financial reports Audit services: Other services: KPMG Australia - taxation services KPMG Australia - other assurance services Overseas KPMG firms - taxation services Consolidated 2016 $ 192,667 15,077 87,111 2,430 135,683 432,968 2015 $ 185,000 15,293 123,563 - 101,367 425,223 PAGE 89 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 FOR THE YEAR ENDED 30 JUNE 2016 OTHER NOTES (continued) 28. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE Financial risk management OVERVIEW The group has exposure to the following risks from its use of financial instruments: • credit risk • liquidity risk • market risk • operational risk This note presents information about the group’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and its management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The board of directors has overall responsibility for the establishment and oversight of the risk management framework. The Board Audit, Risk and Compliance Committee is responsible for developing and monitoring risk management policies. The committee reports regularly to the board on its activities. Risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls, and to monitor risk and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the group’s activities. The group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Board Audit, Risk and Compliance Committee oversees how management monitors compliance with the group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the 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, and arises principally from the group’s receivables from customers. The credit risk on the financial assets of the consolidated entity is the carrying amount of the asset, net of any impairment losses recognised. The group minimises concentration of credit risk by undertaking transactions with a large number of customers in various countries. For the year ended 30 June 2016, the group had one customer in the Metal Detection segment with sales of $20.5 million. 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. ANNUAL REPORTOTHER NOTES (continued) 28. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE 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: Cash and cash equivalents Trade and other receivables Carrying amount Consolidated Note 8 11 2016 $000 14,333 19,099 2015 $000 7,156 20,437 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 4,403 4,012 7,484 1,471 2,489 5,600 3,888 6,272 1,142 3,906 19,859 20,808 The aging of the group’s trade receivables at the reporting date was: Not past due Past due 0-30 days Past due 31-60 days Past due 61-120 days More than 120 days Gross 2016 $000 11,683 4,231 2,341 623 981 19,859 Consolidated Impairment 2016 $000 (49) (150) - (27) (582) (808) Gross 2015 $000 10,725 7,498 1,397 225 963 20,808 Impairment 2015 $000 (40) (8) - - (552) (600) Trade receivables 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. The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 1 July Impairment loss/(reversal) recognised Trade receivables written off to the allowance for impairment Balance at 30 June Consolidated 2016 $000 600 272 (64) 808 2015 $000 741 (57) (84) 600 PAGE 91 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OTHER NOTES (continued) 28. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued) (B) LIQUIDITY RISK 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 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 9 for a summary of banking facilities available. The following are the contractual maturities of financial liabilities: 30 June 2016 Non-derivative financial liabilities Trade and other payables Finance leases Cash advance Derivative financial liabilities Net foreign currency hedge payable 30 June 2015 Non-derivative financial liabilities Trade and other payables Finance leases Cash advance Carrying amount $000 Contractual cash flows 12 months or less 1-5 years More than 5 years $000 $000 $000 $000 30,275 13 26,922 (30,275) (13) (27,439) (30,275) (13) (518) - - (26,922) 57,210 (57,727) (30,806) (26,922) 163 163 (163) (163) (163) (163) - - 25,098 49 42,492 67,639 (25,098) (52) (43,657) (25,098) (39) (1,165) - (13) (42,492) (68,807) (26,302) (42,505) - - - - - - - - - - (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. ANNUAL REPORT OTHER NOTES (continued) 28. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued) Profile At the reporting date, the interest rate profile of the group’s interest-bearing financial instruments was: FIXED RATE INSTRUMENTS Financial assets Financial liabilities VARIABLE RATE INSTRUMENTS Financial assets Financial liabilities Carrying amount Consolidated 2016 $000 - (13) (13) 2015 $000 - (52) (52) 14,333 (26,922) (12,589) 7,156 (42,492) (35,336) Cash flow sensitivity 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 2015. Profit/(loss) before tax Reserve 100 bp increase $000 100 bp decrease $000 100 bp increase $000 100 bp decrease $000 30 JUNE 2016 Variable rate instruments 30 JUNE 2015 (126) 126 Variable rate instruments (353) 353 - - - - 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 and CAD. 