Codan Limited (CDA) Earnings Call Transcript & Summary

Welcome to the Codan Limited FY '22 Full Year Earnings Call. [Operator Instructions]. I will now hand the presentation over to Mr. Alf Ianniello, CEO. Please go ahead, sir.

Good morning. I'd like to welcome everyone to the full year results presentation for Codan. I am Alf Ianniello, the CEO of Codan. Alongside me, I have Michael Barton, CFO and Company Secretary of Codan. I'll be presenting the business summary section of the presentation, while Michael will present the financial summary section. Post the presentation, we will field any questions that may arise. Codan's adaptability to market conditions is evident in the successful management of complex global issues, such as supply chain disruptions, COVID and extended freight lead times. The Ukrainian conflict is currently a net negative for Codan, but will become a net positive over the short term. The termination of Minelab sales into Russia will be offset by opportunities within Tactical Communications equipment as defense spending increases across the world. The Tactical Communications business was also impacted by the loss of sales in Afghanistan from August onwards. West Africa remains strong and sales are not as significant as Northeast Africa was before the market disruption in Sudan. We expect Northeast African sales to improve from here on as business development activities are able to be conducted again. In a challenging business cycle, Codan has continued to leverage its IP, brand equity, global distribution networks in niche markets and its strong balance sheet to continue its positive momentum to establish a solid base for FY '23 and FY '24. Our global teams are engaged, energized, innovative and customer focused. The progress of the diversification strategy had a positive impact on the FY '22 full year results. Codan Group sales increased by 16%, with the Communications division being the main driver of growth, which more than offset the FY '22 Minelab result when compared to an abnormally strong FY '21. The Codan business is confident that it can maintain strong organic growth throughout the FY '23 and FY '24 financial years. Profitability of $100.5 million, which is another robust statutory net profit result and reconfirms our focus on achieving 20% NPAT margins. DTC and Zetron were acquired on a combined forward EBITDA estimate of $24 million. The final EBITDA result was $34 million, an exceptional achievement, evidence of our ability to integrate new acquisitions. The Communications division made a positive impact for the group EBITDA, which is a step change from the past, and Codan believes that this will continue into the future. We have a laser focus on improving the contribution of both DTC and Zetron, while developing existing and entering new markets. Our return on equity of 30% continues to demonstrate that Codan is efficiently managed, generates profits and cash and is well positioned for the future. Michael Barton will comment in more detail in the financial section of the presentation. Communications has become a growth driver for Codan. The acquisition of DTC and Zetron has resulted in a more diversified business, with Communications now comprising 48% of revenues when compared to 23% for the prior corresponding period; and Metal Detection at 52% when compared to 75% for the prior corresponding period. Our diversification strategy is well underway. The performance of our recent acquisitions should provide the market with confidence on the future M&A optionality when opportunities present themselves. The order book entering FY '23 sits at $149 million, which is 23% up on the prior corresponding period. Minelab delivered its second best year on record. FY '21 was an unprecedented year with sales of $327 million. In FY '22, Minelab has shown significant resilience to achieve this result with headwinds in Russia and Northeast Africa and the COVID normalization in Recreational markets. Future growth for Minelab will be driven by new product releases, geographic expansion and market share gains in the U.S. and Europe. The Board expects to continue its policy of paying shareholders in the order of 50% of our full year profits. We have declared a fully franked dividend of $0.15 per share following on from $0.13 per share fully franked interim dividend. This resulted in a total dividend of $0.28 for the full year. As per the graph, the dividend has increased for the 5 years' running. Importantly, Codan is a very different business today than it was 12 months ago. The execution of the strategic priorities has delivered a material increase in North America and Europe sales, which has balanced out the reliance that the Codan Group has had on Africa. The diversity of sales at both the segment level and geographical level is reducing risk and starting to address our strategic goals of generating revenue predictability in communications. Doubling of our global workforce and global leadership has changed the mix of our talent from being Australian-centric and has started the move to creating a global technology business that is closer to our largest growth markets. Codan remains disciplined in the execution of our strategy with a significant focus on diversity in revenue, more equity for the 2 segments at the contribution line and an emphasis on revenue predictability within our Communications business. Our strategic plan is to invest and strengthen our core business by introducing new products and technologies and through geographic and market expansion, which is supplemented by acquisitions. This strategy is working as the business today has much stronger foundations with a more balanced portfolio of sales. We invest in our core business by introducing new products and technologies. Our product and development projects in the pipeline remains robust as we continue to introduce leading-edge technology into the future, maintaining and extending our competitive advantage. The business continues its diversification strategy by expanding geographically and into adjacent markets. Market development activities have recommenced in all our markets. The last pillar to our strategic plan is to continue to deliver growth by acquisition. Our acquisition targets must be culturally and strategically aligned and be technology leaders with valuable IP. All of our businesses have a clear and disciplined acquisition strategy, whether it is into the adjacent markets or into products and services that are complementary to our existing solutions. Our philosophy