Release Date: February 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Codan Ltd (ASX:CDA) reported a 15% increase in revenue to approximately $306 million for the first half of FY25.
• The communications segment was a key driver, with a 22% revenue increase, exceeding the 10-15% growth target.
• The company declared a fully franked interim dividend of 12.05 cents per share.
• Codan Ltd (ASX:CDA) has maintained a net debt to EBITDA ratio of less than 1, showcasing financial discipline.
• The acquisition of CagWorks is expected to generate $49 million to $57 million in revenue and $8 million to $11 million in EBITDA in the first 12 months of ownership.

Negative Points

• Net debt increased by $48 million to $124 million at the end of December, partly due to acquisitions.
• The metal detection business only grew revenues by 5%, which is lower compared to the communications segment.
• The Countermine division experienced a decline due to the absence of large humanitarian orders that were present in the previous year.
• Expenses increased due to the integration of acquisitions, with $2 million incurred in integration and acquisition expenses.
• The geopolitical situation in Ukraine presents uncertainty, although current sales are not reliant on US funding.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with ASX:CDA.

Q: You've increased your debt capacity and continue to seek acquisitions. Can you elaborate on your focus areas and whether these businesses are domestic or offshore? A: We are focused on acquisitions in communications, predominantly in North America, where the largest addressable markets exist. CEO Alf Ianello

Q: You continue to target 30% margins in the communication segment over the next 2 to 3 years. How do you plan to achieve this? A: The movement from 25% to 27% in the half was positive. Growth and investment in the right areas are key. As we grow and control costs, we expect to progress towards a 30% contribution margin. CEO Alf Ianello

Q: Regarding the order book, how should we think about the phasing of that order book to revenue over the next 12 to 18 months? A: A lot of the tactical conversion book gets converted into H2. The order book for Zettron is spread over 3 to 10 years, with the bulk under 18 months due to large programs. CEO Alf Ianello

Q: Can you provide more color on the new products expected from Minelab over the next 12 to 18 months? A: We have 2 gold detectors, 2 recreational detectors, and 2 countermine detectors coming out. These are leapfrog technologies, with significant performance improvements expected. CEO Alf Ianello

Q: What is your revenue profile linked to the Ukraine conflict, and how might a change in political strategy affect you? A: Our sales into Ukraine are up considerably and are not reliant on US funding. We continue to receive orders, and the unmanned systems market is growing. If the conflict ends, we can sell our products internationally. CEO Alf Ianello

For the complete transcript of the earnings call, please refer to the full earnings call transcript.