18 August 2021

COMPANY ANNOUNCEMENTS PLATFORM

AUSTRALIAN SECURITIES EXCHANGE

Full Year Result 2021

Codan Delivers Record Sales, Profit and Dividend

Highlights

  • Record statutory net profit after tax of $90.2 million and underlying net profit after tax of $97.3 million, representing an increase 41% and 52% respectively over FY20
  • Highest full-year sales of $437 million in the company's history
  • Metal Detection delivered another record sales year in both recreational and gold mining
  • Communications capability expanded with two recent acquisitions
  • Sold the Minetec business to Caterpillar
  • Annual dividend of 27.0 cents, fully franked (interim 10.5, final 16.5)
  • Underlying earnings per share of 54.0 cents, up 52%
  • Return on equity of 36%
  • Cash generation was excellent with close to zero net debt at year end, after funding circa $174 million for acquisitions (the proceeds from the Minetec sale were received 1 July 2021)

Australian-based technology company, Codan Limited (ASX:CDA), today announced a record statutory net profit after tax of $90.2 million for the year ended 30 June 2021.

Directors announced a final dividend of 16.5 cents per share, fully franked, bringing the full-year dividend to 27.0 cents, up 46%. This dividend has a record date of 26 August 2021 and will be paid on 10 September 2021.

Codan experienced very strong trading throughout the year delivering another record profit. We acquired Domo Tactical Communications (DTC) and Zetron in May 2021 and streamlined the business with the divestment of Minetec.

Chief Executive, Donald McGurk, said, "As a result of our strategy to strengthen and invest in our core business through releasing new products and broadening our geographic footprint, we were pleased to deliver another record year."

To that end, in FY21 we:

  • released our new GPX6000® gold detector and MF5® Countermine detector;
  • established a new sales office in Mexico to focus on both gold mining and recreational markets;
  • launched a direct to consumer e-commerce platform in Brazil for recreation products;
  • delivered our largest ever order of Sentry HF radio units to an African military customer;
  • achieved another record year in LMR, successfully delivering multiple systems projects and validating our transition to a full solutions provider;
  • further strengthened our Communications segment by acquiring DTC and Zetron;
  • streamlined the business to focus on core segments with the sale of Minetec to Caterpillar for $18 million cash; and
  • worked with key suppliers to increase supply chain robustness in a very challenging COVID-19 environment, positioning us well for the future.

As a result of these initiatives, the business is well placed to deliver another strong performance in FY22, with the record run rate of FY21 being maintained thus far in the new financial year.

  • Non-recurringincome/(expenses) are considered to be outside of normal business activities of the group and for comparability reasons have been separately identified. 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.

During FY21, the group incurred $7.1 million after tax in one-off expenses relating to costs associated with making two acquisitions and the related restructuring. The Board is pleased with the initial integration of both acquisitions and we expect to achieve the FY22 EBITDA contributions of $14 million and $8 million for DTC and Zetron respectively, as previously announced.

Cash generation was excellent with close to zero net debt at year end after funding circa $174 million for acquisitions (excluding the costs incurred to execute these acquisitions).

We deliberately increased inventory holdings during the year to minimise the risk to supply and to reduce freight costs. Due to strong demand and some manufacturing constraints, we have not been able to reach our targeted inventory levels to date; however, we have maintained continuous supply throughout FY21, often under very challenging conditions. During FY22, it is expected that inventory across all key product lines will reach targeted levels.

In FY21, we invested in excess of $30 million in engineering in order to further diversify our revenues through new product introductions. This will ensure that our products remain leading- edge, continue to drive future growth and position us to take further market share from competitors.

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. For more than 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 delivered another record performance during the last 12 months, with sales increasing 38% to $327 million. The business achieved significant growth across all market segments with recreational and gold mining having record sales years and Countermine sales increasing 34% on FY20.

In recreation, our strategy to develop lower priced detectors, using our Multi-IQ® technology has allowed Minelab to grow its market share and successfully penetrate a number of big box retailers. The VANQUISH® product, now in its second year, has exceeded all expectations. Previously, Minelab had focused almost exclusively on high end detectors and now by extending our product portfolio to include entry level and mid-market segments, we have been able to gain market share, as well as grow the total size of the market. Minelab's presence in big box retail stores across North America has grown, providing significant brand awareness and accessibility to our products.