is not to over-index on acquisitional growth, but use it as a mechanism to deliver strategic benefit. During FY '22, we spent in excess of $40 million in new product development and engineering. We will continue to commit between 8% to 10% of our revenues back into product development and engineering. This is a core strength and essential for continuous innovation, which drives growth. The DTC and Zetron acquisitions and integration processes have been a success, and we now have a framework that is proven and repeatable for future acquisitions. The focus on the front end of the Communication businesses has contributed to the order book improving by 23% since June 2021. Minelab is developing an omnichannel distribution model by penetrating big box retailers, leveraging existing distribution channels and more recently, driving an e-commerce strategy. In Communications, the acquisition of DTC has significantly increased our tactical addressable market. In the past, we were focused on the developing world, but now our markets have expanded into the Five Eyes' intelligence communities. DTC's technology also allows us to access several market segments outside of Codan's traditional markets. These include Law Enforcement and Intelligence, Unmanned systems and Broadcast. The acquisition of BWS was completed in December for a total payment of $8.4 million, inclusive of $4.8 million earn-out. BWS technology allows our customers to adopt a remote production capability, save cost and improve production quality. BWS is exceeding our year 1 expectations under DTC's ownership. Zetron is one of the only 2 providers globally that offers a full suite of integrated emergency response technologies with an exceptionally strong brand in North America. Like Tactical, Zetron technology is applicable to a wide range of market segments, including transportation, utilities, domestic security, natural resources and institutions. The robustness of any organizational strategy and its efficient execution is manifested in its financials. This is what this slide represents. The 2 acquisitions have assisted in diversifying the sales and improving the contribution of sales from the Communications divisions from 23% to 48%. There is also a key focus on generating 20% NPAT. This is a key metric within Codan. The 39% increase in engineering investment of $46 million from $33 million allows Codan to roll out incremental R&D, but also allows Codan to explore breakout innovation across both segments. It sets a culture that is engaging and energetic as it looks to the future opportunities. In the second half of FY '22, Codan returned to a positive cash generation state as its inventory strategy is normalizing. Michael Barton will address this in the financial section of the presentation. Codan has refreshed its sustainability strategy. And during FY '22, the group established a Sustainability Council dedicated to identifying and managing risks, issues and opportunities that are important to the business and our stakeholders, being our investors, employees, strategic partners and customers. The council will be focused on making a long-term and sustainable impact with specific initiatives that will be closely aligned to Codan's purpose. Our sustainability report, now in its third year of production, will continue to evolve as we progress our sustainability journey. For instance, this year, our report has been prepared in accordance with the Global Reporting Index in order to provide greater transparency. In a year that saw more headwinds than tailwinds, Minelab had its second best year with sales of $262 million, being 11% over FY '20. And Minelab demonstrated resilience and strong financial management. As a result, Minelab increased its profit margin percentage from 44% in FY '21 to 46% in FY '22. FY '21 was an unprecedented year. This has been well documented. FY '22, apart from July, has been normalized for COVID and was impacted by a reduction in sales to Northeast Africa and Russia due to complex. Sudan is the gateway to the Northeast gold territories. Recent field trips to the area have highlighted that there isn't a shortage of gold. This is a positive. The Eastern area continues to support artisanal mining, while the North is restricting artisanal mining in favor of controlled large-scale mining. Our current expectations are for a medium-term rebuild of this territory really being Sudan. Importantly, the Minelab team has started the market development activities in Africa as travel restrictions have eased. Other gold mining regions remained strong. This is predominantly in Northwest Africa. Recreational markets held strong throughout FY '22 and were remarkably resilient. The Ukraine conflict has disrupted the Russian market. However, Latin America and North America has seen positive growth. The establishment of a new Indian office was a key milestone, and it continues the geographic expansion initiative. Countermine is another great example of the R&D strength of Minelab, where we have seen the new products have been released over the last few years, being well received in market. The customer intimacy and the willingness of the sales team to be in market has converted opportunities of numerous large tenders, making FY '22 a record year. Consistent with the group's strategic growth plan, the first pillar is leveraging technology across product platforms. Minelab has successfully released several product platforms, including Multi-IQ and GeoSense Pulse Induction. There are some radical technologies coming, and it's not just recycling what has been previously released. There are several new detectors to be released in the first half of FY '23. And in particular, there is a product which will leverage the significant coin and treasure market we have established over the last few years with Equinox. There are continued market share opportunities, which are making good progress in the U.S.A. and Europe. In the markets, where more than 50% of the world's population lives, we are rapidly growing those markets and market share. For example, Brazilian sales have grown more than 14x since the establishment of the office, and we expect pretty strong growth to continue. There are still regions to develop in Africa with travel restrictions relaxing, business development activities have resumed. Our focus to develop existing and new markets within Africa is ongoing. A lot of the gold miners don't have access or understand our products, and we are now able to get back in country. In Asia Pacific, we have now