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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, providing
communications, metal detecting,
security and productivity
solutions for some of the harshest
environments on earth.
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Innovation
wherever you are
CONTENTS
FY19 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
Codan Limited
ABN 77 007 590 605
Annual General Meeting
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The Annual General Meeting of Codan Limited will be held at
11:00 am on Wednesday, 30 October 2019 at Codan Limited,
2 Second Avenue, Mawson Lakes, South Australia.
1
ANNUAL REPORT 2019 FY19 SUMMARY
Record revenue
$270.8m
Underlying net
profit after tax
$45.7m
Annual ordinary
dividend
9.0¢
Annual special
dividend
5.0¢
fully franked (interim 4.0, final 5.0)
fully franked (interim 2.5, final 2.5)
Record statutory net profit after tax of
$45.7 million
Base-business sales re-rated to
$200-220 million
up from $180-200 million
Base-business NPAT re-rated to
$28-33 million
up from $25-30 million
Strong balance sheet continues
$37.5 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.
We have approximately 450
employees located in Australia,
Canada, the USA, Ireland,
the UAE, Brazil and South Africa.
Our marketing reach embraces
activity in over 150 countries,
with exports accounting for more
than 85% of our sales.
2
CODAN
Operating
revenue
$270.8m
Underlying
EBITDA*
$78.6m
Underlying
NPAT*
$45.7m
Underlying results
for the year ended
30 June
Revenue
Communications
Metal Detection
Tracking Solutions
Other
Note
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
$143.9m
$169.5m
$226.1m
$229.9m
$270.8m
$29.9m
$41.9m
$12.7m
$21.1m
$75.6m
$70.4m
$78.6m
$44.7m
$39.8m
$45.7m
% of
sales
2019
% of
sales
% of
sales
2017
% of
sales
2016
% of
sales
2015
2018
$77.6m 29%
$56.5m 25%
$70.9m 31% $65.0m 38% $63.8m 44%
$182.1m 67% $164.0m 71% $148.0m 66%
$99.2m 59%
$73.3m 51%
$11.1m
4%
$9.4m
4%
$7.2m
3%
$5.3m
3%
$4.8m
$2.0m
3%
2%
Total revenue
$270.8m 100% $229.9m 100% $226.1m 100% $169.5m 100% $143.9m 100%
EBITDA
EBIT
Interest
$78.6m 29%
$70.4m 31%
$75.6m 33%
$41.9m 25%
$29.9m 21%
$63.4m 23%
$53.7m 23%
$61.5m 27%
$29.2m 17%
$19.3m 13%
($0.1)m
($0.5)m
($0.8)m
($1.7)m
($2.5)m
Net profit before tax
$63.3m 23%
$53.2m 23%
$60.7m 27%
$27.5m 16%
$16.8m 12%
Taxation
($17.6)m
($13.4)m
($16.0)m
($6.4)m
($4.1)m
Net profit after tax
$45.7m 17%
$39.8m 17%
$44.7m 20%
$21.1m 12%
$12.7m
9%
Earnings per share
Ordinary dividend
per share
Special dividend
per share
Return on equity
Gearing
1
2
25.3c
9.0c
5.0c
23%
0%
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%
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 2019, there were no non-underlying items. For the prior
year, non-underlying items related to a property tax benefit.
3
ANNUAL REPORT 2019 CHAIRMAN’S LETTER
TO SHAREHOLDERS
It is pleasing to be able to comment on another very
successful year for Codan. The profit achieved in FY19
was an all-time record for your company. At the AGM
last year, I said that we were focused on achieving
sustainable profit growth and slowly increasing what we
have defined as our base (generally predictable) level
of business. Donald has explained that we have again
increased our base-level business and that we have laid
the foundations for further increases.
During the course of the year, Donald and I visited most
of our operations around the world. We attended the
Minelab dealer conference in Italy, where I was able to
meet many of our key international customers. I was
truly impressed with their commitment to the Minelab
product range and saw at first hand their excitement
when we talked about some of our planned new product
platforms. The level of enthusiasm and professionalism
of our key staff who presented at that conference was
outstanding. The pre-release of our new VANQUISH™
product (coin and treasure detector) was a highlight.
We have a new management team in Canada driving the
staged release of Cascade™, our new Land Mobile Radio
(LMR) infrastructure platform. Cascade™ will change
our LMR business from being totally product reliant
to a combination of product sales and systems sales.
Having spoken individually to every employee in Canada
during our visit, I am confident that our new technology
platform will be the catalyst for real growth in this
business unit.
Like our LMR business, our Tactical Communications
business is slowly changing from the supply of High
Frequency (HF) radio products to the supply of complete
communications solutions. Donald has covered off on
some of the initiatives that have been put in place to
achieve this outcome in his report. I continue to be
impressed with the market-focused product development
across our Tactical Communications business and with the
enthusiasm and dedication of our front-line sales teams.
These men and women identify and close opportunities
in some of the toughest markets in the world. As our
systems capabilities in LMR and tactical communications
develop, our pipeline of opportunities will grow. Success
in larger systems-based projects will continue to lift our
base-level business and our profitability over time.
We made great advances in the development of our
technology in our Minetec business last year; however,
sales were not delivered at the expected levels.
We believe some near-term, significant opportunities
will kick-start the Minetec business this year.
4
We again invested heavily in R&D and new product
development in FY19. We must have a continuous stream
of new products entering our markets, so we remain
committed to this strategy of investing in ourselves.
In the past, Codan has been perceived to be a
complicated company. Donald and his management
team have worked really hard to simplify the way we
explain our business to potential investors, brokers and
analysts. More and more, people now “get” our story
and understand what drives our sales and profitability.
Share markets can be fickle, but our share-price
performance over the last 12 months would suggest
that our stock is slowly being re-rated, even given recent
share market volatility. Consistent results in the future
will hopefully support a further re-rating, closer to the
multiples being achieved by our peers.
We continue our search for a replacement director for
Jim McDowell. We have a very specific skill set in mind,
which has made this task difficult. The rise and rise of
litigation funders and class actions has also reduced the
pool of talent prepared to take on public roles. In my
opinion, this is an issue that will eventually require a level
of government intervention.
We really appreciate your support of Codan.
I look forward to welcoming you to our AGM in
October, at which time we will provide an update
on our current-year trading.
David Simmons
Chairman
CODAN We again invested heavily in R&D and
new product development in FY19.
We must have a continuous stream of
new products entering our markets,
so we remain committed to this strategy
of investing in ourselves.
5
ANNUAL REPORT 2019 CEO’S REPORT
On the 60th anniversary of the founding of Codan, I am very
pleased to report that the company achieved its highest ever
sales and profitability, with a range of successful strategic
initiatives driving an increase to the base-level performance
of the business.
We remain focused on developing innovative solutions that solve our
customers’ safety, security and productivity problems, wherever they
are. During FY19, we invested $29 million in engineering to develop new
products, and continued our expansion into new markets in order to
broaden the company’s sales and reduce earnings volatility.
of $270.8 million. The company declared a fully franked final dividend of 5.0 cents per share, following on from
the 4.0 cents per share fully franked interim dividend. This resulted in a total dividend of 9.0 cents for the full year,
an increase of 6% over FY18.
Underlying net profit after tax was $45.7 million for the year on group sales
In recognition of continuing outperformance of the company, the directors also announced a final special dividend of
2.5 cents per share for the second half, fully franked, bringing the full-year special dividend to 5.0 cents.
Strong cash generation again during FY19 resulted in a net cash position of $37.5 million at 30 June 2019.
In LMR, our strategy is to grow the business by transitioning
into larger systems projects and offering ongoing service
and support. This will be enabled by the North American
release of our new Cascade™ software-defined, networked
communications solution, an interoperable first-responder
radio with excellent performance at a competitive price point.
Cascade™ is scheduled for full release in FY21.
In February, we appointed Scott French, an LMR-industry
executive with more than 20 years of experience, to lead
the LMR business from Codan’s office in Victoria, Canada.
We remain confident about the medium to long-term growth
potential of this division.
The Communications division has a strong order book, and we
expect it to deliver FY20 sales in line with our increased base-
business range.
Communications
Codan Communications designs and manufactures mission-
critical communications equipment for global military and
public safety applications. Our solutions allow customers
to save lives, enhance security and support peacekeeping
activities worldwide.
The division had an excellent year in FY19. Sales increased
37% to $78 million and segment profit increased 147% to
$16.7 million as our sales of tactical communications solutions
significantly increased.
In the past, Communications has had base-business sales in
the range of $w65 million to $75 million per annum, with large
tactical communications projects potentially taking us to the
top of this range. Successful expansion into the global military
market has increased the base business to a sales range of $70
million to $80 million per annum.
We continue to execute our strategy of transitioning the
Communications division from a product-centric business to a
full solutions provider. Ongoing product development is being
complemented by strategic partnerships with key suppliers in
order to further broaden our solutions offering.
In FY19, we completed development of the new Sentry®
Military Manpack which will be available for shipment in
FY20. This product strengthens our offering to the tactical
military radio market and, combined with the Codan RIOS™
interoperability platform, allows us to offer communications
solutions into mixed and legacy networks.
Tactical Communications is specifically targeting the global
military market, with a focus on developing-world militaries
in Africa, the Middle East, Asia, Eastern Europe and Latin
America.
6
CODAN During FY19,
we invested $29
million in engineering
to develop
new products.
Metal Detection
Minelab is the world leader in handheld metal detecting
technologies for recreational, gold mining, demining and
military markets. Over the past 30 years, Minelab has
introduced more innovative technology than any of its
competitors and has taken the metal detection industry to new
levels of technological excellence.
Minelab’s base business is comprised of recreational products
sold primarily into Australia, Europe and the USA, a level of
gold detector sales into Africa, Latin America and Asia Pacific,
and sales of countermine products (detecting and clearing
explosive devices) globally.
During FY19, Minelab had base-business sales of around $110
million per annum. I am pleased to report that continuing
strong sales of the EQUINOX® coin and treasure product,
coupled with the imminent release of the new VANQUISH™
coin and treasure detector and increasingly diversified gold
detector sales, have resulted in an increase in base-business
sales to a range of $120million to $130 million per annum.
As we have noted in the past, periods of stronger demand for
gold detectors in Africa and new product introductions have
the potential to push Minelab’s revenues above the base. This
happened during the first half of FY19 as Minelab opened new
gold markets in the Middle East. We also had the benefit of the
first full year of EQUINOX® coin and treasure detector sales.
As a result, the division had its best year ever in FY19, with sales
increasing 11% to $182 million and segment contribution
increasing 5% to $67 million.
In Africa, Minelab dominates the artisanal gold mining market,
with the GPZ 7000®, SDC 2300® and Gold Monster® covering
all price points. Existing customers are upgrading their GPX®
gold detecting equipment and new customers are entering
the market with the Gold Monster®. The SDC 2300® detector
is exceptionally good at discovering fine-particle gold in
mineralised soil and has become the replacement detector for
the GPX 5000®.
In Minelab’s established recreational markets, the EQUINOX®
detector continues to take market share. During FY19, Minelab
also progressed development of the new VANQUISH™ coin
and treasure detector, which, like the EQUINOX®, draws
on Minelab’s proprietary simultaneous multi-frequency
technology (Multi-IQ®) to make deep detecting easier and more
efficient. It will be released to the market in the first half of FY20,
and we believe it will take market share from competitors.
In May 2019, Minelab delivered its first shipment of the new
MDS-10® mine clearance detector, a dual-sensing detector
which combines Minelab’s leading metal detection technology
with ground-penetrating radar. It provides superior results
in the detection of minimal-metal landmines and improvised
explosive devices.
Given Minelab’s increasingly diversified sales mix, new products
and improving retail distribution, we remain confident of
continued success in FY20.
7
ANNUAL REPORT 2019 Tracking Solutions – Minetec
Minetec provides unique, high-precision tracking, productivity
and safety solutions for underground hard-rock mines.
Minetec’s technology allows real-time monitoring and control
of mining operations in order to optimise productivity and
enhance safety. It is an enabling technology required for
mining automation.
As previously announced, in 2018, Minetec entered into
an exclusive global licensing, technology development and
marketing agreement with Caterpillar Inc. During FY19,
we worked closely with Caterpillar’s development team
to integrate Minetec’s high-precision tracking capability
into the Caterpillar MineStar® solution for underground
hard-rock mines.
As a result of this agreement, the division is now leveraging
Caterpillar’s global dealer network to expand sales. During
FY19, there were delays in securing contracts for the
operational deployment of MineStar®, and therefore Minetec
did not meet its revenue target of $15 million for the year.
