2018
ANNUAL REPORT
INNOVATION WHEREVER YOU ARE
A
ANNUAL REPORT 2018 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.
B
CODAN CONTENTS
FY18 SUMMARY
CHAIRMAN’S LETTER TO SHAREHOLDERS
CEO’S REPORT
OUR PEOPLE AND VALUES
GLOBAL LOCATIONS
OPERATIONS
BOARD OF DIRECTORS
LEADERSHIP TEAM
CORPORATE GOVERNANCE STATEMENT
FINANCIAL REPORT
ASX ADDITIONAL INFORMATION
CORPORATE DIRECTORY
2
4
6
10
12
13
30
32
34
35
97
99
Codan Limited
ABN 77 007 590 605
Annual General Meeting
The Annual General Meeting of Codan Limited will be held at
11:00 am on Wednesday, 31 October 2018 at Codan Limited,
2 Second Avenue, Mawson Lakes, South Australia.
1
ANNUAL REPORT 2018 FY18 Summary
Total revenue
$229.9m
Underlying net
profit after tax
$39.8m
Annual ordinary
dividend
8.5¢
fully franked (interim 4.0, final 4.5)
Annual special
dividend
4.0¢
fully franked
• Statutory net profit after tax of $41.5 million
• Underlying earnings per share of 22.1 cents
• Broadened the earnings base, reduced reliance on GPZ 7000®
• Base-business sales increased to $180 - 200 million, up from $160 – 180 million
• Base-business NPAT increased to $25 - 30 million, up from $20 - 25 million
• Strong balance sheet - $28 million net cash
CODAN LIMITED
Founded in 1959 and headquartered in South
Australia, Codan Limited (ASX:CDA) is an international
company that develops rugged and reliable
electronics solutions for government, corporate,
NGO and consumer markets across the globe.
Codan’s technologies include radio communications,
metal detection and tracking solutions.
2
2
CODAN
We have approximately 400 employees located
in Australia, Canada, the USA, Ireland, the UAE
and South Africa. Our marketing reach embraces
activity in over 150 countries, with exports
accounting for more than 80% of our sales.
CODAN Operating
revenue
Underlying
EBITDA*
Underlying
NPAT*
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
$132.3m
$143.9m
$169.5m
$22.6m
$29.9m
$41.9m
$9.0m
$12.7m
$21.1m
$226.1m
$229.9m
$75.6m
$70.4m
$44.7m
$39.8m
Underlying results
for the year ended
30 June
Revenue
Communications
Metal detection
Tracking solutions
Other
Note
% of
sales
2018
% of
sales
2017
% of
sales
% of
sales
2015
2016
% of
sales
2014
$56.5m 25%
$70.9m 31% $65.0m 38% $63.8m 44%
$53.9m 41%
$164.0m 71% $148.0m 66%
$99.2m 59%
$73.3m 51%
$69.9m 53%
$9.4m 4%
$7.2m 3%
$5.3m 3%
$4.8m 3%
$4.0m 3%
$2.0m 2%
$4.5m 3%
Total revenue
$229.9m 100% $226.1m 100% $169.5m 100% $143.9m 100% $132.3m 100%
EBITDA
EBIT
Interest
$70.4m 31%
$75.6m 33%
$41.9m 25%
$29.9m 21%
$22.6m 17%
$53.7m 23%
$61.5m 27%
$29.2m 17%
$19.3m 13%
$13.6m 10%
($0.5)m
($0.8)m
($1.7)m
($2.5)m
($2.8)m
Net profit before tax
$53.2m 23%
$60.7m 27%
$27.5m 16%
$16.8m 12%
$10.8m 8%
Taxation
($13.4)m
($16.0)m
($6.4)m
($4.1)m
($1.8)m
Net profit after tax
$39.8m 17%
$44.7m 20%
$21.1m 12%
$12.7m 9%
$9.0m 7%
Earnings per share
Ordinary dividend
per share
Special dividend
per share
Return on equity
Gearing
1
2
22.1c
8.5c
4.0c
23%
0%
24.9c
7.0c
6.0c
29%
0%
11.9c
6.0c
16%
8%
7.1c
3.5c
10%
22%
5.1c
3.0c
7%
28%
Notes:
1. Return on equity is calculated as net profit after tax divided by average equity
2. Gearing is calculated as net debt divided by the sum of net debt and equity
* The financial information shown above reflects the underlying business performance. Non-underlying income/(expenses) are
considered to be outside of the normal business activities of the group. For 2018, non-recurring items related to a property
tax benefit.
ANNUAL REPORT 2018
3
3
ANNUAL REPORT 2018 CHAIRMAN'S LETTER
TO SHAREHOLDERS
In 2015, the board and management made a commitment to do
everything possible to deliver three years of consistent performance
to re-establish market and shareholder belief in the Codan story. It is
pleasing that we have been able to deliver on that commitment.
In many ways, the year to June 2018 was a rewarding
one. Our profit result was good, and we generated
significant free cash flow notwithstanding our ongoing
commitment to high levels of expenditure on new product
development. Our revenue base further diversified and,
although the concept of a base (or predictable) level of
revenue is a challenging one, we believe that we have
grown the base this year. We will persevere in attempting
to identify our base-business case, as it is important that
market expectations are tempered in those years where
outperformance occurs.
It was great for all concerned to see a start-up business
like Minetec achieve a level of success. Minetec is building
a suite of disruptive technologies, but distribution is the
key. This is why the agreement that we have signed with
Caterpillar Inc. is so important. Please refer to Donald’s
report for more details. Caterpillar and Codan have made
a long-term commitment to building an industry-leading
technology solutions business. Success will be achieved
over time.
Codan’s key R&D centres are in Canada and Australia.
The R&D incentives offered by both countries are important,
as they encourage and reward risk-taking and innovation.
We are pleased that the recently announced changes to the
structure of the R&D tax incentive scheme in Australia are
likely to be neutral for Codan. As the government’s intention
is to reward high-intensity, incremental R&D, a position of
neutrality is effectively an endorsement of our approach.
I was pleased to lead the board on an overseas fact-finding
tour during the year. We visited a major partner in Malaysia
and also our important Dubai office, which is the centre of our
African gold-market business. I believe that it is critical for the
board to understand how our business is done in the field,
so this commitment to learning is long term.
4
USA-initiated tariff impositions and retaliations by various
countries have the potential to destabilise some markets.
We are following developments closely and are pleased that
we have global manufacturing flexibility should the need
arise to change the manufacturing location of any products.
Class Action activities in Australia and the flow-on effect to
Directors' and Officers' insurance premiums are a real concern
for all publicly listed companies. Our Board Audit, Risk and
Compliance committee has been challenged with exploring
all options to balance the risk and the cost. We would far
prefer to spend the recently imposed, significant premium
increases on value-creating activities.
The board considered a number of acquisition opportunities
during the year. Established, quality businesses of size
with protectable intellectual property that can be further
developed will always be given serious consideration.
I remain impressed with the quality and commitment of all
Codan employees. We have a unique business providing
challenging careers across many disciplines. As we grow,
these opportunities will increase.
I look forward to welcoming you to our AGM in October,
at which time we will provide an update on our current-year
trading and our progress in growing our business.
David Simmons
Chairman
CODAN Although the concept of a base
(or predictable) level of revenue is a
challenging one, we believe we have
grown the base this year.
5
ANNUAL REPORT 2018 CEO’S REPORT
I am very pleased to report that the company has achieved another
exceptional result in FY18, maintaining near record levels of profitability
and further increasing the base performance of the business.
We continue to invest heavily in new product development,
and this will increase again in FY19. Our relentless pursuit
of new product innovation sits at the core of our strategic
growth strategy, and is complemented by our transition
from being a purely products-based business to a more
sophisticated solutions provider.
The business remains focused on developing leading-edge
solutions that solve our customers’ safety, security and
productivity problems, wherever they are.
Underlying net profit after tax was $39.8 million for the year
on group sales of $229.9 million. The company declared a
fully franked final dividend of 4.5 cents per share, following
on from the 4.0 cent per share fully franked interim dividend.
This resulted in a total dividend of 8.5 cents for the full year.
In recognition of continued outperformance of the
company, the directors have also announced a special
dividend of 4.0 cents per share, fully franked.
Continued strong cash generation during FY18 resulted in a
net cash position of $28 million at 30 June 2018. A portion
of this will be used to pay the company’s FY18 tax liability of
$6 million which becomes payable in December 2018.
Radio Communications
The Radio Communications business has base sales in the
range of $65 million to $75 million per annum, with large
High Frequency (HF) projects potentially taking us to the
top of this range. In FY18, we missed out on delivering
some large HF projects before year-end, and LMR sales were
impacted by US-Government spending. As a result, revenue
decreased to $56.5 million, delivering segment contribution
of $6.8 million.
The HF business is targeting the global military market for
growth, with a focus on developing-world militaries in Africa,
the Middle East, Asia, Eastern Europe and Latin America.
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.
During FY18, we upgraded the features of our Sentry-H™
military radio and delivered our first substantial order.
We maintained our position as the dominant HF supplier
to aid and humanitarian organisations by supporting their
in-country missions. We continue to conduct business
development activities with a number of complementary
third-party solution providers in order to supplement our
customer offerings.
As previously announced, in August 2017 Radio
Communications secured its first significant end-to-end LMR
solution sale, with a US$4.3 million order from RiverCom 911
in Washington State. This order was successfully delivered
during FY18, providing a critical reference for future LMR
solutions sales in North America.
We remain optimistic about the medium to long-term
growth potential in LMR and, as such, continue to invest
in the development of the new Cascade™ LMR platform.
We expect to see sales growth from this investment during
FY20 as we progressively release new software features,
upskill our sales team and develop new routes to market.
The Radio Communications division has a strong order
book entering FY19 and is well positioned on a number
of potential large projects. Our expectation is that Radio
Communications will deliver FY19 sales in line with our
base-business range.
6
CODAN Metal Detection
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.
Minelab celebrated its ten-year anniversary with Codan
and continues to go from strength to strength.
In FY18, Minelab had another exceptionally strong
year, with revenue of $164.0 million which delivered
a segment contribution of $64.1 million. While sales
of our GPZ 7000® top-of-the-range gold detector
remain strong, they are being complemented
by significantly higher sales of the new Gold
Monster® and SDC 2300® detectors in Africa.
Minelab’s base business 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. In the
past, Minelab has had base-business sales in the range of
$85 million to $95 million per annum. The combination
of the EQUINOX® coin and treasure product release,
an expanded gold detector range and Minelab’s
entry into new geographic markets has increased the
base business to around $110 million per annum.
As was the case again in FY18, periods of
stronger demand for gold detectors in Africa
and new product introductions can push
these revenues significantly higher.
African demand continues to be driven by the superior
performance of our products rather than gold surges.
Existing customers are upgrading their GPX® gold
detecting equipment and new customers are buying
the entry-level Gold Monster®. It has also been pleasing
to see a resurgence in demand for the SDC 2300®,
a detector that is exceptionally good at discovering
fine-particle gold. This changing sales mix has further
diversified the business but has resulted in lower average
margins for our gold detector products in Africa.
We remain confident in the future success of our gold
detector business. We have the world’s best gold
detecting technology; our detectors have better
anti-counterfeit protection than ever before and are
being distributed more widely throughout Africa,
the Middle East, Asia Pacific and Latin America.
In Minelab’s established recreational markets outside
Africa, the EQUINOX® detector, released in February
2018, is taking significant market share from competitors
as customers discover how easy it is to become an expert
detectorist overnight and find even more treasure.
Minelab delivered a significant order for the countermine
F3 Compact™ detector to a country in Latin America.
We won this competitive tender on the reliability and
performance of our countermine technology which
we are further developing in partnership with the
Australian government to create a new dual-sensing
countermine detector, to be released in late FY19.
We are confident of continued success in FY19.
7
ANNUAL REPORT 2018 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 allow miners to visualise the whole mine, enabling
them to optimise productivity and enhance safety.
In May 2018, Minetec secured a $9.5 million contract
to supply the Fleet Management system to BHP’s
Olympic Dam mine in South Australia. This followed
a highly competitive global tender process and is
separate from the Caterpillar agreement. It is the largest
contract won by Minetec under Codan’s ownership and
validates the leading position of the division’s proximity
detection, tracking and task-management solutions.
During FY18, Minetec achieved a number of critical
milestones to commercialise its technology and
put distribution in place to scale the business.
In February 2018, Minetec entered into a global
licensing, technology development and marketing
agreement with Caterpillar Inc. Under the terms of
this agreement, Caterpillar and Minetec have begun
integrating Minetec’s high-precision tracking capability
into an expanded Caterpillar MineStar® underground
solution for hard-rock mines. The combined solution
will be taken to market under the Caterpillar brand
through the Caterpillar global dealer network.
In March 2018, Minetec won a contract to provide a non-
GPS, surface mining proximity detection system to the
Boliden Kevitsa mine in Northern Finland. The Minetec
solution was proven to be more accurate and lower
cost than traditional GPS-based solutions. Many surface
miners are seeking a solution that is not reliant on GPS,
and Minetec is well positioned to meet this need.
Management are targeting revenues of $15 million for
Minetec in FY19 and have the objective of doubling
the size of this business in the next few years.
During FY19, we will integrate Minetec’s technology
with Caterpillar’s MineStar® system and launch
the improved solution through Caterpillar’s
extensive sales and dealer network.
