CODAN
ANNUAL REPORT
2017
INNOVATION WHEREVER YOU ARE
Innovation
wherever you are
At Codan, our purpose is to create long-term
shareholder value through the design, development
and manufacture of innovative technology solutions.
We work with customers in over 150 countries, solving
communications, security and productivity problems
in some of the harshest environments on earth.
Contents
FY17 summary
Chairman’s letter to shareholders
CEO’S report
Our people and values
Global locations
Operations
Board of directors
Leadership team
Financial report
ASX additional information
Corporate directory
Codan Limited
ABN 77 007 590 605
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Annual General Meeting
The Annual General Meeting of Codan Limited will be held at 11:00 am on Wednesday,
25 October 2017 at Codan Limited, 2 Second Avenue, Mawson Lakes, South Australia.
CODAN ANNUAL REPORT 2017
1
ANNUAL REPORT 2017
FY17 Summary
Total
revenue
$226.1m
Underlying net
profit after tax
$44.7m
Annual ordinary
dividend
7.0c
Annual special
dividend
6.0c
• Underlying net profit after tax of $44.7
million, up 112% on 33% higher sales
• Statutory net profit after tax
of $43.5 million, up 181%
• Increased annual dividend to 7.0 cents,
up 17%, fully franked (interim 3.0, final 4.0)
• Annual special dividend of 6.0 cents,
fully franked (interim 3.0, final 3.0)
• Underlying earnings per share
of 24.9 cents, up 109%
• Strong balance sheet – $21.4 million net cash
• Radio Communications produced its
best result in eight years; sales increased
9% and profit increased 14%
• Metal Detection produced its second
highest result ever; sales increased
49% and profit increased 106% due to
strong gold detector sales into Africa
and other markets outside Australia
• Minetec delivered a small contribution
to profit as miners recognised the value
of our underground tracking solutions
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.
We have approximately 380 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 more than 85% of our sales.
Codan’s technologies include radio communications,
metal detection and tracking solutions.
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CODAN $244.3m
2013
$226.1m
2017
$169.5m
2016
$143.9m
2015
$132.3m
2014
$76.3m
2013
$75.6m
2017
$45.4m
2013
$44.7m
2017
$41.9m
2016
$29.9m
2015
$22.6m
2014
$21.1m
2016
$12.7m
2015
$9.0m
2014
Operating revenue
Underlying EBITDA *
Underlying NPAT *
Underlying results
for the year ended
30 June
Revenue
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
Ordinary dividend
per share
Special dividend
per share
Return on equity
Gearing
Notes:
2017
%
of sales
2016
%
of sales
2015
%
of sales
2014
%
of sales
2013
%
of sales
Note
$70.9m 31% $65.0m 38% $63.8m 44% $53.9m 41%
$47.5m 20%
4%
$10.5m
$148.0m 66% $99.2m 59% $73.3m 51% $69.9m 53% $166.3m 68%
6%
$7.2m 3%
2%
$14.5m
$5.5m
$4.0m
$4.5m
$4.8m
$2.0m
3%
2%
3%
3%
$5.3m
3%
$226.1m 100% $169.5m 100% $143.9m 100% $132.3m 100% $244.3m 100%
$75.6m 33% $41.9m 25% $29.9m 21% $22.6m 17% $76.3m 31%
$19.3m 13% $13.6m 10% $64.7m 26%
$61.5m 27% $29.2m 17%
($2.8)m
($2.5)m
($0.8)m
$60.7m 27% $27.5m 16% $16.8m 12% $10.8m
($1.7)m
$63.0m 26%
($1.7)m
8%
($4.1)m
($6.4)m
($16.0)m
$44.7m 20% $21.1m 12% $12.7m
11.9c
24.9c
6.0c
7.0c
7.1c
3.5c
9%
($1.8)m
$9.0m
5.1c
3.0c
7%
($17.6)m
$45.4m 19%
25.8c
13.0c
6.0c
29%
0%
1
2
16%
8%
10%
22%
7%
28%
41%
17%
1. Return on equity is calculated as net profit after tax divided by average equity
2. Gearing is calculated as net debt divided by the sum of net debt and equity
* The financial information shown above reflects the underlying business performance. Non-underlying income/(expenses) are considered to
be outside of the normal business activities of the group. For 2017, non-recurring items related to impairment of property. For the prior
year, non-recurring items related to restructuring costs, and impairment of property and Minetec assets.
3
ANNUAL REPORT 2017 Chairman’s letter
to shareholders
In the year to June 2013, Codan reported an underlying
net profit after tax (NPAT) of $45.4 million, followed by
an underlying NPAT of $9 million in the following year.
This year’s underlying NPAT of $44.7 million was very close
to the record result reported in 2013, but the dynamics
were very different. As in 2013, Minelab was the dominant
contributor to profit; however, unlike 2013, the near-
record results were not influenced by gold surges in Africa.
Rather, what we experienced was the gradual acceptance
of the world-leading GPZ 7000® gold detector outside of
Australia, which allowed us to achieve good, consistent sales
over an extended period of time.
With any new model release, sales eventually peak and
then return to a more sustainable level. We expect this
to occur with the sales of the GPZ 7000® into Africa,
but we are very confident that we will not experience the
dramatic reduction in revenues that we experienced in
2014. Donald will explain what is different this time around
and why we are confident that our gold detector business
in Africa is more resilient, but one thing is clear to me. If we
continue to innovate and invest in engineering excellence,
we will maintain and grow our market share across all
business units and across all product platforms.
Our number-one priority remains the broadening of our
addressable markets. We made good progress during
the year on a number of fronts, but it is fair to say that we
continually seek to push technical boundaries and provide
even more innovative solutions to solve our customers’
problems, and this can sometimes result in things taking
longer than we originally planned. This was particularly the
case in Radio Communications, where a combination of
the difficulty in recruiting the right engineering resources
and a review of the product features for our new Cascade™
Land Mobile Radio (LMR) network solution meant that
we ended the year behind where we expected to be. This
year we will turn these delays into positives, as we have
now found and hired the additional engineers required
and have an even better understanding of our customers’
requirements, ensuring that our final product offering will
be significantly enhanced.
4
This year, we have reinforced the distinction between
our base-level business and the outperformance that
can occur from time-to-time by declaring two special
dividends. Market valuations suggest that investors now
clearly understand this distinction.
We will provide an update on our current-year trading
performance at the AGM. We do not expect to achieve
the same level of profitability this year as we did in 2017,
but we do expect a good result (as measured against our
benchmark return on equity of 18%), and we will achieve a
further diversification of our revenue base.
We will continue to focus on cash generation given
another year of high engineering/product development
spend (expected to be in the order of $25 million) and the
payment of the special dividend to acknowledge
our outstanding “surprise-on-the-upside” results for
this year.
I look forward to welcoming you to our AGM in October.
David Simmons
Chairman
CODAN “If we continue to innovate
and invest in engineering
excellence, we will maintain
and grow our market share
across all business units and
across all product platforms.”
David Simmons, Chairman
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ANNUAL REPORT 2017 CEO’s report
I am pleased to report that the company has
returned to near-record levels of profitability after
three successive years of strong profit growth.
We invested more than ever in new product development
this year, and this will increase again in FY18 as we
continue to invest in ourselves in order to diversify
and grow our sustainable revenue base. The business
remains focused on developing leading-edge
solutions that solve our customers’ safety, security and
productivity problems.
Underlying net profit after tax increased 112% to $44.7
million for the year on group sales of $226.1 million.
The company declared a fully franked final dividend of
4.0 cents per share, following on from the 3.0 cents per
share fully franked interim dividend. This resulted in a total
dividend of 7.0 cents for the full year, an increase of 17%
over FY16.
In recognition of the outperformance of the company this
year, the directors have also announced a special dividend
of 3.0 cents per share for the second half, fully franked,
bringing the full-year special dividend to 6.0 cents.
Strong cash generation during FY17 resulted in a net cash
position of $21.4 million at 30 June 2017. A portion of
this will be used to pay the company’s FY17 tax liability of
$16.1 million, which becomes payable in December 2017.
During the year, the board elected to reduce the
company’s debt facility from $85 million to $55 million.
This undrawn facility remains available to fund further
organic growth or a strategic acquisition.
Radio Communications
Radio Communications had another excellent year,
increasing both sales and profitability. This division has a
base level of sales in the range of $65 million to $75 million
per annum, with large HF projects often taking us to the
top of this range. In FY17, Radio Communications revenue
increased 9% to $70.9 million, and segment profit
increased 14% to $19.9 million.
While FY17 was another excellent result for the
division, we remain focused on our strategy to broaden
our revenue base by transitioning to complete
communications solutions for our customers and
expanding our technology platforms into more attractive,
adjacent markets.
One example of how we are achieving broader market
appeal is through the release of two new handheld
tactical radios for the global military market, Sentry-V™
and Sentry-H™. These products are modelled on Codan’s
leading-edge software-defined Envoy® HF radio and,
along with the recent investment in the Stealth antenna
range, will expand our offering to military customers and
assist our transition from a product to a solutions business.
The company has accelerated development of the new
Cascade™ Land Mobile Radio (LMR) product platform
in order to grow the business. Cascade™ was released
to the market in July 2017, with further features to be
released during the course of FY18. The LMR sales force
has also been bolstered to ensure that we maximise
international distribution.
With a range of new products supported by a stronger
sales team and a growing sales pipeline, we expect Radio
Communications to deliver another solid performance
in FY18.
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CODAN 7
ANNUAL REPORT 2017 Metal Detection
In FY17, Minelab revenue increased 49% to $148.0
million, and segment profit increased 106% to $61.5
million. While all parts of the Minelab business
performed well, the growth was dominated by gold
detector sales.
The baseline business for Minelab is comprised of
recreational products sold into Australia, Europe
and the USA, a level of gold detector sales into
Africa, Asia‑Pacific and Latin America, and sales
of countermine products (detecting and clearing
improvised explosive devices) globally. These activities
typically deliver revenues in the order of $80 million per
annum. Periods of stronger demand for gold detectors
in Africa can push these revenues significantly higher.
The new GPZ 7000® has exceeded our expectations,
particularly in Africa, where the product has gained
a reputation for being the best gold detector in the
world due to its superior performance.
We remain confident in the future success of our
gold detector business in Africa. We have the world’s
best gold detecting technology; our detectors have
better anti‑counterfeit protection and are being
distributed more widely throughout Africa as a result
of continuous market development.
In May 2017, Minelab released the Gold Monster®.
This new gold detector was designed to fill a gap in
our product range and provide an entry‑level detector
specifically designed for the African market. Initial
demand has been strong.
Minelab’s established recreational markets outside
Africa have also performed well, with sales into
developed markets increasing across Australia,
North America and Europe/Russia by more than 20%
collectively. We expect to launch a significant new
product for the mainstream coin and treasure market
in FY18.
Minelab continues to fast‑track development of our
next generation dual‑sensing countermine detector,
which incorporates metal detection with ground‑
penetrating radar. The company has received $6.7
million in government funding towards this project,
which is targeted for completion in FY19. Although this
development is technically challenging, success will
bring sales opportunities to the Australian Army and
other allied first‑world armies.
Our strategy for Minelab is to maintain our competitive
advantage across gold, recreational and countermine
markets by continually investing and innovating
our technology platforms, while at the same time
expanding our international routes to market.
While we are confident of continued success in FY18,
the unpredictable nature of our sales into Africa
makes forecasting difficult. The Minelab business
has a base level of sales in the range of $85 to $95
million; however, if strong demand for gold detectors
continues, sales can exceed this level.
8
CODAN Tracking Solutions – Minetec
Minetec provides unique, high-precision tracking,
productivity and safety solutions for underground
hard-rock mines. Minetec’s technology enables real-time
monitoring and control of mining operations which,
in turn, allow miners to visualise the whole mine, enabling
them to optimise productivity and enhance safety.
Minetec has deployed its solutions into several operational
mines, which are now realising tangible improvements to
both productivity and safety. This has led to an increased
level of interest from miners as the message continues to
spread throughout the industry.
Our strategy for Minetec is to pursue opportunities that
will scale the business to achieve sales and profitability
levels that are significant to the Codan group. This includes
forming strategic relationships with global miners and
major suppliers to the mining industry.
Minetec delivered a small operating profit in FY17.
The challenge is to grow profitability to meaningful levels
in the future.
Codan Defence Electronics
Codan Defence Electronics offers high-level design
and adaptation, advanced manufacturing, training and
through-life support to the Australian defence industry.
Codan has a long history of supplying the defence sector,
with the company’s HF radio systems and landmine
detectors used by military organisations worldwide.
Our large engineering base has a core technical
competency in radio and sensor design, which will be
required for upcoming Australian Defence Force projects
including the upgrade of the Jindalee over-the-horizon
radar known as JORN, Land 400 (military vehicles) and
SEA 5000 (future frigate) programmes.
These capabilities have the company well placed to
provide further engineering solutions and manufacturing
expertise to the Australian Defence Force and defence
prime contractors operating in Australia.
While we are yet to win significant orders, we continue to
build a pipeline of future opportunities. Defence contracts
have long sales cycles and, as a result, we have not
planned for significant sales in FY18.
Our people
Our sales people and engineers are required to travel to
some of the most remote and dangerous places in the
world in order to support our customers’ operations.
They need to be aware of emerging technologies in order
to ensure that our products remain relevant and continue
to offer outstanding value. Our systems and processes
need to support the delivery of customer solutions
and continue to provide a competitive edge in all of the
support areas of the business.
I cannot speak highly enough of our people and the
contribution they have made to the positive culture
that has made Codan a unique, inclusive and results-
oriented organisation.
On behalf of the board, I would like to acknowledge the
significant efforts of our people and formally thank them
for their contribution to the outstanding results achieved
this year.
Donald McGurk
Managing Director and CEO
“We remain focused on our
strategy to broaden our
revenue base by transitioning
to complete communications
solutions for our customers.”