Revenue increased marginally to $11.1 million, and the division
recorded a small loss. Management is working closely with
Caterpillar to improve this situation and is confident that these
issues will be rectified in the near future.
During the second half, Minetec and Caterpillar partnered with
Newmont Goldcorp to demonstrate the value of the combined
MineStar® system at their Tanami mine in the Northern
Territory. This partnership allowed the team to commission
MineStar® for Underground in an operational mine and
quantify the benefits with real data.
Separate to the Caterpillar agreement, Minetec has continued
to install and commission the underground Fleet Management
System in BHP’s Olympic Dam mine in South Australia. Vehicle
installations are complete across some 650 machines, and
we are working through the detailed process of site and user
acceptance of the new system.
Our strategy for Minetec continues to focus on working
with Caterpillar in order to leverage their global distribution
capability, thereby increasing Minetec’s sales and profitability
to a level that is significant to the Codan group.
Codan Defence Electronics
Codan Defence Electronics was established to offer advanced
manufacturing and through-life support to the Australian
defence industry.
Following three years of intensive business development and
bidding activity, Codan has become an approved partner
for two defence programmes, however no Australian supply
contracts have yet been awarded. Given the very long decision
cycles in defence, we do not expect this division to generate
significant revenue again in FY20.
Our People
The record result achieved this year is due solely to the
collective efforts of our people as they continually strive to
provide exceptional customer experiences. Codan operates
right across the world, and our people travel to some of the
most remote and hazardous places on the planet in order to
better understand and support our customers. On behalf of
the board, I would like to again thank our people for going that
extra mile and for making sacrifices in order to better serve the
company, our customers and, ultimately, our shareholders.
Donald McGurk
Managing Director and CEO
Our Core Values are:
Can-Do
High Performing
Customer Driven
Openness & Integrity
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 for
not only what we do, buwt more
importantly, how we do it.
Codan seeks to employ individuals
who 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 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.
8
CODAN 9
ANNUAL REPORT 2019 GLOBAL
LOCATIONS
VICTORIA
WASHINGTON DC
CORK
DUBAI
PENANG
NAMPA
CHICAGO
JOHANNESBURG
PERTH
ITAJAI
ADELAIDE
CODAN OFFICES
MANUFACTURING OPERATIONS
ENGINEERING TEAMS
10
Selling into 150 countries with
operations across the globe
CODAN OPERATIONS
COMMUNICATIONS
12
METAL
DETECTION
16
DEFENCE
ELECTRONICS
26
TRACKING
SOLUTIONS
22
ENGINEERING
AND OPERATIONS
28
11
ANNUAL REPORT 2019 COMMUNICATIONS
Codan Communications is a leading international designer and manufacturer of premium
communications solutions for Tactical and Land Mobile Radio (LMR) applications. We deliver
our capability worldwide for military, defence, humanitarian, peacekeeping, commercial,
security and public-safety markets. Our mission is to provide communications solutions that
allow our customers to be heard so that they can save lives, create security and support their
local needs. With 60 years in the business, Codan Communications has earned a reputation
for quality, reliability and customer satisfaction, producing innovative and industry-leading
technology solutions.
With deployments in more than 150 countries, Codan
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.
During FY19, we completed development of the new Sentry®
Military Manpack which will be available for shipment in
FY20. This product strengthens our offering to the tactical
military radio market and, combined with the Codan RIOS™
interoperability platform, allows us to offer communications
solutions in mixed and legacy networks.
The 2019 financial year was a very strong one for Codan
Communications. Sales increased 37% to $77.6 million and
segment contribution increased 147% to $16.7 million.
Tactical Communications is targeting the global military
market, with a focus on developing-world militaries in Africa,
the Middle East, Asia, Eastern Europe and Latin America.
The division experienced strong growth in its core tactical
markets after successfully expanding into the military
communications sector, with significant contract wins from
its Asia-Pacific, Middle East and African defence-based
customers. In the past, Communications has had base-
business sales in the range of $65 million to $75 million per
year, with large tactical communications projects potentially
taking us to the top of this range. Successful expansion into
military markets has increased this base-business to $70 million
to $80 million sales per annum.
We remain focused on increasing and broadening the earnings
base for this division by providing scalable and flexible
communications solutions. The combination of sophisticated
technology needed for modern military operations, the
robustness to ensure survivability in combat conditions and
the interoperability necessary for multifaceted operations with
forces from different countries and agencies will be critical to
our success.
In LMR, our strategy is to transition to a larger-project systems
business and build a compelling services portfolio sustaining
long-term growth. This will be enabled by the release of our
new Cascade™ software-defined networked communications
solution, an interoperable first-responder solution with
excellent performance at a competitive price point in the
North American market. Cascade™ is scheduled for full release
in FY21.
In February, we appointed Scott French, an LMR industry
veteran with more than 20 years of experience, to lead the LMR
business from Codan’s office in Victoria, Canada. We remain
optimistic about the medium to long-term growth potential of
this business.
The Communications division has a strong order book entering
FY20, and we expect it to deliver FY20 sales in line with our
increased base-business range.
12
CODAN FY19 SUMMARY
• A very strong year; sales increased 37% to the
highest level since FY08
• Completed development of the new Sentry®
Military Manpack
• Successfully expanded into the tactical
military sector
• Progressed development of the Cascade™ LMR
solution for planned release in FY21
• Appointed Scott French to lead the LMR business
FY20 OBJECTIVES
• Continue to transition into the
tactical communications market
• Partner with key equipment
suppliers to broaden our tactical
communications offering
• Complete the Cascade™
development programme
13
ANNUAL REPORT 2019 COMMUNICATIONS
“Codan’s ability to support
partner forces is second
to none because of the
reliability, sustainability and
ease of use of its products.”
Lieutenant General Charles Cleveland,
US Army retired, Commander US Army
Special Operations Command 2012‑2015
14
CODAN Codan Communications
supports a secure countrywide
interoperable communications
platform for Afghanistan.
Communications are the backbone of military
operations and the glue that binds a military
force together. Military communications
equipment is subject to demanding physical
and user requirements over and above its
technical demands. It must be sufficiently
robust to withstand rough handling
in the battlefield as well as survive in
extreme environments.
Afghanistan government agencies work to
secure the country’s 5,500 kilometre border
and its international airports. They need
a communications platform that provides
secure, no-gaps communication and has
proven reliability in the field.
Codan Communications provided them
with communications solutions to support
their countrywide, secure, interoperable
communications platform for voice and data
transmissions in an area of austere terrain
and lacking infrastructure.
The multi-year project procured over 8,000
Codan Base/Mobile and Manpack radio
systems and services to support secure voice
and data communications.
The Codan solution provided a common
communications platform, enabling
them to coordinate operations between
remote border locations and the
agency headquarters, and supported
communications with other government
organisations.
15
ANNUAL REPORT 2019 METAL
DETECTION
16
CODAN FY19 SUMMARY
• Another record year, highest sales ever
• EQUINOX® coin and treasure detector grew sales
in traditional markets
FY20 OBJECTIVES
• Continue to maximise and diversify gold detector
sales globally
• Release the VANQUISH™ coin and treasure
• Dominated the African artisanal gold market with
detector
our range of detectors
• Delivered first shipment of the new MDS-10®
countermine detector
• Progressed development of the new VANQUISH™
coin and treasure detector
• Build on EQUINOX® success to continue growing
coin and treasure market share globally
• Increase sales in Latin America
• Further expand our retail distribution channels in
USA and Europe
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-leading 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.
We continue to retain tight control and a 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 Multi-IQ® 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 FY20,
the unpredictable nature of our sales into Africa makes
forecasting difficult for this business. In the past, Minelab
has had base-business sales of around $110 million per
year. Continuing strong EQUINOX® sales, the imminent
arrival of the new VANQUISH™ detector and increasingly
diversified gold detector sales have resulted in an
increase in base-business sales to a range of $120 million
to $130 million per annum.
Recreation – finding treasure
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.
Minelab’s worldwide network of Authorised Dealers gives
customers the most up-to-date knowledge in products
and techniques to help them improve their success rate
in the field.
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
extremely well in FY19, with sales increasing by over 30%
across Australia, North America, Europe and Russia.
The revolutionary new EQUINOX® multi-frequency
detector had its first full year of sales in FY19, and 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 significantly 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. The VANQUISH™ coin
and treasure detector is the next release, an introductory
multi-frequency detector with a recommended retail
price of US$199 to US$499. It will be released to the
market in the first half of FY20, and we believe it will
take market share from competitors.
17
ANNUAL REPORT 2019 METAL DETECTION
Small-scale gold mining – striking gold
Minelab’s world-leading gold detection technology
continues to revolutionise the way small-scale gold
miners around the world prospect for gold.
During FY19, Minelab established a similar structure
in Brazil, with the objective of increasing distribution
and, ultimately, sales into Latin America. We continue
to invest in the development of small-scale gold mining
markets worldwide.
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.
The GPZ 7000® gold detector was released into the
African market in 2016 and, over time, 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 expectations. In FY19, sales
continued to be relatively consistent, driven in part by
customers upgrading their gold detecting equipment.
Minelab made a critical move in 2015 by establishing
a showroom and distribution centre in Dubai to service
the large African market. This has continued to pay
dividends; 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.
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.
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’s
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 was completed in FY19, and the first
units of the MDS-10® were shipped in late FY19.
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.
18
CODAN 19
ANNUAL REPORT 2019 METAL DETECTION
20
CODAN Minelab is known the world over for its metal detecting technology,
and has now developed an everyday alternative to a single-
frequency detector. The VANQUISH™ series is a lightweight,
collapsible, fully adjustable, waterproof/rainproof and affordable
metal detector for the coin and treasure market, utilising Minelab’s
revolutionary Multi-IQ ® technology. Multi-IQ ® was introduced to
the market by Minelab in 2017 with the EQUINOX ® series detector.
What is the advantage of Multi-IQ®? Minelab’s revolutionary Multi-IQ®
technology combines the power of multiple detectors in one – all working
at the same time. The VANQUISH™ can unearth coins, silver and gold
jewellery, and other metal items of interest across terrains such as the
park, in fields and at the beach, uniquely performing in wet beach sand.
The VANQUISH™ series offers three metal detectors and a special Pro Pack,
all of which include three turn-on-and-go detecting modes: COIN,
JEWELLERY, and ALL METAL. The VANQUISH 340™ is a great starter coin
and treasure detector that includes a 10" coil. The VANQUISH 440™ offers all
the detecting essentials, including a set of wired headphones and a 10" coil.
The VANQUISH 540™ and 540™ Pro Pack offer the most versatility, with the
added red LED backlight functionality, 10 volume-control settings, wireless
headphone accessories and advanced settings. The VANQUISH 540™ includes
one waterproof 12" coil, and the VANQUISH 540™ Pro Pack includes two
waterproof coils: the 8" and the 12".
21
ANNUAL REPORT 2019 TRACKING
SOLUTIONS
22
CODAN FY19 SUMMARY
• Integrated Minetec’s technology into Caterpillar
MineStar® for Underground solution
• Completed successful proof-of-value at Newmont
Goldcorp’s Tanami mine
FY20 OBJECTIVES
• Improve Caterpillar dealer sales of MineStar®
for Underground
• Install and commission underground Wi-Fi
WASP™ infrastructure in BHP’s Olympic Dam mine
• Installed and commissioned Fleet Management
• Continue to develop our core technology
System in BHP’s Olympic Dam mine
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. Now integrated with the Caterpillar MineStar® for
Underground solution, it provides the enabling technology required for mining automation.
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:
Safety:
• Proximity awareness: increased visibility of machines
and vehicles
• Traffic management: control of physical access within
congested areas
• Proximity detection: audio and visual alerts of
machinery, vehicles or other miners in close proximity
• Collision avoidance: the ability to automatically slow or
stop a vehicle in response to nearby threats
Productivity:
• Machine data: provision of real-time data to support
production and maintenance planning
• Development, production and maintenance
scheduling: automated shift planning for underground
operations
• Short interval control: the ability to modify the shift plan
in real time
In February 2018, Minetec entered into a global licensing,
technology development and marketing agreement
with Caterpillar Inc. During FY19, we worked closely with
Caterpillar’s development team to integrate Minetec’s high-
precision tracking capability into an expanded Caterpillar
MineStar® underground solution for hard-rock mines.
As a result of this agreement, the division is now leveraging
Caterpillar’s global dealer network to expand sales.