Codan Defence Electronics
Codan Defence Electronics offers high-level design
and adaptation, advanced manufacturing, training and
through-life support to the Australian defence industry.
While we are yet to win significant orders, we continue
to build strong customer relationships and an extensive
pipeline of future opportunities. Defence contracts
have long sales cycles and, as a result, we have not
planned for any significant revenue in FY19.
8
CODAN Our people
The results achieved during the year reflect the outstanding efforts
of our people at all levels in the organisation. Our salespeople and
engineers continue to travel to some of the most remote and
hazardous places in the world in order to support our customers’
operations. Our supply chain and operations team went above and
beyond yet again as they battled global component shortages
and unprecedented demand for our new product introductions,
while still providing customers with industry-best quality and
product lead times. Our support and administration people
made sure all of this was possible by ensuring we continued
to operate with the best systems and processes available.
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 again this year.
Donald McGurk
Managing Director and CEO
9
ANNUAL REPORT 2018 10
CODAN OUR PEOPLE
AND VALUES
Codan’s core values are a shared set of values that shape
our company culture and ultimately enable us to achieve
our organisational goals.
Our core values are embodied in the strong culture of our
organisation. We strive for our values to help guide our
day-to-day decisions and provide the framework not only for
what we do, but more importantly, how we do what we do.
Our company’s core values underpin our core purpose of
delivering superior shareholder value by growing a lasting
and innovative organisation that consistently creates
outstanding customer experiences.
Codan seeks to employ individuals that align to and
genuinely relate to our core values, and encourages all staff
to help bring these values to life through their everyday
interactions with one another. We hold all of our staff
accountable to our values and, most importantly, our senior
leaders of the business, who play a significant part
in shaping our core values.
Our Core Values are:
Can-Do
High Performing
Customer Driven
Openness & Integrity
11
ANNUAL REPORT 2018 GLOBAL
LOCATIONS
VICTORIA
WASHINGTON DC
CORK
DUBAI
PENANG
NAMPA
CHICAGO
JOHANNESBURG
PERTH
ADELAIDE
CODAN OFFICES
MANUFACTURING OPERATIONS
ENGINEERING TEAMS
Selling into 150 countries with
operations across the globe
12
CODAN OPERATIONS
RADIO
COMMUNICATIONS
18
TRACKING
SOLUTIONS
26
ENGINEERING AND
OPERATIONS
14
METAL
DETECTION
22
DEFENCE
ELECTRONICS
28
13
ANNUAL REPORT 2018 RADIO
COMMUNICATIONS
Codan Radio Communications is a leading international designer and manufacturer of
premium communications solutions for High Frequency (HF) and Land Mobile Radio (LMR)
applications. 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.
FY18 SUMMARY
• Delivered first substantial order for the new
Sentry-H™ military radio
• Delivered our first end-to-end LMR solution
• Continued to develop Cascade™ LMR
product platform and complementary
HF military products
• Strengthened sales team to focus on
solutions-oriented customers
FY19 OBJECTIVES
• Grow sales in the HF military market
• Partner with complementary solutions
providers to expand our product offering
• Continue to invest in the development
of new products and solutions
With deployments in more than 150 countries, Codan
Radio Communications continues to enhance its world-
class product and solutions design, development and
implementation capability. Our focus is firmly on delivery
to our customers as we enable them to be heard in the
most testing conditions 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 potentially taking us to the
top of this range. In FY18, Radio Communications
missed out on delivering some large HF projects
before year-end, and LMR sales were impacted
by a slowdown in US-Government spending. As a
result, revenue decreased to $56.5 million, delivering
segment contribution of $6.8 million for the year.
We remain focused on increasing and broadening
our earnings base for this division by providing
complete communications solutions for our
customers and expanding our technology
platforms into larger adjacent markets.
During FY18, we released our upgraded Sentry-H™
military radio and delivered our first substantial
order. We maintained our position as the dominant
HF supplier to aid and humanitarian organisations by
supporting their in-country missions, and we continue
to conduct business development activities with
a number of complementary third-party solutions
providers in order to supplement our product range.
In 2018, Radio Communications delivered its first
significant end-to-end LMR solution for RiverCom
911 in Washington State. This P25 Digital LMR
infrastructure solution is a good example of our
transition to a communications solutions provider.
The solution provides critical coverage over the
varied and vast terrain of two counties in Washington
State, while maintaining frequency efficiency and
allowing full control from RiverCom 911’s central
facility. The order provides a critical reference for
future LMR solutions sales in North America.
We remain optimistic about LMR's growth potential
and, as such, continue to invest in the development
of the Cascade™ LMR platform. We expect to see
sales growth from this investment during FY20
as we release new software features, upskill our
sales team and develop new routes to market.
Radio Communications has a strong order book
entering FY19 and is well positioned on a number
of potential large projects. Our expectation is
that Radio Communications will deliver FY19
sales in line with our base-business range.
14
CODAN MILITARY SOLUTIONS
It’s not just a conflict with forces on the ground. It’s a challenge to
command, control and communicate to all deployed units, get real-time
updates and coordinate tactics. Codan Radio Communications
enables customers to be heard.
OUR SOLUTIONS DELIVER
• A technology suite that covers HF, VHF, UHF
• A range of compatible software solutions.
and solution integration as required.
• The best Mean Time Between Failure (MTBF)
• Robust waveforms that support voice and data
scores, backed by a three-year standard warranty.
transmissions.
• Customised easy-to-use radios and systems that meet
our customers' needs – not overbuilt and complex.
• The ability to easily add new features as our
products continually evolve.
AIR SUPPORT
HEADQUARTERS
FORWARD
OPERATING BASE
MOBILE ASSETS
LAND
SEA
SEA
SPECIALISED
UNITS
DEPLOYED
UNITS
Key
Interoperable Range
High Frequency
Very / Ultra High Frequency
Our six principles apply to every solution we create:
WE GO WHERE
CUSTOMERS GO
We design and deliver
solutions to every country
on earth. Not only that,
we also deliver training
wherever our customers are –
from Somalia to Afghanistan
to the United States.
NO-GAPS COVERAGE
Our products are built to
the highest standard so teams
will never be isolated or out of
connectivity, no matter where
they need to go.
RELIABILITY
Our products don’t fail.
We’ve tested and deployed
them in the toughest
environments and harshest
climates, and back this
up with our three-year
extendable warranty.
FAST DEPLOYMENT
We move with our customers
to the most inhospitable places
on earth.
PURE SIMPLICITY
We have an easy-to-use
system,intuitive interfaces,
native language support and
training to get users active fast.
CONNECT AND SCALE
We have access to a huge
range of products and systems,
allowing interoperability, scale
and budget flexibility.
15
ANNUAL REPORT 2018 RADIO COMMUNICATIONS
Codan Radio Communications ensures emergency response
communication interoperability and coverage for City of Nelson,
Police and Fire, and Canadian Federal Police.
The City of Nelson Police force (Municipal police) have
responsibility for policing within the city boundaries,
and the Federal Police have responsibility for all federal
policing and all policing outside of the city boundaries.
The two police agencies had no reliable means to
communicate between each other since the Federal
Police use P25 Digital across the country, and Nelson
Police an older analogue system. A third party, the Nelson
Fire Department, also has limited communications
(older analogue system) around the City of Nelson.
Together with a leading consultancy, Planetworks,
Codan Radio Communications designed a system to
enable 100% interoperability and improved voice quality
between the City of Nelson Police and the Federal Police.
The solution, which included two Codan VHF
repeaters connected through a Codan 900MHz
link, operates in mixed mode, analogue and P25
Digital, allowing for 100% interoperability between
the City of Nelson Police and the Federal Police.
The City of Nelson Fire Department also benefited
from improved radio coverage by adding Codan
P25 repeaters that are operating independently
across the city and mountaintop sites.
"Codan is honoured to provide the City of Nelson
Police and Fire, and the Federal Police with a
sophisticated communications solution to ensure critical
communications between first responders when lives
are on the line," stated Charlie Stuff, Executive General
Manager for Codan Radio Communications.
About Planetworks
Planetworks is a dynamic collective of engineers
and IT technology consultants that deliver IT
expertise to both public and private sector clients.
16
CODAN
City of Nelson, British Columbia, Canada
ANNUAL REPORT 2018
17
METAL
DETECTION
PERFORMANCE IS EVERYTHING
Minelab is the world leader in providing metal detection technologies for consumer,
gold prospecting and military needs. Through our dedication to research, development
and innovative design, Minelab is the major world manufacturer of handheld metal
detection products. Over the past 30 years, Minelab has introduced more innovative
and practical technology than any of our competitors and has taken metal detection
technology to new levels of excellence.
FY18 SUMMARY
• Another exceptionally strong year,
highest sales ever
• Successful release of the revolutionary
EQUINOX® coin and treasure detector
• Diversified gold detector sales in Africa,
less reliance on GPZ 7000®
• Delivered a significant order for the
countermine F3 Compact™ detector
• Continued investment in new product
development
FY19 OBJECTIVES
• Maximise and diversify gold detector
sales globally
• Expand distribution in Latin America through
our new Minelab presence in Brazil
• Continue to expand our retail distribution
channels in USA and Europe
• Complete the Countermine dual-sensor
development programme
The 2018 financial year was once again exceptionally strong
for Minelab. Sales increased 10.8% to $164.0 million and
segment contribution increased 4.1% over the prior year.
Demand for our products in Africa continues to be driven
by the superior performance of our products rather than
gold surges. While sales of our GPZ 7000® top-of-the-range
gold detector remain strong, they are being complemented
by significantly higher sales of the new Gold Monster® and
SDC 2300® detectors in Africa. This changing sales mix has
significantly diversified Minelab’s gold detecting business.
In February, we released the EQUINOX® detector with
simultaneous multi-frequency technology. This product
is taking significant market share from competitors as
customers discover that they can become metal detecting
experts overnight and find more treasure than ever before.
We continue to retain tight control and good understanding
of our distribution channels in Africa and, as a result,
are selling our products into more African countries.
The establishment of our distribution facility in Dubai
continues to be a great success for Minelab.
Minelab employs the largest and world’s best metal detection
research and development team, developing technologies
that are consistently superior to those of our competitors.
Our new products, including the EQUINOX® Series with
innovative new multi-frequency technology for coin and
treasure detecting, are a reflection of the world-leading
engineering development that is undertaken at Minelab.
While we are confident of continued success in FY19,
the unpredictable nature of our sales into Africa makes
forecasting difficult for this business. In the past, Minelab
has had base-business sales in the range of $85 million
to $95 million per year. The EQUINOX® product release,
coupled with an expanded gold detector range and Minelab’s
entry into new markets, have increased this base-business by
more than 20%, to around $110 million in sales per annum.
18
CODAN Recreation – adventure,
treasure and gold
Minelab is built on the success of selling metal detectors into
the major economies of Australia, North America, 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.
The GPZ 7000® gold 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 counterfeiting, and sales have exceeded
our initial expectations. The sales over FY18 were relatively
consistent and are being driven, in part, by customers
upgrading their gold detecting equipment.
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 again in FY18, with sales increasing by more than
16% collectively across Australia, North America, Europe
and Russia.
The revolutionary new EQUINOX® multi-frequency detector
was released in February 2018 with strong dealer interest
and significant pre-orders from customers. Sales have
been strong as coin and treasure hunters have found it to
be adaptable for all target types and ground conditions.
The EQUINOX® Series redefines all-purpose detecting for the
serious enthusiast through its simultaneous multi-frequency
technology, waterproof design and accurate target
identification. With a recommended retail price of US$649
to US$899, this new product has contributed to growing
Minelab’s base-business.
Minelab continues to invest in product development for
recreational markets and has a number of new, improved
metal detectors in the pipeline.
Small-scale gold mining – prospecting,
community and environment
Minelab’s world-leading gold detection technology continues
to revolutionise the way small-scale gold miners around the
world prospect for gold.
The strongest demand for gold detectors comes from
Africa, with the primary drivers 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 successfully re-established
its position as the dominant player in the African gold
detecting market. We released the top-of-the-range
GPZ 7000® gold detector, took control of our distribution
channels and broadened our product range with the release
of the entry-level Gold Monster 1000®, a gold detector that
is fully automatic and easy to use.
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; 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.
Now with a complete range of gold detectors priced from
US$799 to US$7,999, Minelab has seen existing customers
upgrading their gold detecting equipment, while new
customers are buying the entry-level Gold Monster®.
This has significantly diversified the Minelab business
and increased the division’s base-business sales.
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.
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 has
been a key focus of our engineering team over the past two
years, with completion expected in FY19. This project has
been technically challenging and its success should 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.
19
ANNUAL REPORT 2018 METAL DETECTION
20
CODAN Minelab’s engineers were challenged with developing a
lightweight, waterproof and technologically advanced metal
detector for the coin and treasure market. The EQUINOX® Series
redefines all-purpose detecting for the serious enthusiast and is
equally adaptable for all target types and ground conditions.
Multi-IQ is Minelab’s next major innovation, as it
operates across the full spectrum of frequencies
simultaneously for maximum results.
Each detect mode on the EQUINOX® 600/800
offers two adjustable search profiles with unique
default settings.
The EQUINOX® series offers two models which are fully
submersible and ideal for detecting at the beach and
in rivers, streams and lakes. The EQUINOX® 600 offers
three turn-on-and-go detect modes – Park, Field and
Beach – and operates at 5 kHz, 10 kHz, and 15 kHz
single frequencies. The EQUINOX® 800 offers extra
versatility with the added functionality of a gold mode,
high frequency of 20 kHz and 40 kHz, wireless audio
accessories and advanced settings.