established a company in India, set up distribution and have started selling in their local currency. In the first week, we have grown from 2 to 10 dealers. Since establishment, off a small base, sales have already tripled. We think the Indian market is a similar scale to China in the way it operates, although it operates more freely, we think there is a significant growth potential in the Indian market. We will then move into other populous countries, such as Philippines, which we think there is a significant market also. Within our Recreational markets, Minelab has developed an omnichannel with tremendous success in the U.S. penetrating big-box retailers and their e-commerce channels, and we are now replicating this in Europe. Codan is proud to be a market-leading innovative and customer-focused communications company. The benefits of scale means the Communications division is now a much more globally relevant, robust and diversified business and is well positioned to serve high-growth markets. This division will continue to evolve and grow by penetrating new geographies, introducing new products, leveraging technology into adjacent markets and continuing with a clear acquisition strategy. I've had the benefit of spending time at DTC and Zetron. The integration has been very strong at a cultural level with strong alignment in values and behaviors. And as such, Codan has been able to quickly reestablish both brands' relevance within their respective markets. The go-to-market strategies have quickly translated to increased order books up approximately 23% from the prior corresponding period and healthy sales pipelines. The acquisition of both DTC and Zetron has been very successful with both businesses exceeding year 1 EBITDA targets of $14 million and $8 million, achieving $19 million and $15 million, respectively. During FY '22, DTC was awarded the largest ever order in Codan's history for the supply of software-defined mesh radios. This first order for approximately $38 million is part of a multiyear framework agreement, of which $13 million was delivered in FY '22. Our ability to solve technical challenges within this program has increased the DTC brand equity in the markets and will assist in securing further volume and new projects. The acquisition of DTC has been a strategically important one for Tactical Communications, transitioning us from a traditional voice-only platform to now to include data and video. A key differentiator of Tactical Communications technology relates to the tailored waveforms and the size, weight and power of our products. This technology also allows us to access several market segments outside of Codan's traditional markets. These include Law Enforcement and Intelligence, Unmanned systems and Broadcast. Tactical Communications is well positioned to serve these growing market segments from participating in large military programs of record through to servicing the remote broadcast production industry. Integration of our existing LMR business and the acquired Zetron business has been successfully completed, with the combined business exceeding $100 million in sales in FY '22, which was a great achievement. The business secured numerous large contracts, including the upgrade and expansion of our emergency response system for Delta Air Lines and a renewal of up to 10 years for our contract with the state of Iowa for a hosted Next Generation 911 emergency call taking solution. Investment in the Tactical business continues with front-end and engineering capabilities to ensure future growth of the business. Under Codan's ownership, we have invested and structured our organization to better serve each of our customers and markets. The military market is the one where we have experienced the biggest recent success with a major U.S. DoD program. We want to expand our military-focused product range to build on that proven success. Furthermore, we will continue to develop tactical successful software-defined radio platform. This strategy has enabled us to target multiple markets with one core platform and the ability to provide rapid enhancements to our customers. Lastly, we are committed to future technology innovations. We are looking at innovative solutions to get ahead of our customers rather than develop a [ me-too ] solution. As mentioned earlier, military is a key and growing market for Tactical. This is an area of focus and investment, and we want to position ourselves to winning programs of record. Another key market is Unmanned systems. We are currently strong in some geographies, such as Europe, Middle East and Asia, and our key focus is to replicate that success globally. In our Law Enforcement markets, we want to expand our safe city system offering and win large projects. This is a market where we have the ability to increase our annual recurring revenues. Lastly, Broadcast is a growing market now that live sports and concerts are back online. We'll have new products to be introduced as there is an increased demand for remote production. Tactical's acquisition strategy focused on expanding our communications solutions offerings and penetrating into adjacent markets. The target must have valuable IP and be strategically aligned to the business. Zetron's customers are demanding more options in terms of hosted and virtualized services, and we continue to invest in our command and control and LMR platforms to meet this demand. One year post-acquisition of Zetron, we are investing in engineering and the go-to-market resources to create compelling combined offerings of LMR and in command and control. With the recent release of the enhanced MT-4, we have made advancements in RF receiver performance, while continuing to reduce power consumption, which will drive new demand for customers with complex RF environments. Under strengthening the core, we are capitalizing on our combined LMR and command and control offerings, and we are making significant investments in go-to-market and marketing resources. In addition, our improvements to the enhanced MT-4 will also extend our dominance in the mountain top repeater market, where Zetron has an installed presence of over $200 million ready for a refresh. Lastly, Zetron's acquisition strategy primarily focused on complementary solutions to our current portfolio. That will allow us to increase our value to our core customers, but also allow us to better penetrate some adjacent and secondary markets. I would like to hand over to Michael Barton to present the financial section of the presentation.