During FY19, there were delays in securing contracts for the
operational deployment of MineStar®, and therefore Minetec
did not meet its revenue target of $15 million for the year.
Revenue increased marginally to $11.1 million and the division
recorded a small loss. Management is working closely with
Caterpillar to improve this situation and is confident that these
issues will be rectified in the near future.
During the second half, Minetec and Caterpillar partnered with
Newmont Goldcorp to demonstrate the value of the combined
MineStar® system at their Tanami mine in the Northern
Territory. This partnership allowed the team to commission
MineStar® for Underground in an operational mine and
quantify the benefits with real data.
The trial ran from January to March 2019, and Newmont
supplied operational data from their underground hard-
rock mining operation during this period. While every
mine is different, the Tanami trial showed that significant
productivity improvements can be achieved through improved
management of underground mobile equipment, enabled by
high-precision tracking.
Separate to the Caterpillar agreement, Minetec has continued
to install and commission the underground Fleet Management
System in BHP’s Olympic Dam mine in South Australia. Vehicle
installations are complete across some 650 machines and
we are working through the detailed process of site and user
acceptance of the system.
Our strategy for Minetec continues to focus on working
with Caterpillar in order to leverage their global distribution
capability, thereby increasing Minetec’s sales and profitability
to a level that is significant to the Codan group.
23
ANNUAL REPORT 2019 TRACKING SOLUTIONS
MineStar® for Underground
Proof of value
Over the last year, Minetec and Caterpillar
MineStar ® Solutions have been working together
to integrate Minetec’s proprietary technology
into an expanded MineStar® for Underground
solution. This new Caterpillar solution incorporates
a broad range of technologies to address the
unique challenges of underground mining:
• COMMAND
Autonomous machine control and guidance
• FLEET
Short interval planning and control, site
performance, assignment optimisation and
data communications
• DETECT
High-precision tracking and visualisation,
asset and personnel detection
• HEALTH
Machine data for diagnostics and reporting
MineStar® for Underground integrates
Minetec’s SMARTS™ task management,
WASP™ high-precision tracking and
SafeDetect™ proximity detection into a broad
technology system.
As part of the technical validation of the
system, Minetec & Caterpillar partnered
with Newmont Goldcorp to demonstrate the
proof-of-value at the Newmont Tanami site in
remote Northern Territory. This partnership
allowed the team to commission the
MineStar® for Underground system in an
operational mine and quantify the benefits
with real data.
The proof-of-value pilot ran for a total of 48
days across two operational stopes, with key
performance indicators (KPIs) assessed across
the following areas:
• Stope bogging (LHDs)
• Haulage cycle times (trucks)
• Validation of payload data (tonnes)
• Operating hours
• Safety (proximity detection events)
The system achieved a 93% pass rate
to the defined KPIs. Overall, the system
quantified the opportunity to increase
annual production by some 5% from the two
underground production areas included in
the pilot. This improvement in operational
performance could yield additional ore to the
mill each year and/or be applied to improve
efficiency and lower unit costs.
Following the success of the proof-of-value
pilot, Caterpillar has completed the product
release of MineStar® for Underground which
is being brought to market through the
global Caterpillar dealer network.
24
CODAN The system achieved a 93% pass rate
to the defined KPIs. Overall, the system
quantified the opportunity to increase
annual production by some 5% from
the two underground production areas
included in the pilot.
25
ANNUAL REPORT 2019 DEFENCE
ELECTRONICS
26
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 established to offer advanced
manufacturing and through-life support to the Australian defence
industry. It 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 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.
Following three years of intensive business development and bidding
activity, Codan has become an approved partner for two defence
programmes, however no Australian supply contracts have yet been
awarded. Given the very long decision cycles in defence, we do not
expect this division to generate significant revenue in FY20.
27
ANNUAL REPORT 2019 ENGINEERING
AND OPERATIONS
28
CODAN 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 160 engineers across
the globe.
With teams in Adelaide, Perth and Canada, our capabilities span
a cross-section of engineering disciplines, including software,
electronics and mechanical engineering. We have a number of
PhD-qualified physicists and software, electronics and signal
processing engineers on staff, recruited from Australia and
overseas. Our engineering teams ensure that technology is
released to specification, on schedule and with appropriate
intellectual property (IP) protection.
We also utilise a number of field testers from around the world,
as well as a network of service providers when required.
This combination of core competencies allows us to
continuously develop unique IP to solve our customers’
communications, security, detection 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 is an
integral 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
subcontract 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, Poland, Brazil 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.
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 260
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 2019 BOARD OF
DIRECTORS
David Simmons
BA (Acc)
Chairman, Independent Non-Executive Director
Chair, Remuneration and Nomination Committee
David was appointed by the board as Chairman in February 2015 and
has been a director of Codan since May 2008. He has extensive financial
and general management experience, having worked in large, diversified
businesses throughout his career, including as Managing Director for 16
years of a then large Australian-based publicly listed company.
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 The University of Adelaide 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 a 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 is a member
of the Advisory Board to China Matters and is a technical advisor to WarpForge Limited.
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
Jim was appointed to the board in September 2014 and
resigned on 31 August 2018. He was a director of Austal
Limited from December 2014 to August 2018 and a director
of Micro-X Limited from September 2017 to August 2018.
Graeme Barclay
MAICD, F Fin, CA, MA (Hons)
Independent Non-Executive Director
Graeme was appointed to the board in February 2015. He has more than 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. From 2014 to
2018, he was Chairman of the Nextgen Group that successfully divested the Nextgen Networks
and Metronode data-centre businesses in 2016 and 2018 respectively. He is currently Chairman
of Uniti Group Limited, CEO of Axicom Holdings and has been a non-executive director of BSA
Limited since June 2015. Graeme is a chartered accountant, holding membership of the Institute
of Chartered Accountants of Scotland and of Chartered Accountants Australia and New Zealand.
Kathy Gramp
BA (Acc), CA, FAICA, FAICD
Independent Non-Executive Director
Chair, Board Audit, Risk and Compliance Committee
Kathy was appointed to the board in November 2015. She has had a long and distinguished
executive career and over 21 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 director of Uniti Group Limited, 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 2019 LEADERSHIP
TEAM
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.
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.
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 more than 16 years at Codan and formerly in management
and technical roles at Tenix Defence and Vision Systems.
Peter joined Codan in December 2002 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 The University of Adelaide. 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 University of Adelaide
ARI Advisory Board from 2009 to 2015.
32
CODAN
Scott French
BSc
Executive General Manager, Land Mobile Radio
Scott was appointed to the role of Executive General Manager, Land Mobile Radio in February
2019 and is based in Victoria, British Columbia.
Scott came to Codan highly recommended for his lateral thinking, strategic approach to
business and for his strong leadership. He brings a wealth of experience gained from almost 30
years with world-class organisations such as Motorola, Panasonic and Zetron. During his time
at Motorola, Scott made the transition from engineering leadership to overall go-to-market
leadership for several lines of business, helping to transform Motorola into a solutions provider
beyond land mobile radio (LMR). Throughout his journey, Scott gained a high-level appreciation
of LMR technology, solutions, services and associated markets. At Panasonic, he continued his
leadership by transforming the company from product to solutions sales, with focus on mobile
devices and security, before assuming the role of General Manager, Americas for two years with
Zetron, a command and control company.
In addition, Scott served as Vice Chairman on the state and local board of directors of
TechAmerica, representing both Motorola and Panasonic, and was also the Chair of the State
and Local Government and Education Executive Council of IT Alliance for Public Sector.
Scott holds a Bachelor of Science in Industrial and Systems Engineering from Virginia Tech, and
undertook MBA studies with a focus on leadership at Loyola University Maryland.
Rory Linehan
BSc (Hons), MSc, PhD, Harvard AMP
Chief Technology Officer, Codan and Executive General Manager, Minetec
Rory brings a unique mix of technical knowledge, diverse commercial skills and broad
experience to Codan, delivering insightful leadership across the business.
He joined Codan in March 2014, working across the group to leverage technology and
innovation in developing strategies for growth. In February 2019, he was appointed to the role
of Chief Technology Officer and leads the company’s Technology Council to maximize synergies
across the Codan group and assess new opportunities for organic and acquisitive 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). In November 2018, Rory completed the Harvard Business School Advanced
Management Program (AMP). He has skills in strategy, marketing, business development,
systems engineering and programme management gained across a wide range of complex
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.
Paul Sangster
ADBA, Chicago Booth AMP
Executive General Manager, Tactical Communications
Paul joined Codan in 2013 as the Vice President and General Manager of Business
Development for the Communications Division and brings over 20 years of progressive
experience in communications and surveillance solutions. He was appointed Executive
General Manager of Codan Tactical Communications in 2018.
Prior to Codan, Paul spent 12 years at Cobham Tactical Communications and Surveillance
as the Vice President of Sales and Marketing.
He studied business at University of Maryland University College and holds an Associate
Degree in Management Studies. He also completed the Executive Development Program
and the Advanced Management Program at University of Chicago’s Booth Business School.
33
ANNUAL REPORT 2019 CORPORATE
GOVERNANCE
STATEMENT
Codan’s corporate governance statement, which was
approved by the board on 23 August 2019, 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 FINANCIAL
REPORT
FOR THE YEAR ENDED 30 JUNE 2019
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
51
52
53
54
55
56
89
90
35
ANNUAL REPORT 2019 DIRECTOR’S 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 2019 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
A
10
10
10
1
10
10
B
10
10
10
1
10
10
Board Audit,
Risk and
Compliance
Committee
meetings
Remuneration
and Nomination
Committee
meetings
A
2
2
1
B
2
2
1
A
4
3
3
4
B
4
4
4
4
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 – 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
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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 FY19, the
potential incentive payable to certain
executives is normally 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 2019 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 normally 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
EXECUTIVES
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
Mr S P Sangster
91,972
16 November 2018
253.9
– 30 June 2022
48,421
59,881
58,694
31,208
16 November 2018
16 November 2018
16 November 2018
16 November 2018
253.9
253.9
253.9
253.9
– 30 June 2022
– 30 June 2022
– 30 June 2022
– 30 June 2022
–
–
–
–
–
37
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 DIRECTORS' REPORT (continued)
Remuneration Report – Audited (continued)
Performance rights (continued)
Mr S P Sangster was appointed to
the position of Executive General
Manager, Tactical Communications on 1
July 2018.
The performance rights granted on 16
November 2018 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 non-statutory
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
236,948
173,959
124,524
91,972
120,709
91,586
65,559
48,421
154,240
113,237
81,058
59,881
154,240
113,237
79,469
58,694
103,630
69,728
40,373
31,208
25 November 2015
23 November 2016
10 November 2017
16 November 2018
25 May 2016
23 November 2016
8 December 2017
16 November 2018
25 May 2016
23 November 2016
8 December 2017
16 November 2018
25 May 2016
23 November 2016
8 December 2017
16 November 2018
22 April 2016
23 November 2016
8 December 2017
16 November 2018
100
–
–
–
100
–
–
–
100
–
–
–
100
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
Directors
Mr D S McGurk
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
Mr S P Sangster
38
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN In relation to the performance rights
granted on 23 November 2016, the
performance requirements were based
on the group’s aggregated earnings per
share over a three-year performance
period exceeding 43.93 cents per share.
As this earnings per share target has
been exceeded to 30 June 2019, it is
expected that the performance rights
will vest and be converted into shares
before the end of August 2019.
Limited, held directly, indirectly or
beneficially by each key management
person, including their related parties, is
as follows:
The movements during the reporting
period in the number of performance
rights over ordinary shares in Codan
Directors
Mr D S McGurk
Executives
Mr M Barton
Mr P D Charlesworth
Mr R D Linehan
Mr S P Sangster
Held at
1 July 2018
Issued
Vested
Lapsed
Held at
30 June 2019
535,431
91,972
236,948
277,854
348,535
346,946
213,731
48,421
59,881
58,694
31,208
120,709
154,240
154,240
103,630
–
–
–
–
–
390,455
205,566
254,176
251,400
141,309
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.
Director share ownership
The Directors’ Shareholding Policy
was approved by the board on 20
March 2019 and requires non-
executive directors to build a minimum
shareholding in the company with a value
approximately equivalent to their annual
base fee, and executive directors to their
annual total fixed remuneration. Under
the policy, directors have five years to
reach the minimum holding.
The Directors’ Shareholding Policy is
available on the company’s website.