The EQUINOX® Series, with its innovative multi-
frequency technology, was introduced to the
market in FY18, causing unprecedented demand and
excitement among recreational detector enthusiasts
and throughout the entire metal detecting industry.
M U LT I - I Q F R E Q U E N CY R ANGE
E
P
M
C O
T I T O R FREQU
E
N
C
Y
R
A
N
G
E
21
5 kHz10 kHz15 kHz20 kHz40 kHzANNUAL REPORT 2018
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 allow miners to visualise the whole mine in order to
optimise productivity and enhance safety.
FY18 SUMMARY
• Significantly improved distribution through
partnership with Caterpillar Inc.
Safety:
• Proximity awareness: increased visibility
of machines and vehicles
• Traffic management: control of physical
• Validated Minetec’s technology by securing
access within congested areas
a major contract with BHP
• Delivered a surface mining solution
FY19 OBJECTIVES
• Integrate Minetec’s technology with
Caterpillar’s MineStar® solution
• Successfully launch the improved MineStar®
solution through Caterpillar’s global
distribution network
• Deliver BHP contract on time and on budget
• Continue to develop opportunities for our
core technology
Minetec has a long history of providing
communications services to the mining industry,
and 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:
• 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.
During FY18, Minetec achieved a number of critical
milestones to commercialise its technology and
put distribution in place to scale the business.
In February 2018, Minetec entered into a global
licensing, technology development and marketing
agreement with Caterpillar Inc. Under the terms of
this agreement, Caterpillar and Minetec have begun
integrating Minetec’s high-precision tracking capability
into an expanded Caterpillar MineStar® underground
solution for hard-rock mines. The combined solution
will be taken to market under the Caterpillar brand
through the Caterpillar global dealer network.
In March 2018, Minetec won a contract to provide a non-
GPS, surface mining proximity-detection system to the
Boliden Kevitsa mine in Northern Finland. The Minetec
solution was proven to be more accurate and lower
cost than traditional GPS-based solutions. Many surface
miners are seeking a solution that is not reliant on GPS,
and Minetec is well positioned to meet this need.
22
CODAN In May 2018, Minetec secured a $9.5 million contract to
supply the Fleet Management system to BHP’s Olympic Dam
mine in South Australia. This followed a highly competitive
global tender process. It is the largest contract won by
Minetec under Codan’s ownership and validates the leading
position of the division’s proximity-detection, tracking
and task-management solutions.
Minetec’s integrated suite of productivity, safety,
tracking and communications solutions delivers significant
improvements for underground mines and provides
technology that is critical in the move toward autonomous
mine operations.
Our strategy for Minetec is to deliver on the opportunities
that will scale the business to achieve sales and profitability
that are of a level that is significant to the Codan group.
Management are targeting revenues of $15 million for
Minetec in FY19 and have the objective of doubling the
size of this business in the next few years.
SPECIALIST TECHNOLOGY FOR
UNDERGROUND HARD ROCK MINES
MINEOFFICE™ CONTROL ROOM
OPERATIONAL
PRODUCTION
REPORTING
SERVER
DATABASE
• Tracking Server
• Tagboard Server
• SMARTS™ Server
• Third-Party Interface
WI-FI WASP
E
C
A
F
MACHINE OPERATOR DISPLAY: RUGGED PC
+
+
TRACKING
VISUALISATION
TASK
MANAGEMENT
PROXIMITY
DETECTION
23
ANNUAL REPORT 2018 TRACKING SOLUTIONS
MINESTAR® UNDERGROUND TACKLING OPERATIONAL CHALLENGES IN UNDERGROUND MINING
In February, Minetec announced that it had entered into a
global technology development partnership with Caterpillar
Inc., the world’s largest plant and equipment manufacturer
and leading heavy vehicle supplier to the global mining market.
The technology development partnership is
designed specifically to address the unique
challenges experienced in the GPS-deprived
underground mine environment. The partnership
will deliver best-in-class mine-management solutions
that incorporate data-driven mining and integrate
manned, remote and autonomous operations.
The collaborative effort will leverage the natural
synergies and capabilities of both parties through
the integration of Minetec’s proprietary task-
management, underground-tracking, visualisation
and data-communications technology into a new
MineStar® Underground technology platform.
Caterpillar’s MineStar® has long been recognised as
an industry-leading fleet-management platform, built
on the foundation of Caterpillar’s years of experience
in mining equipment and performance analytics.
The enhanced MineStar® Underground product,
distributed through Caterpillar’s global dealer network,
will target performance improvements across the
entire mine production value chain, in terms of
safety, productivity and performance analytics.
Traditionally, information flow and operational feedback
from underground mine operations have been very
poor. This creates a significant window of opportunity
for a solution to provide a step change in how mining
companies monitor, learn and improve their operations.
MineStar® Underground will deliver that improvement.
Caterpillar’s Mining Technology Product Manager,
Sean McGinnis, believes that, “Through this
collaboration, Minetec & Caterpillar now offer the
industry’s most complete, integrated solution for
hard-rock underground mines of every size, type,
complexity and mining method. It’s a whole-of-
mine technology platform available from a single
integrator, backed by the world-class support
through the global Caterpillar dealer network.”
From FY19, customers can expect the MineStar®
Underground solution to provide a range of
capabilities spanning high bandwidth underground
Wi-Fi communications, sub-metre vehicle and personnel
tracking, task and fleet management, machine
health and proximity detection. All data captured
through MineStar® Underground is housed in a single
integrated database, providing access to operational
data through a single reporting framework, DataPro.
Ultimately, the vision for MineStar® Underground
is a single technology solution that delivers a step
change in safety and productivity for underground
hard-rock mines, irrespective of the machine
brand or type and spanning the full range of
manned, remote and autonomous operations.
24
CODAN Minetec & Caterpillar now offer the
industry’s most complete, integrated
solution for hard-rock underground
mines of every size, type, complexity
and mining method.
25
ANNUAL REPORT 2018 DEFENCE
ELECTRONICS
Codan Defence Electronics offers high-level design and product
development, advanced manufacturing and through-life
support to the Australian defence industry.
Since the establishment of Codan Defence
Electronics in FY17, the team has prepared bids
to supply Codan’s subcontractor capabilities into
a range of defence programmes. These include:
• SEA 1000, the Future Submarine Program to
acquire 12 submarines which will be the largest
defence procurement programme in Australia’s
history, with a total investment in the range of
$50 billion;
• Land 400 Phase 2, a programme to acquire 211
armoured vehicles for the Australian Army, with
a total investment in the range of $5.2 billion;
and
• SEA 5000, the Future Frigate Program to
acquire a future class of nine frigates for the
Royal Australian Navy to replace the ANZAC-
class. Construction is expected to begin in
2020, with the first vessel to enter service
in the late 2020’s.
While no contracts have yet been awarded to
Codan, we are building a pipeline of opportunities
and remain confident that we will win enough
work in the future to make Codan Defence
Electronics a meaningful division of Codan.
Codan has a long history of supplying the defence
sector, with the company’s communications
products and landmine detectors used by
military organisations worldwide. We have a
core technical competency in radio frequency
subsystem design, which is the basis of our
metal detection and communications businesses.
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.
During FY18, Codan was awarded a $0.5 million
grant from the Commonwealth Government’s
Advanced Manufacturing Growth Fund
to upgrade the company’s surface-mount
technology production line. With the
addition of company funds, the expected total
investment in the new line will be approximately
$1.6 million. This new production line will allow
Codan to be globally competitive in winning
defence electronics manufacturing work.
26
CODAN 27
ANNUAL REPORT 2018 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 150 engineers
across the globe.
With teams in Adelaide, Perth 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.
With an upgrade to our surface-mount technology
production line in FY19, Codan’s Adelaide manufacturing
facility will continue to be an integral and strategic element
of the company’s operations, serving as a technology hub
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.
Minetec’s personal tracking devices, reference nodes and
other hardware are also manufactured in Adelaide.
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 Nampa, Idaho, 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. It is accredited to AS 9100 Quality Management
Systems – Requirements for Aviation, Space and Defence,
and both Codan and Plexus maintain quality assurance
systems approved to International Standard AS/NZS
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, Netherlands, 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.
28
CODAN Workplace health, safety
and environment
Codan is committed to a philosophy of zero harm
for all staff in all areas of the business, and we are
conscious of our impact on the environment during
the manufacture, distribution, use and disposal of our
products. We are particularly conscious of exposing
employees to critical risk, especially with respect to
those travelling to remote locations. As such, Codan
engages experts to ensure the safety and welfare
of its travellers.
We maintain an effective Work Health, Safety and
Environmental Management System that is integral
to our business processes and are accredited to OHSAS
18001 and AS/NZS 4801 Occupational Health and
Safety Management Systems and AS/NZS 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 250 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 our security-featured
radios, mine-clearance products and tracking-solutions
hardware. 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.
29
ANNUAL REPORT 2018 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.
Peter Leahy AC
BA (Military Studies), MMAS, GAICD
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 the Chief Defence Advisor
to the Queensland Government, 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.
30
CODAN Jim McDowell
LLB (Hons)
Independent Non-Executive
Director
Graeme Barclay
MAICD, F Fin, CA, MA (Hons)
Independent Non-Executive
Director
Kathy Gramp
BA (Acc), CA, FAICA, FAICD
Independent Non-Executive
Director
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 and Chair of Defence
Co-operative Research Centre in Trusted
Autonomous Systems. He has been a director
of Austal Limited since December 2014,
a director of Micro-X Limited since September
2017 and is Chancellor of the University of
South Australia. Jim resigned from the board on
31 August 2018.
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 New Zealand.
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
a director, Chair of Audit & Risk and a member
of the Remuneration Committee of Godfreys
Group Limited from January 2018 until May
2018, 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
the Institute of Chartered Accountants Australia
and New Zealand.
31
ANNUAL REPORT 2018 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 30.
32
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 also a member
of the SA Government Department of State
Development grant review committee. Peter is
Chairman of the Board of the charity, United
Way SA, which runs the “United We Read”
programme for disadvantaged
pre-school children.
CODAN 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.
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 and transitioned into the role of Executive
General Manager, Land Mobile Radio in June
2018. 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.
33
ANNUAL REPORT 2018 CORPORATE
GOVERNANCE
STATEMENT
Codan’s corporate governance statement, which was approved by the board
on 23 August 2018, is available on the company’s website and may be accessed
via the following URL: http://codan.com.au/who-is-codan/corporate-governance
34
CODAN
CODAN FINANCIAL
REPORT
for the year ended 30 June 2018
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
36
50
5 1
52
53
54
55
56
91
92
ANNUAL REPORT 2018
35
35
ANNUAL REPORT 2018 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 2018 and the auditor’s report thereon.
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
11
11
9
10
11
10
B
11
11
11
11
11
11
A
3
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
Directors
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 30 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.
36
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES 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 FY18, the potential incentive
payable to certain executives is based
on 50% 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 2018 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.
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. 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.
Service contracts
It is the group’s policy that service
contracts for key management
personnel executives 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 50% 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.
Details of performance rights granted to executives during the year are as follows:
Number of
performance
rights granted
during year
Grant date
Average 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
124,524 10 November 2017
180.2
– 30 June 2021
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
65,559
81,058
79,469
8 December 2017
8 December 2017
8 December 2017
166.0
166.0
166.0
– 30 June 2021
– 30 June 2021
– 30 June 2021
–
–
–
–
37
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Directors' Report (continued)
Remuneration Report – Audited (continued)
Performance rights (continued)
The performance rights granted
on 10 November 2017 and 8
December 2017 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 a base-level
earnings per share as set by the board.
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 5% per annum over
the three-year period from the base
earnings per share. A pro-rata vesting
will occur between the 5% 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 vesting profiles of performance rights granted to executives are detailed below:
Performance rights granted
Number
Date
Percentage
vested in year
Percentage
forfeited
in year
Financial years in which
shares will be issued if
vesting achieved
Directors
Mr D S McGurk
Executives
Mr M Barton
296,877
236,948
173,959
124,524
145,638
120,709
91,586
65,559
26 November 2014
25 November 2015
23 November 2016
10 November 2017
26 November 2014
25 May 2016
23 November 2016
8 December 2017
Mr P D Charlesworth
193,250
26 November 2014
Mr R D Linehan
154,240
113,237
81,058
187,998
154,240
113,237
79,469
25 May 2016
23 November 2016
8 December 2017
26 November 2014
25 May 2016
23 November 2016
8 December 2017
100
–
–
–
100
–
–
–
100
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
In relation to the performance rights
granted on 25 November 2015
and 25 May 2016, 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 28.35 cents per
share. As the maximum earnings per
share target has been exceeded to
30 June 2018, it is expected that the
performance rights will vest and be
converted into shares before the end
of August 2018.
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:
38
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Held at
1 July 2017
Issued
Vested
Lapsed
Held at
30 June 2018
Directors
Mr D S McGurk
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
707,784
124,524
296,877
357,933
460,727
455,475
65,559
81,058
79,469
145,638
193,250
187,998
–
–
–
–
535,431
277,854
348,535
346,946
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.