Donald McGurk, CEO
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ANNUAL REPORT 2017 Our people and values
Codan’s core values are a shared set of values that
shape our strong company culture and ultimately
enable us to achieve our organisational goals.
Our core values drive our behaviours and interactions with
one another. We strive for values that guide our day-to-
day decisions and provide the framework for not only
what we do, but how we do it.
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 that provides an
opportunity to recognise and reward employees who
readily demonstrate these values within their daily work.
Our Core Values are:
Can-Do
High Performing
Customer Driven
Openness & Integrity
List of recipients
Can-Do
AGM Team
Leanne Bennett, Wayne Hingston,
Gloria Owen, Dave Pilcher and Julieann
Telford, Australia
Cadia PC2 Deployment Team
Jake Alamdar, Greg Niedzwiadek-Sanecki,
Sunil Sanganbatte and Jade Sciberras,
Minetec, Australia
Trevor Engh
Radio Communications, Canada
Fraser Kendall
Minelab, Australia
Nathaniel Quirante
Minelab, Australia
Andrea Stone
Corporate Services, Australia
Lieu Vu
Group Operations, Australia
Roy Wharton
Radio Communications, Canada
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High Performing
Radha Agali-Krishnamurthy
Minelab, Australia
Diane Grayston
Radio Communications, Canada
Steve Hilton
Radio Communications, Australia
Daniel Parsons
Group Operations, Australia
Jin Peng
Minelab, Australia
Customer Driven
Terri Finn-O’Heggarty
Minelab, Ireland
Jeff Hall
Radio Communications, Australia
Cathy Marrapodi
Minelab, Australia
James Renfrew
Radio Communications, Canada
Social Club
Cathy Marrapodi, Adam Diggens,
Lina Iuliano, Australia
Rene Tud
Radio Communications, Australia
Mark Williams
Group Operations, Australia
Sonia Young
Minelab, Australia
Openness & Integrity
Steve Chipok
Radio Communications, USA
James Harris
Minelab, Australia
Dave Pilcher
Group Operations, Australia
CODAN “Our company’s core values
underpin our core purpose of
delivering superior shareholder
value by growing a lasting and
innovative organisation that
consistently creates oustanding
customer experiences.”
Awards
Can‑Do
High Performing
Customer Driven
Openness &
Integrity
Trevor Engh
Radio Communications,
Canada
Radha Agali-
Krishnamurthy
Minelab, Australia
Cathy Marrapodi
Minelab, Australia
Dave Pilcher
Group Operations,
Australia
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ANNUAL REPORT 2017
Global locations
VICTORIA
WASHINGTON
CORK
DUBAI
PENANG
BEIJING
CHICAGO
JOHANNESBURG
PERTH
CODAN OFFICES
MANUFACTURING OPERATIONS
ENGINEERING TEAMS
ADELAIDE
CHRISTCHURCH
Selling into 150 countries with
operations across the globe
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CODAN Operations
Radio Communications
Metal Detection
Tracking Solutions
Defence Electronics
Engineering and Operations
14
16
20
22
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ANNUAL REPORT 2017 Radio Communications
Codan Radio Communications is a leading international designer and
manufacturer of premium communications solutions. We deliver our capability
worldwide for the military, defence, humanitarian, security and public safety
markets. Our mission is to provide communications solutions that enable our
customers to be heard so that they can save lives, create security and support
peacekeeping worldwide. With almost 60 years in the business, Codan Radio
Communications has garnered a reputation for quality, reliability and customer
satisfaction, producing innovative and industry-leading technology solutions.
FY17 Summary
• World‑class performance on all major
programmes
• Launched multiple new products
• Increased solution offering to address
customer requirements
• Bolstered sales‑support focus on solutions‑
oriented customers
• Increased sales by 9% and contribution to
profit by 14%
FY18 Objectives
• Focus on providing high‑value
communications solutions
• Expand global market opportunities through
key alliances
• Capitalise on newly released products in new
and existing markets
• Continue to invest in the development of new
products and solutions
Now with deployments in more than 150 countries,
Codan Radio Communications continues to enhance
its world‑class product and solution design,
development and implementation capability.
We believe and are committed to flawless execution
of our solutions, and our focus is firmly on delivery to
our customers. We enable our customers to be heard
in the most testing conditions, with unique challenges,
in the moments that matter.
Codan Radio Communications has a base level of sales
in the range of $65 million to $75 million per annum,
with large HF projects often taking us to the top of
this range. In FY17 Radio Communications delivered its
best result in eight years, with revenue increased 9%
to $70.9 million, and segment profit increased 14% to
$19.9 million.
We are focused on our strategy to broaden
our revenue base by transitioning to complete
communications solutions for our customers and
expanding our technology platforms into attractive,
adjacent markets.
Our recent contract win for a P25 Digital Land Mobile
Radio infrastructure solution for RiverCom 911,
a civilian‑staffed emergency communications centre
based in Washington State, USA is a good example
of our transition to a communications solutions
provider. The end‑to‑end solution will provide critical
coverage over the varied and vast terrain of Douglas
and Chelan counties, while maintaining frequency
efficiency and allowing full control from RiverCom 911’s
central facility.
We made significant progress in FY17 on the expansion
of our technology platforms. The development of
the new Cascade™ LMR product platform will be a key
driver of our future growth, and this was released to
the market in July 2017, with further features to be
released during the course of FY18.
We also released two new handheld tactical radios for
the global military market, Sentry‑V™ and Sentry‑H™.
These products, along with our investment in the
Stealth antenna range, have expanded our offering to
military customers.
With a range of new products supported by a stronger
sales team and a growing sales pipeline, we expect to
deliver another solid performance in FY18.
14
CODAN Codan Radio Communications
ensures emergency response
communication coverage for US
Department of Veterans Affairs.
Through our partnership with US-based
By Light Professional IT Services LLC, Codan
Radio Communications has worked with the US
Department of Veterans Affairs (VA) to deliver a fully
functional, turnkey, resilient HF radio network.
This network utilises Codan’s Envoy® radio systems
and ensures essential last-resort communications
during emergencies and natural disasters for VA
hospitals nationwide.
Under the five-year contract, Codan supplies the
Envoy® base-station and mobile HF systems and
accessories, with installation, training and support
services provided by By Light.
“Codan and By Light are honoured to provide the
government with a resilient and reliable HF Radio
Network that uses the most advanced commercial
HF technology to support operations and security
needs nationwide,” stated Charlie Stuff, Executive
General Manager of Codan Radio Communications.
“The combination of proven, turnkey HF product
offerings and expert, vendor-certified support
ensures robust, cost-effective and sustainable
emergency communications solutions to VA
hospitals. By Light is pleased to continue its long-
standing relationship with Codan and to deliver
its technology to this important US Government
customer,” said Jeff Adelman, By Light Vice President.
About By Light
By Light Professional IT Services LLC is an ISO
9001:2008, 20000-1:2001, 27001:2013 registered
business specialising in network design and
implementation, software systems engineering,
contingency communications, federal healthcare IT
support, satellite communications and information
assurance. By Light serves defence, civilian and
commercial customers worldwide.
15
ANNUAL REPORT 2017 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.
FY17 Summary
FY18 Objectives
• Second‑best financial performance in
• Launch an exciting new product for the coin
Minelab’s history
and treasure market
• Strong demand in Africa for our top‑of‑the‑
• Establish the recently released Gold Monster®
range GPZ 7000® gold detector
• Our Dubai base continues to bring us closer to
as the gold machine entry‑level product
of choice
the African market
• Continue strong sales and support into the
• Successful release of new products, including
the Gold Monster 1000® gold detector
• Sales growth across our recreational markets
• Continued significant investment in new
product development
African market
• Continue to expand our retail
distribution channels
• Take our GO‑FIND® detector series to the
next level
• Substantially complete the Countermine
dual‑sensor development programme
Minelab is the world leader in handheld metal detection technologies for recreational,
small-scale gold miners and for demining needs. Over the past 30 years, Minelab has
introduced more innovative technology than any of its competitors and has taken metal
detection technology to new levels of technical excellence.
While the 2017 financial year did not exceed the record
sales year of FY13, in many ways it was a more successful
year for Minelab.
We have developed the world’s best gold detector and
have gone to great lengths to protect this technology.
The acceptance of the newly developed GPZ 7000® gold
detector by the African market was very pleasing and was
critical to our success.
Compared to FY13, we have much greater control and
understanding of our distribution channels into the
large African market, and we are selling our products
into more African countries. The establishment of our
distribution facility in Dubai has been a great success for
the company.
Minelab’s profit contribution in FY17 increased 106% over
the prior year from sales of $148.0 million. While all parts
of the Minelab business performed well, the growth was
dominated by gold detector sales.
Minelab employs the largest and world’s best metal
detection product research and development team,
developing technologies that are consistently superior to
those of our competitors. Our new products, including
the GPZ® 19 Super D Coil and the Gold Monster 1000®
gold detector, were a great success in FY17 and are a
reflection of the world-leading engineering development
that is undertaken at Minelab.
16
CODAN While we are confident of continued success in FY18,
the unpredictable nature of our sales into Africa
makes forecasting difficult. Our Minelab business has
a base level of sales in the range of $85 million to $95
million, with strong demand for gold detectors, as
experienced in FY17, pushing sales above this level.
Recreation – adventure,
treasure and gold
Minelab 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 and passion,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 and improved technology and products into
this market.
Minelab’s established recreational markets performed
strongly in FY17, with sales increasing across Australia,
North America, Europe and Russia by more than
20% collectively.
The GPZ® Super D coil was released in November
2016, with strong demand from our gold prospecting
market here in Australia. With up to 30% improvement
in the depth at which gold can be detected, this coil
maximises the performance of the top‑of‑the‑range
GPZ 7000® gold detector. With a retail price of $1,795
for the coil, this was a meaningful new product for us
over the year.
Minelab entered the lower‑price end of the coin
and treasure market in 2015 with the release of the
GO‑FIND® series of detectors. As a new entrant into
this market, we have been pleased with our sales,
and while these detectors sell from only US$150 per
unit, the volumes and revenue we have achieved
are significant and incremental to the business.
We have learnt a great deal from entering this product
category and believe that we can further expand our
distribution through large retail chains in the USA,
Europe, Russia and Australia to do even better in
the future.
While recent years have seen our engineering team
focused on new products for our gold detecting
markets, we have been investing in a new technology
for the mainstream coin and treasure market and are
on track to release this exciting new product in FY18.
Small-scale gold mining –
prospecting, community
and environment
Minelab’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.
In recent years, the company has taken steps to
re‑establish Minelab as the dominant player in the
African gold detecting market. To be successful in
this market, we needed to have a differentiated and
superior gold detector, and we also needed more
control of our distribution channels.
Development of the GPZ 7000® gold detector was
the first step. This was a major financial investment
for our company, with the product delivering up to a
40% depth improvement. This detector was released
into the African market in 2016 and, over time, it has
become widely accepted as the best detector for
finding gold in Africa. Our engineering team went
to great lengths to protect this technology from
counterfeits, and sales have exceeded our initial
expectations. The sales over FY17 have been relatively
consistent and are being driven, in part, by customers
upgrading their gold detecting equipment.
Minelab made a critical move in 2015 by establishing
a showroom and distribution centre in Dubai to
service the large African market. This has continued
to pay dividends this year; we have much greater
control of our distribution channels and have
continued to broaden our customer base. We are now
closer than ever to the end users of our detectors.
The establishment of this facility and the customer
relationships we are developing are critical to ensuring
that Minelab succeeds in the African region over
the medium term, and this is a major contributor to
our success.
17
ANNUAL REPORT 2017 The world‑leading engineering capability of the
Countermine team is highlighted by the fact that
Minelab won funding of $6.7 million from the
Australian Army to fast‑track the development of the
next‑generation, dual‑sensing countermine detector.
This programme to incorporate metal detection with
ground‑penetrating‑radar technology was a key focus
of our engineering team in FY17, with great progress
being achieved and completion expected in FY19.
Although this development is technically challenging,
success will open up sales opportunities to the
Australian Army and other allied first‑world armies.
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.
In May 2017, we released our first gold detector
that has been developed with the artisanal mining
market specifically in mind. The Gold Monster 1000®
is an entry‑level gold detector that is fully automatic
and is easy to use. With a retail price point of $1,099
per unit in Australia, we believe this detector is
competitively priced to take significant market share
from our competitors, who have in the past enjoyed
little competition from Minelab in this entry‑level
price range.
We continue to invest in the development of small‑
scale gold mining markets worldwide and, while they
are coming off a relatively low base, our markets in
Central and Latin America and the Asia‑Pacific continue
to grow significantly.
Countermine – all mines,
all soils, all conditions
Minelab’s detectors are widely recognised for locating
landmines and the explosive remnants of war.
The Countermine business is strategically important to
Minelab, with our continual development of leading‑
edge technology to rid the world of landmines and
improvised explosive devices carrying over to the
business’ other products.
With the recent development of
the new GOLD MONSTER 1000®
detector, Minelab’s engineers
went back to the drawing board
to assess the working needs of
artisanal gold miners and develop
a systems solution, rather than
just an easy-to-use, entry-level
gold detector for individual use.
In Africa, gold detecting is an occupation, not
a hobby, so product versatility and gold-
recovery productivity are key requirements.
The GOLD MONSTER 1000®, through the use
of a universal shaft adaptor, a choice of coils,
battery/charging systems and headphones,
may be configured in several different ways to
suit various uses.
A minimum configuration could comprise
the control box, AA battery holder, small
GM 05 coil and the universal shaft adaptor.
These components are connected on a
broomstick (or any other non-metallic shaft),
and the parts can also be purchased separately
to either configure a detector or as spares.
A maximum configuration could comprise
the control box, rechargeable battery, larger
GM 10 coil and the standard two-piece
shaft, as supplied, as a complete detector.