In artisanal gold mining, Minelab continued to grow across its entire product range, with our detectors achieving market leadership across all price points. The Gold Monster®, which was designed to withstand the harsh African environment, has become the machine-of-choice at the entry level and we continue to see customers upgrade to the top-of-line GPZ7000®.

Minelab released the GPX6000® in the second half of FY21, which includes our latest GeoSense-PI® (Pulse Induction) technology. GeoSense-PI® technology responds to ground signals with great clarity and precision, accurately isolating and reporting gold signals in the most difficult environments - even those once considered undetectable. Since the product launch, feedback from the market has been very positive and with production now reaching targeted levels, GPX6000® is expected to make a significant contribution to Minelab's sales in FY22.

During FY21, Minelab launched the MF5®, a Countermine detector based on our Multi-IQ® technology, which is also incorporated into our successful MDS10® dual sensor detector. Minelab now offers the latest metal detection technology across both single and dual sensor requirements.

As the market leader in metal detectors, our investment in product development remains a priority, so that we can continue to widen the technology gap between Minelab and our competitors. The unique and distinctive technology embedded within our metal detectors underpins the success of this business.

In FY22, Minelab will benefit from a full year of GPX6000® sales, increased geographical expansion and the on-going release of new products. Despite ongoing supply challenges, we remain confident of continued success in FY22.

Communications - Tactical, DTC, Zetron and LMR

Codan Communications designs and manufactures mission-critical communications solutions for global military, public safety and commercial applications. Its solutions allow customers to save lives, enhance security and support peacekeeping activities worldwide.

As expected, Codan Communications sales reduced by $8.5 million compared to FY20. Whilst the LMR business achieved another record performance, the Tactical Communications business continued to be impacted by COVID-19. Deferred government programs due to health spending priorities and the inability to travel freely, restricted our efforts to develop and close new business.

One of the great strengths of the Tactical Communications business has been our ability to deliver communications solutions to customers in difficult and diverse environments, one of these markets in recent years has been Afghanistan. During FY21, sales into Afghanistan made up 9% of our Communications business. Given the developments in Afghanistan our sales team will continue to focus on the other markets in the Central Asia region.

The recent acquisition of DTC for a consideration of $114 million is an important acquisition that adds leading edge technology to our communications solutions. Our strategy is to provide a total solution by transitioning from a traditional voice platform to one including data and video. This acquisition will supplement our traditional HF business and provide another significant revenue stream, particularly in the large North American market.

DTC's MIMO Mesh products provide wireless transmission of video and other data applications, which are complementary capabilities to our existing Tactical Communications solutions. We have realised immediate synergies by integrating the sales and marketing teams for both DTC and Codan. This will allow us to access new geographic routes to markets by leveraging Codan's existing global distribution channels into the developing world. Over the long term, our combined engineering capabilities will allow us to bring unique value to a diverse global customer base from military to security to broadcasting.

By continuing to transition into larger systems projects, we achieved another record sales year for our LMR products. Our LMR customers predominantly reside in North America and as such, travel and the ability to close sales have been less affected by COVID-19.

The strategy for LMR has been to expand into adjacent technology solutions and in April 2021, we completed the Zetron acquisition for a consideration of $60 million. Zetron's technology solutions provide the software that is used in control centres to receive and triage incoming calls and then communicate with public safety first-responders. Our merged LMR and Zetron businesses will operate under the Zetron brand in the future. The integration of the two operations has commenced and is progressing as planned.

In FY22, the focus will be on integrating the new businesses and realising the planned sales and cost synergies.

Tracking Solutions - Minetec

In June 2021, Codan entered into an agreement to sell 100% of the shares in Minetec to Caterpillar Holdings Australia.

Under Codan's ownership, the Minetec business had not scaled to a level that supported the ongoing investment required for a technology-based business. As a result, the Board undertook a strategic review of the business. While the technology developed by Minetec is

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Codan Limited published this content on 19 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 August 2021 23:33:05 UTC.