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
Held at
1 July 2017
Received on
exercise of rights
Other changes *
Held at
30 June 2018
86,636
312,517
57,708
–
21,052
10,000
5,000
287,790
135,825
–
–
296,877
–
–
–
–
145,638
193,250
187,998
–
–
–
–
–
17,777
–
–
(25,000)
(36,250)
–
86,636
609,394
57,708
–
38,829
10,000
150,638
456,040
287,573
–
* Other changes represent shares that were purchased or sold during the year
39
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Directors' Report (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
and fees
Short–term
incentives
Other
short term
$
$
$
Post–employment
and superannuation
contributions
$
Other long term
Termination
Performance rights
Total
Proportion of remuneration
benefits
performance related
$
$
$
$
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
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
175,908
172,459
87,955
86,230
87,955
86,230
87,955
86,230
95,950
94,069
535,723
525,218
–
–
–
–
–
–
–
–
–
–
–
–
528,369
566,793
1,064,092
1,092,011
385,453
616,679
385,453
616,679
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,711
16,384
8,356
8,192
8,356
8,192
8,356
8,192
9,115
8,936
50,894
49,896
20,049
19,916
70,943
69,812
40
–
–
–
–
–
–
–
–
–
–
–
–
8,326
16,174
8,326
16,174
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
192,619
188,843
96,311
94,422
96,311
94,422
96,311
94,422
105,065
103,005
586,617
575,114
207,126
197,282
207,126
197,282
1,149,323
1,416,844
1,735,940
1,991,958
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51.6
57.4
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Directors
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
Year
Salary
Short–term
Other
Post–employment
and fees
incentives
short term
and superannuation
$
$
$
contributions
$
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
175,908
172,459
87,955
86,230
87,955
86,230
87,955
86,230
95,950
94,069
535,723
525,218
–
–
–
–
–
–
–
–
–
–
–
–
528,369
566,793
1,064,092
1,092,011
385,453
616,679
385,453
616,679
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,711
16,384
8,356
8,192
8,356
8,192
8,356
8,192
9,115
8,936
50,894
49,896
20,049
19,916
70,943
69,812
Other long term
Termination
benefits
Performance rights
Total
Proportion of remuneration
performance related
$
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
8,326
16,174
8,326
16,174
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
192,619
188,843
96,311
94,422
96,311
94,422
96,311
94,422
105,065
103,005
586,617
575,114
207,126
197,282
207,126
197,282
1,149,323
1,416,844
1,735,940
1,991,958
%
–
–
–
–
–
–
–
–
–
–
–
–
51.6
57.4
–
–
41
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Other long term
Termination
Performance
Total
benefits
rights
Proportion of
remuneration
performance related
$
7,527
10,627
3,995
10,344
9,106
9,170
62,182
61,200
82,810
91,341
$
–
–
–
–
–
–
–
–
–
–
$
121,381
115,171
152,236
147,814
151,649
151,928
–
–
425,266
414,913
$
635,782
746,919
787,233
965,406
798,851
922,343
555,345
606,513
2,777,211
3,241,181
%
51.0
58.9
53.2
60.6
43.9
48.8
23.3
34.4
–
–
Directors' Report (continued)
Remuneration Report – Audited (continued)
Directors’ and senior executives’ remuneration (continued)
Executive officers
Year
Salary
and fees
Short-term
incentives
Other
short term
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
$
$
278,940
202,934
270,871
324,670
344,240
266,713
349,883
374,614
371,882
361,124
332,775
437,449
198,982
298,042
129,657
208,863
1,358,918
798,286
1,325,411
1,269,024
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
–
–
–
–
64,500*
91,321*
2,382
3,675
66,882
94,996
Post-employment
and superannuation
contributions
$
25,000
25,580
20,049
19,916
–
–
–
–
45,049
45,496
* Other short-term benefits for Mr R D Linehan relate to costs incurred for arrangements made following his relocation from overseas to Australia.
Executive officers outside of Australia
are paid in their local currencies.
The Australian dollar equivalents
are calculated using average
exchange rates.
42
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Executive officers
Year
Salary
Short-term
Other
Post-employment
and fees
incentives
short term
and superannuation
contributions
Other long term
Termination
benefits
Performance
rights
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
$
$
278,940
202,934
270,871
324,670
344,240
266,713
349,883
374,614
371,882
361,124
332,775
437,449
198,982
298,042
129,657
208,863
1,358,918
798,286
1,325,411
1,269,024
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
–
–
–
–
64,500*
91,321*
2,382
3,675
66,882
94,996
25,000
25,580
20,049
19,916
$
–
–
–
–
45,049
45,496
* Other short-term benefits for Mr R D Linehan relate to costs incurred for arrangements made following his relocation from overseas to Australia.
$
7,527
10,627
3,995
10,344
9,106
9,170
62,182
61,200
82,810
91,341
$
–
–
–
–
–
–
–
–
–
–
$
121,381
115,171
152,236
147,814
151,649
151,928
–
–
425,266
414,913
Total
$
635,782
746,919
787,233
965,406
798,851
922,343
555,345
606,513
2,777,211
3,241,181
Proportion of
remuneration
performance related
%
51.0
58.9
53.2
60.6
43.9
48.8
23.3
34.4
–
–
Short-term incentives which vested
during the year are as follows:
Mr D S McGurk 67% (33% forfeited),
Mr M Barton 67% (33% forfeited),
Mr P D Charlesworth 72% (28%
forfeited), Mr R D Linehan 55% (45%
forfeited) and Mr C P Stuff 34% (66%
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.
Corporate performance
As required by the Corporations Act 2001, the following information is presented:
Profit attributable to shareholders
Dividends paid
Share price at 30 June
Change in share price at 30 June
2018
$
41,574,557
19,593,194
3.00
0.66
2017
$
43,514,938
17,723,725
2.34
1.16
2016
$
15,494,607
7,082,530
1.18
0.03
2015
$
12,507,609
5,310,509
1.15
0.40
2014
$
9,196,580
15,039,383
0.75
(0.77)
43
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Directors' Report (continued)
These initiatives demonstrate our
continuing progress to transform
Codan into a more diversified,
solutions-based business with more
stable revenues at high margins.
Given the success of these initiatives,
we are confident that Codan’s base-
business sales have increased to
$180-200 million, delivering NPAT
of $25-30 million, a 20% increase.
Dividend
The company announced a final
dividend of 4.5 cents per share, fully
franked, bringing the full-year dividend
to 8.5 cents. The dividend has a record
date of 3 September 2018 and will be
paid on 14 September 2018.
In recognition of the continuing
outperformance of the company,
the company also announced a special
dividend of 4.0 cents per share, fully
franked. The special dividend has a
record date of 3 September 2018
and will be paid on 14 September.
The company delivered another strong
year, driven by gold detector sales into
Africa, spread across the entire Minelab
gold detector range. Codan continues
to enter new markets and develop
world-class, robust technology for
our customers across more than
150 countries.
The company remains focused on
increasing and broadening its earnings
base in order to diversify the business
and reduce volatility. To that end,
in FY18 we:
• significantly diversified our gold
detector sales in Africa so that
we are no longer heavily reliant
on one product in this market;
• released the revolutionary new
EQUINOX® coin & treasure detector,
increasing our base business sales
into the developed world;
• signed a joint development
and marketing agreement
with Caterpillar Inc. to integrate
Minetec’s proprietary products
into an expanded Caterpillar
Minestar® solution for
underground mines; and
• continued to expand our High
Frequency (HF) military offering
with the release of the Sentry-H™
Military Radio in order to broaden
our addressable market.
Operating and
Financial Review
Codan is a technology company
that provides robust technology
solutions that solve customers’
communications, safety, security
and productivity problems in some
of the harshest environments around
the world. Our customers include
United Nations organisations, mining
companies, security and military
groups, government departments,
major corporates as well as individual
consumers and small-scale miners.
FY18 highlights:
• Underlying net profit after tax
of $39.8 million
• Statutory net profit after tax
of $41.5 million
• Annual dividend of 8.5 cents,
fully franked (interim 4.0, final 4.5)
• Special dividend of 4.0 cents,
fully franked
• Underlying earnings per share
of 22.1 cents
• Broadening the earnings base,
reduced reliance on GPZ 7000®
• Base-business sales increased
to $180-200 million, up from
$160-180 million
• Base-business NPAT increased
to $25-30 million, up from
$20-25 million
• Strong balance sheet –
$28 million net cash
44
CODANCODAN 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-underlying income/(expenses)
after tax:*
Newton property tax benefit/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
FY18
% of sales
25%
71%
4%
100%
31%
23%
23%
17%
$m
56.5
164.0
9.4
229.9
70.4
53.7
(0.5)
53.2
(13.4)
39.8
1.7
41.5
22.1 cents
23.1 cents
8.5 cents
4.0 cents
FY17
% of sales
31%
66%
3%
100%
33%
27%
27%
20%
$m
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
* 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.
EBITDA and EBIT margins decreased
slightly due to the change in sales
mix for metal detection products
into Africa.
Continuing strong cash generation
resulted in a net cash position of $28
million at 30 June 2018.
45
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018
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. Its solutions allow
customers to save lives, enhance
security and support peacekeeping
activities worldwide. This division has
base-business sales in the range of $65
million to $75 million per annum, with
large HF projects potentially taking us
to the top of this range.
Radio Communications missed out
on delivering some large HF projects
before year-end, and LMR sales
were impacted by a slowdown in
US-Government spending. As a result,
revenue decreased to $56.5 million,
delivering segment contribution of
$6.8 million for the year.
The HF division is targeting the
global military market, with a focus on
developing world militaries in Africa,
the Middle East, Asia, Eastern Europe
and Latin America. This will enable
us to leverage our successful sales
strategy in Afghanistan and expand
to other countries utilising the US-
Government-funded Foreign Military
Sales (FMS) vehicle.
During FY18, we upgraded the
features of our Sentry-H™ military
radio and delivered our first substantial
order. We maintained our position
as the dominant HF supplier to aid
and humanitarian organisations by
supporting their in-country missions.
We continue to conduct business
development activities with a number
of complementary third-party solution
providers in order to supplement our
customer offerings.
As previously announced, in August
2017 Radio Communications
secured its first significant end-to-
end LMR solution sale, with a US$4.3
million order from RiverCom 911 in
Washington State. This order was
successfully delivered during FY18,
providing a critical reference for future
LMR solutions sales in North America.
We remain optimistic about the
medium to long-term growth potential
in LMR and, as such, continue to invest
in the development of the Cascade™
LMR platform. We expect to see sales
growth from this investment during
FY20 as we release new software
features, upskill our sales team and
develop new routes to market.
The Radio Communications division
has strong order book entering
FY19 and is well positioned on a
number of potential large projects.
Our expectation is that Radio
Communications will deliver FY19 sales
in line with our base-business range.
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.
Minelab’s base business 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. In the past, Minelab
has had base-business sales in the
range of $85 million to $95 million
46
per annum. The EQUINOX® coin and
treasure product release, coupled with
an expanded gold detector range and
Minelab’s entry into new markets, has
increased the base business to around
$110 million per annum.
As was the case in FY18, periods
of stronger demand for gold
detectors in Africa and new product
introductions can push these revenues
significantly higher.
Minelab had another exceptionally
strong year at $164 million sales,
delivering segment contribution
of $64 million. While sales of our
GPZ 7000® top-of-the-range gold
detector remain strong, they are being
complemented by significantly higher
sales of the new Gold Monster® and
SDC 2300® detectors in Africa.
African demand continues to be driven
by the superior performance of our
products rather than gold surges.
Existing customers are upgrading their
GPX® gold detecting equipment, and
new customers are buying the entry-
level Gold Monster®. It has also been
pleasing to see a resurgence in demand
for the SDC 2300®, a detector that is
exceptionally good at discovering fine-
particle gold. This changing sales mix
has further diversified the business but
has resulted in lower average margins
for our gold detector products in Africa.
In Minelab’s established recreational
markets outside Africa, the EQUINOX®
detector, released in February 2018,
is taking significant market share from
competitors as customers discover how
easy it is to become a metal detecting
expert overnight and find more
treasure than ever before.
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Outlook
As a result of the strategic initiatives
discussed above, we have succeeded in
growing Codan’s base business to sales
of $180 million to $200 million and
NPAT of $25 million to $30 million.
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
continuing to grow the company’s
base business.
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.
In May 2018, Minetec secured a
$9.5 million contract to supply the
Fleet Management system to BHP’s
Olympic Dam mine in South Australia.
This followed a highly competitive
global tender process and is separate
from the Caterpillar agreement. It is
the largest contract won by Minetec
under Codan’s ownership and validates
the leading position of the division’s
proximity-detection, tracking and task-
management solutions.
Management are targeting revenues
of $15 million for Minetec in FY19 and
have the objective of doubling the size
of this business in the next few years.
During FY19, we will integrate Minetec’s
technology with Caterpillar’s Minestar®
system and launch the improved
solution through Caterpillar’s extensive
sales and dealer network.
Minetec delivered a small operating
profit in FY18 and, while we expect a
better result for the division in FY19, it is
not expected to be material to Codan.
We will continue to invest in further
development of the core technology,
integrating Minetec’s products into
Minestar® and educating the Caterpillar
distribution network.
Codan Defence Electronics
Codan Defence Electronics offers
high-level design and adaptation,
advanced manufacturing, training and
through-life support to the Australian
defence industry.
While we are yet to win significant
orders, we continue to build strong
customer relations and an extensive
pipeline of future opportunities.
Defence contracts have long sales
cycles and, as a result, we have not
planned for any significant revenue
in FY19.
Minelab delivered a significant order
for the countermine F3 Compact™
detector to a country in Latin America.