If a shaft breaks or parts go missing, then
system adaptability allows for the “broomstick
detector” configuration to keep detecting
going, without having to travel long distances
for replacement parts.
The ultra-sensitive GOLD MONSTER 1000®
was introduced to the market in May 2017 and
is proving to be very popular with both artisanal
miners and recreational detectorists alike.
18
CODAN 19
ANNUAL REPORT 2017 Tracking Solutions
Minetec provides unique high-precision tracking, productivity and safety solutions for
underground hard-rock mines. Minetec’s technology enables real-time monitoring and
control of mining operations, which in turn allow miners to visualise the whole mine in
order to optimise productivity and enhance safety.
FY17 Summary
FY18 Objectives
• Achieved successful deployments spanning all
• Deliver improved financial performance
market sectors
• Form strategic partnerships to scale the
• Quantified improvements to mine
business
productivity and safety
• Gain industry acceptance of our technology
• Progressed strategic opportunities to scale
and its operational benefits
the business
• Continue to develop opportunities for our
• Delivered a small operating profit
core technology
• Identified additional opportunities to further
exploit our core technology
Minetec has a long history of providing
communications services to the mining industry, but
in recent years has been transitioning to a high‑value‑
add technology solutions provider.
Minetec has developed a range of core technologies
to deliver innovative, data‑driven mining systems that
combine world‑class high‑precision tracking of assets
underground, wireless mesh data communications
and task‑management software specific to the
challenges of underground mining.
These technologies combine to offer
a range of safety and productivity
capabilities to our customers:
Safety:
• Proximity awareness: increased visibility of
machines and vehicles
• Traffic management: control of physical access
within congested areas
• Proximity detection: audio and visual alerts of
machinery, vehicles or other miners in close
proximity
• Collision avoidance: the ability to automatically
slow or stop a vehicle in response to
nearby threats.
Productivity:
• Machine data: provision of real‑time data to
support production and maintenance planning
• Development, production and maintenance
scheduling: automated shift planning for
underground operations
• Short interval control: the ability to modify the
shift plan in real time.
Minetec’s technology solutions are now delivering
tangible improvements to safety and productivity
that are driving increased production output.
RUC Cementation Mining credits the Minetec system
with increasing output from 70,000 tonnes per
month to 100,000 tonnes per month. This increase in
production equates to over $3 million per month.
Minetec’s integrated suite of productivity, safety,
tracking and communications solutions is delivering
significant improvements for underground mines and
provides technology that is critical in the move toward
autonomous mine operations.
Our strategy for Minetec is to pursue opportunities
that will scale the business to achieve sales and
profitability that are of a level that is significant to
the Codan group. This is expected to include the
formation of strategic relationships with global miners
and major suppliers to the mining industry so that we
can broaden our sales base and global reach.
20
CODAN Minetec helps RUC Cementation to “stop
working in the dark” - innovation and
collaboration deliver a step-change in
production output for mining contractor
RUC Cementation Mining (RUC) is a member of the
Murray & Roberts group of companies. RUC is a
diversified, underground-mining contractor with an
extensive portfolio of projects throughout Australia and
the Asia-Pacific. RUC Mining has gained a reputation
for successfully tackling the most complex and
challenging assignments.
In 2016, RUC secured a 12-month contract to operate
an underground gold mine in Kalgoorlie. With a short
window to deliver a return on investment, RUC invested
in Minetec’s unique technologies to drive productivity
and safety improvements underground. In less than four
months, Minetec deployed the world’s first real-time,
high-precision, three-dimensional tracking and integrated
task-management system.
RUC Managing Director, Barry Upton, attests to the
significant impact of this technology. “It is irrefutable that
this technology has delivered a 45% to 50% increase in
RUC production,” said Mr Upton.
RUC has chosen to manage the change process by
implementing a staged release of technology. In this
way, the Minetec solution can be deployed subject to the
customer’s short-term targets and longer-term strategy.
In the first instance, Minetec deployed the TRAX
product to deliver high-precision tracking and wireless
mesh data communications. The combination of mesh
communications directly to the operating mine-face and
live visualisation for all assets produced an immediate
return on investment. Machine operators were given
live proximity-awareness in the cab, allowing them to
make operational decisions based upon the environment
around them. The simple delivery of mine-wide visibility
allowed them to make better decisions based upon
events in that moment.
The Minetec system has enabled greater safety, efficiency
and increased output. The ability to decongest traffic by
knowing where all the “moving parts” are, or ensuring that
maintenance vehicles go to the right place with the right
equipment, brings immediate returns.
Mine operators are now able to deploy state-of-the-art
Minetec technology that delivers increased safety and
productivity, as well as a quick return on investment.
21
ANNUAL REPORT 2017 Defence Electronics
Codan Defence Electronics offers design
and product development, advanced
manufacturing and through-life support
to the Australian defence industry.
Codan 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
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.
Codan Defence Electronics was created to capitalise
on favourable Australian defence industry policy
settings that ensure prime contractors offer
meaningful Australian Industry Capability (AIC) to the
Australian Government. Codan is working with prime
contractors across multiple opportunities to offer
quality, cost‑effective contract manufacturing and
support services as part of their AIC commitment.
Codan Defence Electronics has a strong offering into
this market, through its surface‑mount manufacturing
capability, mature supply chain management and the
financial robustness of the Codan group.
22
CODAN 23
ANNUAL REPORT 2017 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.
Engineering
Codan maintains a world-class team of research,
engineering and technical staff, employing more than
140 engineers across the globe.
With teams in Adelaide, Perth, Christchurch and Victoria,
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’
communications, security and productivity problems in
some of the harshest environments.
Advanced manufacturing
The 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 continues to
be an integral and strategic element of the company’s
operations, serving as a technology hub, particularly
for new product development and the manufacture of
“IP-sensitive” and high-complexity products. Of particular
note are Codan’s security-featured radios and Minelab’s
landmine detectors, which retain local manufacture.
Codan’s relationship with one of the world’s leading
sub-contract electronics manufacturers, Plexus Corp,
remains a cornerstone of the company’s manufacturing
strategy. The majority of manufacturing is still carried
out 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 management
Codan 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.
24
CODAN 25
ANNUAL REPORT 2017 26
CODAN 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
Codan’s global head office is located in the Technology
Park precinct at Mawson Lakes, South Australia,
where around 200 Codan, Minelab and Minetec staff
are located.
The facility houses 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 are used to showcase our
products to a global customer base.
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.
27
ANNUAL REPORT 2017 Board of
Directors
David Simmons BA (Acc)
Chairman, Independent Non‑Executive Director
David was appointed by the board as Chairman in February 2015 and has
been a director of Codan since May 2008. He worked in the manufacturing
industry throughout his career and has extensive financial and general
management experience. David 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.
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. Donald 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 Donald 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. Donald came to Codan with an extensive
background in change management applied to manufacturing operations,
and held senior manufacturing management positions in several industries.
Donald holds a Masters Degree in Business Administration from Adelaide
University and completed the Advanced Management Program at Harvard
University in 2010.
28
CODAN Peter Leahy AC BA (Military Studies), MMAS, GAICD
Independent Non‑Executive Director
Jim McDowell LLB (Hons)
Independent Non‑Executive Director
Peter was appointed to the board in September 2008. He retired from
the Army in July 2008 after a 37-year career and six 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, has been a director of Electro Optic Systems
Holdings Limited since May 2009 and a director of Citadel Group Limited
since June 2014. Peter 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.
Jim 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. Jim is
Chair of Australian Nuclear Science and Technology Organisation, Chair of
Defence Co-operative Research Centre in Trusted Autonomous Systems 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. He has been a director of Austal Limited since December
2014 and is Chancellor of the University of South Australia.
Graeme Barclay MAICD, F Fin, CA, MA (Hons)
Independent Non‑Executive Director
Kathy Gramp BA (Acc), CA, FAICA, FAICD
Independent Non‑Executive Director
Graeme 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
has been a Non-Executive Director of BSA Limited since June 2015 and is
the founder and Executive Director of First Horizon Advisory. Graeme is a
chartered accountant, holding membership of the Institute of Chartered
Accountants of Scotland and of Chartered Accountants Australia and NZ.
Kathy 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,
Kathy 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. Kathy was previously a
director and member of the Audit & Risk and Remuneration Committees of
Southern Cross Media Group Limited and has significant audit committee
experience. Kathy is a chartered accountant and a Fellow of the Australian
Institute of Company Directors and Chartered Accountants Australia and
New Zealand.
29
ANNUAL REPORT 2017 Leadership Team
Michael Barton BA (Acc), CA
Chief Financial Officer and Company Secretary
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.
Donald McGurk HNC (Mech Eng),
MBA, FAICD, Harvard AMP
Managing Director and Chief Executive Officer
Donald is a motivator of people, with extensive knowledge
and experience in the areas of change management and
strategy formulation.
Donald joined Codan in December 2000 and had executive
responsibility for group‑wide manufacturing until his transition
into the role of CEO. From 2005 to 2007, he also held executive
responsibility for sales of the company’s communications products
and, from 2007 to 2010, executive responsibility for the business
performance of HF radio products.
Donald was appointed to the board as a director in May 2010 and
became Managing Director in November 2010.
For more details of Donald’s qualifications and experience, please see
page 28.
Rory Linehan BSc (Hons), MSc, PhD
Executive General Manager, Minetec
Charlie Stuff MBA, BSc
Executive General Manager, Radio Communications
Rory brings a unique mix of technical knowledge, diverse commercial
skills and broad experience to Codan, delivering insightful leadership
across the business.
Charlie brings unique knowledge to Codan through his background
as a US Army Officer and extensive senior management experience at
Rockwell Collins and Cobham PLC.
He joined Codan in 2014, working across the group to leverage
technology and innovation in developing strategies for growth. In
addition to this group role, Rory is Executive General Manager of Minetec.
Rory holds degrees in Physics and Engineering and a PhD in Mathematics
from Coventry University (UK). He has skills in strategy, marketing,
business development, systems engineering and programme
management gained across a wide range of projects, including
development of the Boeing 787 primary flight‑control system.
Prior to Codan, Rory held a number of senior positions with blue‑chip
firms in the UK, including McLaren, Cobham and Goodrich.
Charlie was appointed to the role of Executive General Manager, Radio
Communications, in 2015. Based in Victoria, British Columbia, he has been
integral to the success of Codan’s Land Mobile Radio business since the
acquisition of Daniels Electronics in 2012.
Charlie holds a Masters of Business Administration from Central Michigan
University, and a Bachelor of Science in Business from Auburn University.
30
CODAN Peter Charlesworth BEEEng (Hons),
MBA, GAICD, Harvard AMP
Executive General Manager, Minelab
and Codan Defence
Peter brings extensive knowledge and experience to Codan from more
than 30 years in the electronics industry, including 15 years at Codan
and formerly in management and technical roles at Tenix Defence and
Vision Systems.
Peter joined Codan in 2003 as General Manager of Engineering and
subsequently held various roles including New Business Manager and
HF Radio Business Development Manager. He was appointed Executive
General Manager of Minelab in 2008, following its acquisition by Codan
in that same year. In addition to Minelab, Peter is Executive General
Manager of Codan Defence Electronics.
Peter holds a degree in Electrical and Electronic Engineering with First
Class Honours, and a Masters of Business Administration, both from
Adelaide University. He is also a Graduate Member of the Australian
Institute of Company Directors and completed the Advanced
Management Program at Harvard University in 2014. He was Chairman
of the Technology Industry Association from 2006 to 2011 and was on
the Adelaide University ARI Advisory Board from 2009 to 2015. He is
presently on the board of the charity, United Way SA, and is a member
of the SA Government, Department of State Development grant
review committee.
31
ANNUAL REPORT 2017 32
CODAN Financial report
for the year ended 30 June 2017
Directors’ report
Lead auditor’s independence declaration
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to and forming part of the financial statements
Directors’ declaration
Independent auditor’s report
34
54
55
56
57
58
59
60
95
96
33
ANNUAL REPORT 2017 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 2017 and the auditor’s report thereon.
Directors
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:
Board meetings
Board Audit,
Risk and
Compliance
Committee
meetings
Remuneration
and Nomination
Committee
meetings
Director
Mr D J Simmons
Mr D S McGurk
Lt-Gen P F Leahy
Mr J W McDowell
Mr G R C Barclay
Ms K J Gramp
A
10
10
10
9
10
10
B
10
10
10
10
10
10
A
4
–
–
–
4
4
B
4
–
–
–
4
4
A
2
–
2
2
–
–
B
2
–
2
2
–
–
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
The directors of the company at any time
during or since the end of the financial
year are:
David Simmons
Donald McGurk
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.
34
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Corporate Governance
Statement
This statement outlines the main
corporate governance practices in
place throughout the financial year,
which comply with the ASX Corporate
Governance Council recommendations,
unless otherwise stated.
Board of directors
Role of the board
The board’s primary role is the protection
and enhancement of long-term
shareholder value.
To fulfil this role, the board is responsible
for the overall corporate governance
of the group, including formulating
its strategic direction, approving and
monitoring the annual plan, budget
and capital expenditure, setting senior
executive and director remuneration,
establishing and monitoring the
achievement of management’s
goals and ensuring the integrity of
risk management, internal 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 Board Audit, Risk and Compliance
Committee and a 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 2017.
Independent professional
advice and access to
company information
Each director has the right of access to
all relevant company information and to
the company’s executives and, subject
to prior consultation with the chairman,
may seek independent professional
advice from a suitably qualified adviser at
the group’s expense. The director must
consult with an adviser suitably qualified
in the relevant field. A copy of the advice
received by the director is made available
to all other members of the board.