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 in USD). The terms of these commitments are usually less than 12 months. As at the reporting date, the group has entered into a mix of forward exchange contracts and collar hedge instruments which will limit the foreign exchange risk on USD $25,580,000 of FY17 cash flows. On average, the collars give protection above 77 cents and enable participation down to 71 cents, and the average forward exchange contract rate is 74 cents. PAGE 93 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OTHER NOTES (continued) 28. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued) (C) MARKET RISK (continued) Currency risk (continued) 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 2016 Cash and cash equivalents Trade receivables Trade payables Loans and borrowings Gross balance sheet exposure Hedge transactions relating to balance sheet exposure Net exposure at the reporting date 30 JUNE 2015 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 EUR $000 542 643 (22) - 1,163 - 1,163 290 111 (21) 380 - 380 Consolidated USD $000 4,998 12,656 (5,118) (8,753) 3,783 (1,038) 2,745 2,341 8,830 (6,112) 5,059 (2,170) 2,889 CAD $000 - - 3 - 3 - 3 - - (15) (15) - (15) ANNUAL REPORT OTHER NOTES (continued) 28. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (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) Profit/(loss) before tax $000 $000 2016 EUR USD CAD 2015 EUR USD CAD - 15 - 15 - (6) - (6) (106) (250) - (356) (35) (262) 1 (296) A 10% weakening of the Australian dollar against the above currencies at 30 June would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. (D) FAIR VALUE HIERARCHY The group’s financial instruments carried at fair value have been valued by using a “level 2” valuation method. Level 2 valuations are obtained from inputs, other than quoted prices, that are observable for the asset or liability either directly or indirectly. At the end of the current year, financial instruments valued at fair value were limited to net foreign currency hedge payables of $162,530, for which an independent valuation was obtained from the relevant banking institution. 29. EMPLOYEE BENEFITS Consolidated 2016 $000 5,248 5,097 609 10,954 2015 $000 3,848 5,287 642 9,777 3.00% 3.54% 10 years 3.50% 4.20% 10 years 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 w PAGE 95 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OTHER NOTES (continued) 29. 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 2016 The company issued 149,058 shares to eligible employees in June 2016. The fair value of the shares was $1.22 per share, based on the volume weighted average price at which Codan shares were traded on the ASX for the five trading days immediately preceding the date of issue of the shares. The exercise price was nil. The total expense recognised as employee costs in 2016 in relation to the ESP shares issued was $181,851. 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 employees with an incentive to maximise the return to shareholders over the long term, and to assist in the attraction and retention of key employees. 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 2016 in relation to the performance rights issued was nil (2015:nil). The group’s earnings per share over the three-year period to 30 June have not met the performance target, and therefore these performance rights have lapsed and no shares will be issued. Performance rights issued in financial year 2015 The company issued 1,083,715 performance rights in November 2014 to certain executives. The fair value of the rights was on average $0.67 based on the Black-Scholes formula. The model inputs were: the share price of $0.80, no exercise price, expected volatility 77%, dividend yield 3.75%, a term of three years and a risk-free rate of 3.1%. Due to the departure of an executive in FY16, 259,952 performance rights were cancelled. The total expense recognised as employee costs in 2016 in relation to the performance rights issued was $241,605 (2015: $250,389). The performance rights become exercisable if certain performance thresholds are achieved. The performance threshold is based on growth of ANNUAL REPORT OTHER NOTES (continued) 29. EMPLOYEE BENEFITS (continued) The performance rights become exercisable if certain performance thresholds are achieved. The performance threshold is based on growth of the group’s earnings per share over a three-year period. For executives to receive the total number of performance rights, the group’s earnings per share must increase by at least 15% per annum over the three- year period. If achieved, performance rights are exercisable into the same number of ordinary shares in the company. No performance rights have been issued since the end of the financial year. the 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. Performance rights issued in financial year 2016 The company issued 236,948 performance rights in November 2015 to the chief