We won this competitive tender on
the reliability and performance of our
countermine technology which we
are further developing in partnership
with the Australian government to
create a new dual-sensing countermine
detector, to be released in late FY19.
We are confident of continued success
in FY19.
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
allow miners to visualise the whole mine
in order to optimise productivity and
enhance safety.
During FY18, Minetec achieved
a number of critical milestones to
commercialise its technology and
put distribution in place to scale
the business.
In February 2018, Minetec entered
into a global licensing, technology
development and marketing
agreement with Caterpillar Inc.
Under the terms of this agreement,
Caterpillar and Minetec have begun
integrating Minetec’s high-precision
tracking capability into an expanded
Caterpillar Minestar® underground
solution for hard-rock mines.
The combined solution will be taken
to market under the Caterpillar
brand through the Caterpillar global
dealer network.
In March 2018, Minetec won a contract
to provide a non-GPS, surface-mining
proximity detection system to the
Boliden Kevitsa mine in Northern
Finland. The Minetec solution was
proven to be more accurate and
lower cost than traditional GPS-based
solutions. Many surface miners are
seeking a solution that is not reliant on
GPS, and Minetec is well positioned to
meet this need.
47
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Directors' Report (continued)
Dividends
Dividends paid or declared by the
company to members since the end of
the previous financial year were:
Cents per share
Total amount
$000
Franked
Date of payment
Declared and paid during the year ended
30 June 2018:
FY17 final ordinary
FY17 final special
FY18 interim ordinary
Declared after the end of the year:
FY18 final ordinary
FY18 final special
4.0
3.0
4.0
4.5
4.0
7,125
5,343
7,125
8,019
7,128
100%
100%
100%
100%
100%
3 October 2017
3 October 2017
3 April 2018
14 September 2018
14 September 2018
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.
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:
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
Ordinary
shares
86,636
609,394
57,708
–
38,829
10,000
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.
48
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated
2018
$
2017
$
204,874
–
204,874
56,760
27,220
32,591
116,571
195,651
–
195,651
62,100
186,627
35,290
284,017
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 50 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
Taxation compliance services (KPMG Australia)
Taxation compliance services (overseas KPMG firms)
Corporate finance services
Rounding off
The company is of a kind referred to in
ASIC Legislative Instrument 2016/191
dated 1 April 2016 and, in accordance
with that Legislative Instrument,
amounts in the financial report and
directors’ report have been rounded off
to the nearest thousand dollars, unless
otherwise stated.
This report is made with a resolution of
the directors:
D J Simmons
Director
D S McGurk
Director
Dated at Mawson Lakes this 23rd day of
August 2018.
49
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Lead auditor’s independence declaration
under Section 307c of the Corporations Act 2001
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Codan Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Codan Limited for the
financial year ended 30 June 2018 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Paul Cenko
Partner
Adelaide
23 August 2018
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional
Standards Legislation.
18
50
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES
Consolidated income statement
for the year ended 30 June 2018
Consolidated
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
2
3
4
7
2018
$000
229,914
(98,209)
131,705
(19,295)
(37,976)
(20,360)
(730)
(152)
53,192
(11,644)
41,548
41,575
(27)
41,548
Earnings per share for profit attributable to the ordinary equity holders of the company:
Basic earnings per share
6
23.4 cents
Diluted earnings per share
6
23.1 cents
2017
$000
226,095
(89,874)
136,221
(21,677)
(35,169)
(17,280)
(894)
(1,718)
59,483
(15,970)
43,513
43,515
(2)
43,513
24.6 cents
24.2 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 56 to 90.
51
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Consolidated statement of
comprehensive income
for the year ended 30 June 2018
Profit for the period
Items that may be reclassified subsequently to profit or loss
Changes in fair value of cash flow hedges
less tax effect
Changes in fair value of cash flow hedges, net of income tax
Exchange differences on translation of foreign operations
Consolidated
2018
$000
2017
$000
41,548
43,513
(1,170)
351
(819)
954
719
(216)
503
(1,542)
Note
21
21
Other comprehensive income/(loss) for the period, net of income tax
135
(1,039)
Total comprehensive income for the period
41,683
42,474
Attributable to:
Equity holders of the company
Non-controlling interests
41,710
(27)
41,683
42,476
(2)
42,474
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 56 to 90.
52
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated balance sheet
as at 30 June 2018
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
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
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
2018
$000
2017
$000
8
11
12
7
14
13
15
16
17
18
7
19
7
19
20
21
27,711
29,784
31,588
91
3,750
2,474
95,398
12,489
59,830
86,585
158,904
254,302
46,346
6,057
7,299
59,702
5,994
541
6,535
66,237
188,065
42,721
64,326
81,018
188,065
188,184
(119)
188,065
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
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 56 to 90.
53
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Consolidated statement of changes in equity
for the year ended 30 June 2018
Consolidated
Foreign
currency
translation
reserve
$000
Share
capital
$000
Equity
based
payment
reserve
$000
Hedging
reserve
$000
Profit
reserve
$000
Retained
earnings
$000
Total
$000
43,928
2,634
389
–
–
–
–
(1,954)
41,974
–
–
–
–
–
(819)
954
–
–
–
3,588
(430)
774
–
–
1,954
2,728
– 58,981
–
59,063 164,995
41,548
774
(819)
954
– 41,548
–
–
–
–
–
–
–
541
206
747
–
–
–
–
–
–
–
–
–
(541)
–
(541)
–
–
58,981 100,611 207,452
–
– (19,593)
–
–
(19,593)
–
–
– (19,593)
–
206
(19,387)
2018
Balance as at 1 July 2017
Profit for the period
Performance rights expensed
Change in fair value of cash flow hedges
Exchange differences on translation of
foreign operations
Transfers to and from reserves
Transactions with owners of
the company
Dividends recognised during the period
Issue of share capital through
performance rights
Employee share plan, net of issue costs
Balance at 30 June 2018
42,721
3,588
(430)
2,187
58,981
81,018 188,065
2017
Balance as at 1 July 2016
Profit for the period
Performance rights expensed
Change in fair value of cash flow hedges
Exchange differences on translation of
foreign operations
Transactions with owners of
the company
Dividends recognised during the period
Employee share plan, net of issue costs
Balance at 30 June 2017
Foreign
currency
translation
reserve
$000
Equity
based
payment
reserve
$000
Hedging
reserve
$000
Profit
reserve
$000
Retained
earnings
$000
Total
$000
4,176
–
–
–
(1,542)
(114)
–
–
503
–
–
–
–
–
–
58,981
–
–
–
–
33,274
43,513
–
–
–
138,922
43,513
1,137
503
(1,542)
Share
capital
$000
42,605
–
1,137
–
–
43,742
2,634
389
–
58,981
76,787
182,533
–
186
186
43,928
–
–
–
2,634
–
–
–
389
–
–
–
–
–
–
–
58,981
(17,724)
–
(17,724)
59,063
(17,724)
186
(17,538)
164,995
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 56 to 90.
54
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Consolidated statement of cash flows
for the year ended 30 June 2018
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
Consolidated
Note
2018
$000
2017
$000
231,096
(159,759)
94
(597)
(22,616)
48,218
16
(16,543)
(2,029)
(3,427)
(470)
(22,453)
–
(19,593)
(19,593)
6,172
21,421
118
27,711
10
8
230,959
(153,059)
80
(874)
(1,526)
75,580
4
(16,418)
(2,905)
(4,064)
(277)
(23,660)
(26,935)
(17,724)
(44,659)
7,261
14,333
(173)
21,421
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 56 to 90.
55
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of
the financial statements
for the year ended 30 June 2018
Significant Accounting Policies
1.
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 2018 comprises the company and its subsidiaries (together referred
to as the "group" and individually as "group entities"). The financial report was authorised for issue by the directors on 23
August 2018.
Statement of compliance
(a)
The financial report is a general purpose financial report
which has been prepared in accordance with Australian
Accounting Standards (AASBs) 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) adopted
by the International Accounting Standards Board (IASB).
next financial year relate to impairment assessments of non-
current assets, including product development and goodwill
(refer note 17).
Changes in accounting policies
For the year ended 30 June 2018, 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.
(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 group 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
56
Basis of consolidation
(c)
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.
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Revenue recognition
(d)
Revenues are recognised at the fair value of the consideration
received or receivable, net of the amount of goods and
services tax (GST) payable to taxation authorities.
Sale of goods
Revenue from the sale of goods is measured at the fair
value of the consideration received or receivable (net
of rebates, returns, discounts and other allowances).
Revenue is recognised when the significant risks and
rewards of ownership pass to the customer, recovery of
the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is
no continuing management involvement with the goods
and the amount of revenue can be measured reliably. Control
usually passes when the goods are shipped to the customer.
Construction contracts
Contract revenue includes the initial amount agreed in the
contract, plus any variations in contract work, claims and
incentive payments, to the extent that it is probable that they
will result in revenue and can be measured reliably. As soon
as the outcome of a construction contract can be estimated
reliably, contract revenue is recognised in the income
statement in proportion to the stage of completion of the
contract. Contract expenses are recognised as incurred
unless they create an asset related to future contract activity.
The stage of completion is assessed by reference to
professional judgement of work performed. When the
outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised only to the extent
of contract costs incurred that are likely to be recoverable.
An expected loss on a contract is recognised immediately
in the income statement.
Rendering of services
Revenue from rendering services is recognised in the period
in which the service is provided.
(e)
Expenses
Operating lease payments
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense and
are spread over the lease term.
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.
Foreign currency
(f)
Foreign currency transactions are translated to Australian
dollars at the rates of exchange ruling at the dates of the
transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are translated to
Australian dollars at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are
recognised in the income statement, except for differences
arising on the retranslation of a financial liability designated
as a hedge of a net investment in a foreign operation, or
qualifying cash flow hedges, which are recognised in other
comprehensive income and presented within equity, to the
extent that the hedge is effective.
Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair-value adjustments arising on acquisition,
are translated to Australian dollars at the foreign exchange
rates ruling at the reporting date. Equity items are translated
at historical rates. The income and expenses of foreign
operations are translated to Australian dollars at the foreign
exchange rates ruling at the dates of the transactions. Foreign
exchange differences arising on translation are taken directly
to the foreign currency translation reserve until the disposal,
or partial disposal, of the foreign operations.
57
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
1.
Significant Accounting Policies (continued)
(f)
Foreign currency (continued)
Foreign operations (continued)
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.
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.
Derivative financial instruments
(g)
The group has used derivative financial instruments to
hedge its exposure to foreign exchange and interest rate
movements. In accordance with its policy, the group
does not hold derivative financial instruments for trading
purposes. However, derivatives that do not qualify for
hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at
fair value. Attributable transaction costs are recognised in
the income statement when incurred. Subsequent to initial
recognition, derivative financial instruments are stated at
fair value. The gain or loss on re-measurement to fair value is
recognised immediately in the income statement unless the
derivative qualifies for hedge accounting.
Hedging
On initial designation of the hedge, the group formally
documents the relationship between the hedging instrument
and hedged item, including the risk management objectives
and strategy in undertaking the hedge transaction, together
with the methods that will be used to assess the effectiveness
of the hedging relationship.
(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.
58
CODANCODAN 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.
Goods and services tax
(i)
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.
Cash and cash equivalents
(j)
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.
Trade and other receivables
(k)
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.
Inventories
(l)
Raw materials and stores, work in progress and finished
goods are measured at the lower of cost (determined on a
first-in first-out basis) and net realisable value. Net realisable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling
expenses. In the case of manufactured inventories and work
in progress, costs comprise direct materials, direct labour,
other direct variable costs and allocated factory overheads
necessary to bring the inventories to their present location
and condition.
(m) Project work in progress
Project work in progress represents the gross unbilled
amount expected to be collected from customers for
project work performed to date. It is measured at cost,
plus profit recognised to date, less progress billings and
recognised losses. Cost includes all expenditure related
directly to specific projects. Project work in progress is
presented as part of other assets in the balance sheet for
all projects in which costs incurred, plus recognised profits,
exceed progress billings.
59
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (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
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.
Measuring goodwill
The group measures goodwill as the fair value of the
consideration transferred including the recognised amount
of any non-controlling interest in the acquiree, less the net
recognised amount (generally fair value) of the identifiable
assets acquired (including intangible assets) and liabilities
assumed, all measured as of the acquisition date.
Consideration transferred includes the fair values of the
assets transferred, liabilities incurred by the group to the
previous owners of the acquiree, and equity interests issued
by the group. Consideration transferred also includes the
fair value of any contingent consideration and share-based
payment awards of the company.
Contingent liabilities
A contingent liability of the acquiree is assumed in a business
combination only if such a liability represents a present
obligation and arises from a past event, and its fair value
can be measured reliably.
Non-controlling interest
The group measures any non-controlling interest at its
proportionate interest in the identifiable net assets of
the acquiree.
Transaction costs
Transaction costs that the group incurs in connection with
a business combination, such as finder’s fees, legal fees,
due diligence fees, and other professional and consulting
fees, are expensed as incurred.
Licences and other intangible assets
Licences and other intangible assets that are acquired by
the group, which have finite useful lives, are stated at cost,
less accumulated amortisation and accumulated impairment
losses. Expenditure on internally generated goodwill and
brands is recognised in the income statement as incurred.
Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in
the specific asset to which it relates. All other expenditure,
including expenditure on internally generated goodwill and
brands, is recognised in the income statement as incurred.