Movements in shares
The movement during the reporting
period in the number of ordinary shares
in Codan Limited, held directly, indirectly
or beneficially by each key management
person, including their related parties, is
as follows:
Held at
1 July 2018
Received on
exercise of rights
Other changes *
Held at
30 June 2019
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 S A French
Mr R D Linehan
Mr S P Sangster
Mr C P Stuff
86,636
609,394
57,708
–
38,829
10,000
150,638
456,040
n/a
287,573
340
–
–
236,948
–
–
–
–
120,709
154,240
–
154,240
103,630
–
–
(100,000)
–
–
–
–
–
(68,933)
–
(287,573)
(103,600)
–
* Other changes represent shares that were purchased or sold during the year
86,636
746,342
57,708
n/a
38,829
10,000
271,347
541,347
–
154,240
370
n/a
39
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 DIRECTORS' REPORT (continued)
Remuneration Report – Audited (continued)
Movements in shares (continued)
Mr J W McDowell resigned as a director
on 31 August 2018. Mr S P Sangster
was appointed to the position of
Executive General Manager, Tactical
Communications on 1 July 2018, Mr S A
French was appointed to the position of
Executive General Manager, Land Mobile
Radio on 25 February 2019 and Mr C
P Stuff, our former Executive General
Manager, Radio Communications,
retired from the business on 8 March
2019.
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
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
and fees
Short-term
incentives
Other
short term
Post-employment
and superannuation
contributions
Other long term Termination benefits
Performance rights
Total
Proportion of remuneration
performance related
$
179,133
175,908
89,567
87,955
14,806
87,955
89,567
87,955
97,709
95,950
470,782
535,723
$
–
–
–
–
–
–
–
–
–
–
–
–
548,140
528,369
1,018,922
1,064,092
410,104
385,453
410,104
385,453
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
17,018
16,711
8,509
8,356
1,407
8,356
8,509
8,356
9,282
9,115
44,725
50,894
20,531
20,049
65,256
70,943
$
–
–
–
–
–
–
–
–
–
–
–
–
23,589
8,326
23,589
8,326
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
$
196,151
192,619
98,076
96,311
16,213
96,311
98,076
96,311
106,991
105,065
515,507
586,617
226,670
207,126
226,670
207,126
1,229,034
1,149,323
1,744,541
1,735,940
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51.8
51.6
Mr J W McDowell resigned as a director on 31 August 2018.
40
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Directors
Year
Salary
and fees
Short-term
incentives
Other
Post-employment
short term
and superannuation
Other long term Termination benefits
Performance rights
Total
Proportion of remuneration
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
$
–
–
–
–
–
–
–
–
–
–
–
–
$
179,133
175,908
89,567
87,955
14,806
87,955
89,567
87,955
97,709
95,950
470,782
535,723
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
548,140
528,369
1,018,922
1,064,092
410,104
385,453
410,104
385,453
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
contributions
$
17,018
16,711
8,509
8,356
1,407
8,356
8,509
8,356
9,282
9,115
44,725
50,894
20,531
20,049
65,256
70,943
$
–
–
–
–
–
–
–
–
–
–
–
–
23,589
8,326
23,589
8,326
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
$
196,151
192,619
98,076
96,311
16,213
96,311
98,076
96,311
106,991
105,065
515,507
586,617
226,670
207,126
226,670
207,126
1,229,034
1,149,323
1,744,541
1,735,940
%
–
–
–
–
–
–
–
–
–
–
–
–
51.8
51.6
–
–
41
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 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
$
$
276,527
215,911
278,940
202,934
362,641
270,079
344,240
266,713
$
–
–
–
–
265,517
89,201
7,402
362,251
130,860
86,068*
374,614
198,982
64,500*
352,325
244,585
2,491
270,124
171,352
361,124
129,657
4,997
2,382
2019
2018
2019
2018
2019
2019
2018
2019
2019
2018
Post-employment
and superannuation
contributions
$
22,749
25,000
21,628
20,049
–
–
–
–
–
–
Mr M Barton
(Chief Financial Officer
and Company Secretary)
Mr P D Charlesworth
(Executive General Manager,
Minelab & Codan Defence)
Mr S A French
(Executive General Manager,
Land Mobile Radio)
Mr R D Linehan
(Chief Technology Officer, Codan
and Executive General Manager, Minetec)
Mr S P Sangster
(Executive General Manager,
Tactical Communications)
Mr C P Stuff
(Executive General Manager,
Radio Communications)
Total executive
officers’ remuneration
2019
1,889,385
1,121,988
100,958
2018
1,358,918
798,286
66,882
44,377
45,049
83,214
486,182
3,837,804
425,266
2,777,211
Other long term
Termination
Performance
Total
Proportion of remuneration
benefits
rights
performance related
10,051
7,527
19,106
3,995
$
–
9,678
9,106
8,233
64,632
62,182
111,700
82,810
$
–
–
–
–
–
–
–
–
–
–
83,214
–
362,120
$
116,884
121,381
144,528
152,236
142,628
151,649
82,142
–
–
$
642,122
635,782
817,982
787,233
731,485
798,851
689,776
594,319
555,345
%
51.8
51.0
50.7
53.2
24.6
37.4
43.9
47.4
28.8
23.3
–
–
* 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.
Mr S P Sangster was appointed to the
position of Executive General Manager,
Tactical Communications on 1 July
2018, Mr S A French was appointed
to the position of Executive General
Manager, Land Mobile Radio on 25
February 2019 and Mr C P Stuff, our
former Executive General Manager,
Radio Communications, retired from the
business on 8 March 2019.
Short-term incentives which vested
during the year are as follows: Mr D S
McGurk 70% (30% forfeited), Mr M
Barton 70% (30% forfeited), Mr P D
Charlesworth 71% (29% forfeited), Mr
S A French 70% (30% forfeited), Mr R
D Linehan 35% (65% forfeited), Mr S P
Sangster 62% (38% forfeited) and Mr C P
Stuff 62% (38% forfeited).
The remuneration amounts disclosed
above have been calculated based on
the expense to the company for the
financial year. Therefore, items such as
performance rights, annual leave and
long service leave taken and provided for
have been included in the calculations. As
a result, the remuneration disclosed may
not equal the salary package as agreed
with the executive in any one year.
Other than performance rights, no
options or shares were issued during
the year as compensation for any key
management personnel.
42
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Executive officers
Year
Salary
Short-term
Other
Post-employment
and fees
incentives
short-term
and superannuation
Other long term
Termination
benefits
Performance
rights
Total
Proportion of remuneration
performance related
Mr M Barton
(Chief Financial Officer
and Company Secretary)
Mr P D Charlesworth
(Executive General Manager,
Minelab & Codan Defence)
Mr S A French
(Executive General Manager,
Land Mobile Radio)
Mr R D Linehan
Mr S P Sangster
(Executive General Manager,
Tactical Communications)
Mr C P Stuff
(Executive General Manager,
Radio Communications)
Total executive
officers’ remuneration
(Chief Technology Officer, Codan
and Executive General Manager, Minetec)
2019
2018
2019
2018
2019
2019
2018
2019
2019
2018
$
$
276,527
215,911
278,940
202,934
362,641
270,079
344,240
266,713
$
–
–
–
–
contributions
$
22,749
25,000
21,628
20,049
265,517
89,201
7,402
362,251
130,860
86,068*
374,614
198,982
64,500*
352,325
244,585
2,491
270,124
171,352
361,124
129,657
4,997
2,382
–
–
–
–
–
–
* Other short-term benefits for Mr R D Linehan relate to costs incurred for arrangements made following his relocation from overseas to Australia.
2019
1,889,385
1,121,988
100,958
2018
1,358,918
798,286
66,882
44,377
45,049
$
10,051
7,527
19,106
3,995
–
9,678
9,106
8,233
64,632
62,182
111,700
82,810
$
–
–
–
–
–
–
–
–
83,214
–
$
116,884
121,381
144,528
152,236
$
642,122
635,782
817,982
787,233
–
362,120
142,628
151,649
82,142
–
–
731,485
798,851
689,776
594,319
555,345
83,214
486,182
3,837,804
–
425,266
2,777,211
%
51.8
51.0
50.7
53.2
24.6
37.4
43.9
47.4
28.8
23.3
–
–
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
2019
$
45,665,443
26,872,758
3.47
0.47
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
43
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 Dividend
The company announced a final dividend
of 5.0 cents per share, fully franked,
bringing the full-year dividend to 9.0
cents, up 6%. This dividend has a record
date of 30 August 2019 and will be paid
on 13 September 2019.
In recognition of the continuing
outperformance of the company, the
company also announced a final special
dividend of 2.5 cents per share for the
second half, bringing the full-year special
dividend to 5.0 cents which will be paid
with the final dividend.
DIRECTORS' REPORT (continued)
The company continues to invest heavily
in new products and has expanded into
new markets in order to broaden the
company’s sales and reduce earnings
volatility. To that end, in FY19 we:
• progressed development of our
second simultaneous multi-frequency
(Multi-IQ®) coin and treasure detector,
the Vanquish™, to be released in the
first half of FY20;
• established a Minelab sales and
distribution centre in Brazil to increase
market penetration in the key gold
detecting regions of Latin America;
• completed development of the new
Sentry® Military Manpack, further
expanding our communications
offering to the military market; and
• integrated Minetec’s high-precision
tracking capability into Caterpillar’s
Minestar® underground solution for
hard-rock mines.
Given these initiatives, our strong
performance in FY19 and our
continuing investment in new product
development, we have increased
Codan’s base-business sales to a range of
$200-220 million, delivering NPAT in the
range of $28-33 million. This equates to
an 11% increase in base-business sales
and profitability.
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.
FY19 highlights:
• Record sales of $271 million
• Record statutory net profit after tax
of $45.7 million
• Annual dividend of 9.0 cents, fully
franked (interim 4.0, final 5.0)
• Annual special dividend of 5.0 cents,
fully franked (interim 2.5, final 2.5)
• Base-business sales re-rated to $200-
220 million, up from $180-200 million
• Base-business NPAT re-rated to $28-
33 million, up from $25-30 million
• Strong balance sheet continues –
$37.5 million net cash
Codan delivered a record profit in
FY19, driven by a consistent level of
gold detector sales into Africa, strong
growth in sales of our recreational metal
detectors and a successful transition
into systems and solutions for our
Communications business.
44
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Financial performance and other matters
FY19
FY18
$m
% of sales
$m
% of sales
Revenue
Communications
Metal Detection
Tracking Solutions
Total revenue
Underlying business performance
EBITDA
EBIT
Interest
Net profit before tax
Taxation
Underlying net profit after tax
77.6
182.1
11.1
270.8
78.6
63.4
(0.1)
63.3
(17.6)
45.7
29%
67%
4%
100%
29%
23%
23%
17%
Non-underlying income/(expenses) after tax*:
Newton property tax benefit
Net profit after tax
Underlying earnings per share, fully diluted
Statutory earnings per share, fully diluted
Ordinary dividend per share
Special dividend per share
–
45.7
25.3 cents
25.3 cents
9.0 cents
5.0 cents
25%
71%
4%
100%
31%
23%
23%
17%
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
* 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.
Profit margins have remained strong
despite the business significantly
diversifying its product mix.
Continuing strong cash generation
resulted in a net cash position of $37.5
million at 30 June 2019.
Performance by
Business Unit
Communications – Tactical and
Land Mobile Radios (LMR)
Codan Communications designs
and manufactures mission-critical
communications equipment for global
military and public safety applications.
Its solutions allow customers to save
lives, enhance security and support
peacekeeping activities worldwide.
The division had an excellent year in
FY19. Sales increased 37% to $78 million
and segment profit increased 147% to
$16.7 million.
In the past, Communications has had
base-business sales in the range of $65
million to $75 million per annum, with
large tactical communications projects
potentially taking us to the top of this
range. Successful expansion into the
global military market has increased the
base business to a sales range of $70
million to $80 million per annum.
We continue to execute our strategy
of transitioning the Communications
division from a product-centric business
to a full solutions provider. Codan’s
ongoing product development is
being complemented by strategic
partnerships with key suppliers in order
to further broaden our solutions offering.
In FY19, we completed development
of the new Sentry® Military Manpack
which will be available for shipment in
FY20. This product strengthens our
offering to the tactical military radio
market and, combined with the Codan
RIOS™ interoperability platform, allows
us to offer communications solutions into
mixed and legacy networks.
Tactical Communications is specifically
targeting the global military market,
with a focus on developing world
militaries in Africa, the Middle East,
Asia, Eastern Europe and Latin America.
