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Afghanistan exit to cost Codan millions

Business

The communications arm of high-flying Adelaide technology company Codan could lose about $9 million worth of sales a year in the wake of the withdrawal of troops from Afghanistan.

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The Mawson Lakes company, which started out in communications and now generates about 70 per cent of its revenue from making and selling metal detectors, confirmed a record net profit after tax of $90.2 million for the 2020-21 financial year in its annual report released yesterday.

Its communications arm still contributes about $100 million a year, a figure that was already down in 2020-21 due to the coronavirus pandemic.

In 2019-20, communications contributed $104 million but this fell to $95.5 million in 2020-21.

“Whilst the LMR (Land Mobile Radio) business achieved another record performance, the Tactical Communications business continued to be impacted by COVID -19,” the ASX-listed company said in its annual report.

“A significant portion of revenue in the Tactical Communications business is derived from spend in the military, defence and security markets in developing countries.

“In this last year, many developing countries have redistributed budgeted communications spend to aid in combatting the global pandemic, Covid-19.”

Codan’s sales into Afghanistan made up 9 per cent of its communications business, or almost $9 million in 2020-21, according to its annual report.

However, that figure was virtually reduced to zero overnight following the withdrawal of all foreign military forces from Afghanistan last month.

“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,” the annual report said.

“Given the developments in Afghanistan, our sales team will continue to focus on the other markets in the Central Asia region.”

Codan Communications designs and manufactures mission-critical communications solutions for global military, public safety and commercial applications.

The contribution of the communications division in 2020-21 fell to just 22 per cent of total revenue, its lowest percentage in the company’s 62-year history.

This was in part due to booming metal detector sales, which reached a record $326.5 million, up $90 million on the previous year, accounting for 75 per cent of total revenue.

But it is far from doom and gloom for Codan Communications.

The arm of its business that was its major breadwinner for the company’s first 50 years since its infancy in 1959 this year made two key acquisitions that are expected to boost tactical communications revenue in 21-22.

Codan acquired US companies Domo Tactical Communications (DTC) and Zetron for a combined total of more than $170 million in the first half of this year.

This financial year it says it will focus on integrating the new businesses and realising the planned sales and cost synergies.

The DTC acquisition aims to supplement Codan’s traditional HF business and provide another significant revenue stream, particularly in the large North American market.

The merged LMR and Zetron businesses will operate under the Zetron brand in the future.

Codan chair David Simmons said in his message to shareholders in the annual report that the company had spent t considerable time and money developing a repeatable acquisition justification and integration process.

“It is early days, but both acquisitions are proceeding in line with the approved integration and profit plans,” he said in the letter.

“Covid-19 is presenting some challenges, particularly in terms of travel, but these were understood and planned for when developing our integration plans.”

Codan’s share price was steady yesterday at $13.15.

The company has a market capitalisation of $2.37 billion and was ranked No.6 in InDaily’s 2020 South Australian Business Index of the state’s top 100 companies, up from No.12 in 2019.

Ticket sales are open for the South Australian Business Awards, held at the Adelaide Convention Centre on Friday 22 October. Premier Steven Marshall is the keynote speaker at this must-attend event for anyone serious about doing business in South Australia.

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