Amortisation
Amortisation is calculated on the cost of the asset, less its
residual value.
Amortisation is charged to the income statement on either a
straight-line or units of production basis. Intangible assets are
amortised over their estimated useful lives from the date that
they are available for use, but goodwill is only written down
if there is an impairment. The estimated useful lives in the
current and comparative periods are as follows:
Straight-line
Units of
production
2 - 15 years
5 - 10 years
Product development, licences
and intellectual property:
Computer software:
3 - 7 years Not applicable
Amortisation methods, useful lives and residual values are
reviewed at each reporting date.
60
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Change in estimates
Subsequent costs
During the year ended 30 June 2018, the group conducted
a review, which resulted in a change in the amortisation
method from straight-line to units of production in order
to better reflect the pattern in which the assets’ future
economic benefits are expected to be consumed. This
did not have a material impact.
(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.
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.
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.
Impairment
(q)
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 of disposal 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.
61
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
1.
Significant Accounting Policies (continued)
Impairment (continued)
(q)
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.
Payables
(r)
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.
Interest bearing borrowings
(s)
Interest bearing borrowings are recognised initially at their
fair value, less attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are
stated at amortised cost, with any difference between
cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective-
interest basis.
(t)
Employee benefits
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries,
incentives and annual leave represent present obligations
resulting from employees' services provided to the reporting
date, calculated at undiscounted amounts based on
remuneration rates that the group expects to pay as at the
reporting date, including related on-costs such as workers’
compensation insurance and payroll tax.
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.
Provisions
(u)
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.
62
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Dividends
A provision for dividends payable is recognised in the
reporting period in which the dividends are declared.
Restructuring and employee termination benefits
A provision for restructuring is recognised when the
group has approved a detailed and formal restructuring
plan, and the restructuring either has commenced or 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.
(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.
(x)
Future Australian Accounting
Standards requirements
A number of new standards, amendments to standards
and interpretations, effective for annual periods beginning
after 1 July 2018, 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 to adopt
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 to adopt this new standard before the mandatory
effective date.
AASB 16 Leases – The company has completed an initial
assessment of the potential impact on its consolidated
financial statements but has not yet completed its detailed
assessment. The actual impact of applying IFRS 16 on
the financial statements in the period of initial application
will depend on future economic conditions, including the
company’s borrowing rate at 1 July 2019, the composition
of the company’s lease portfolio at that date, the company’s
latest assessment of whether it will exercise any lease renewal
options and the extent to which the company chooses to use
practical expedients and recognition exemptions. An impact
from this standard is that the company will recognise new
assets and liabilities from its operating leases. As at 30 June
2018, the company’s future minimum lease payments under
non-cancellable operating leases exceeded $42 million,
on an undiscounted basis (see note 27(ii)).
63
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (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, United Arab Emirates,
South Africa, Brazil and Ireland.
GROUP PERFORMANCE
Segment activities
2.
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.
64
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Information about
reportable segments
Communications
Metal detection Tracking solutions
Consolidated
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
Revenue
External segment revenue
Result
Segment result
Impairment
Net financing cost
Unallocated income
and expenses
Profit from operating
activities
Income tax expense
Net Profit
Non-cash items
included above
Depreciation and amortisation
Unallocated depreciation
and amortisation
Impairment
Total depreciation,
amortisation and
impairment
Assets
Capital expenditure
Unallocated capital expenditure
Total capital expenditure
Segment assets
Unallocated corporate assets
Consolidated total assets
56,525
70,922 164,039 147,957
9,350
7,216 229,914 226,095
6,763
19,947
64,064
61,524
706
330
71,533
–
(730)
81,801
(1,219)
(894)
7,076
5,311
8,485
7,768
606
410
(17,611)
(20,205)
53,192
(11,644)
41,548
59,483
(15,970)
43,513
16,167
494
13,489
576
–
1,219
16,661
15,284
838
2,077
1,310
1,339
354
81,565
77,107 111,207 110,317
25,483
196
3,612
2,502
452
925
4,064
3,427
16,706 218,255 204,130
28,545
36,047
232,675
254,302
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 $37,437,249 (2017: $30,973,976), the United States of America totalling
$40,925,187 (2017: $43,351,228) and United Arab Emirates totalling $54,745,326 (2017: $58,605,275).
The group’s non-current assets, excluding financial instruments and deferred tax assets, were located as follows:
Australia $121,473,282 (2017: $116,833,668), the United States of America $106,279 (2017: $136,001), Ireland $19,117
(2017: $3,640), Canada $37,051,394 (2017: $33,931,551) and United Arab Emirates $256,308 (2017: $254,600).
65
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
GROUP PERFORMANCE (continued)
Consolidated
2018
$000
2017
$000
(94)
222
602
730
148
2,699
2,847
7,891
3,339
1,939
161
484
13,814
38,629
3,541
3,158
466
1,743
47,537
(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
5,580
5,631
–
161
(9)
152
1,219
521
(22)
1,718
Expenses
3.
Net financing costs:
Interest income
Net foreign exchange (gain)/loss
Interest expense
Depreciation of:
Leasehold property
Plant and equipment
Amortisation of:
Product development - straight-line
Product development - units of production
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:
Operating lease rental expense
Other expenses / (income)
4.
Impairment of asset held for sale - Newton property
(Gain)/loss on sale of property, plant and equipment
Other expenses/(income)
66
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES 5. Dividends
Codan Limited has provided or paid for dividends as follows:
(i) ordinary final fully-franked dividend of 4.0 cents per ordinary share paid on 3 October 2017
(ii) special final fully-franked dividend of 3.0 cents per ordinary share paid on 3 October 2017
(iii) ordinary interim fully-franked dividend of 4.0 cents per ordinary share paid on 3 April 2018
(iv) ordinary final fully-franked dividend of 4.0 cents per ordinary share paid on 4 October 2016
(v) ordinary interim fully-franked dividend of 3.0 cents per ordinary share paid on 1 April 2017
(vi) special interim fully-franked dividend of 3.0 cents per ordinary share paid on 1 April 2017
Consolidated
2018
$000
2017
$000
7,125
5,343
7,125
–
–
–
–
–
–
7,088
5,318
5,318
19,593
17,724
Subsequent events
Since the end of the financial year, the directors declared a final ordinary fully franked dividend of 4.5 cents per share and a
fully-franked special dividend of 4.0 cents per share, bringing total final dividends to 8.5 cents fully franked, payable on 14
September 2018. The financial impact of this final dividend of $15,146,149 has not been brought to account in the group
financial statements for the year ended 30 June 2018 and will be recognised in subsequent financial reports.
Dividend franking account
Franking credits available to shareholders for subsequent financial years (30%)
23,334
19,983
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
$6,491,207 (2017: $5,318,886).
6. Earnings per share
The group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the
period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise performance rights
granted to employees.
Net profit used for the purpose of calculating basic and diluted earnings per share
41,575
43,515
The weighted average number of shares used as the denominator number for basic earnings per share was 177,951,688
(2017: 177,226,317). 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 2018 was based on a weighted average number of ordinary shares
outstanding, after adjustment for the effects of all dilutive potential ordinary shares of 179,977,716 (2017: 179,520,965).
The movement in the year relates to the shares issued under the employee share plan and the performance rights granted.
67
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018
Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
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
Demolition of buildings
Sundry items
Increase in income tax expense due to:
Non-deductible expenses
Non-deductible capital loss
Effect of tax rates in foreign jurisdictions
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
68
Consolidated
2018
$000
2017
$000
13,064
(606)
12,458
16,803
(715)
16,088
(814)
(118)
11,644
15,970
15,958
17,845
(2,229)
(606)
(1,714)
(6)
11,403
229
–
12
11,644
(16,089)
(4)
22,616
575
(13,064)
(5,966)
91
(6,057)
(5,966)
(1,424)
(715)
–
(211)
15,495
40
366
69
15,970
(1,898)
(3)
1,526
1,089
(16,803)
(16,089)
47
(16,136)
(16,089)
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES 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
Carry forward overseas tax losses
Carry forward overseas R&D tax credits
Consolidated
2018
$000
2017
$000
18,441
16,412
(397)
(3,051)
(1,799)
(2,942)
(350)
(20)
(3,888)
5,994
(264)
(2,919)
(1,742)
(2,898)
(30)
–
(1,322)
7,237
69
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
CASH MANAGEMENT
8. Cash and cash equivalents
Petty cash
Cash at bank
9. Loans and borrowings
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 - guarantees
Commercial credit card
Facilities not utilised at balance date:
Multi-option facility
Commercial credit card
Consolidated
2018
$000
2017
$000
300
27,411
27,711
159
21,262
21,421
40,000
200
40,200
3,336
11
3,347
36,664
189
36,853
55,000
200
55,200
2,537
10
2,547
52,463
190
52,653
In addition to these facilities, the group has cash at bank and short-term deposits of $27,711,000 as set out in note 8.
Bank Facilities
Facilities are supported by interlocking guarantees between the company and its subsidiaries. The multi-option facility of $40
million was renegotiated with a three-year term expiring in January 2022 subject to compliance with certain financial covenants,
with an additional facility of $40 million available subject to our financial institutions' approval.
Consolidated
2018
%
0.45
2.60
2017
%
0.48
2.54
Weighted average interest rates:
Cash at bank
Cash advance
70
CODANCODAN 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:
Leasehold property
Plant and equipment
Impairment of asset held for sale - Newton property
Amortisation
Performance rights and employee share plan expensed
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
2018
$000
2017
$000
41,548
43,513
161
521
148
2,699
–
13,814
980
(10,972)
(100)
48,278
(9,227)
(561)
463
9,113
152
48,218
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
71
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OPERATING ASSETS AND LIABILITIES
11. Trade and other receivables
Current
Trade receivables
Less: Provision for impairment losses
Other debtors
12. Inventory
Raw materials
Work in progress
Finished goods
Consolidated
2018
$000
2017
$000
29,994
(459)
29,535
249
29,784
6,565
12,695
12,328
31,588
21,105
(833)
20,272
285
20,557
5,593
10,922
14,512
31,027
In 2018, inventories of $83.9 million (2017: $79.1 million) were recognised as an expense during the year and included in cost
of sales.
13. Other assets
Prepayments
Net foreign currency hedge receivable
Project work in progress
Other
14. Assets held for sale
Freehold land
Reconciliation
Carrying amount at beginning of year
Disposals
Impairment
Carrying amount at end of year
2,188
–
–
286
2,474
2,306
556
217
414
3,493
3,750
3,750
3,750
–
–
3,750
5,003
(34)
(1,219)
3,750
During the year, the company has signed a contract for the sale of its Newton property. The contract is subject to a number of
conditions to be satisfied by the purchaser, with settlement expected to take place in FY20.
72
CODANCODAN 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:
Leasehold property improvements
Carrying amount at beginning of year
Additions
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
Disposals
Depreciation
Net foreign currency differences on translation of foreign entities
Carrying amount at end of year
Capital work in progress at cost
Carrying amount at beginning of year
Additions, net of transfers
Carrying amount at end of year
Total carrying amount at end of year
Consolidated
2018
$000
2017
$000
858
(498)
360
33,397
(22,595)
10,802
1,327
12,489
479
25
(9)
(148)
13
360
9,807
2,407
1,367
(168)
(2,699)
88
10,802
1,699
(372)
1,327
12,489
826
(347)
479
29,739
(19,932)
9,807
1,699
11,985
832
119
(374)
(105)
7
479
9,334
2,272
607
(45)
(2,313)
(48)
9,807
633
1,066
1,699
11,985
73
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OPERATING ASSETS AND LIABILITIES (continued)
Consolidated
2018
$000
2017
$000
131,545
(71,715)
59,830
114,687
(60,498)
54,189
54,189
16,543
(11,230)
328
59,830
45,336
16,418
(7,438)
(127)
54,189
82,978
82,529
21,674
(19,355)
2,319
10,386
(10,063)
323
5,440
(4,475)
965
19,617
(17,401)
2,216
10,258
(9,904)
354
5,098
(3,991)
1,107
86,585
86,206
82,529
449
82,978
2,216
2,029
(1,939)
13
2,319
83,274
(745)
82,529
1,938
3,336
(3,035)
(23)
2,216
16. Product development
Product development at cost
Accumulated amortisation
Reconciliation
Carrying amount at beginning of year
Capitalised in current period
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
Intellectual property
Carrying amount at beginning of year
Additions
Amortisation
Net foreign currency differences on translation of foreign entities
74
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES
Computer software
Carrying amount at beginning of year
Additions
Amortisation
Disposals
Net foreign currency differences on translation of foreign entities
Licences
Carrying amount at beginning of year
Acquisitions
Amortisation
The following segments have significant carrying amounts of goodwill:
Communications
Metal detection
Tracking solutions
Consolidated
2018
$000
2017
$000
354
128
(161)
–
2
323
1,107
342
(484)
965
20,483
53,957
8,538
82,978
422
277
(276)
(72)
3
354
2,005
–
(898)
1,107
20,034
53,957
8,538
82,529
Goodwill
The recoverable amount of cash generating units has
been determined using value-in-use calculations.
The cash-generating units within Communications and Metal
detection 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 assessment,
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. Management’s
sensitivity analysis indicates that there is not a reasonable
possibility that changes in the assumptions used would result
in an impairment in the cash-generating units.
Tracking solutions, which comprises Minetec, was acquired
by Codan in 2012 and, over the past six years, Minetec has
developed unique, high-precision productivity and safety
solutions for underground hard-rock mines.