Composition of the board
The composition of the board
is determined using the
following principles:
• a broad range of expertise both
nationally and internationally;
• a majority of independent directors;
• directors having extensive
knowledge of the group’s
industries and/or extensive
expertise in significant aspects of
financial management or general
management;
• an independent director as chairman;
• 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
35
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors' Report (continued)
Corporate Governance Statement (continued)
Board of Directors (continued)
Composition of the board (continued)
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 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;
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;
• 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;
• 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;
• has no material contractual
relationship with the company or
another group member other than as
a director of the company; and
• identifying, interviewing and
evaluating board candidates,
and recommending to the board
individuals for board appointment;
• 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.
• 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 Remuneration and
Nomination Committee during the year
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 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.
36
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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. For
FY17, the potential incentive payable to
certain executives is based on 60% of
the executives’ fixed salaries inclusive of
superannuation, but can exceed this level
if performance hurdles are exceeded,
subject to a 200% cap.
These performance conditions have been
established to encourage the profitable
growth of the group. The board
considered that for the year ended 30
June 2017 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. For executives not participating
in the performance rights plan, other
benefits may be offered to encourage
long-term performance.
The performance rights granted on 23
November 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 2016 as the base. For the maximum
available number of performance rights
to vest, the group’s earnings per share
must increase in aggregate by at least
15% per annum over the three-year
period from the base earnings per
share. The threshold level of the group’s
earnings per share before vesting is an
increase in aggregate of 10% per annum
over the three-year period from the base
earnings per share. A pro-rata vesting
will occur between the 10% and 15%
levels of earnings per share for the three-
year period.
If achieved, performance rights are
exercisable into the same number of
ordinary shares in the company in the
twelve-month period following the
vesting date.
Details of performance rights granted to executives during the year are as follows:
Number of
performance
rights
granted
during year
Grant date
Fair value
per right
at grant
date
(cents)
Exercise
price
per right
(cents)
Expiry date
Number
of rights
vested
during
year
Directors
Mr D S McGurk
173,959
23 November 2016
127.7
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
91,586
113,237
113,237
23 November 2016
23 November 2016
23 November 2016
127.7
127.7
127.7
–
–
–
–
30 June 2020
30 June 2020
30 June 2020
30 June 2020
–
–
–
–
37
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors' Report (continued)
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 Percentage
vested
in year
Number
Date
Percentage
forfeited
in year
Financial years in which
shares will be issued
if vesting achieved
Directors
Mr D S McGurk
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
296,877
236,948
173,959
26 November 2014
25 November 2015
23 November 2016
145,638
120,709
91,586
193,250
154,240
113,237
187,998
154,240
113,237
26 November 2014
25 May 2016
23 November 2016
26 November 2014
25 May 2016
23 November 2016
26 November 2014
25 May 2016
23 November 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2018
2019
2020
2018
2019
2020
2018
2019
2020
2018
2019
2020
In relation to the performance rights
granted on 26 November 2014, the
performance requirements were based
on cumulative annual compounding
growth of the group’s earnings per share
over a three-year performance period,
with a maximum earnings per share
target of 20.37 cents per share. As the
maximum earnings per share target has
been exceeded to 30 June 2017, it is
expected that the performance rights will
vest and be converted into shares before
the end of September 2017.
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 2016
Issued
Vested
Lapsed
Held at
30 June 2017
Directors
Mr D S McGurk
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
533,825
173,959
266,347
347,490
342,238
91,586
113,237
113,237
–
–
–
–
–
–
–
–
707,784
357,933
460,727
455,475
38
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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:
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.
Held at
1 July 2016
Received on
exercise of rights
Other changes * Held at 30 June 2017
Directors
Mr D J Simmons
Mr D S McGurk
Lt-Gen P F Leahy
Mr J W McDowell
Mr G R C Barclay
Ms K J Gramp
Specified executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
Mr C P Stuff
61,636
312,517
57,708
–
21,052
–
5,000
312,790
135,825
–
* Other changes represent shares that were purchased or sold during the year
–
–
–
–
–
–
–
–
–
–
25,000
–
–
–
–
10,000
–
(25,000)
–
–
86,636
312,517
57,708
–
21,052
10,000
5,000
287,790
135,825
–
39
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors' Report (continued)
Corporate Governance Statement (continued)
Remuneration Report – Audited (continued)
Directors’ and Senior Executives’ Remuneration
Details of the nature and amount of each major element of the
remuneration paid or payable to each director of the company
and other key management personnel of the group are:
Directors
Year
Salary
& fees
Short–term
incentives
Other short
term
Post–employment
and superannuation
contributions
Other long term
Termination
Performance rights
Total
benefits
Non-Executive
Mr D J Simmons
Lt-Gen P F Leahy
Mr J W McDowell
Mr G R C Barclay
Ms K J Gramp
Total non-executives’
remuneration
Executive
Mr D S McGurk
Total directors'
remuneration
$
172,459
162,974
86,230
81,487
86,230
81,487
86,230
81,487
94,069
50,972
525,218
458,407
$
–
–
–
–
–
–
–
–
–
–
–
–
566,793
516,203
1,092,011
974,610
616,679
410,088
616,679
410,088
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Ms K J Gramp was appointed as a director on 18 November 2015.
$
16,384
15,483
8,192
7,741
8,192
7,741
8,192
7,741
8,936
4,842
49,896
43,548
19,916
18,337
69,812
61,885
40
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
197,282
165,503
197,282
165,503
Proportion of
remuneration
performance
related
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57.4
51.1
$
188,843
178,457
94,422
89,228
94,422
89,228
94,422
89,228
103,005
55,814
575,114
501,955
1,416,844
1,127,064
1,991,958
1,629,019
$
–
–
–
–
–
–
–
–
–
–
–
–
16,174
16,933
16,174
16,933
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors
Year
Salary
& fees
Short–term
Other short
Post–employment
incentives
term
and superannuation
contributions
Other long term
Termination
benefits
Performance rights
Total
Non-Executive
Mr D J Simmons
Lt-Gen P F Leahy
Mr J W McDowell
Mr G R C Barclay
Ms K J Gramp
Total non-executives’
remuneration
Executive
Mr D S McGurk
Total directors'
remuneration
$
172,459
162,974
86,230
81,487
86,230
81,487
86,230
81,487
94,069
50,972
525,218
458,407
$
–
–
–
–
–
–
–
–
–
–
–
–
566,793
516,203
1,092,011
974,610
616,679
410,088
616,679
410,088
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Ms K J Gramp was appointed as a director on 18 November 2015.
$
16,384
15,483
8,192
7,741
8,192
7,741
8,192
7,741
8,936
4,842
49,896
43,548
19,916
18,337
69,812
61,885
$
–
–
–
–
–
–
–
–
–
–
–
–
16,174
16,933
16,174
16,933
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
197,282
165,503
197,282
165,503
$
188,843
178,457
94,422
89,228
94,422
89,228
94,422
89,228
103,005
55,814
575,114
501,955
1,416,844
1,127,064
1,991,958
1,629,019
Proportion of
remuneration
performance
related
%
–
–
–
–
–
–
–
–
–
–
–
–
57.4
51.1
–
–
41
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES $
10,627
11,711
10,344
12,665
9,170
4,002
61,200
–
91,341
28,378
$
–
–
–
–
–
–
–
–
–
–
$
115,171
95,167
147,814
124,112
151,928
135,014
–
–
414,913
354,293
$
746,919
595,955
965,406
814,501
922,343
843,749
606,513
509,974
3,241,181
2,764,179
Proportion of
remuneration
performance
related
%
58.9
51.0
60.6
54.9
48.9
44.5
34.4
43.5
Directors' Report (continued)
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 term
Termination
Performance rights
Total
benefits
Mr M Barton
(Chief Financial Officer and
Company Secretary)
Mr P D Charlesworth
(Executive General Manager,
Minelab & Codan Defence)
Mr R D Linehan
(Executive General
Manager, Minetec)
Mr C P Stuff
(Executive General Manager,
Radio Communications)
Total executive officers’
remuneration
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$
$
270,871
324,670
256,802
208,913
349,883
335,496
437,449
322,920
371,882
298,042
402,137
240,250
332,775
208,863
287,518
221,783
1,325,411
1,281,953
1,269,024
993,866
$
–
–
–
–
91,321*
46,694
3,675
673
94,996
47,367
$
25,580
23,362
19,916
19,308
–
15,652
–
–
45,496
58,322
* Other short-term benefits for Mr R D Linehan relate to costs incurred for arrangements made following his relocation from overseas to Australia.
Mr C P Stuff was appointed to the position of Executive General Manager, Radio Communications on 1 September 2015.
Executive officers outside of Australia are paid in their local currencies. The Australian dollar equivalents are calculated using average exchange rates.
Short-term incentives which vested
during the year are as follows: Mr D S
McGurk 92% (8% forfeited), Mr M Barton
92% (8% forfeited), Mr P D Charlesworth
100% (0% forfeited), Mr R D Linehan 68%
(32% forfeited) and Mr C P Stuff 57%
(43% 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.
Other than performance rights, no
options or shares were issued during
the year as compensation for any key
management personnel.
42
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Executive officers
Year
Salary
& fees
Short-term
incentives
Other short
Post-employment
term
and superannuation
contributions
Other long term
Termination
benefits
Performance rights
Total
Mr M Barton
(Chief Financial Officer and
Company Secretary)
Mr P D Charlesworth
(Executive General Manager,
Minelab & Codan Defence)
Mr R D Linehan
(Executive General
Manager, Minetec)
Mr C P Stuff
(Executive General Manager,
Radio Communications)
Total executive officers’
remuneration
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$
$
270,871
324,670
256,802
208,913
349,883
335,496
437,449
322,920
371,882
298,042
402,137
240,250
332,775
208,863
287,518
221,783
1,325,411
1,281,953
1,269,024
993,866
$
–
–
–
–
91,321*
46,694
3,675
673
94,996
47,367
$
25,580
23,362
19,916
19,308
15,652
–
–
–
45,496
58,322
* Other short-term benefits for Mr R D Linehan relate to costs incurred for arrangements made following his relocation from overseas to Australia.
Mr C P Stuff was appointed to the position of Executive General Manager, Radio Communications on 1 September 2015.
Executive officers outside of Australia are paid in their local currencies. The Australian dollar equivalents are calculated using average exchange rates.
$
10,627
11,711
10,344
12,665
9,170
4,002
61,200
–
91,341
28,378
$
–
–
–
–
–
–
–
–
–
–
$
115,171
95,167
147,814
124,112
151,928
135,014
–
–
414,913
354,293
$
746,919
595,955
965,406
814,501
922,343
843,749
606,513
509,974
3,241,181
2,764,179
Proportion of
remuneration
performance
related
%
58.9
51.0
60.6
54.9
48.9
44.5
34.4
43.5
43
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors' Report (continued)
Corporate Governance Statement (continued)
Remuneration Report – Audited (continued)
Corporate performance
As required by the Corporations Act 2001, the following information is presented:
2017
$
2016
$
2015
$
2014
$
2013
$
Profit attributable to shareholders
Dividends paid
Share price at 30 June
Change in share price at 30 June
43,514,938
17,723,725
2.34
1.16
15,494,607
7,082,530
1.18
0.03
12,507,609
5,310,509
1.15
0.40
9,196,580
15,039,383
0.75
(0.77)
45,416,716
20,343,012
1.52
0.12
The responsibilities of the Board Audit,
Risk and Compliance Committee include
reporting to the board on:
• assessing the adequacy of the
internal control framework and the
company’s code of ethical standards;
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)
• 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
Independent Non-Executive Director
processes;
• Mr G R C Barclay
Independent Non-Executive Director
• assessing and establishing an
appropriate internal audit function;
• Mr D J Simmons
Independent Non-Executive Director
The external auditors, the managing
director and the chief financial officer
are invited to Board Audit, Risk and
Compliance Committee meetings at the
discretion of the committee.
• 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;
44
• monitoring the procedures to ensure
compliance with the Corporations
Act 2001 and the ASX Listing Rules
and all other regulatory requirements;
and
• addressing any matters outstanding
with auditors, Australian Taxation
Office, Australian Securities and
Investments Commission, ASX and
financial institutions.
The Board Audit, Risk and Compliance
Committee reviews the performance of
the external auditors on an annual basis
and meets with them during the year to:
• discuss the external audit plan,
identifying any significant changes
in structure, operations, internal
controls or accounting policies likely
to affect the financial statements, and
to review the fees proposed for the
audit work to be performed;
• review the half-year and preliminary
final report prior to lodgement
with the ASX, and any significant
adjustments required as a result
of the auditor’s findings, and to
recommend board approval of these
documents prior to announcement
of results;
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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 and AS 9100.
The board is responsible for the overall
internal control framework, but
recognises that no cost-effective internal
control system will preclude all errors and
irregularities. Comprehensive practices
have been established to ensure:
• capital expenditure and revenue
commitments above a certain size
obtain prior board approval;
• financial exposures are controlled,
including the use of derivatives;
• occupational health and safety
standards and management
systems are monitored and reviewed
to achieve high standards of
performance and compliance with
regulations;
• business transactions are properly
authorised and executed;
• the quality and integrity of personnel;
• financial reporting accuracy and
compliance with the financial
reporting regulatory framework; and
• environmental regulation compliance.
Quality and integrity of personnel
Appraisals are conducted at least
annually for all senior employees. Training
and development, and appropriate
remuneration and incentives, with
regular performance reviews, create
an environment of co-operation and
constructive dialogue with employees
and senior management. A performance
evaluation of all executives and senior
employees took place during the year
ended 30 June 2017.
• 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 and
counterfeiters, 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 2017,
the committee reviewed the company’s
risk management framework in order to
ensure the effective management of the
group’s material business risks.
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 risk management and
internal compliance and control, 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.