As previously announced, the division
recently won an AU $15 million contract
to supply a tactical communications
network incorporating Codan radios and
interoperability solution, along with a
suite of third party products.
In LMR, our strategy is to grow the
business by transitioning into larger
systems projects and offering ongoing
service and support. This will be enabled
by the North American release of
our new Cascade™ software-defined
networked communications solution,
an interoperable first-responder
radio with excellent performance at a
competitive price point. Cascade™ is
scheduled for full release in FY21.
45
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019
DIRECTORS' REPORT (continued)
Operating and Financial Review (continued)
Performance by Business Unit (continued)
Communications – Tactical
and Land Mobile Radios
(LMR) (continued)
In April, we appointed Scott French,
an LMR-industry executive with more
than 20 years of experience, to lead
the LMR business from Codan’s office in
Victoria, Canada. We remain confident
about the medium to long-term growth
potential of this division.
The Communications division has a
strong order book, and we expect it
to deliver FY20 sales in line with our
increased base-business range.
Metal Detection – Recreational,
Gold Mining and Countermine
Minelab is the world leader in handheld
metal detecting technologies for the
recreational, gold mining, demining
and military markets. Over the past 30
years, Minelab has introduced more
innovative technology than any of its
competitors and has taken the metal
detection industry to new levels of
technological excellence.
Minelab’s base business is comprised
of recreational products sold primarily
into Australia, Europe and the USA, a
level of gold detector sales into Africa,
Latin America and Asia Pacific and sales
of countermine products (detecting
and clearing explosive devices) globally.
Minelab has had base-business sales
of around $110 million per annum.
Continuing strong sales of the EQUINOX®
coin and treasure product, coupled
with the imminent release of the new
Vanquish™ detector and increasingly
diversified gold detector sales, have
resulted in an increase in base-business
sales to a range of $120 million to $130
million per annum.
Periods of stronger demand for gold
detectors in Africa and new product
introductions have the potential to push
these revenues higher.
46
Given Minelab’s increasingly diversified
sales mix, new products and improving
retail distribution, we remain confident
of continued success in FY20.
Tracking Solutions – Minetec
Minetec provides unique, high-precision
tracking, productivity and safety
solutions for underground hard-rock
mines. Minetec’s technology allows
real-time monitoring and control of
mining operations in order to optimise
productivity and enhance safety. It is
an enabling technology required for
mining automation.
As previously announced, in 2018,
Minetec entered into an exclusive global
licensing, technology development and
marketing agreement with Caterpillar
Inc. During FY19, we worked closely
with Caterpillar’s development team
to integrate Minetec’s high-precision
tracking capability into the Caterpillar
MineStar® solution for underground
hard-rock mines.
As a result of this agreement, the
division is now leveraging Caterpillar’s
global dealer network to expand sales.
During FY19, there were delays in
securing contracts for the operational
deployment of MineStar® and therefore
Minetec did not meet its revenue target
of $15 million for the year. Revenue
increased marginally to $11.1 million,
and the division recorded a small loss.
Management is working closely with
Caterpillar to improve this situation and
is confident that these issues will be
rectified in the near future.
A period of outperformance occurred
during the first half of FY19 as Minelab
opened new gold markets in the Middle
East. We also had the benefit of the first
full year of EQUINOX® coin and treasure
detector sales. This, coupled with strong
ongoing demand for gold detectors,
resulted in Minelab’s highest ever sales
of $182 million, delivering segment
contribution of $67 million in FY19.
In Africa, Minelab dominates the
artisanal gold mining market, with
the GPZ 7000®, SDC2300® and Gold
Monster® covering all price points.
Existing customers are upgrading their
GPX® gold detecting equipment and
new customers are entering the market
with the Gold Monster®. The SDC
2300® detector is exceptionally good
at discovering fine-particle gold in
mineralised soil and has become the
alternative detector to the GPX 5000®.
In Minelab’s established recreational
markets, the EQUINOX® detector
continues to take market share.
During FY19, Minelab also progressed
development of the new Vanquish™
coin and treasure detector, which, like
the EQUINOX®, draws on Minelab’s
proprietary simultaneous multi-
frequency technology (Multi-IQ®) to
make deep detecting easier and more
efficient. Vanquish™ will be released
to the market in the first half of FY20
and we believe it will take market share
from competitors.
In May 2019, Minelab delivered its first
shipment of the new MDS-10® mine
clearance detector, a dual-sensing
detector which combines Minelab’s
leading metal detection technology with
ground penetrating radar. It provides
superior results in the detection
of minimal-metal landmines and
improvised explosive devices.
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN During the second half, Minetec and
Caterpillar partnered with Newmont
Goldcorp to demonstrate value of the
combined MineStar® system at their
Tanami mine in the Northern Territory.
This partnership allowed the team to
commission MineStar® for Underground
in an operational mine and quantify the
benefits with real data.
Separate to the Caterpillar agreement,
Minetec has continued to install and
commission the underground Fleet
Management System in BHP’s Olympic
Dam mine in South Australia. Vehicle
installations are complete across some
650 machines, and we are working
through the detailed process of site and
user acceptance of the new system.
Our strategy for Minetec continues to
focus on working with Caterpillar in order
to leverage their global distribution
capability, thereby increasing Minetec’s
sales and profitability to a level that is
significant to the Codan group.
Codan Defence Electronics
Codan Defence Electronics was
established in July 2016 to offer
advanced manufacturing and through-
life support to the Australian defence
industry. Following three years of
intensive business development and
bidding activity, Codan has become
an approved partner for two defence
programmes, however only small supply
contracts have been awarded to date.
Given the very long decision cycles in
defence, we once again do not expect
this division to generate significant
revenue in FY20.
Outlook
As a result of the strategic initiatives
discussed above, we have succeeded in
growing Codan’s base business during
FY19, which represents an increased
level of confidence by the board in the
fundamental strength of our business.
Codan has the ability to surprise on the
upside as a result of increased demand
for gold detectors and large project wins
in our 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.
FY19 was a record year for the company,
with a very strong first half helped by
opening a new market for gold detecting
in the Middle East and the EQUINOX®
coin and treasure detector launch.
We do not expect to repeat this level
of gold detector sales during the first
half of FY20 and therefore expect sales
to follow normal seasonality and be
stronger in the second half.
The board is not giving profit guidance
at this point, however intends to provide
a further business update at the Annual
General Meeting in October.
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 2019:
FY18 final ordinary
FY18 final special
FY19 interim ordinary
FY19 interim special
Declared after the end
of the year:
FY19 final ordinary
FY19 final special
4.5
4.0
4.0
2.5
8,062
7,166
7,166
4,479
100%
100%
100%
100%
14 September 2018
14 September 2018
13 March 2019
13 March 2019
5.0
2.5
8,961
4,481
100%
100%
13 September 2019
13 September 2019
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.
47
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 DIRECTORS' REPORT (continued)
Indemnification and
insurance of officers
Indemnification
The company has agreed to indemnify
the current and former directors and
officers of the company and certain
controlled entities against all liabilities to
another person (other than the company
or a related body corporate) that may
arise from their position as directors
and secretaries of the company and its
controlled entities, except where the
liability arises out of conduct involving a
lack of good faith. The Deed of Access,
Indemnity and Insurance stipulates that
the company and certain controlled
entities will meet the full amount of
any such liabilities, including costs
and expenses.
Insurance premiums
The directors have not included details of
the nature of the liabilities covered or the
amount of the premium paid in respect
of the directors’ and officers’ liability and
legal expenses insurance contracts, as
such disclosure is prohibited under the
terms of the contract.
Likely developments
The group will continue with its strategy
of continuing to invest in new product
development and to seek opportunities
to further strengthen profitability by
expanding into related businesses
offering complementary products
and technologies.
Further information about likely
developments in the operations of the
group and the expected results of those
operations in future financial years has
not been included in this report because
disclosure of the information would be
likely to result in unreasonable prejudice
to the group.
Directors’ interests
The relevant interest of each director
in the shares issued by the company as
notified by the directors to the Australian
Securities Exchange in accordance with
S205G(1) of the Corporations Act 2001,
at the date of this report is as follows:
Mr D J Simmons
Mr D S McGurk
Lt-Gen P F Leahy
Mr G R C Barclay
Ms K J Gramp
Ordinary
shares
86,636
746,342
57,708
38,829
10,000
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.
48
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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)
Services other than
statutory audit
Taxation compliance services
(KPMG Australia)
Taxation compliance services
(overseas KPMG firms)
Corporate finance services
Consolidated
2019
$
2018
$
214,763
204,874
214,763
204,874
55,973
56,760
–
27,220
40,466
96,439
32,591
116,571
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 2019.
49
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 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 2019 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 2019
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
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Sales and marketing expenses
Engineering expenses
Net financing costs
Other (expenses)/income
Profit before tax
Income tax expense
Profit for the period
Attributable to:
Equity holders of the company
Non-controlling interests
Note
Consolidated
2019
$000
2018
$000
2
3
4
7
270,811
(117,478)
153,333
(20,830)
(44,159)
(24,756)
(203)
(83)
63,302
(17,646)
45,656
45,665
(9)
45,656
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
Diluted earnings per share
6
6
25.5 cents
25.3 cents
23.4 cents
23.1 cents
The consolidated income statement is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 56 to 88.
51
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 30 June 2019
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
2019
$000
2018
$000
45,656
41,548
406
(122)
284
3,124
(1,170)
351
(819)
954
Note
21
21
Other comprehensive income/(loss) for the period, net of income tax
3,408
135
Total comprehensive income for the period
49,064
41,683
Attributable to:
Equity holders of the company
Non-controlling interests
49,073
(9)
49,064
41,710
(27)
41,683
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 88.
52
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN CONSOLIDATED BALANCE SHEET
as at 30 June 2019
Consolidated
Note
2019
$000
2018
$000
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
8
11
12
7
14
13
15
16
17
18
7
19
7
19
20
21
37,521
19,007
36,703
337
3,750
5,189
102,507
14,126
69,857
87,827
171,810
274,317
44,161
1,635
8,033
53,829
8,082
1,192
9,274
63,103
211,214
43,761
67,652
99,801
211,214
211,342
(128)
211,214
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 88.
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
53
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 30 June 2019
2019
Balance as at 1 July 2018
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
Consolidated
Foreign
currency
translation
reserve
$000
Equity
based
payment
reserve
$000
Hedging
reserve
$000
3,588
–
–
–
3,124
(430)
–
–
284
–
2,187
–
712
–
–
Share
capital
$000
42,721
–
–
–
–
Profit
reserve
$000
Retained
earnings
$000
Total
$000
58,981
–
–
–
–
81,018 188,065
45,656
45,656
712
–
284
–
3,124
–
42,721
6,712
(146)
2,899
58,981 126,674 237,841
–
794
246
1,040
–
–
–
–
–
–
–
–
–
(794)
–
(794)
–
–
–
–
(26,873)
–
(26,873)
–
–
(26,873)
246
(26,627)
Balance at 30 June 2019
43,761
6,712
(146)
2,105
58,981
99,801 211,214
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
Consolidated
Foreign
currency
translation
reserve
$000
Equity
based
payment
reserve
$000
Hedging
reserve
$000
Profit
reserve
$000
Retained
earnings
$000
Total
$000
2,634
–
–
–
954
–
3,588
–
–
–
–
389
–
–
(819)
–
–
–
774
–
–
58,981
–
–
–
–
59,063
41,548
–
–
–
164,995
41,548
774
(819)
954
–
(430)
1,954
2,728
–
58,981
–
100,611
–
207,452
–
–
–
–
–
(541)
–
(541)
–
–
–
–
(19,593)
–
(19,593)
–
–
(19,593)
206
(19,387)
Share
capital
$000
43,928
–
–
–
–
(1,954)
41,974
–
541
206
747
Balance at 30 June 2018
42,721
3,588
(430)
2,187
58,981
81,018
188,065
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 88.
54
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended 30 June 2019
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
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
2019
$000
2018
$000
290,738
(208,290)
176
(226)
(20,305)
62,093
–
(20,453)
(226)
(4,132)
(866)
(25,677)
(26,873)
(26,873)
9,543
27,711
267
37,521
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
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 88.
55
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
for the year ended 30 June 2019
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
2019 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 2019.
of assets within the next financial year relate to impairment
assessments of non-current assets, including product
development and goodwill (refer note 17).
Changes in accounting policies
Except as described below, the accounting policies applied in
these financial statements are the same as those applied in the
group’s consolidated financial statements as at and for the year
ended 30 June 2018.