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.
In February 2018, Minetec entered into a global licensing,
technology development and marketing agreement with
Caterpillar Inc. Under the terms of this agreement, Caterpillar
and Minetec have begun integrating Minetec’s high-precision
tracking capability into an expanded Caterpillar Minestar®
underground solution for hard-rock mines. The combined
solution will be taken to market under the Caterpillar brand
through the Caterpillar global dealer network. Furthermore,
during the year Minetec secured a $9.5 million contract to
supply a fleet management system to BHP’s Olympic Dam mine
in South Australia. This followed a highly competitive global
tender process and is separate from the Caterpillar agreement.
It is the largest contract won by Minetec under Codan’s
ownership and validates the value of Minetec's technology.
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. The key assumption to the valuation scenario
is the level of sales to be achieved by this business. To prepare
the sales forecasts, management have considered a number
of known opportunities that are expected to adopt Minetec’s
75
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OPERATING ASSETS AND LIABILITIES (continued)
17.
Intangible assets (continued)
Goodwill (continued)
technology in oncoming years. 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 Minetec technology
being developed. Management’s sensitivity analysis indicates
that there is not a reasonable possibility that changes in the
assumptions used would result in an impairment in the cash-
generating units.
18. Trade and other payables
Current
Trade payables
Other payables and accruals
Net foreign currency hedge payable
19. Provisions
Current
Employee benefits
Warranty repairs
Non-Current
Employee benefits
Reconciliation of warranty provision
Carrying amount at beginning of year
Provisions made
Payments made
76
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 was based
on the sales of metal detection products over a ten-year period.
An asset in relation to the acquired intellectual property was
recognised as Minelab Electronics Pty Limited became liable
for the payments under the contract.
Licences
The company entered into a licence agreement on 30 June
2011 with a leading provider of advanced technology for high
frequency radio communications products. Licence payments
are being made as technology is delivered to the company.
The licenced technology allows the company access to next-
generation radio waveforms for high-speed data transmission,
automatic link establishment and digital voice.
Consolidated
2018
$000
2017
$000
25,693
20,039
614
46,346
5,847
1,452
7,299
541
1,593
1,201
(1,342)
1,452
18,918
17,701
–
36,619
5,574
1,593
7,167
521
1,160
1,748
(1,315)
1,593
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES
CAPITAL MANAGEMENT
20. Share capital
Share capital
Opening balance (177,296,186 ordinary shares fully paid)
Performance rights expensed
Transfers to and from reserves
Issue of share capital through vested performance rights
Issue of share capital through employee share plan
Closing balance (178,189,989 ordinary shares fully paid)
Consolidated
2018
$000
2017
$000
43,928
–
(1,954)
541
206
42,721
42,605
1,137
–
–
186
43,928
Terms and conditions
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
shareholders' meetings. In the winding up of the company, ordinary shareholders rank after all creditors and are fully entitled to any
proceeds on liquidation.
21. Reserves
Foreign currency translation
Hedging reserve
Equity based payment reserve
Profit reserve
3,588
(430)
2,187
58,981
64,326
2,634
389
–
58,981
62,004
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
2,634
954
3,588
4,176
(1,542)
2,634
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
389
(819)
(430)
(114)
503
389
Equity based payment reserve
The equity based payment reserve comprises Codan Limited's accumulated expenses in relation to unvested performance rights.
During the financial year, $1,954,000 was transferred from Share Capital to Equity Based Payment Reserve which relates to
unvested performance rights expensed since the performance rights were issued.
Balance at beginning of year
Performance rights expensed
Transfers from Share Capital
Performance rights vested
Balance at end of year
–
774
1,954
(541)
2,187
–
–
–
–
–
77
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018
Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
CAPITAL MANAGEMENT (continued)
21. Reserves (continued)
Profit reserve
The profit reserve comprises a portion of Codan Limited's accumulated profits.
Balance at beginning of year
Balance at end of year
Consolidated
2018
$000
2017
$000
58,981
58,981
58,981
58,981
22. Capital management
The board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The board of directors monitors the level of dividends paid to ordinary shareholders and the overall
return on capital.
The board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings,
and the advantages and security afforded by a sound capital position. This approach has not changed from previous years.
Neither the company nor any of its subsidiaries is subject to externally imposed capital requirements.
78
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES GROUP STRUCTURE
23. Group entities
Name
Parent Entity
Codan Limited
Controlled Entities
Country of
incorporation
Class of
share
Interest held
2018
%
Interest held
2017
%
Australia
Ordinary
Codan Defence Electronics Pty Ltd
Codan Executive Share Plan Pty Ltd
Codan Radio Communications ME DMCC
Codan Radio Communications Pty Ltd
Codan (UK) Limited
Codan US Inc
Daniels Electronics Ltd
Minelab Americas Inc
Minelab do Brasil Equipamentos Para Mineração Ltda*
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
Australia
Australia
UAE
Australia
England
USA
Canada
USA
Brazil
Australia
Ireland
UAE
UAE
UAE
Australia
South Africa
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
* Minelab do Brasil Equipamentos Para Mineração Ltda was incorporated on 26 April 2018.
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
10
49
100
50
100
100
79
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
GROUP STRUCTURE (continued)
24. Deed of cross guarantee
Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785, the wholly-owned subsidiary listed below is
relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial and director's reports.
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
2018
$000
52,572
52,572
(12,878)
39,694
46,642
66,743
21,486
60,062
24,558
3,750
2,282
112,138
13,888
9,974
39,297
56,182
119,341
231,479
2017
$000
61,889
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
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
80
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Current liabilities
Trade and other payables
Other liabilities
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Consolidated
2018
$000
37,291
5,763
6,033
5,846
54,933
3,710
439
4,149
59,082
172,397
42,721
62,933
66,743
172,397
2017
$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
25. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2018, 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
Consolidated
2018
$000
2017
$000
40,471
1,397
41,868
97,724
199,834
42,887
48,186
42,721
60,098
48,829
151,648
28,670
(280)
28,390
83,285
184,811
47,229
53,423
45,041
58,396
27,951
131,388
During the year, Codan Limited entered into contracts to purchase plant and equipment for $837,308 (2017: $1,159,651).
81
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OTHER NOTES
26. Auditor's remuneration
Audit services:
KPMG Australia - audit and review of financial reports
Overseas other firms - audit and review 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
2018
$
2017
$
204,874
67,471
195,651
57,489
56,760
32,591
27,220
76,884
465,800
62,100
35,290
186,627
36,753
573,910
Consolidated
2018
$000
2017
$000
1,315
–
1,315
2,050
–
2,050
5,231
13,670
23,893
42,794
4,994
15,066
26,514
46,574
The group leases property under non-cancellable operating leases with a term of 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.
82
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES 28. Additional financial instruments disclosure
Financial risk management
(a) Credit risk
Overview
The group has exposure to the following risks from its use
of financial instruments:
• credit risk
• liquidity risk
• market risk
• operational risk.
This note presents information about the group's exposure to
each of the above risks, its objectives, policies and processes
for measuring and managing risk, and its management
of capital. Further quantitative disclosures are included
throughout these consolidated financial statements.
The board of directors has overall responsibility for the
establishment and oversight of the risk management
framework. The Board Audit, Risk and Compliance Committee
is responsible for developing and monitoring risk management
policies. The committee reports regularly to the board on its
activities.
Risk management policies are established to identify and
analyse the risks faced by the group, to set appropriate risk
limits and controls, and to monitor risk and adherence to limits.
Risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the group's
activities. The group, through its training and management
standards and procedures, aims to develop a disciplined
and constructive control environment in which all employees
understand their roles and obligations.
The Board Audit, Risk and Compliance Committee oversees
how management monitors compliance with the group's
risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to
the risks faced by the group.
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. As at 30 June 2018, the customer with the group's
highest trade and other receivable balance accounted for
$6.2 million (2017: nil).
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 new
customers are analysed for credit worthiness before the
group's payment and delivery terms and conditions are offered.
Goods are sold subject to retention of title clauses, so that in
the event of non-payment the group may have a secured claim.
The group does not normally require collateral in respect of
trade and other receivables.
The group has established an allowance for impairment that
represents its estimate of incurred losses in respect of trade and
other receivables. The main components of this allowance are
a specific loss component that relates to individually significant
exposures and a collective loss component established for
groups of similar assets in respect of losses that have been
incurred but not yet identified.
Guarantees
Group policy is to provide financial guarantees only
to wholly owned subsidiaries.
83
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OTHER NOTES (continued)
28. Additional financial instruments disclosure (continued)
(a) Credit risk (continued)
The carrying amount of the group's financial assets represents the maximum credit exposure. The group's maximum exposure
to credit risk at the reporting date was:
Carrying amount
Consolidated
Cash and cash equivalents
Trade and other receivables
Note
8
11
2018
$000
27,711
29,784
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
8,484
3,824
7,560
3,349
6,777
29,994
Impairment losses
The aging of the group's trade receivables at the reporting date was:
2017
$000
21,421
20,557
3,766
4,015
8,674
1,875
2,775
21,105
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-120 days
More than 120 days
Consolidated
Gross
2018
$000
Impairment
2018
$000
Gross
2017
$000
Impairment
2017
$000
25,115
3,629
378
621
251
29,994
(211)
–
–
(46)
(202)
(459)
16,058
3,881
175
470
521
21,105
(205)
(110)
–
(26)
(492)
(833)
Trade receivables have been reviewed, taking into consideration letters of credit held and the credit assessment of the individual
customers. The impairment recognised is considered appropriate for the credit risk remaining.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 July
Impairment loss/(reversal) recognised
Trade receivables written off to the allowance for impairment
Balance at 30 June
84
Consolidated
2018
$000
833
(122)
(252)
459
2017
$000
808
159
(134)
833
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES (b) Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group's approach to
managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions and without incurring unacceptable losses or risking damage to the group's reputation. Refer to note 9 for
a summary of banking facilities available.
The following are the contractual maturities of financial liabilities:
Carrying
amount
$000
Contractual
cash flows
$000
12 months
or less
$000
1-5 years More than
5 years
$000
$000
30 June 2018
Non-derivative financial liabilities
Trade and other payables
Derivative financial liabilities
Net foreign currency hedge payables
30 June 2017
Non-derivative financial liabilities
Trade and other payables
Derivative financial liabilities
Net foreign currency hedge payables
(c) Market risk
45,732
45,732
(45,732)
(45,732)
(45,732)
(45,732)
614
614
(614)
(614)
(614)
(614)
36,619
36,619
(36,619)
(36,619)
(36,619)
(36,619)
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
–
–
–
–
–
–
–
85
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (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
2018
$000
10,000
–
10,000
2017
$000
2,011
–
2,011
17,711
19,410
–
–
17,711
19,410
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 2017.
Profit/(loss) before tax
Reserve
100 bp
increase
$000
100 bp
decrease
$000
100 bp
increase
$000
100 bp
decrease
$000
177
194
(177)
(194)
–
–
–
–
30 June 2018
Variable rate instruments
30 June 2017
Variable rate instruments
86
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES 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 $22,002,000 of FY19 cash flows. On average, the collars give
protection above 77 cents and enable participation down to 73 cents, and the average forward exchange contract rate is 76 cents.
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 2018
Cash and cash equivalents
Trade receivables
Trade payables
Gross balance sheet exposure
Hedge transactions relating to balance
sheet exposure
Net exposure at the reporting date
30 June 2017
Cash and cash equivalents
Trade receivables
Trade payables
Gross balance sheet exposure
Hedge transactions relating to balance
sheet exposure
Net exposure at the reporting date
Sensitivity analysis
Consolidated
EUR
$000
630
1,442
(69)
2,003
–
USD
$000
4,761
15,529
(16,299)
3,991
(2,255)
2,003
1,736
338
1,110
(15)
1,433
–
1,433
2,986
12,348
(13,230)
2,104
(1,666)
438
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:
2018
EUR
USD
2017
EUR
USD
Consolidated
Reserve
credit/(debit)
Profit/(loss)
before tax
$000
$000
–
56
56
–
(51)
(51)
(182)
(158)
(340)
(130)
(40)
(170)
87
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OTHER NOTES (continued)
28. Additional financial instruments disclosure (continued)
Sensitivity analysis (continued)
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 payable of $614,376,
for which an independent valuation was obtained from the relevant banking institution.
29. Employee benefits
Aggregate liability for employee benefits, including on-costs:
Current - other creditors and accruals
Current - employee entitlements
Non-current - employee entitlements
The present values of employee entitlements not expected to be settled within 12 months of the
reporting date have been calculated using the following weighted averages:
Assumed rate of increase in wage and salary rates
Discount rate
Settlement term
Consolidated
2018
$000
2017
$000
5,357
5,847
541
11,745
6,035
5,574
521
12,130
3.00%
3.77%
10 years
3.00%
3.80%
10 years
Employee Share Plan
ESP shares issued in financial year 2018
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.
The company issued 70,040 shares to eligible employees
in June 2018. The fair values of the shares was $2.94 per
share, based on the volume weighted average price at which
Codan shares were traded on the ASX for the five trading
days immediately preceding the date of issue of the shares.
The exercise price was nil. The total expense recognised as
employee costs in 2018 in relation to the ESP shares issued was
$205,918. 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.
88
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES
Performance Rights Plan
Performance rights issued in financial year 2018
The company issued 124,524 performance rights in November
2017 to the chief executive officer. The fair value of the rights
was on average $1.80 based on the Black-Scholes formula.