45
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors' Report (continued)
Corporate Governance Statement (continued)
Risk management (continued)
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;
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;
• acting at all times with fairness,
honesty, consistency and integrity;
• an additional approval process for
directors, officers and executives;
• employment practices such as
• raising the awareness of legal
occupational health and safety and
anti-discrimination;
prohibitions in respect of insider
trading;
• responsibilities to the community,
such as environmental protection;
• prohibiting short-term or speculative
trading in the company’s shares;
• 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.
• 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.
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.
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.
46
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES • 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:
Gender representation
Board representation
Senior executive representation *
Senior management representation
Group representation
30 June 2017
30 June 2016
Female
(%)
17%
0%
29%
25%
Male
(%)
83%
100%
71%
75%
Female
(%)
17%
0%
26%
26%
Male
(%)
83%
100%
74%
74%
* Senior executives are defined as those executives who report directly to the CEO.
The policy also details the insider trading
provisions of the Corporations Act 2001
and is reproduced in full on the company’s
website and in the announcements
provided to the ASX.
Communication
with shareholders
The board provides shareholders
with information in accordance with
Continuous Disclosure requirements,
which include identifying matters that
may have a material effect on the price
of the company’s securities, notifying
them to the ASX, posting them on
the company’s website and issuing
media releases.
In summary, the Continuous Disclosure
Policy operates as follows:
• the managing director and the
chief financial officer and company
secretary are responsible for
interpreting the company’s policy
and where necessary informing the
board; the chief financial officer and
company secretary is responsible
for all communications with the ASX;
reportable matters are promptly
advised to the ASX;
• the annual report is provided via the
company’s website and distributed
to all shareholders who request a
copy; it includes relevant information
about the operations of the group
during the year, changes in the
state of affairs and details of future
developments;
• the half-yearly report contains
summarised financial information
and a review of the operations of the
group during the period; the half-year
reviewed financial report is lodged
with the ASX and is available on the
company’s website;
47
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES • expanded our High Frequency (HF)
military offering with the release of
two new handheld, tactical radios
for the global military market and
acquisition of the Stealth antenna
range; and
• continued to fast-track development
of the next-generation dual-sensing
countermine detector, targeted for
completion in FY19.
These three examples demonstrate the
progress we are making in taking Codan
to a solutions-based business which will
provide more stable revenue, continuing
high margins and a closer relationship
with our customers.
Dividend
The company announced a final dividend
of 4.0 cents per share, fully franked,
bringing the full-year dividend to 7.0
cents. The dividend has a record date of
15 September 2017 and will be paid on 3
October 2017.
In recognition of the outperformance of
the company for the year, the company
also announced a special dividend of
3.0 per share, fully franked, bringing the
full-year special dividend to 6.0 cents.
The special dividend has a record date of
15 September 2017 and will be paid on 3
October 2017.
Directors' Report (continued)
Corporate Governance Statement (continued)
Diversity (continued)
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.
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 380 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.
FY17 highlights:
• Underlying net profit after tax of
$44.7 million, up 112% on 33% higher
sales
• Statutory net profit after tax of $43.5
million, up 181%
• Increased annual dividend to 7.0
cents, up 17%, fully franked (interim
3.0, final 4.0)
• Annual special dividend of 6.0 cents,
fully franked (interim 3.0, final 3.0)
48
• Underlying earnings per share of 24.9
cents, up 109%
• Strong balance sheet – $21.4 million
net cash
• Radio Communications produced
its best result in eight years; sales
increased 9% and profit increased
14%
• Metal Detection produced its
second-highest result ever; sales
increased 49% and profit increased
106% due to strong gold detector
sales into Africa and other markets
outside Australia
• Minetec delivered a small
contribution to profit as miners
recognised the value of our
underground tracking solutions
The statutory net profit after tax
attributable to shareholders increased by
181% to $43.5 million for the year ended
30 June 2017. Group sales of $226.1
million were 33% higher than in the prior
year. Underlying net profit after tax for
the year ended 30 June 2017 was $44.7
million, a 112% increase over FY16.
In the 2017 financial year, the company
delivered a near record profit,
demonstrating Codan’s ability to deliver
world-class, robust technology for our
customers in more than 150 countries.
The company spent more than ever on
new product development this year,
and this will increase again in FY18 as we
continue to invest in order to diversify and
grow our base business.
Codan remains focused on developing
leading-edge solutions that solve
our customers’ safety, security and
productivity problems. For example, this
year we:
• completed first release of our new
Cascade™ Land Mobile Radio (LMR)
product platform, broadening
our addressable market for LMR
solutions;
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Financial performance and other matters
Revenue
Communications
Metal detection
Tracking solutions
Total revenue
Underlying business performance
EBITDA
EBIT
Interest
Net profit before tax
Taxation
Underlying net profit after tax
Non-recurring (expenses) after tax: *
Restructuring expenses
Impairment of Newton property
Minetec asset impairment
Net profit after tax
Underlying earnings per share, fully diluted
Statutory earnings per share, fully diluted
Ordinary dividend per share
Special dividend per share
FY17
FY16
$m
% of sales
$m
% of sales
38%
59%
3%
100%
25%
17%
16%
12%
70.9
148.0
7.2
226.1
75.6
61.5
(0.8)
60.7
(16.0)
44.7
–
(1.2)
–
43.5
24.9 cents
24.2 cents
7.0 cents
6.0 cents
31%
66%
3%
100%
33%
27%
27%
20%
65.0
99.2
5.3
169.5
41.9
29.2
(1.7)
27.5
(6.4)
21.1
(1.8)
(1.0)
(2.8)
15.5
11.9 cents
8.7 cents
6.0 cents
–
* Non-underlying income/(expenses) are considered to be outside of normal business activities of the group and for comparability reasons
have been separately identified. The methodology of identifying and quantifying these items is consistently applied from year to year.
Underlying profit is a non-IFRS measure used by management of the company to assess the operating performance of the business.
The non-IFRS measures have not been subject to audit.
$5 million to $3.75 million. Management
intends to clear the buildings from the site
to prepare it for a land sale in FY18.
EBITDA and EBIT margins increased as a
result of stronger gross margins in Metal
Detection and improved expense ratios
on higher FY17 sales.
Strong cash generation during FY17
resulted in a net cash position of $21.4
million at 30 June 2017. A portion of
this will be used to pay the company’s
FY17 tax liability of $16.1 million, which
becomes payable in December 2017.
During the year, the board elected to
reduce the company’s debt facility from
$85 million to $55 million. This undrawn
facility remains available to fund further
organic growth or a strategic acquisition.
The company continues to pursue the
sale of its vacant site at Newton, South
Australia. While a number of discussions
were held during the year, we have not
yet successfully concluded a transaction.
As a result, the board has decided to
write down the Newton property from
49
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES
Directors' Report (continued)
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 designs
and manufactures communications
equipment for HF and LMR applications.
It provides communications solutions
that allow customers to save lives,
enhance security and support
peacekeeping activities worldwide.
This division has a base level of sales in
the range of $65 million to $75 million
per annum, with large HF projects often
taking us to the top of this range. In
FY17, Radio Communications revenue
increased 9% to $70.9 million, and
segment profit increased 14% to
$19.9 million.
While FY17 was another excellent
result for the division, we remain
focused on our strategy to broaden
our revenue base by transitioning to
complete communications solutions
for our customers and expanding
our technology platforms into more
attractive adjacent markets.
We have released two new handheld,
tactical radios for the global military
market, Sentry-V™ and Sentry-H™. These
products expanded our offering to
military customers and, along with our
investment in the Stealth antenna range,
are assisting our transition from a product
to a solutions business.
As previously announced, the company
accelerated development of the new
Cascade™ LMR product platform in order
to grow the business. Cascade™ was
released to the market in July 2017, with
further features to be released during
the course of FY18. The LMR sales force
has also been bolstered with a focus on
selling radio network solutions into the
North American market. Sales cycles can
be anywhere from six to eighteen months
and therefore we expect to
50
see sales growth from the Cascade™
product range fully reflected in revenue
from FY19.
demand for gold detectors in Africa and
new product introductions can push
these revenues significantly higher.
On 1 August, Radio Communications
was pleased to announce its first
significant LMR end-to-end solution
sale, having secured a US$4.3 million
order from RiverCom 911, a civilian-
staffed emergency communications
centre based in Washington State,
USA. The order includes a ten-year
sustainment contract, and therefore
approximately two-thirds of the contract
value is expected to be recognised as
revenue in FY18.
With a range of new products supported
by a stronger sales team and a growing
sales pipeline, we expect to deliver
another solid performance in FY18.
Metal Detection – Recreational,
Gold Mining and Countermine
Minelab is the world leader in handheld
metal detecting technologies
for recreational, gold mining and
demining 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.
In FY17, Minelab revenue increased 49%
to $148.0 million, and segment profit
increased 106% to $61.5 million. While all
parts of the Minelab business performed
well, the growth was dominated by gold
detector sales.
The baseline business for Minelab is
comprised of recreational products sold
into Australia, Europe and the USA, a level
of gold detector sales into Africa, Asia
Pacific and Latin America and sales of
countermine products (detecting and
clearing improvised explosive devices)
globally. These activities will typically
deliver revenues in the range of $85
million to $95 million per annum for the
Minelab business. Periods of stronger
This year saw significant growth in
gold detector sales from our African
markets, where demand is being driven
by the superior performance of our
products rather than from gold surges.
This increased demand is primarily the
result of customers upgrading their GPX®
gold detecting equipment.
We remain confident in the future success
of our gold detector business in Africa.
We have the world’s best gold detecting
technology, our detectors have better
anti-counterfeit protection and are being
distributed more widely throughout
Africa as a result of continuous market
development.
Minelab’s established recreational
markets outside Africa have also
performed well, with sales into developed
markets increasing across Australia,
North America and Europe/Russia by
more than 20% collectively. We are on
target to launch a significant new product
for the mainstream coin and treasure
market in FY18.
In May 2017, Minelab released the
Gold Monster®. This new detector was
designed to fill a gap in our product range
and provide an entry-level detector
specifically designed for the African
market. Initial demand has been strong.
Minelab continues to fast-track
development of the next-generation
dual-sensing countermine detector,
which incorporates metal detection with
ground-penetrating radar. As previously
announced, the company received $6.7
million in Australian government funding
towards this project, which is targeted
for completion in FY19. Although this
development is technically challenging,
success will bring sales opportunities to
the Australian Army and to other allied
first-world armies.
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Codan has the ability to sometimes
surprise on the upside as a result of
increased demand for gold detectors
and large project wins in our radio
communications division, both of which
are difficult to predict. The board and
management remain committed to
maximising these opportunities while
growing the company’s base business
over the medium term.
The board intends to provide a further
business update at the Annual General
Meeting in October, when trading results
for the first quarter will be known.
Our strategy for Minelab is to maintain
our competitive advantage across gold,
recreational and countermine markets
by continually investing and innovating
our technology platforms, while at the
same time expanding our critical routes
to market.
While we are confident of continued
success in FY18, the unpredictable
nature of our sales into Africa makes
forecasting difficult. As detailed above,
the Minelab business has a base level
of sales in the range of $85 million to
$95 million, however if strong demand
for gold detectors continues, sales can
exceed this level.
Tracking Solutions – Minetec
Minetec provides unique, high-precision
tracking, productivity and safety
solutions for underground hard-rock
mines. Minetec’s technology enables real-
time monitoring and control of mining
operations, which in turn allow miners
to visualise the whole mine to optimise
productivity and enhance safety.
Minetec has deployed its solutions into
several operational mines, which are now
realising tangible improvements to both
productivity and safety. This has lead to
an increased level of interest from miners
as the message spreads throughout
the industry.
Our strategy for Minetec is to pursue
opportunities that will scale the business
to achieve sales and profitability levels
that will make a significant contribution
to the Codan group. These include
forming strategic relationships with
global miners and major suppliers to the
mining industry.
Minetec delivered a small operating
profit in FY17. The challenge is to grow
the profitability to meaningful levels in
the future.
Codan Defence Electronics
Codan Defence Electronics offers
high-level design and adaptation,
advanced manufacturing, training and
through-life support to the Australian
defence industry.
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. Our large engineering
base has a core technical competency
in radio and sensor design, which will
allow us to bid for upcoming Australian
Defence Force projects including the
JORN (over-the-horizon radar) upgrade,
Land 400 (military vehicles) and SEA
5000 (future frigate) programmes.
These capabilities have the company well
placed to provide further engineering
solutions and manufacturing expertise to
the Australian Defence Force and defence
prime contractors operating in Australia.
While we are yet to win significant orders,
we continue to build a pipeline of future
opportunities. Defence contracts have
long sales cycles and, as a result, we have
not planned for sales in FY18.
Outlook
Codan’s base business has revenues in
the range of $160 million to $180 million
per annum and, at this level of sales, is
expected to generate net profit after
tax in the range of $20 million to $25
million. This year, we have reinforced
the distinction between our base-level
business and the outperformance that
can occur from time-to-time by declaring
two special dividends. Market valuations
suggest that investors now clearly
understand this distinction. Strategic
initiatives are underway to grow the
base business by developing innovative,
new product platforms, broadening
our customer base and seeking further
investment opportunities.
51
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Directors' Report (continued)
Dividends
Dividends paid or declared by the
company to members since the end of
the previous financial year were:
Declared and paid during the year
ended 30 June 2017:
FY16 final
FY17 interim ordinary
FY17 interim special
Declared after the end of the year:
FY17 final ordinary
FY17 final special
All dividends paid or declared by the
company since the end of the previous
financial year were fully franked.
Events subsequent
to reporting date
There has not arisen in the interval
between the end of the financial year
and the date of this report any item,
transaction or event of a material and
unusual nature likely, in the opinion of
the directors of the company, to affect
significantly the operations of the group,
the results of those operations, or the
state of affairs of the group, in future
financial years.