AASB 15 – Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for
determining whether, how much and when revenue is
recognised. It replaced AASB 118 Revenue and related
interpretations.
The group adopted AASB 15 on 1 July 2018. The majority
of the group’s sales, being sale of goods, have only one
performance obligation, resulting in AASB 15 not having a
material impact on recognition of revenue compared to the
group’s accounting policies applied prior to implementation.
Accordingly, the information presented for 2018 has not
been restated.
AASB 15 applies a five-step model to account for revenue
arising from contracts with customers. It requires the
identification of discrete performance obligations within a
customer contract and an associated transaction price that
is allocated to these obligations. Revenue is recognised upon
satisfaction of these performance obligations, which occur
when a customer obtains control of the goods or services. The
key judgements in applying AASB 15 include the amount of
variable consideration to be recognised, determining whether
multiple distinct performance obligations are provided in a
single contract, and the timing of transfer of control.
The details of the new significant accounting policies and the
nature of the changes to previous accounting policies in relation
to the group’s various goods and services are set out below:
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”).
(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
56
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Type of product
or service
Sale of goods
Nature, timing of satisfaction of performance obligations
Nature of change in
accounting policy
The majority of revenue recognised by the Communications and Metal
Detection segments is for the sale of goods. Most customers obtain
control when the goods are dispatched from the group’s warehouse.
Invoices are generated and revenue is recognised at that point in time.
AASB 15 did not have a significant
impact on the group’s accounting
policies.
Construction contracts The group’s construction contracts largely occur within the Tracking
Solutions segment. The business recognises revenue over time,
adopting the input method, which looks at the resources used to
date to create the asset being transferred. Customers are invoiced in
accordance with established contractual terms, and consideration
is payable in line with agreed payment terms. In most cases, the
measurement of revenue (when recognised over time) will not be the
same as amounts invoiced to a customer. In these circumstances,
the business will recognise either a contract asset (accrued income)
or a contract liability (deferred income) for the difference between
cumulative revenue recognised and cumulative amounts billed for
that contract.
AASB 15 did not have a
significant impact on the group’s
accounting policies.
The group also provides services to its customers, however
the aggregate amount of service revenue is not material to the
group.
AASB 9 – Financial Instruments
The group has adopted AASB 9 Financial Instruments from
1 July 2018. AASB 9 sets out requirements for recognising
and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. It replaced AASB
139 Financial Instruments: Recognition and Measurement.
The group has no complex financial instruments and the
application of the AASB 9 principles relating to hedge
accounting and expected credit loss impairment does not
result in a material impact to the financial statements compared
to the group’s previous accounting policies.
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.
(d) Revenue recognition
Revenues are recognised at the fair value of the consideration
received or receivable, net of the amount of goods and services
tax (GST) payable to taxation authorities.
Sale of goods
Revenue from the sale of goods is measured at the fair
value of the consideration received or receivable (net of
rebates, returns, discounts and other allowances). Revenue
is recognised when the significant risks and rewards of
ownership pass to the customer, recovery of the consideration
is probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management
involvement with the goods and the amount of revenue can be
measured reliably. Control usually passes when the goods are
shipped to the customer.
Construction contracts
Contract revenue includes the initial amount agreed in the
contract, plus any variations in contract work, claims and
incentive payments, to the extent that it is probable that they
will result in revenue and can be measured reliably. As soon
as the outcome of a construction contract can be estimated
reliably, contract revenue is recognised in the income
statement in proportion to the stage of completion of the
contract. Contract expenses are recognised as incurred unless
they create an asset related to future contract activity.
57
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
(d) Revenue recognition (continued)
Construction contracts (continued)
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.
58
Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair-value adjustments arising on acquisition, are
translated to Australian dollars at the foreign exchange rates
ruling at the reporting date. Equity items are translated at
historical rates. The income and expenses of foreign operations
are translated to Australian dollars at the foreign exchange
rates ruling at the dates of the transactions. Foreign exchange
differences arising on translation are taken directly to the
foreign currency translation reserve until the disposal, or partial
disposal, of the foreign operations.
Foreign exchange gains and losses arising from a monetary
item receivable or payable to a foreign operation, the
settlement of which is neither planned nor likely in the
foreseeable future, are considered to form part of a net
investment in a foreign operation and on consolidation they are
recognised in other comprehensive income, and are presented
within equity in the foreign currency translation reserve.
Foreign currency differences arising on the retranslation of
a financial liability designated as a hedge of a net investment
in a foreign operation are recognised directly in other
comprehensive income to the extent that the hedge is
effective, and are presented within equity in the hedging
reserve. To the extent that the hedge is ineffective, such
differences are recognised in the income statement. When
the hedged part of a net investment is disposed of, the
associated cumulative amount in equity is transferred to the
income statement as an adjustment to the income statement
on disposal.
(g) Derivative financial instruments
The group has used derivative financial instruments to
hedge its exposure to foreign exchange and interest rate
movements. In accordance with its policy, the group does not
hold derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting
are accounted for as trading instruments. Derivative financial
instruments are recognised initially at fair value. Attributable
transaction costs are recognised in the income statement
when incurred. Subsequent to initial recognition, derivative
financial instruments are stated at fair value. The gain or loss
on re-measurement to fair value is recognised immediately in
the income statement unless the derivative qualifies for hedge
accounting.
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Hedging
On initial designation of the hedge, the group formally
documents the relationship between the hedging instrument
and hedged item, including the risk management objectives
and strategy in undertaking the hedge transaction, together
with the methods that will be used to assess the effectiveness
of the hedging relationship.
Where a derivative financial instrument is designated as a
hedge of the variability in cash flows of a highly probable
forecast transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised directly in
comprehensive income and presented within equity. When the
forecast transaction subsequently results in the recognition of
a financial asset or liability, then the associated gains and losses
that were recognised directly in equity are reclassified into the
income statement.
When a hedging instrument expires or is sold, terminated
or exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still
expected to occur, the cumulative gain or loss at that point
remains in equity and is recognised in accordance with the
above policy when the transaction occurs. If the hedged
transaction is no longer expected to take place, then the
unrealised gain or loss recognised in equity is recognised
immediately in the income statement.
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.
(h) Taxation
Income tax expense on the income statement comprises
a current and deferred tax expense. Income tax expense is
recognised in the income statement except to the extent
that it relates to items recognised directly in equity, or in other
comprehensive income.
Current tax expense is the expected tax payable on the taxable
income for the year using tax rates enacted or substantially
enacted at the reporting date, adjusted for any prior year
under or over provision. The movement in deferred tax assets
and liabilities results in a deferred tax expense, unless the
movement results from a business combination, in which case
the tax entry is recognised in goodwill, or a transaction has
impacted equity, in which case the tax entry is also reflected
in equity.
Deferred tax assets and liabilities arise from temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used
for taxation purposes.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset tax liabilities and assets, and they
relate to income taxes levied by the same tax authority on the
same taxable entity, or on different tax entities, but they intend
to settle the tax liabilities and assets on a net basis, or their tax
assets and liabilities will be realised simultaneously.
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 Consolidated 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 Consolidated
Statement of Cash Flows.
59
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
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
expected credit loss allowances. Under the “expected credit
loss” model, the allowance for credit losses is calculated by
considering on a discounted basis the cash shortfalls it would
incur in various default scenarios for prescribed future periods
and multiplying the shortfalls by the probability weighted
outcomes. Significant receivables are individually assessed.
Non-significant receivables are not individually assessed;
instead, credit loss testing is performed by considering the risk
profile of that group of receivables. All allowances for credit
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.
(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
60
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.
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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.
Assets held for sale
(o)
Non-current assets, or disposal groups comprising assets and
liabilities, are classified as held-for-sale if it is highly probable
that they will be recovered primarily through sale rather than
through continuing use.
Such assets are generally measured at the lower of their
carrying amount and fair value less costs to sell. Once classified
as held-for-sale, intangible assets and property, plant and
equipment are no longer amortised or depreciated.
(p) Property, plant and equipment
Owned assets
Items of property, plant and equipment are measured at cost,
less accumulated depreciation and impairment losses. Cost
includes expenditures that are directly attributable to the
acquisition of the asset. The cost of self-constructed assets
includes the cost of materials, direct labour and any other
costs directly attributable to bringing the asset to a working
condition for its intended use, the costs of dismantling and
removing the items and restoring the site on which they are
located, and capitalised borrowing costs. Purchased software
that is integral to the functionality of the related equipment is
capitalised as part of that equipment.
Land and buildings that had been revalued to fair value prior to
the transition to AIFRS, being 1 July 2004, are measured on the
basis of deemed cost, being the revalued amount at the date of
that revaluation.
Gains and losses on disposal of an item of property, plant and
equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and
equipment and are recognised net within “other income” or
“other expenses” in the income statement.
Subsequent costs
The cost of replacing part of an item of property, plant and
equipment is recognised in the carrying amount of the item
if it is probable that the future economic benefits embodied
within the part will flow to the group and its cost can be
measured reliably. The carrying amount of the replaced part
is derecognised. The costs of the day-to-day servicing of
property, plant and equipment are recognised in the income
statement as incurred.
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 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
(q)
Impairment (continued)
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.
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.
Dividends
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.
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.
(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.
62
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN The group will recognise new assets and liabilities for its
operating leases of office, warehouse and factory facilities.
The nature of expenses related to those leases will now change
because the group will recognise a depreciation charge for
right-of-use assets and interest expense on lease liabilities.
Previously, the group recognised operating lease expense on
a straight-line basis over the term of the lease, and recognised
assets and liabilities only to the extent that there was a timing
difference between actual lease payments and the expense
recognised. Based on the information currently available, the
group estimates that it will recognise additional lease liabilities
of $30.151 million and right-of-use assets of $29.315 million as
at 1 July 2019. The impact on its income statement for the year
ended 30 June 2020 is expected to be immaterial. In addition,
the group does not expect the adoption of AASB 16 to impact
its ability to comply with any loan covenants.
The group plans to apply AASB 16 initially on 1 July 2019,
using the modified retrospective approach. Therefore, the
cumulative effect of adopting AASB 16 will be recognised as
an adjustment to the opening balance of retained earnings at
1 July 2019, with no restatement of comparative information.
The group plans to apply the practical expedient to
grandfather the definition of a lease on transition. This means
that it will apply AASB 16 to all contracts entered into before
1 July 2019 and identified as leases in accordance with AASB
117 and IFRIC 4.
(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 are effective after 2019 and earlier
application is permitted; however, the group has not early
adopted the new or amended standards in preparing these
consolidated financial statements. Of those standards that
are not yet effective, AASB 16 is expected to have a material
impact on the group’s financial statements in the period of
initial application.
The group is required to adopt AASB 16 Leases from 1 July
2019. The group has assessed the estimated impact that initial
application of AASB 16 will have on its consolidated financial
statements, as described below. The actual impact of adopting
the standard on 1 July 2019 may change because the new
accounting policies are subject to change until the group
presents its first financial statements that include the date of
initial application. AASB 16 introduces a single, on-balance
sheet lease accounting model for lessees. A lessee recognises
a right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make
lease payments. There are recognition exemptions for short-
term leases and leases of low-value items. AASB 16 replaces
existing leases guidance, including AASB 117 Leases, IFRIC 4
Determining whether an Arrangement contains a Lease, SIC-
15 Operating Leases – Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease.
63
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
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
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.
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.
64
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Information about reportable
segments
Communications
Metal Detection Tracking Solutions
Consolidated
2019
$000
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
Revenue
External segment revenue
Result
Segment result
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
Total depreciation and
amortisation
Assets
Capital expenditure
Unallocated capital expenditure
Total capital expenditure
Segment assets
Unallocated corporate assets
Consolidated total assets
77,639
56,525 182,058 164,039
11,114
9,350 270,811 229,914
16,715
6,763
67,323
64,064
(1,183)
706
5,874
7,076
7,523
8,485
1,312
606
82,855
(203)
(19,350)
63,302
(17,646)
45,656
71,533
(730)
(17,611)
53,192
(11,644)
41,548
14,709
536
16,167
494
15,245
16,661
806
838
1,442
1,310
153
88,574
81,565 112,655 111,207
26,646
354
2,502
2,401
925
1,731
3,427
4,132
25,483 227,875 218,255
36,047
46,442
274,317 254,302
The group derived its revenues from a number of countries. The three significant countries where revenue was 10% or more of total
revenue were United Arab Emirates totalling $65.908 million (2018: $54.745 million), the United States of America totalling $60.141
million (2018: $40.925 million) and Australia totalling $34.910 million (2018: $37.437 million).