The model inputs were: the share price of $2.26, no exercise
price, expected volatility 39%, dividend yield 5.75%, a term
of three years and a risk-free rate of 2.6%.
The company issued 416,536 performance rights in
December 2017 to certain employees. The fair value of the
rights was on average $1.67 based on the Black-Scholes
formula. The model inputs were: the share price of $2.09,
no exercise price, expected volatility 37%, dividend yield
6.22%, a term of three years and a risk-free rate of 2.6%. Due to
the departure of an employee in FY18, 25,000 performance
rights were cancelled.
The total expense recognised as employee costs in 2018
in relation to the performance rights issued was $353,086.
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.
At the 2004 AGM, shareholders approved the establishment
of a Performance Rights Plan (Plan). The Plan is designed to
provide employees with an incentive to maximise the return to
shareholders over the long term, and to assist in the attraction
and retention of key employees.
Performance rights issued in financial year 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%. Due to the departure of an
employee in FY18, 16,926 performance rights were cancelled.
The total recovery recognised as employee costs in 2018
in relation to the performance rights issued was $13,952
(2017: $482,495 expense).
The group’s earnings per share over the three-year period to
30 June have exceeded the performance target. Therefore,
it is expected that 961,658 shares will be issued to the relevant
employees by 31 August 2018.
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%. Due to the
departure of two employees in FY18, 51,796 performance
rights were cancelled. The total expense recognised as
employee costs in 2018 in relation to the performance
rights issued was $435,147 (2017: $604,286 expense).
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.
89
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Notes to and forming part of the financial statements
for the year ended 30 June 2018 (continued)
OTHER NOTES (continued)
30. Key management personnel disclosures
Transactions with key management personnel
(a) Loans to directors
There have been no loans to directors during the financial year.
(b) Key management personnel compensation
The key management personnel compensation included in "personnel expenses" (refer note 3) is as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
Other long term benefits
Consolidated
2018
$000
3,673,631
115,992
632,392
91,136
4,513,151
2017
$000
4,398,121
115,308
612,195
107,515
5,233,139
(c) Key management personnel transactions
From time to time, directors and specified executives, or their related parties, purchase goods from the group.
These purchases occur within a normal employee relationship and are considered to be trivial in nature.
31. Other related parties
All transactions with non-key management personnel related parties are on normal terms and conditions.
Companies within the group purchase materials from other group companies. These transactions are on normal
commercial terms.
Loans between entities in the wholly owned group are repayable at call and no interest is charged.
32. Net tangible asset / liability per share
Net tangible asset/(liability)per share
2018
2017
26.5 cents
17.7 cents
90
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Directors’ declaration
1.
In the opinion of the directors of Codan Limited (“the company”):
a)
the consolidated financial statements and notes that are set out on pages 51 to 90 and the remuneration report
on pages 37 to 43 in the directors’ report, are in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the group’s financial position as at 30 June 2018 and of its performance for
the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become
due and payable.
2. There are reasonable grounds to believe that the company and the group entities identified in note 23 will be able to meet
any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between
the company and those group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785.
3. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the
chief executive officer and chief financial officer for the financial year ended 30 June 2018.
4. The directors draw attention to note 1 to the consolidated financial statements, which includes a statement
of compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Dated at Mawson Lakes this 23rd day of August 2018
D J Simmons
Director
D S McGurk
Director
91
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018
Independent auditor's report
Independent Auditor’s Report
To the shareholders of Codan Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Codan Limited (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance with
the Corporations Act 2001, including:
•
•
giving a true and fair view of the
Group’s financial position as at 30 June
2018 and of its financial performance
for the year ended on that date; and
complying with Australian Accounting
Standards
the Corporations
Regulations 2001.
and
Basis for opinion
The Financial Report comprises:
•
•
Consolidated balance sheet as at 30 June 2018
Consolidated income statement, Consolidated
income,
statement
Consolidated statement of changes in equity, and
Consolidated statement of cash flows for the
year then ended
comprehensive
of
• Notes
including a summary of significant
accounting policies
• Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia.
We have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified are:
•
•
Recoverable value of goodwill in relation
to the Tracking Solutions business; and
Recoverability of product development
costs.
Key Audit Matters are those matters that, in our
professional judgement, were of most significance in
our audit of the Financial Report of the current period.
These matters were addressed in the context of our
audit of the Financial Report as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
59
92
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES
Recoverable value of goodwill in relation to the Tracking Solutions business
Tracking Solutions Goodwill $8,538,000 – Refer to Note 17 to the Financial Report.
The key audit matter
How the matter was addressed in our audit
The ‘recoverable value of goodwill in relation to the
Tracking Solutions business’ is a Key Audit Matter due to
the level of judgement required by us in evaluating the
Group’s assessment of the recoverable value of goodwill.
the Minetec
Tracking Solutions, which comprises
business, is in the early stage of commercialisation of its
products, with a significant global licencing, technology
development and marketing agreement signed during the
year with Caterpillar and the contract to supply a fleet
management system to BHP Billiton. The Group’s ability
to secure further market acceptance and full-scale
operational deployment of its productivity and safety
solutions depends on forecast growth of the mining
sector and widespread uptake of the products. These
conditions increase the possibility of goodwill being
impaired, raising our audit focus.
The Group’s assessment of the recoverable value of the
Minetec business, through its value in use model,
contains significant judgements.
We focused on the following areas:
•
Sales forecasts, the gross margin expected to be
earned, and operating costs. The uncertainty as to
when the significant uptake of the products will
occur makes it challenging to forecast cash flows in
this business; and
The discount rate applied to the forecast Minetec
cash flows is judgemental and may vary according to
the conditions and environment from time to time.
•
To assess the significant judgements relating to this key
audit matter, we involved senior audit team members,
including valuation specialists, with experience in the
industry.
Our procedures included:
• We considered the appropriateness of the value in use
method applied against the requirements of Australian
Accounting Standards.
• We assessed the integrity of the value in use model,
including the accuracy of the underlying calculations.
• We tested design and implementation of the controls for
the Group’s valuation of the Minetec business including
board authorisation of key inputs to the value in use
model such as sales forecasts, gross margin, operating
costs and the discount rate.
• We compared the forecast cash flows contained in the
value in use model to these Board approved forecasts.
• We obtained the significant agreements signed during
the year, specifically the BHP Billiton contract and
the
agreement with Caterpillar.
consistency of the details of these agreements to the
forecast cashflows contained in the value in use model.
• We performed sensitivity analysis on key judgements
such as sales forecasts, gross margin, operating costs
and discount rates, within a reasonably possible range,
to identify those assumptions at higher risk of bias and
to focus our further procedures.
We checked
• We critically evaluated the Group’s key cash flow
assumptions by:
-
-
-
Comparing the drivers of sales forecasts (including
identified mines where the products could be
deployed, sales value and gross margin expected
to be earned) to known industry trends, Minetec’s
price lists and existing customer contracts.
Checking the consistency of the Group’s forecast
cash flows to the Group’s stated plans and
strategy; using our knowledge of the Minetec
business model and
its early stage of
commercialisation of its products.
Assessing
the accuracy of previous Group
forecasts to inform our evaluation of forecasts
included in the value in use model.
• Working with our valuation specialists we independently
developed a discount rate range considered comparable
using publicly available market data for comparable
entities.
• We assessed the appropriateness of the Group’s
disclosures based on the key observations arising from
requirements of Australian
the
our
testing and
Accounting Standards.
60
93
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018
Independent auditor's report (continued)
Recoverability of product development costs
Product Development costs capitalised - $59,830,000. Refer to Note 16 to the Financial Report.
The key audit matter
How the matter was addressed in our audit
The recoverability of capitalised product development costs
is a key audit matter due to the:
•
•
size of the balance (being 23.5% of total assets); and
specialised nature of the Group’s products, requiring
us to exercise significant judgment in evaluating the
Group’s assessment of recoverability.
We particularly focus on those judgments listed below
which impact the recoverability assessment:
•
•
•
•
•
Estimated development expenditure at completion of
the products;
Estimated product completion dates;
Forecast sales and margin to be generated from both
products under development and released products;
Technical feasibility and maturity of products; and
Product lifespan.
Our procedures included:
• We obtained an understanding of the status of
significant product development projects, including the
level of technical maturity, through inquiry with project
management and Directors.
• We tested design and implementation of the controls
relevant to the Group’s recoverability of capitalised
product development costs, including those relating to:
-
-
-
-
review and authorisation of product development
budgets, incorporating development expenditure;
technical feasibility and maturity of products;
estimated product completion dates; and
forecast sales and margin.
•
For a sample of products, we challenged the Group’s
assessment of its ability to generate future cashflows
greater than the capitalised costs, through:
In assessing this key audit matter, we used senior team
members who understand the Group’s business, industry
and the relevant economic environment.
-
Challenging the Group’s assessment of forecast
sales, margin and product lifespan by comparing
them to the:
o
o
sales performance of the Group’s other
products in the market; and
recent sales and margin trends where the
product has been released.
- We considered
the consistency of key
judgements with those applied by the Group and
tested by us in assessing the recoverable value
of goodwill.
-
-
-
Challenging the Group’s assessment of technical
maturity and estimated product completion dates
underpinning the future cashflows against the
costs incurred to date relative to approved
budgets and the ageing profile of capitalised
costs.
Analysing the accuracy of the previous Group
forecasts of sales and margins to inform our
evaluation of forecasts
in the
assessment.
incorporated
Using our knowledge of the business and
industry, we assessed the risk of products
becoming obsolete due to products under
development replacing existing products.
61
94
CODANCODAN LIMITED AND ITS CONTROLLED ENTITIES Other Information
Other Information is financial and non-financial information in Codan Limited’s annual reporting which
is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible
for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information.
In doing so, we consider whether the Other Information is materially inconsistent with the Financial
Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date
of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives
a true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern and whether the use
of the going concern basis of accounting is appropriate. This includes disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless they
either intend to liquidate the Group and Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of this Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing
and Assurance Standards Board website at http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf.
This description forms part of our Auditor’s Report.
62
95
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018
Independent auditor's report (continued)
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Codan Limited for the year ended 30 June
2018, complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report
in accordance with Section 300A of the Corporations Act
2001.
Our responsibilities
We have audited the Remuneration Report included in
the Directors’ report for the year ended 30 June 2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPM_INI_01
KPMG
Paul Cenko
Partner
Adelaide
23 August 2018
96
63
CODANCODAN 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 16 August 2018
Substantial shareholders
The numbers of shares held by substantial shareholders and their associates are set out below:
Shareholder
I B Wall and P M Wall
Interests associated with Starform Pty Ltd, Dareel Pty Ltd and Pinara Group Pty Ltd
IOOF Holdings Limited
Interests associated with Kynola Pty Ltd and Warren Glen Pty Ltd
Distribution of equity security holders
Number of shares held
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - over
Total
Number of
ordinary shares
34,808,151
26,737,581
11,439,518
9,829,758
Number of equity security
holders Ordinary shares
1,236
1,608
608
763
101
4,316
The number of shareholders holding less than a marketable parcel of ordinary shares is 276.
Securities exchange
The company is listed on the Australian Securities Exchange. The home exchange is Sydney.
Other information
Codan Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
On-market buy-back
There is no current on-market buy-back.
97
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 ASX additional information (continued)
Shareholdings as at 16 August 2018 (continued)
Number of ordinary
shares held
Percentage of
capital held
34,808,151
13,803,771
12,602,479
11,404,224
9,764,616
8,240,923
7,778,833
6,627,548
3,703,704
3,562,124
3,202,210
3,084,899
2,522,458
1,743,186
1,575,000
1,480,000
1,371,199
1,217,143
1,107,254
1,107,254
130,706,976
19.5%
7.8%
7.1%
6.4%
5.5%
4.6%
4.4%
3.7%
2.1%
2.0%
1.8%
1.7%
1.4%
1.0%
0.9%
0.8%
0.8%
0.7%
0.6%
0.6%
73.4%
Twenty largest shareholders
Name
I B Wall and P M Wall
HSBC Custody Nominees (Australia) Limited
Dareel Pty Ltd
Starform Pty Ltd
Citicorp Nominees Pty Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
Kynola Pty Ltd
BNP Paribas Nominees Pty Ltd
A Bettison
Warren Glen Pty Ltd
M K and M C Heard
Mitranikitan Pty Ltd
Bond Street Custodians Limited
Griffinna Pty Ltd
Fruehling Pty Ltd
G Bettison
J A Uhrig
Cedara Pty Ltd
Rosevine Pty Ltd
Total
Offices and officers
Company Secretary
Mr Michael Barton BA (ACC), CA
Principal registered office
Technology Park
2 Second Avenue
Mawson Lakes, South Australia 5095
Telephone: (08) 8305 0311
Facsimile: (08) 8305 0411
Internet address: www.codan.com.au
Location of share registry
Computershare Investor Services Pty Limited
GPO Box 1903
Adelaide, South Australia 5001
98
CODANCODAN 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
99
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2018 Our relentless pursuit of
new product innovation
sits at the core of our
strategic growth strategy
ANNUAL REPORT 2018
INNOVATION
WHEREVER YOU ARE
www.codan.com.au
Cover image: Composited from data courtesy Marc Imhoff
of NASA GSFC and Christopher Elvidge of NOAA NGDC,
Craig Mayhew and Robert Simmon, NASA GSFC.