Thanks, Alf. Codan delivered a record net profit after-tax of $100 million in FY '22 with a consistent result achieved across both the first and second halves. In a challenging business environment, with increasing price pressures and disruptions with supply chains, the business displayed real resilience to maintain gross margins above 55%. The net profit margin achieved in FY '22 of 20% reflects a great business. The disposal of the Minetec division was completed as reported to the ASX in July 2021. The profit on sale of $1.6 million was largely offset by one-off costs associated with the acquisitions of DTC and Zetron. The changing mix of our Communications business resulted in more of our profits being reported in the lower-tax environments of the U.K. and U.S.A. This reduced Codan's overall effective tax rate to 26%. And we expect this reduction to continue in future years. As mentioned by Alf, Codan has been focused on strategies to diversify the sales base of the group in order to create a more balanced business. Pleasingly, this slide highlights the improvements that are being achieved. The profit contribution coming from our Communications business is increasing. While Communications delivered 48% of group sales, the business also delivered almost 30% of the group's profit, which is a significant improvement on previous years. The profitability of the Minelab business is exceptional, and it sets a very high bar for our Communications business to aspire to. Management remains focused on further increasing the profit margins of the Communications business in the future. We've consistently reported these 3 key financial metrics. Engineering investment is at the core of our strategy and is a lead indicator of the exciting new technologies that we expect to deliver to our customers in future years. An investment of $46 million is a record for Codan, and importantly, it is well distributed across all of our key technology platforms. We expect to continue with this pace of engineering investment in the future. We are excited that a number of new detectors are nearing the completion of the engineering processes with releases expected later in the first half of FY '23. A return on equity of 30% really does demonstrate Codan's ability to utilize its capital in an efficient manner and then to deliver good profits to our shareholders. Codan has a long history of generating significant cash from our operations. In the first half of FY '22, we did have some headwinds as we build up inventory levels and paid for creditors following the record sales of Minelab in FY '21. The disclosed table really highlights the turnaround that was achieved in the second half of FY '22 as working capital stabilized. An operating cash outflow in the first half became a cash inflow of $65 million in the second half, which was a pleasing turnaround. We ended the FY '22 year with net debt of $29 million in comparison to our banking facility of $100 million. I'll now hand back to Alf.