The group’s non-current assets, excluding financial instruments and deferred tax assets, were located as follows: Australia $128.234
million (2018: $121.474 million), Canada $43.254 million (2018: $37.051 million), United Arab Emirates $0.223 million (2018:
$0.256 million), the United States of America $0.079 million (2018: $0.106 million) and Ireland $0.020 million (2018: $0.019 million).
65
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
GROUP PERFORMANCE (continued)
Consolidated
2019
$000
2018
$000
(176)
134
245
203
90
2,478
2,568
7,477
4,007
409
289
495
12,677
42,181
3,746
3,719
886
2,514
712
246
54,004
(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
774
206
48,517
6,113
5,580
62
21
83
161
(9)
152
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
Performance rights plan
Employee share plan
Additional expenses disclosed:
Operating lease rental expense
Other expenses / (income)
4.
(Gain)/loss on sale of property, plant and equipment
Other expenses/(income)
66
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 5. Dividends
Codan Limited has provided or paid for dividends as follows:
– ordinary final fully-franked dividend of 4.5 cents per ordinary share paid on 14 September 2018
– special final fully-franked dividend of 4.0 cents per ordinary share paid on 14 September 2018
– ordinary interim fully-franked dividend of 4.0 cents per ordinary share paid on 13 March 2019
– special interim fully-franked dividend of 2.5 cents per ordinary share paid on 13 March 2019
– ordinary final fully-franked dividend of 4.0 cents per ordinary share paid on 3 October 2017
– special final fully-franked dividend of 3.0 cents per ordinary share paid on 3 October 2017
– ordinary interim fully-franked dividend of 4.0 cents per ordinary share paid on 3 April 2018
Consolidated
2019
$000
2018
$000
8,062
7,166
7,166
4,479
–
–
–
–
–
–
–
7,125
5,343
7,125
26,873
19,593
Subsequent events
Since the end of the financial year, the directors declared a final ordinary fully franked dividend of 5.0 cents per share and a fully franked
special dividend of 2.5 cents per share, bringing total final dividends to 7.5 cents fully franked, payable on 13 September 2019. The
financial impact of this final dividend of $13,442,093 has not been brought to account in the group financial statements for the year
ended 30 June 2019 and will be recognised in subsequent financial reports.
Dividend franking account
Franking credits available to shareholders for subsequent financial years (30%)
27,110
23,334
The franking credits available are based on the balance of the dividend franking account at year-end, adjusted for the franking credits
that will arise from the payment of the current tax liability. The ability to utilise the franking account credits is dependent upon there
being sufficient available profits to declare dividends. Based upon the above declared dividend, the impact on the dividend franking
account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $5,760,897 (2018:
$6,491,207).
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
45,665
41,575
The weighted average number of shares used as the denominator number for basic earnings per share was 178,994,483 (2018:
177,951,688). The movement in the year is as a consequence of the shares issued under the employee share plan and the performance
rights plan.
The calculation of diluted earnings per share at 30 June 2019 was based on a weighted average number of ordinary shares outstanding,
after adjustment for the effects of all dilutive potential ordinary shares of 180,530,338 (2018: 179,977,716). 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 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
TAXATION
Consolidated
2019
$000
2018
$000
16,336
(135)
16,201
1,445
17,646
13,064
(606)
12,458
(814)
11,644
18,991
15,958
(1,139)
(135)
–
(21)
17,696
143
(193)
17,646
(5,966)
4
20,305
695
(16,336)
(1,298)
337
(1,635)
(1,298)
(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)
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
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
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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
2019
$000
2018
$000
20,241
18,441
(330)
(2,165)
(2,042)
(3,367)
(144)
(55)
(4,056)
8,082
(397)
(3,051)
(1,799)
(2,942)
(350)
(20)
(3,888)
5,994
69
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (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
2019
$000
2018
$000
2,012
35,509
37,521
300
27,411
27,711
40,000
200
40,200
6,281
23
6,304
33,719
177
33,896
40,000
200
40,200
3,336
11
3,347
36,664
189
36,853
In addition to these facilities, the group has cash at bank and short-term deposits of $37,521,000 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
has a term of three years expiring in January 2022, and is subject to compliance with certain financial covenants, with an additional
facility of $40 million available subject to our financial institutions’ approval.
Consolidated
2019
%
0.67
2.61
2018
%
0.45
2.60
Weighted average interest rates:
Cash at bank
Cash advance
70
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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
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
2019
$000
2018
$000
45,656
41,548
62
161
90
2,478
12,677
958
(2,659)
278
59,540
10,777
(5,115)
(2,715)
(1,779)
1,385
62,093
148
2,699
13,814
980
(10,972)
(100)
48,278
(9,227)
(561)
463
9,113
152
48,218
71
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OPERATING ASSETS AND LIABILITIES
Consolidated
2019
$000
2018
$000
11. Trade and other receivables
Current
Trade receivables
Less: Expected credit loss provision
Other debtors
12. Inventory
Raw materials
Work in progress
Finished goods
20,177
(1,343)
173
19,007
9,667
14,003
13,033
36,703
In 2019, inventories of $102.216 million (2018: $83.904 million) were recognised as an expense and included in cost of sales.
29,994
(459)
249
29,784
6,565
12,695
12,328
31,588
2,188
–
286
2,474
3,811
832
546
5,189
3,750
3,750
13. Other assets
Prepayments
Project work in progress
Other
14. Assets held for sale
Freehold land
In FY18, the company 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.
15. Property, plant and equipment
Leasehold property at cost
Accumulated depreciation
Plant and equipment at cost
Accumulated depreciation
Capital work in progress at cost
Total property, plant and equipment
72
1,134
(566)
568
33,703
(23,346)
10,357
3,201
14,126
858
(498)
360
33,397
(22,595)
10,802
1,327
12,489
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Consolidated
2019
$000
2018
$000
15. 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
Transfers
Disposals
Depreciation
Net foreign currency differences on translation of foreign entities
Carrying amount at end of year
Plant and equipment
Carrying amount at beginning of year
Additions
Transfers
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
360
288
2
–
(90)
8
568
10,802
1,541
429
(41)
(2,478)
104
10,357
1,327
1,874
3,201
14,126
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
73
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OPERATING ASSETS AND LIABILITIES (continued)
Consolidated
2019
$000
2018
$000
152,153
(82,296)
69,857
59,830
20,453
(11,484)
1,058
69,857
131,545
(71,715)
59,830
54,189
16,543
(11,230)
328
59,830
84,280
82,978
21,981
(19,810)
2,171
10,254
(9,624)
630
5,717
(4,971)
746
87,827
82,978
1,302
84,280
2,319
226
(409)
35
2,171
21,674
(19,355)
2,319
10,386
(10,063)
323
5,440
(4,475)
965
86,585
82,529
449
82,978
2,216
2,029
(1,939)
13
2,319
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
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN
Computer software
Carrying amount at beginning of year
Additions
Transfers from capital works in progress
Amortisation
Disposals
Net foreign currency differences on translation of foreign entities
Licences
Carrying amount at beginning of year
Acquisitions
Amortisation
The following segments have significant carrying amounts of goodwill:
Communications
Metal Detection
Tracking Solutions
Consolidated
2019
$000
323
590
21
(289)
(21)
6
630
965
276
(495)
746
2018
$000
354
128
–
(161)
–
2
323
1,107
342
(484)
965
21,785
53,957
8,538
84,280
20,483
53,957
8,538
82,978
Goodwill
The recoverable amount of cash generating units has been
determined using value-in-use calculations.
The Communications and Metal Detection cash generating units
are well established businesses, and the approach to the value-
in- use calculations for these units is similar. The first year of the
cash flow forecasts is based on the oncoming year’s budget, and
cash flows are forecast for a 5-year period. The key assumption
driving the value-in-use valuation is the level of sales, which is
based on management assessment, having regard to the demand
expected from customers, the global economy and the business’s
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 11% (FY18: 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 seven 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. As previously
announced, in 2018, Minetec entered into an exclusive global
licensing, technology development and marketing agreement
with Caterpillar Inc. During FY19, we worked closely with
Caterpillar’s development team to integrate Minetec’s high-
precision tracking capability into the Caterpillar MineStar® solution
for underground hard-rock mines.
As a result of this agreement, the division is now leveraging
Caterpillar’s global dealer network to expand sales. During FY19,
there were delays in securing contracts for the operational
deployment of MineStar®, and therefore Minetec did not meet
its revenue target of $15 million for the year. Revenue increased
marginally to $11.1 million, and the division recorded a small loss.
Management is working closely with Caterpillar to improve this
situation and is confident that these issues will be rectified in the
near future.
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 achieved by this business. To prepare the sales forecasts
management have considered a number of known opportunities
that are expected to adopt Minetec’s technology in coming 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
14% (FY18: 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 Minetec’s technology. If, from the FY20
budget year, Minetec were to grow at 8% over the forecast
period, the recoverable amount of the Minetec cash-generating
unit would be approximately equal to its carrying amount.
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.
75
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OPERATING ASSETS AND LIABILITIES (continued)
17. Intangible assets (continued)
Intellectual Property
Licences
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.
The company entered into a licence agreement on 30 June
2011 with a leading provider of advanced technology for high
frequency radio communication products. Licence payments
are being made as technology is delivered to the company.
The licenced technology allows the company access to next-
generation radio waveforms for high-speed data transmission,
automatic link establishment and digital voice.
Consolidated
2019
$000
2018
$000
22,634
21,319
208
44,161
25,693
20,039
614
46,346
6,235
1,798
8,033
5,847
1,452
7,299
1,192
541
1,452
1,644
(1,298)
1,798
1,593
1,201
(1,342)
1,452
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
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN
CAPITAL MANAGEMENT
20. Share capital
Share capital
Opening balance (178,189,989 ordinary shares fully paid)
Transfers to and from reserves
Issue of share capital through vested performance rights
Issue of share capital through employee share plan
Closing balance (179,227,907 ordinary shares fully paid)
Consolidated
2019
$000
2018
$000
42,721
–
794
246
43,761
43,928
(1,954)
541
206
42,721
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
6,712
(146)
2,105
58,981
67,652
3,588
(430)
2,187
58,981
64,326
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
3,588
3,124
6,712
2,634
954
3,588
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
(430)
284
(146)
Equity based payment reserve
The equity based payment reserve comprises Codan Limited’s accumulated expenses in relation to unvested performance rights
Balance at beginning of year
Performance rights expensed
Transfers from Share Capital
Performance rights vested
Balance at end of year
2,187
712
–
(794)
2,105
389
(819)
(430)
–
774
1,954
(541)
2,187
Profit reserve
The profit reserve comprises a portion of Codan Limited’s accumulated profits.
Balance at beginning of year
Balance at end of year
58,981
58,981
58,981
58,981
77
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
CAPITAL MANAGEMENT (continued)
22. Capital management
The board’s policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The board of directors
monitors the level of dividends paid to ordinary shareholders and
the overall return on capital.
The board seeks to maintain a balance between the higher returns
that might be possible with higher levels of borrowings, and the
advantages and security afforded by a sound capital position.
This approach has not changed from previous years.
Neither the company nor any of its subsidiaries is subject to
externally imposed capital requirements.
GROUP STRUCTURE
23. Group entities
Name
Parent Entity
Codan Limited
Controlled Entities
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
Country
of incorporation
Interest held
2019
2018
Class of share
%
%
Australia
Ordinary
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
100
100
100
100
100
100
100
100
100
100
100
49
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
49
100
50
100
100
78
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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
directors’ 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:
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
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
Consolidated
2019
$000
2018
$000
60,422
(17,398)
43,024
66,743
82,894
52,572
(12,878)
39,694
46,642
66,743
29,583
44,021
28,938
3,750
3,720
110,012
32,976
11,919
39,982
55,804
140,681
250,693
39,914
6,705
1,568
6,175
54,362
4,306
1,000
5,306
59,668
191,025
21,486
60,062
24,558
3,750
2,282
112,138
13,888
9,974
39,297
56,182
119,341
231,479
37,291
5,763
6,033
5,846
54,933
3,710
439
4,149
59,082
172,397
79
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
GROUP STRUCTURE (continued)
24. Deed of cross guarantee (continued)
Balance sheet (continued)
Equity
Share capital
Reserves
Retained earnings
Total equity
25. Parent entity disclosures
Consolidated
2019
$000
2018
$000
43,761
64,370
82,894
191,025
42,721
62,933
66,743
172,397
As at, and throughout, the financial year ending 30 June 2019, the parent company of the group was Codan Limited.