executive officer. The fair value of the rights was $0.64 based on the Black-Scholes formula. The model inputs were: the share price of $0.80, no exercise price, expected volatility 43%, dividend yield 4.38%, a term of three years and a risk-free rate of 2.9%. The company issued 312,447 performance rights in April 2016 and 429,189 performance rights in May 2016 to certain employees. The fair value of the rights was on average $0.89 based on the Black- Scholes formula. The average model inputs were: the share price of $1.08, no exercise price, expected volatility 53%, dividend yield 3.72%, a term of three years and a risk-free rate of 2.6%. The total expense recognised as employee costs in 2016 in relation to the performance rights issued was $325,210. PAGE 97 CODAN LIMITED AND ITS CONTROLLED ENTITIES NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 OTHER NOTES (continued) 30. 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 3) is as follows: Short-term employee benefits Post-employment benefits Share-based payments Other long term Termination benefits Consolidated 2016 $ 2015 $ 3,891,895 138,674 605,309 45,311 82,046 4,763,235 3,017,410 174,901 250,388 31,100 - 3,473,799 (C) KEY MANAGEMENT PERSONNEL TRANSACTIONS From time to time, directors and specified executives, or their related parties, purchase goods from the group. These purchases occur within a normal employee relationship and are considered to be trivial in nature. 31. 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. 32. NET TANGIBLE ASSET / LIABILITY PER SHARE Net tangible asset/(liability) per share 2016 7.2 cents 2015 1.0 cents ANNUAL REPORT OTHER NOTES (continued) 30. KEY MANAGEMENT PERSONNEL DISCLOSURES CODAN LIMITED AND ITS CONTROLLED ENTITIES DIRECTORS’ DECLARATION In the opinion of the directors of Codan Limited (“the company”): (a) the consolidated financial statements and notes, set out on pages 58 to 98, 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 2016 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; (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 24 will be able to meet any obligations or liabilities to which they are, or may become, subject 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 2016. Dated at Mawson Lakes this 23rd day of August 2016. Signed in accordance with a resolution of the directors: D J Simmons Director D S McGurk Director PAGE 99 CODAN LIMITED AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT38 to 46 PAGE 101 CODAN LIMITED AND ITS CONTROLLED ENTITIES ASX ADDITIONAL INFORMATION Additional information required by the Australian Stock Exchange Limited Listing Rules not disclosed elsewhere in this report is set out below. Shareholdings as at 18th August 2016 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, Dareel 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 24,228,533 12,320,566 Number of equity security holders Ordinary shares 1,083 1,556 717 949 118 4,423 The number of shareholders holding less than a marketable parcel of ordinary shares is 568. 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. ANNUAL REPORT The number of shareholders holding less than a marketable parcel of ordinary shares is 568. Number of ordinary shares held 34,808,151 11,404,224 9,118,356 8,854,251 8,631,790 5,124,125 5,074,029 5,000,000 4,764,585 3,562,124 3,226,763 3,202,210 2,999,050 2,522,458 2,125,687 2,008,463 1,907,359 1,489,875 1,314,508 1,205,143 Percentage of capital held 19.6% 6.5% 5.2% 5.0% 4.9% 2.9% 2.9% 2.8% 2.7% 2.0% 1.8% 1.8% 1.7% 1.4% 1.2% 1.1% 1.1% 0.8% 0.7% 0.7% 118,343,151 66.8% Location of share registry Computershare Investor Services Pty Limited GPO Box 1903 Adelaide, South Australia 5001 Twenty largest shareholders Name I B Wall and P M Wall Starform Pty Ltd Kynola Pty Ltd Dareel Pty Ltd J P Morgan Nominees Australia Limited RBC Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited Griffinna Pty Ltd M K and M C Heard A Bettison National Nominees Limited Warren Glen Pty Ltd Fruehling Pty Ltd Mitranikitan Pty Ltd Pinara Group Pty Ltd HSBC Custody Nominees (Australia) Limited Bond Street Custodians Limited G Bettison Cedara Pty Ltd J A Uhrig Total Offices and officers Company Secretary Mr Michael Barton BA (ACC), CA Principal registered office Technology Park 2 Second Avenue Mawson Lakes, South Australia 5095 Telephone: (08) 8305 0311 Facsimile: (08) 8305 0411 Internet address: www.codan.com.au PAGE 103 CODAN LIMITED AND ITS CONTROLLED ENTITIES CORPORATE DIRECTORY Directors Mr David Simmons (Chairman) Mr Donald McGurk (Managing Director and Chief Executive Officer) Lt-Gen Peter Leahy AC Mr Jim McDowell Mr Graeme Barclay Ms Kathy Gramp Company Secretary Mr Michael Barton Principal registered office Technology Park 2 Second Avenue Mawson Lakes, South Australia 5095 Australia 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 2 0 1 6 C O D A N A N N U A L R E P O R T ANNUAL REPORTI N N O V A T I O N W H E R E V E R Y O U A R E PAGE 105 CODAN.COM.AU 

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