Cents
per share
Total amount
$000
Franked
Date
of payment
4.0
3.0
3.0
4.0
3.0
7,088
5,318
5,318
7,092
5,319
100%
100%
100%
4 October 2016
3 April 2017
3 April 2017
100%
100%
3 October 2017
3 October 2017
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:
Ordinary shares
Indemnification and
insurance of officers
Indemnification
The company has agreed to indemnify
the current and former directors and
officers of the company and certain
controlled entities against all liabilities to
another person (other than the company
or a related body corporate) that may
arise from their position as directors
and secretaries of the company and its
controlled entities, except where the
liability arises out of conduct involving a
lack of good faith. The Deed of Access,
Indemnity and Insurance stipulates that
the company and certain controlled
entities will meet the full amount of
any such liabilities, including costs
and expenses.
Insurance premiums
The directors have not included details of
the nature of the liabilities covered or the
amount of the premium paid in respect
of the directors’ and officers’ liability and
legal expenses insurance contracts, as
such disclosure is prohibited under the
terms of the contract.
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.
Mr D J Simmons
Mr D S McGurk
Lt-Gen P F Leahy
Mr J W McDowell
Mr G R C Barclay
Ms K J Gramp
86,636
312,517
57,708
–
21,052
10,000
52
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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 54 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:
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)
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 30th day of
August 2017.
Consolidated
2017
$
2016
$
195,651
192,667
–
15,077
195,651
207,744
35,290
2,430
62,100
186,627
87,111
135,683
284,017
225,224
53
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Lead auditor’s independence declaration
under Section 307c of the Corporations Act 2001
27
54
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated income statement
for the year ended 30 June 2017
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
Note
Consolidated
2017
$000
2016
$000
2
3
4
7
226,095
(89,874)
136,221
(21,677)
(35,169)
(17,280)
(894)
(1,718)
59,483
(15,970)
169,540
(74,609)
94,931
(19,457)
(34,167)
(13,750)
(2,187)
(5,944)
19,426
(3,923)
43,513
15,503
43,515
(2)
43,513
15,495
8
15,503
Earnings per share for profit attributable to
the ordinary equity holders of the company:
Basic earnings per share
Diluted earnings per share
6
6
24.6 cents
24.2 cents
8.8 cents
8.7 cents
The consolidated income statement is to be read in conjunction with the notes to and forming
part of the financial statements set out on pages 60 to 94.
55
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated statement of
comprehensive income
for the year ended 30 June 2017
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 loss of foreign operations
Other comprehensive (loss)/income for the period, net of
income tax
Total comprehensive income for the period
Attributable to:
Equity holders of the company
Non-controlling interests
Note
21
21
Consolidated
2017
$000
2016
$000
43,513
15,503
719
(216)
503
(1,542)
(66)
20
(46)
1,444
(1,039)
1,398
42,474
16,901
42,476
(2)
42,474
16,893
8
16,901
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 60 to 94.
56
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated balance sheet
as at 30 June 2017
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
Consolidated
Note
8
11
12
7
14
13
15
16
17
18
9
7
19
9
7
19
20
21
2017
$000
21,421
20,557
31,027
47
3,750
3,493
80,295
11,985
54,189
86,206
152,380
232,675
36,619
–
16,136
7,167
59,922
–
7,237
521
7,758
67,680
164,995
43,928
62,004
59,063
164,995
165,087
(92)
164,995
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
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 60 to 94.
57
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated statement
of changes in equity
for the year ended 30 June 2017
2017
Balance as at 1 July 2016
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
Consolidated
Share
capital
$000
Translation
reserve
$000
Hedging
reserve
$000
Profit
reserve
$000
Retained
earnings
$000
Total
$000
42,605
4,176
(114)
58,981
33,274
138,922
–
–
1,137
–
–
–
–
–
–
(1,542)
–
–
–
503
–
–
–
–
–
–
43,515
(2)
–
–
43,515
(2)
1,137
503
–
(1,542)
43,742
2,634
389
58,981
76,787
182,533
Transactions with owners of the company
Dividends recognised during the period
Employee share plan, net of issue costs
Balance at 30 June 2017
–
186
186
43,928
–
–
–
2,634
–
–
–
389
–
–
–
58,981
(17,724)
–
(17,724)
59,063
(17,724)
186
(17,538)
164,995
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
Consolidated
Share
capital
$000
Translation
reserve
$000
Hedging
reserve
$000
Profit
reserve
$000
Retained
earnings
$000
Total
$000
41,856
2,732
(68)
58,981
24,853
128,354
–
–
567
–
–
–
–
–
–
1,444
–
–
–
(46)
–
–
–
–
–
–
15,495
8
–
–
15,495
8
567
(46)
–
1,444
42,423
4,176
(114)
58,981
40,356
145,822
Transactions with owners of the company
Dividends recognised during the period
Employee share plan, net of issue costs
Balance at 30 June 2016
–
182
182
42,605
–
–
–
4,176
–
–
–
(114)
–
–
–
58,981
(7,082)
–
(7,082)
33,274
(7,082)
182
(6,900)
138,922
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 60 to 94
58
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated statement
of cash flows
for the year ended 30 June 2017
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
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
Note
Consolidated
2017
$000
2016
$000
230,959
(153,059)
80
(874)
(1,526)
175,299
(125,369)
44
(2,013)
(50)
10
75,580
47,911
4
(16,418)
(2,905)
(4,064)
(277)
(23,660)
(26,935)
(17,724)
(44,659)
7,261
14,333
(173)
21,421
275
(11,971)
(1,569)
(4,658)
(222)
(18,145)
(15,536)
(7,082)
(22,618)
7,148
7,156
29
14,333
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 60 to 94.
59
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part
of the financial statements
for the year ended 30 June 2017
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 2017 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 30 August 2017.
(a) Statement of compliance
Changes in accounting policies
For the year ended 30 June 2017, 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 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.
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.
The company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 and, in accordance with that Legislative Instrument,
amounts in the financial report have been rounded off to the
nearest thousand dollars, unless otherwise stated.
Use of estimates and judgements
The preparation of a financial report in conformity with
Australian Accounting Standards requires management to
make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets,
liabilities, income and expenses. These estimates and associated
assumptions are based on historical experience and various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which
the estimate is revised and in any future periods affected. The
estimates and 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).
60
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES (d) Revenue recognition
(e) Expenses
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.
Operating lease payments
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense and are
spread over the lease term.
Finance lease payments
Minimum lease payments are apportioned between the
finance charge and the reduction of the outstanding liability.
The finance charge is allocated to each period during the lease
term so as to produce a constant periodic rate of interest on the
remaining balance of the liability.
Net financing costs
Net financing costs include interest paid relating to borrowings,
interest received on funds invested, unwinding of discounts,
foreign exchange gains and losses, and gains and losses
on hedging instruments that are recognised in the income
statement. Qualifying assets are assets that take more than
12 months to get ready for their intended use or sale. In these
circumstances, borrowing costs are capitalised to the cost of
the qualifying assets. Interest income and borrowing costs are
recognised in the income statement on an accruals basis, using
the effective-interest method. Foreign currency gains and losses
are reported on a net basis.
(f) Foreign currency
Foreign currency transactions are translated to Australian dollars
at the rates of exchange ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated to Australian
dollars at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in
the income statement, except for differences arising on the
retranslation of a financial liability designated as a hedge of a
net investment in a foreign operation, or qualifying cash flow
hedges, which are recognised in other comprehensive income
and presented within equity, to the extent that the hedge
is effective.
61
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
1. Significant Accounting Policies (continued)
(f) Foreign currency (continued)
Foreign operations
Hedging
The assets and liabilities of foreign operations, including
goodwill and fair-value adjustments arising on acquisition, are
translated to Australian dollars at the foreign exchange rates
ruling at the reporting date. Equity items are translated at
historical rates. The income and expenses of foreign operations
are translated to Australian dollars at the foreign exchange
rates ruling at the dates of the transactions. Foreign exchange
differences arising on translation are taken directly to the
foreign currency translation reserve until the disposal, or partial
disposal, of the foreign operations.
Foreign exchange gains and losses arising from a monetary item
receivable or payable to a foreign operation, the settlement
of which is neither planned nor likely in the foreseeable future,
are considered to form part of a net investment in a foreign
operation and on consolidation they are recognised in other
comprehensive income, and are presented within equity in the
foreign currency translation reserve.
Foreign currency differences arising on the retranslation of
a financial liability designated as a hedge of a net investment
in a foreign operation are recognised directly in other
comprehensive income to the extent that the hedge is effective,
and are presented within equity in the hedging reserve. To
the extent that the hedge is ineffective, such differences are
recognised in the income statement. When the hedged part
of a net investment is disposed of, the associated cumulative
amount in equity is transferred to the income statement as an
adjustment to the income statement on disposal.
(g) Derivative financial instruments
The group has used derivative financial instruments to
hedge its exposure to foreign exchange and interest rate
movements. In accordance with its policy, the group does not
hold derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting
are accounted for as trading instruments. Derivative financial
instruments are recognised initially at fair value. Attributable
transaction costs are recognised in the income statement
when incurred. Subsequent to initial recognition, derivative
financial instruments are stated at fair value. The gain or loss
on re-measurement to fair value is recognised immediately in
the income statement unless the derivative qualifies for hedge
accounting.
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
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.
62
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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.
(j) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with an original maturity of three months or less.
Bank overdrafts form an integral part of the group’s cash
management and are included as a component of cash and cash
equivalents for the purpose of the Statement of Cash Flows.
(k) Trade and other receivables
Trade debtors are to be settled within agreed trading terms,
typically less than 60 days, and are initially recognised at
fair value and then subsequently at amortised cost, less any
impairment losses. Impairment of receivables is not recognised
until objective evidence is available that a loss event may occur.
Significant receivables are individually assessed for impairment.
Non-significant receivables are not individually assessed;
instead, impairment testing is performed by considering the
risk profile of that group of receivables. All impairment losses are
recognised in the income statement.
(l) Inventories
Raw materials and stores, work in progress and finished goods
are measured at the lower of cost (determined on a first-in
first-out basis) and net realisable value. Net realisable value is the
estimated selling price in the ordinary course of business, less
the estimated costs of completion and selling expenses. In the
case of manufactured inventories and work in progress, costs
comprise direct materials, direct labour, other direct variable
costs and allocated factory overheads necessary to bring the
inventories to their present location and condition.
(i) Goods and services tax
(m) Project work in progress
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.
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.
63
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
1. Significant Accounting Policies (continued)
(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
Contingent liabilities
A contingent liability of the acquiree is assumed in a business
combination only if such a liability represents a present
obligation and arises from a past event, and its fair value can be
measured reliably.
Non-controlling interest
The group measures any non-controlling interest at its
proportionate interest in the identifiable net assets of
the acquiree.
Transaction costs
Transaction costs that the group incurs in connection with a
business combination, such as finder’s fees, legal fees, due
diligence fees, and other professional and consulting fees, are
expensed as incurred.
Licences and other intangible assets
Licences and other intangible assets that are acquired by the
group, which 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.
All business combinations are accounted for by applying the
acquisition method, and goodwill may arise upon the acquisition
of subsidiaries. Goodwill is stated at cost, less any accumulated
impairment losses, and has an indefinite useful life. It is allocated
to cash-generating units and is not amortised but is tested
annually for impairment.
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.
Measuring goodwill
Amortisation
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.
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
Computer software
2 - 15 years
3 - 7 years
Amortisation methods, useful lives and residual values are
reviewed at each reporting date.
64
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES (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 are not
recognised in the balance sheet.
Depreciation
Depreciation is calculated on the depreciable amount, which is
the cost of an asset, less its residual value.
Depreciation is charged to the income statement on property,
plant and equipment on a straight-line basis over the estimated
useful life of the assets. Capitalised leased assets are amortised
on a straight-line basis over the term of the relevant lease, or
where it is likely the group will obtain ownership of the asset, the
life of the asset. Land is not depreciated. The main depreciation
rates used for each class of asset for current and comparative
periods are as follows:
Leasehold property
Plant and equipment
6% to 10%
7% 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 for use, the recoverable amount is
estimated annually.
The recoverable amount of assets is the greater of their fair
value, less costs to sell and 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.
65
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
1. Significant Accounting Policies (continued)
(q) Impairment (continued)
(t) Employee benefits
The group’s corporate assets do not generate separate cash
inflows. If there is an indication that a corporate asset may be
impaired, then the recoverable amount is determined for the
cash-generating units to which the corporate asset belongs.
An impairment loss is recognised whenever the carrying amount
of an asset exceeds its recoverable amount. A cash-generating
unit is the smallest identifiable asset group that generates
cash inflows that are largely independent from other assets
or groups of assets. Impairment losses are recognised in the
income statement. Impairment losses recognised in respect of
cash-generating units are allocated first to reduce the carrying
amount of any goodwill and then to reduce the carrying
amount of the other assets in the cash-generating unit on a pro-
rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimate
used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
(r) Payables
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries, incentives
and annual leave represent present obligations resulting from
employees’ services provided to the reporting date, calculated
at undiscounted amounts based on remuneration rates that
the group expects to pay as at the reporting date, including
related on-costs such as workers’ compensation insurance and
payroll tax.
Long service leave
The provision for employee benefits for long service leave
represents the present value of the estimated future cash
outflows resulting from the employees’ services provided to
the reporting date. The provision is calculated using expected
future increases in wage and salary rates, including related
on-costs, and expected settlement dates based on turnover
history, and is discounted using 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.
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.
(u) Provisions
(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.
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.
66
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES (x) Future Australian Accounting
Standards requirements
A number of new standards, amendments to standards and
interpretations, effective for annual periods beginning after
1 July 2017, were available for early adoption, but have not been
applied in preparing these consolidated financial statements.
AASB 9 Financial Instruments – The company has
completed an assessment of the impact of the standard on
the company’s results, financial position and disclosures and
has determined that it will not have a material impact. The
standard will be effective for the company’s financial report for
the year ended 30 June 2019, with early adoption permitted.