Result of parent entity
Profit after tax for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising:
Share capital
Reserves
Retained earnings
Total equity
Company
2019
$000
2018
$000
45,304
1,154
46,458
40,471
1,397
41,868
98,065
221,128
43,066
48,575
43,761
61,532
67,260
172,553
97,724
199,834
42,887
48,186
42,721
60,098
48,829
151,648
During the year, Codan Limited entered into contracts to purchase plant and equipment for $1,264,000 (2018: $837,000).
80
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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
2019
$
2018
$
214,763
87,285
204,874
67,471
55,973
40,466
–
60,974
459,461
56,760
32,591
27,220
76,884
465,800
Consolidated
2019
$000
2018
$000
1,589
–
1,589
1,315
–
1,315
5,790
14,437
20,957
41,184
5,231
13,670
23,893
42,794
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.
81
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OTHER NOTES (continued)
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 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 2019, the customer with the group’s
highest trade and other receivable balance accounted for $4.2
million (2018: 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, have 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 expected credit
losses that represents its estimate of 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.
Guarantees
Group policy is to provide financial guarantees only to wholly
owned subsidiaries.
82
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN (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
2019
$000
37,521
19,007
The group's maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Australia/Oceania
4,083
Europe
5,103
Americas
2,874
Asia
5,368
Africa/Middle East
2,749
20,177
Impairment losses
The aging of the group's trade receivables at the reporting date was:
2018
$000
27,711
29,784
8,484
3,824
7,560
3,349
6,777
29,994
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-120 days
More than 120 days
Consolidated
Gross
2019
$000
Impairment
2019
$000
Gross
2018
$000
Impairment
2018
$000
16,112
2,840
66
504
655
20,177
(795)
–
–
–
(548)
(1,343)
25,115
3,629
378
621
251
29,994
(211)
–
–
(46)
(202)
(459)
Trade receivables have been reviewed, taking into consideration letters of credit held and the credit assessment of the individual
customers. The impairment recognised is considered appropriate for the credit risk remaining.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 July
Impairment loss/(reversal) recognised
Trade receivables written off to the allowance for impairment
Balance at 30 June
Consolidated
2019
$000
459
905
(21)
1,343
2018
$000
833
(122)
(252)
459
83
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OTHER NOTES (continued)
28. Additional financial instruments disclosure (continued)
(b) Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing
liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions
and without incurring unacceptable losses or risking damage to the group’s reputation. Refer to note 9 for a summary of banking facilities
available.
The following are the contractual maturities of financial liabilities:
30 June 2019
Non-derivative financial liabilities
Trade and other payables
Derivative financial liabilities
Net foreign currency hedge payables
30 June 2018
Non-derivative financial liabilities
Trade and other payables
Derivative financial liabilities
Net foreign currency hedge payables
(c) Market risk
Carrying
amount
$000
Contractual
cash flows
$000
12 months
or less
$000
1-5 years More than
5 years
$000
$000
43,953
43,953
(43,953)
(43,953)
(43,953)
(43,953)
208
208
(208)
(208)
(208)
(208)
45,732
45,732
(45,732)
(45,732)
(45,732)
(45,732)
614
614
(614)
(614)
(614)
(614)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
84
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN (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
2019
$000
15,017
–
15,017
22,504
–
22,504
2018
$000
10,000
–
10,000
17,711
–
17,711
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 2018.
Profit/(loss) before tax
Reserve
100 bp
increase
$000
100 bp
decrease
$000
100 bp
increase
$000
100 bp
decrease
$000
225
177
(225)
(177)
–
–
–
–
30 June 2019
Variable rate instruments
30 June 2018
Variable rate instruments
Currency risk
The group is exposed to currency risk on sales, purchases and balance sheet accounts that are denominated in a currency other than the
respective functional currencies of group entities, primarily the Australian dollar (AUD). The currencies in which these transactions are
denominated are primarily USD and EUR.
The group enters into foreign currency hedging instruments or borrowings denominated in a foreign currency to hedge certain
anticipated highly probable sales denominated in foreign currency (principally in USD). The terms of these commitments are usually less
than 12 months. As at the reporting date, the group has entered into a mix of forward exchange contracts and collar hedge instruments
which will limit the foreign exchange risk on USD $25,000,000 of FY20 cash flows. On average, the collars give protection above
73 cents and enable participation down to 68 cents, and the average forward exchange contract rate is 71 cents.
85
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OTHER NOTES (continued)
28. Additional financial instruments disclosure (continued)
(c) Market risk (continued)
Currency risk (continued)
The group’s exposure to foreign currency risk (in AUD equivalent), after taking into account hedge transactions at reporting date, was
as follows:
30 June 2019
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 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
Consolidated
EUR
$000
441
542
(30)
953
–
953
630
1,442
(69)
2,003
–
2,003
USD
$000
4,348
9,431
(11,953)
1,826
(4,278)
(2,452)
4,761
15,529
(16,299)
3,991
(2,255)
1,736
Sensitivity analysis
Given the foreign currency balances included in the balance sheet as at reporting date, if the Australian dollar at that date strengthened
by 10%, then the impact on profit and equity arising from the balance sheet exposure would be as follows:
2019
EUR
USD
2018
EUR
USD
Consolidated
Reserve
credit/(debit)
Profit/(loss)
before tax
$000
$000
–
19
19
–
56
56
(87)
223
136
(182)
(158)
(340)
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.
86
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN (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 $208,000, for which an
independent valuation was obtained from the relevant banking institution.
29. Employee benefits
Aggregate liability for employee benefits, including on-costs:
Current – short-term incentives and other 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
2019
$000
2018
$000
6,790
6,235
1,192
14,217
5,357
5,847
541
11,745
3.00%
2.81%
10 years
3.00%
3.77%
10 years
Employee Share Plan
On 19 December 2012, the directors approved the establishment
of an Employee Share Plan (ESP). The ESP is designed to recognise
the contribution made by employees to the group, and provides
eligible employees with an opportunity to share in the future
growth and profitability of the company by offering them the
opportunity to acquire shares in the company.
ESP shares issued in financial year 2019
The company issued 76,260 shares to eligible employees in June
2019. The fair values of the shares was $3.22 per share, based on
the volume weighted average price at which Codan shares were
traded on the ASX for the five trading days immediately preceding
the date of issue of the shares. The exercise price was nil. The total
expense recognised as employee costs in 2019 in relation to the
ESP shares issued was $245,557. The shares are restricted from sale
until the earlier of three years from the acquisition date or upon the
date on which an employee is no longer employed by the group.
Performance Rights Plan
At the 2004 AGM, shareholders approved the establishment of
a Performance Rights Plan (Plan). The Plan is designed to provide
employees with an incentive to maximise the return to shareholders
over the long term, and to assist in the attraction and retention of
key employees.
Performance rights issued in financial year 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 of 52%, dividend yield of 3.82%, a term of three years
and a risk-free rate of 2.6%. Due to the departure of employees,
51,796 performance rights have been cancelled. The total
recovery recognised as employee costs in 2019 in relation to
the performance rights issued was $54,059 (2018: $435,147
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
using a non-statutory base-level earnings per share as set by the
board, which was 11.0 cents. For employees to receive the total
number of performance rights, the group’s earnings per share must
increase by at least 15% per annum over the three-year period.
The group’s earnings per share over the three-year period to
30 June have exceeded the performance target. Therefore, it
is expected that 764,976 shares will be issued to the relevant
employees by the end of August 2019.
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 of 39%, dividend yield of 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 of 37%, dividend yield of 6.22%, a term of three years
and a risk-free rate of 2.6%. Due to the departure of employees,
38,410 performance rights have been cancelled. The total
expense recognised as employee costs in 2019 in relation to the
performance rights issued was $347,630 (2018: $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
using a non-statutory base-level earnings per share as set by the
board, which was 14.9 cents. 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.
87
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for the year ended 30 June 2019 (continued)
OTHER NOTES (continued)
29. Employee benefits (continued)
Performance rights issued in financial year 2019
The company issued 409,731 performance rights in November
2018 to certain employees. The fair value of the rights was on
average $2.54 based on the Black-Scholes formula. The model
inputs were: the share price of $3.14, no exercise price, expected
volatility of 30%, dividend yield of 3.98%, a term of three years
and a risk-free rate of 2.7%. Due to the departure of employees,
9,953 performance rights have been cancelled. The total
expense recognised as employee costs in 2019 in relation to the
performance rights issued was $418,163.
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 using a non-statutory base-level earnings per share as
set by the board, which was 15.6 cents. 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.
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
2019
$
4,541,357
109,633
712,852
135,289
5,499,131
2018
$
3,673,631
115,992
632,392
91,136
4,513,151
(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 per share
Net tangible asset per share
88
2019
2018
34.1 cents
26.5 cents
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN 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 88 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 2019 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.
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.
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 2019.
The directors draw attention to note 1 to the consolidated financial statements, which includes a statement of compliance
with International Financial Reporting Standards.
2.
3.
4.
Signed in accordance with a resolution of the directors:
Dated at Mawson Lakes this 23rd day of August 2019.
D J Simmons
Director
D S McGurk
Director
89
CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019
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
2019 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 2019
• Consolidated income statement, Consolidated
statement
income,
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 Matter
The Key Audit Matter we identified is:
• Recoverable value of goodwill in relation
to the Tracking Solutions business.
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.
This matter was 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 this matter.
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.
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CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN
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 Group’s assessment of
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
the
evaluating
recoverable value of goodwill.
Tracking Solutions, which comprises the Minetec
business, is in the early stage of commercialisation of
its products, with a significant global licencing,
technology development and marketing agreement
signed during the prior year with Caterpillar and the
contract to supply a fleet management system to
BHP Billiton. The Group’s ability to secure further
full-scale operational
market acceptance and
deployment of its productivity and safety solutions
depends on successful integration of Minetec and
Caterpillar technology, 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
judgemental and may vary
according to the conditions and environment
from time to time.
is
•
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 compared 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 Board approved forecasts.
• We obtained an update of the product integration activity
performed with Caterpillar during the year. We checked the
consistency of the details of the integration activities 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 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.
the
the Group’s disclosures against
• We assessed
requirements of Australian Accounting Standards.
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CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019
INDEPENDENT AUDITOR’S REPORT (continued)
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.
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62
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Codan Limited for the year ended 30 June
2019, 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 2019.
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 2019
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CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019
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 15 August 2019
Substantial shareholders
The numbers of shares held by substantial shareholders and their associates are set out below:
Shareholder
I B Wall and P M Wall
Interests associated with Starform Pty Ltd, Dareel Pty Ltd and Pinara Group Pty Ltd
Interests associated with Kynola Pty Ltd and Warren Glen Pty Ltd
IOOF Holdings Limited
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
26,974,425
9,829,758
9,336,998
Number of equity security
holders Ordinary shares
1,504
1,694
636
707
82
4,623
The number of shareholders holding less than a marketable parcel of ordinary shares is 224.
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.
94
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Twenty largest shareholders
Name
I B Wall and P M Wall
HSBC Custody Nominees (Australia) Limited
Dareel Pty Ltd
Citicorp Nominees Pty Limited
National Nominees Limited
Kynola Pty Ltd
Starform Pty Ltd
BNP Paribas Nominees Pty Ltd
J P Morgan Nominees Australia Limited
A Bettison
Warren Glen Pty Ltd
M K and M C Heard
Mitranikitan Pty Ltd
G Bettison
J A Uhrig
CS Third Nomineees Pty Limited
Griffinna Pty Ltd
Cedara Pty Ltd
Rosevine Pty Ltd
Fruehling 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
Number of ordinary
shares held
Percentage of
capital held
34,808,151
19,944,421
17,846,372
11,132,572
8,807,262
6,627,548
6,404,224
5,638,200
5,502,630
3,562,124
3,202,210
2,834,899
1,778,194
1,371,199
1,225,143
1,224,928
1,200,000
1,107,254
1,107,254
1,100,000
136,424,585
19.4%
11.1%
10.0%
6.2%
4.9%
3.7%
3.6%
3.1%
3.1%
2.0%
1.8%
1.6%
1.0%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.6%
76.2%
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CODAN LIMITED AND ITS CONTROLLED ENTITIESANNUAL REPORT 2019 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
96
CODAN LIMITED AND ITS CONTROLLED ENTITIESCODAN Innovation
wherever you are
codan.com.au
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