The company does not, however, intend on adopting this new
standard before the mandatory effective date.
AASB 15 Revenue from Contracts with Customers –
The company has completed an assessment of the impact of
the standard on the company’s results, financial position and
disclosures and has determined that it will not have a material
impact. The standard will be effective for the company’s
financial report for the year ended 30 June 2019, with early
adoption permitted. The company does not, however, intend
on adopting this new standard before the mandatory effective
date.
AASB 16 Leases – The company has not yet completed its
assessment of the impact of the standard on the company’s
results, financial position and disclosures. The standard will be
effective for the company’s financial report for the year ended
30 June 2020, with early adoption permitted. The company
does not, however, intend on adopting this new standard before
the mandatory effective date.
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.
(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.
67
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
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.
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 three 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. Lastly, the tracking solutions segment includes
the design, manufacture, maintenance and support of a
range of electronic products and associated software for the
mining sector.
68
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Information about
reportable segments
Communications
Metal detection
Tracking solutions
Consolidated
2017
$000
2016
$000
2017
$000
2016
$000
2017
$000
2016
$000
2017
$000
2016
$000
Revenue
External segment revenue
Result
Segment result
Impairment
Restructure costs
Net financing cost
Unallocated corporate
expenses and other income
Profit from operating activities
Income tax expense
Net Profit
Non-cash items included
above
Depreciation and amortisation
Unallocated depreciation and
amortisation
Impairment
Total depreciation,
amortisation and impairment
Assets
Capital Expenditure
Unallocated capital expenditure
Total capital expenditure
Segment assets
Unallocated corporate assets
Consolidated total assets
70,922
64,996 147,957
99,203
7,216
5,341 226,095
169,540
19,947
17,428
61,524
29,819
330
(1,229)
81,801
(1,219)
–
(894)
46,018
(5,535)
(2,512)
(2,187)
(20,205)
59,483
(15,970)
43,513
(16,358)
19,426
(3,923)
15,503
5,311
4,380
7,768
7,290
410
209
13,489
11,879
2,077
1,183
1,339
987
196
77,107
72,098
110,317
98,099
16,706
576
1,219
830
5,535
15,284
18,244
150
2,320
3,612
2,338
452
4,658
4,064
15,343 204,130 185,540
26,926
28,545
212,466
232,675
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 $30,973,976 (2016: $26,239,966), the United States of America totalling $43,351,228
(2016: $42,397,860) and United Arab Emirates totalling $58,605,275 (2016: $40,536,369).
The group’s non-current assets, excluding financial instruments and deferred tax assets, were located as follows: Australia
$116,833,668 (2016: $113,894,137), the United States of America $136,001 (2016: $175,780), Ireland $3,640 (2016:
$13,078), England $1,598 (2016: $30,113), Canada $33,931,551 (2016: $29,511,819) and United Arab Emirates $254,600
(2016: $148,764).
69
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
GROUP PERFORMANCE (continued)
3. Expenses
Net financing costs:
Interest income
Net foreign exchange (gain)/loss
Interest expense
Depreciation of:
Buildings
Leasehold property
Plant and equipment
Amortisation of:
Product development
Intellectual property
Computer software
Licences
Personnel expenses:
Wages and salaries
Other associated personnel expenses
Contributions to defined contribution superannuation plans
Long service leave expense
Annual leave expense
Additional expenses disclosed:
Impairment of trade receivables
Operating lease rental expense
Restructuring expenses
Consolidated
2017
$000
2016
$000
(80)
97
877
894
–
105
2,313
2,418
7,438
3,035
276
898
11,647
37,923
3,095
3,160
402
1,562
46,142
159
5,631
–
(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
70
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated
2017
$000
2016
$000
4. Other expenses / (income)
Impairment of asset held for sale – Newton property
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 4.0 cents per share, franked to 100% with 30%
franking credits, was paid on 4 October 2016
1,219
–
–
–
–
521
(22)
1,718
7,088
ii. An ordinary interim dividend of 3.0 cents per share, franked to 100% with
5,318
30% franking credits, was paid on 1 April 2017
iii. A special interim dividend of 3.0 cents per share, franked to 100% with 30%
5,318
1,379
524
1,287
1,753
592
364
45
5,944
–
–
–
franking credits, was paid on 1 April 2017
iv. An ordinary final dividend of 2.0 cents per share, franked to 100% with 30%
franking credits, was paid on 1 October 2015
v. An ordinary interim dividend of 2.0 cents per share, franked to 100% with
30% franking credits, was paid on 1 April 2016
–
–
3,541
3,541
17,724
7,082
Subsequent events
Since the end of the financial year, the directors declared a final ordinary fully franked dividend of 4.0 cents per
share and a fully franked special dividend of 3.0 cents per share, bringing total final dividends to 7.0 cents fully
franked, payable on 3 October 2017 (2016: 4.0 cents). The financial impact of this final dividend of $12,410,733
has not been brought to account in the group financial statements for the year ended 30 June 2017 and will be
recognised in subsequent financial reports.
Dividend franking account
Franking credits available to shareholders for subsequent financial years (30%)
19,983
11,954
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 $5,318,886 (2016: $3,037,925).
71
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
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.
Consolidated
2017
$000
2016
$000
Net profit used for the purpose of calculating basic and diluted earnings per share
43,515
15,495
The weighted average number of shares used as the denominator number for basic earnings per share was
177,226,317 (2016: 177,066,095). The movement in the year is as a consequence of the shares issued under the
employee share plan.
The calculation of diluted earnings per share at 30 June 2017 was based on a weighted average number of ordinary
shares outstanding, after adjustment for the effects of all dilutive potential ordinary shares of 179,520,965 (2016:
178,134,784). The movement in the year relates to the shares issued under the employee share plan and the
performance rights granted.
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
Sundry items
72
16,803
(715)
16,088
(118)
15,970
2,286
(1,067)
1,219
2,704
3,923
17,845
5,828
(1,424)
(715)
-
-
(211)
15,495
(845)
(1,067)
(319)
(323)
-
3,274
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Increase in income tax expense due to:
Non-deductible expenses
Non-deductible capital loss
Effect of tax rates in foreign jurisdictions
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
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
CASH MANAGEMENT
8. Cash and cash equivalents
Petty cash
Cash at bank
Consolidated
2017
$000
2016
$000
40
366
69
–
15,970
(1,898)
(3)
1,526
1,089
(16,803)
(16,089)
47
(16,136)
(16,089)
86
413
–
150
3,923
418
10
(50)
10
(2,286)
(1,898)
279
(2,177)
(1,898)
15,090
13,658
(264)
(2,919)
(1,742)
(2,898)
(30)
7,237
(412)
(2,430)
(1,652)
(2,147)
(209)
6,808
159
21,262
21,421
52
14,281
14,333
73
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
CASH MANAGEMENT (continued)
9. Loans and borrowings
Current
Finance lease liabilities
Non-Current
Cash advance
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
2017
$000
2016
$000
–
–
–
–
55,000
200
55,200
–
2,537
10
2,547
52,463
190
52,653
13
13
26,922
26,922
85,000
200
85,200
26,922
3,528
78
30,528
54,550
122
54,672
In addition to these facilities, the group has cash at bank and short-term deposits of $21,421,000 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 January 2019, and are subject to compliance with certain financial covenants over that term.
Consolidated
2017
%
2016
%
0.48
2.54
0.49
3.04
Weighted average interest rates:
Cash at bank
Cash advance
74
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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 asset held for sale - Newton property
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
Consolidated
2017
$000
2016
$000
43,513
15,503
521
364
–
105
2,313
1,219
11,647
1,323
–
14,620
67
75,328
(1,458)
(2,549)
(1,993)
5,750
502
75,580
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
75
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OPERATING ASSETS AND LIABILITIES
Consolidated
2017
$000
2016
$000
21,105
(833)
20,272
285
20,557
5,593
10,922
14,512
31,027
2,306
556
217
414
3,493
19,859
(808)
19,051
48
19,099
4,546
12,156
11,776
28,478
1,301
–
–
199
1,500
3,750
5,003
5,003
–
(34)
(1,219)
3,750
–
6,382
–
(1,379)
5,003
11. Trade and other receivables
Current
Trade receivables
Less: Provision for impairment losses
Other debtors
12. Inventory
Raw materials
Work in progress
Finished goods
13. Other assets
Prepayments
Net foreign currency hedge receivable
Project work in progress
Other
14. Assets held for sale
Freehold land and buildings
Reconciliation
Carrying amount at beginning of year
Transfer
Disposals
Impairment
Carrying amount at end of year
76
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 15. Property, plant and equipment
Leasehold property at cost
Accumulated amortisation
Plant and equipment at cost
Accumulated depreciation
Capital work in progress at cost
Total property, plant and equipment
Reconciliations
Reconciliations of the carrying amounts for each class of property, plant and
equipment are set out below:
Freehold land and buildings
Carrying amount at beginning of year
Additions
Transfers
Asset held for sale transfer
Depreciation
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
Consolidated
2017
$000
2016
$000
826
(347)
479
29,739
(19,932)
9,807
1,699
11,985
1,190
(358)
832
27,552
(18,218)
9,334
633
10,799
–
–
–
–
–
–
832
119
–
(374)
(105)
7
479
9,334
2,272
607
–
(45)
(2,313)
(48)
9,807
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
77
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OPERATING ASSETS AND LIABILITIES (continued)
Consolidated
2017
$000
2016
$000
633
1,066
1,699
11,985
706
(73)
633
10,799
114,687
(60,498)
54,189
97,835
(52,499)
45,336
45,336
16,418
–
(7,438)
(127)
54,189
42,429
11,971
(1,753)
(7,311)
–
45,336
82,529
19,617
(17,401)
2,216
10,258
(9,904)
354
5,098
(3,991)
1,107
86,206
83,274
16,328
(14,390)
1,938
10,273
(9,851)
422
5,098
(3,093)
2,005
87,639
83,274
(745)
82,529
83,525
(251)
83,274
15. Property, plant and equipment (continued)
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
Net foreign currency differences on translation of foreign entities
17. Intangible assets
Goodwill
Intellectual property at cost
Accumulated amortisation
Computer software at cost
Accumulated amortisation
Licences at cost
Accumulated amortisation
Total intangible assets
Reconciliations
Goodwill
Carrying amount at beginning of year
Net foreign currency differences on translation of foreign entities
78
CODAN// CODAN LIMITED AND ITS CONTROLLED 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
Net foreign currency differences on translation of foreign entities
Licences
Carrying amount at beginning of year
Acquisitions
Transfers
Impairment
Amortisation
The following segments have significant carrying amounts of goodwill:
Communications
Metal detection
Tracking solutions
Consolidated
2017
$000
2016
$000
1,938
3,336
(3,035)
(23)
2,216
422
277
-
(276)
(72)
3
354
2,005
-
-
-
(898)
1,107
20,034
53,957
8,538
82,529
1,725
2,096
(1,849)
(34)
1,938
847
169
4
(588)
(10)
-
422
3,157
53
50
(592)
(663)
2,005
20,779
53,957
8,538
83,274
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 five-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 14% has been
applied to the forecast cash flows.
Minetec was acquired by Codan in 2012 and, over the past
five years, Minetec has developed unique, high-precision
productivity and safety solutions for underground hard-
rock mines.
Minetec has deployed its solutions into several operational
mines, which are now realising tangible improvements to both
productivity and safety. 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 volatile 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 towards mechanisation.
79
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OPERATING ASSETS AND LIABILITIES (continued)
17. Intangible assets (continued)
Goodwill (continued)
The strategy for Minetec is to pursue opportunities that will
scale the business to achieve sales and profitability levels that
will make a significant contribution to the Codan group. These
include forming strategic relationships with global miners and
major suppliers to the mining industry.
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 five-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 17% 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 6% of that
market. If that share were to reduce to 3%, the recoverable
amount of the Minetec cash-generating unit would be
approximately equal to its carrying amount.
Intellectual Property
Subsequent to the acquisition of Minelab Electronics Pty Limited
by Codan Limited in 2008, Minelab Electronics Pty Limited
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 Limited 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 communication products. Licence payments
are being made as technology is delivered to the company.
The licenced technology allows the company access to next-
generation radio waveforms for high-speed data transmission,
automatic link establishment and digital voice.
Consolidated
2017
$000
2016
$000
18,918
17,701
–
36,619
9,655
20,620
163
30,438
18. Trade and other payables
Current
Trade payables
Other payables and accruals
Net foreign currency hedge payable
80
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 19. Provisions
Current
Employee benefits
Warranty repairs
Other
Non-Current
Employee benefits
Reconciliation of warranty provision
Carrying amount at beginning of year
Provisions made
Payments made
Reconciliation of other provision
Carrying amount at beginning of year
Provisions made/(reversed) during the year
CAPITAL MANAGEMENT
20. Share capital
Share capital
Opening balance (177,212,302 ordinary shares fully paid)
Performance rights expensed
Issue of share capital through employee share plan
Closing balance (177,296,186 ordinary shares fully paid)
Terms and conditions
Consolidated
2017
$000
2016
$000
5,574
1,593
–
7,167
5,097
1,160
320
6,577
521
609
1,160
1,748
(1,315)
1,593
320
(320)
–
1,077
1,437
(1,354)
1,160
320
–
320
42,605
1,137
186
43,928
41,856
567
182
42,605
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.
81
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES
Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
CAPITAL MANAGEMENT (continued)
21. Reserves
Foreign currency translation
Hedging reserve
Profit reserve
Foreign currency translation
The foreign currency translation reserve records the foreign currency differences arising
from the translation of foreign operations.
Balance at beginning of year
Net translation adjustment
Balance at end of year
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in fair
value of cash flow hedging instruments
(net of tax) related to hedged transactions that have not yet occurred.
Balance at beginning of year
Gains/(losses) on cash flow hedges taken to/from hedging reserve
Balance at end of year
Profit reserve
The profit reserve comprises Codan Limited's accumulated profits.
Balance at beginning of year
Balance at end of year
22. Capital management
Consolidated
2017
$000
2016
$000
2,634
389
58,981
62,004
4,176
(114)
58,981
63,043
4,176
(1,542)
2,634
2,732
1,444
4,176
(114)
503
389
(68)
(46)
(114)
58,981
58,981
58,981
58,981
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 is subject to externally imposed capital requirements.
82
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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 JLT
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
Minelab Mining Pro FZE **
Minelab Mining Pro General Trading FZC **
Minetec Pty Ltd
Minetec RSA (Pty) Ltd
Minetec Wireless Technologies Pty Ltd *
Parketronics Pty Ltd *
Country of
incorporation
Class of
share
Interest held
2017
Interest held
2016
%
%
Australia
Ordinary
Australia
England
Australia
Australia
USA
UAE
Australia
USA
Canada
Australia
USA
Australia
Ireland
UAE
UAE
UAE
Australia
South Africa
Australia
Australia
Ordinary
Ordinary
Ordinary
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
49
100
50
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 Holdings US Inc, Codan (Qld) Pty Ltd, Minetec Wireless Technologies Pty Ltd and
Parketronics Pty Ltd are inactive entities and were liquidated during the year.
** Minelab Mining Pro FZE was incorporated on 31 August 2016. Minelab Mining Pro General Trading FZC was incorporated on
4 December 2016.
83
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
GROUP STRUCTURE (continued)
24. Deed of cross guarantee
Pursuant to ASIC Class Order 2016/785 (as amended) dated 29 September 2016, 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:
Consolidated
2017
$000
61,889
(15,714)
46,175
18,191
46,642
17,338
62,114
26,076
3,750
2,482
111,760
13,705
8,857
38,311
56,374
117,247
229,007
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
Summarised income statement and retained earnings
Profit before tax
Income tax expense
Profit after tax
Retained earnings at beginning of year
Retained earnings at end of 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
84
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Current liabilities
Trade and other payables
Other liabilities
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
Loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Consolidated
2017
$000
2016
$000
31,845
17,156
15,938
5,877
70,816
-
4,580
430
5,010
75,826
153,181
45,041
61,498
46,642
153,181
19,901
69,914
2,077
5,103
96,995
8,753
5,015
531
14,299
111,294
122,693
43,718
60,784
18,191
122,693
25. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2017, 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
2017
$000
2016
$000
28,670
(280)
28,390
24,661
(305)
24,356
83,285
98,200
184,811
47,229
53,423
45,041
58,396
27,951
131,388
214,205
81,621
97,635
43,718
55,846
17,005
116,569
During the year, Codan Limited entered into contracts to purchase plant and equipment for $1,159,651 (2016: $597,146).
85
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OTHER NOTES
26. Auditor's remuneration
Audit services:
KPMG Australia - audit and review of financial reports
Overseas KPMG firms - audit of financial reports
Overseas other firms - audit of financial reports
Other services:
KPMG Australia - taxation services
KPMG Australia - other services
Overseas KPMG firms - taxation services
Overseas other firms - taxation & other services
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
2017
$
2016
$
195,651
–
57,489
192,667
15,077
56,437
62,100
35,290
186,627
36,753
573,910
87,111
2,430
135,683
31,781
521,186
Consolidated
2017
$000
2016
$000
2,050
–
2,050
1,353
–
1,353
4,994
15,066
26,514
46,574
3,149
12,850
22,252
38,251
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.
86
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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
Finance lease and hire purchase liabilities provided for in the financial statements:
Current
Non-current
Consolidated
2017
$
2016
$
–
–
–
–
–
–
–
13
–
–
13
13
–
13
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.
28. Additional financial instruments disclosure
Financial risk management
Overview
risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the
risks faced by the group.
The group has exposure to the following risks from its use of
financial instruments:
(a) Credit risk
• 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
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 2017, the group had two
significant customers in the Metal Detection segment with sales
of $32.3 million and $22.7 million respectively.
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.
87
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OTHER NOTES (continued)
28. Additional financial instruments disclosure (continued)
Trade and other receivables (continued)
The group has established an allowance for impairment that
represents its estimate of incurred losses in respect of trade and
other receivables. The main components of this allowance are
a specific loss component that relates to individually significant
exposures and a collective loss component established for
groups of similar assets in respect of losses that have been
incurred but not yet identified.
Guarantees
Group policy is to provide financial guarantees only to wholly
owned subsidiaries.
The carrying amount of the group’s financial assets represents
the maximum credit exposure. The group’s maximum exposure
to credit risk at the reporting date was:
Cash and cash equivalents
Trade and other receivables
Carrying amount
Consolidated
2017
$000
21,421
20,557
2016
$000
14,333
19,099
Note
8
11
The group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Australia/Oceania
Europe
Americas
Asia
Africa/Middle East
Impairment losses
The aging of the group’s trade receivables at the reporting date was:
3,766
4,015
8,674
1,875
2,775
21,105
4,403
4,012
7,484
1,471
2,489
19,859
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-120 days
More than 120 days
Consolidated
Gross
2017
$000
Impairment
2017
$000
Gross
2016
$000
Impairment
2016
$000
16,058
3,881
175
470
521
21,105
(205)
(110)
–
(26)
(492)
(833)
11,683
4,231
2,341
623
981
19,859
(49)
(150)
–
(27)
(582)
(808)
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.
88
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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
(b) Liquidity risk
Consolidated
2017
$000
808
159
(134)
833
2016
$000
600
272
(64)
808
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 2017
$000
$000
$000
$000
$000
Carrying
amount
Contractual
cash flows
12 months
or less
1-5 years
More than
5 years
Non-derivative financial liabilities
Trade and other payables
Finance leases
Cash advance
Derivative financial liabilities
Net foreign currency hedge payables
30 June 2016
Non-derivative financial liabilities
Trade and other payables
Finance leases
Cash advance
Derivative financial liabilities
Net foreign currency hedge payables
(c) Market risk
36,619
–
–
36,619
(36,619)
–
–
(36,619)
(36,619)
–
–
(36,619)
–
–
–
–
–
–
–
–
–
–
–
–
30,275
13
26,922
57,210
163
163
(30,275)
(13)
(27,439)
(57,727)
(30,275)
(13)
(518)
(30,806)
(163)
(163)
(163)
(163)
–
–
(26,922)
(26,922)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
89
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OTHER NOTES (continued)
28. Additional financial instruments disclosure (continued)
(c) Market risk (continued)
Interest rate risk
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
Cash flow sensitivity
Carrying amount
Consolidated
2017
$000
2016
$000
2,011
–
2,011
–
(13)
(13)
19,410
–
19,410
14,333
(26,922)
(12,589)
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 2016.
Profit/(loss) before tax
100 bp
100 bp
decrease
increase
$000
$000
Reserve
100 bp
increase
$000
100 bp
decrease
$000
194
(194)
(126)
126
–
–
–
–
30 June 2017
Variable rate instruments
30 June 2016
Variable rate instruments
Currency risk
The group is exposed to currency risk on sales, purchases and balance sheet accounts that are denominated in a currency other
than the respective functional currencies of group entities, primarily the Australian dollar (AUD). The currencies in which these
transactions are denominated are primarily USD and EUR.
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 $16,269,015 of FY18 cash flows. On average, the collars give
protection above 78 cents and enable participation down to 71 cents, and the average forward exchange contract rate is 74 cents.
90
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 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 2017
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 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
Sensitivity analysis
Consolidated
EUR
$000
USD
$000
338
1,110
(15)
–
1,433
–
1,433
542
643
(22)
–
1,163
–
1,163
2,986
12,348
(13,230)
–
2,104
(1,666)
438
4,998
12,656
(5,118)
(8,753)
3,783
(1,038)
2,745
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:
2017
EUR
USD
2016
EUR
USD
Consolidated
Reserve
credit/(debit)
$000
Profit/(loss)
before tax
$000
–
(51)
(51)
–
15
15
(130)
(40)
(170)
(106)
(250)
(356)
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 receivable of $555,823, for
which an independent valuation was obtained from the relevant banking institution.
91
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OTHER NOTES (continued)
29. Employee benefits
Aggregate liability for employee benefits, including on-costs:
Current – other creditors and accruals
Current – employee entitlements
Non-current – employee entitlements
Consolidated
2017
$000
2016
$000
6,035
5,574
521
5,248
5,097
609
12,130
10,954
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
3.00%
3.80%
10 years
3.00%
3.54%
10 years
Employee Share Plan
Performance rights issued in financial year 2015
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 2017
The company issued 41,584 shares in March 2017 and 42,300
shares in June 2017 to eligible employees. The fair values of
the shares were $2.21 and $2.22 per share respectively, 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 2017
in relation to the ESP shares issued was $185,804. 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.
The company has 823,763 performance rights on issue to
certain employees from November 2014. 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%. The total
expense recognised as employee costs in 2017 in relation to the
performance rights issued was $49,487 (2016: $241,605).
The group’s earnings per share over the three-year period to
30 June have exceeded the performance target. Therefore, it
is expected that 823,763 shares will be issued to the relevant
employees by 30 September 2017.
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%.
92
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES The total expense recognised as employee costs in 2017 in
relation to the performance rights issued was $482,495 (2016:
$325,210).
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 employees to receive the total
number of performance rights, the group’s earnings per share
must increase by at least 15% per annum over the three-year
period.
The performance rights become exercisable if certain
performance thresholds are achieved. The performance
threshold is based on growth of the group’s earnings per share
over a three-year period. For employees 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.
Performance rights issued in financial year 2017
The company issued 816,772 performance rights in November
2016 to certain employees. The fair value of the rights was on
average $1.29 based on the Black-Scholes formula. The model
inputs were: the share price of $1.57, no exercise price, expected
volatility 52%, dividend yield 3.82%, a term of three years and a
risk-free rate of 2.6%. The total expense recognised as employee
costs in 2017 in relation to the performance rights issued was
$604,286.
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 benefits
Termination benefits
Consolidated
2017
$000
2016
$000
4,398,121
115,308
612,195
107,515
–
5,233,139
3,891,895
138,674
605,309
45,311
82,046
4,763,235
(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.
93
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements
for the year ended 30 June 2017 (continued)
OTHER NOTES (continued)
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
2017
17.7 cents
2016
7.2 cents
94
CODAN// 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 55 to 94, 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 2017 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 2017.
Dated at Mawson Lakes this 30th day of August 2017.
Signed in accordance with a resolution of the directors:
D J Simmons
D S McGurk
Director
Director
95
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES
Independent auditor’s report
68
96
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 69
97
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Independent auditor’s report (continued)
70
98
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES 71
99
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Independent auditor’s report (continued)
72
100
CODAN// 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 17 August 2017
Substantial shareholders
The numbers of shares held by substantial shareholders and their associates are set out below:
Shareholder
Number of ordinary shares
I B Wall and P M Wall
Interests associated with Starform Pty Ltd, Dareel Pty Ltd and Pinara Group Pty Ltd
HSBC Custody Nominees (Australia) Limited
Interests associated with Kynola Pty Ltd and Warren Glen Pty Ltd
34,808,151
24,523,267
14,566,096
12,305,566
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 equity security
holders Ordinary shares
1,203
1,728
694
840
109
4,574
The number of shareholders holding less than a marketable parcel of ordinary shares is 395.
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.
101
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES ASX additional information (continued)
Twenty largest shareholders
Name
I B Wall and P M Wall
HSBC Custody Nominees (Australia) Limited
Starform Pty Ltd
Kynola Pty Ltd
Dareel Pty Ltd
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
RBC Investor Services Australia Nominees Pty Limited
A Bettison
Warren Glen Pty Ltd
M K and M C Heard
Griffinna Pty Ltd
Mitranikitan Pty Ltd
Fruehling Pty Ltd
BNP Paribas Nominees Pty Ltd
National Nominees Limited
Pinara Group Pty Ltd
Bond Street Custodians Limited
G Bettison
J A Uhrig
Total
Offices and officers
Number of ordinary
shares held
Percentage of
capital held
34,808,151
14,566,096
11,404,224
9,103,356
8,854,251
8,495,736
6,915,491
4,452,459
3,562,124
3,202,210
3,084,899
3,000,000
2,522,458
2,000,000
1,955,169
1,905,818
1,537,502
1,523,046
1,371,199
1,217,143
125,481,332
19.6%
8.2%
6.4%
5.1%
5.0%
4.8%
3.9%
2.5%
2.0%
1.8%
1.7%
1.7%
1.4%
1.1%
1.1%
1.1%
0.9%
0.9%
0.8%
0.7%
70.7%
Company Secretary
Principal registered office
Location of share registry
Mr Michael Barton BA (ACC), CA
Technology Park
2 Second Avenue
Mawson Lakes, South Australia 5095
Telephone: (08) 8305 0311
Facsimile: (08) 8305 0411
Internet address: www.codan.com.au
Computershare Investor Services
Pty Limited
GPO Box 1903
Adelaide, South Australia 5001
102
CODAN// CODAN LIMITED AND ITS CONTROLLED ENTITIES Corporate directory
Directors
• David Simmons
(Chairman)
• Donald McGurk
(Managing Director and Chief Executive Officer)
• Peter Leahy AC
• Jim McDowell
• Graeme Barclay
• Kathy Gramp
Company Secretary
• Michael Barton
Principal registered office
Technology Park
2 Second Avenue
Mawson Lakes, South Australia 5095
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
103
ANNUAL REPORT 2017// CODAN LIMITED AND ITS CONTROLLED ENTITIES Innovation
wherever you are
CODAN ANNUAL REPORT 2017
104
CODAN “In the 2017 financial year,
we delivered a near record profit,
demonstrating Codan’s ability
to deliver world-class, robust
technology for our customers
in more than 150 countries.”
// codan.com.au