Thanks, Michael. While general business conditions remain challenging, we continue to focus on building a more predictable and diversified sales base, delivering long-term shareholder value. In relation to the FY '23 outlook, sales and marketing initiatives and global business development activities have resumed across all businesses. This is a positive. The business conditions Minelab experienced in the second half of FY '22 are expected to continue into the first half of FY '23. Minelab's sales in the first half of FY '22 were increased by a carryover of demand from FY '21 of approximately $15 million. And when coupled with the termination of sales into Russia, Minelab's sales in the first half of FY '23 may not reach the level achieved in H1 of FY '22. However, we do expect Minelab's second half sales to improve as business development activities continue and several new Minelab products are released. The Communications business will have a strong order book of $149 million and also has a growing pipeline with strong quality opportunities. The Tactical Communications business is focused on business development opportunities, in particular military programs, given the increased instability in the world. Zetron is now successfully integrated, and the business expects to realize greater sales synergies in FY '23. The business will continue to manage inflationary pressures to maintain profitability, maximize cash generation and seek to execute on its acquisition strategy. When all these factors are taken into account, we believe the business will have a strong FY '23. In closing, the diversification strategy is working. West Africa remains strong and sales are now as significant as Northeast Africa was before the market disruption in Sudan. We expect Northeast African sales to improve from here on as business development activities are able to be conducted again. Our Minelab Recreational markets, minus Russia, remains strong and are growing, and we remain optimistic with the range of detectors to be released in late H1. The Communications business is settled, strong and growing in line with our expectations. Thank you for your time and interest. The presentation is now concluded. I will now hand over to the moderator if there are any questions.

[Operator Instructions]. Your first question today comes from Mitchell Sonogan from Macquarie.

Can you hear me?

Yes, Mitchell.

Yes. Maybe just first off, you mentioned there's going to be several new detectors released in first half '23. Can you just provide a bit more color there and also a bit of an update on how sales is beyond the GPX 6000 are going as well?

The detectors released in the first half are all in the coin and treasure segment, so that will be released over probably closer to Q2 time frame, and that will give us a really good back end to H1 and a good entry into H2. The sales of the 6000 units are lower than they were previously. But we've been back into market, and we think that should reverse back out. Now that we've got the market development back and people understanding the ability to use GPX 6000. The other key point with the 6000 I might raise, because of its great yield generating capability, it helps with some of the inflationary pressures that the artisanal miners actually get. So I think with some market development and understanding some of the technical benefits of that detector, that should rise again.

Okay. And just secondly, just on the $149 million order book in Comms, is there any chance you can split that out across the different businesses there? And I guess if you can't do that, is there any estimates on what might be delivered in the first half of that order book?

Yes. So I'm just looking for some numbers here, Mitchell. I mean we've got the order book, just bear with me, got it in front of me here. So yes, I think we quoted a number around $150 million, Mitchell. It's pretty evenly distributed across our Communications businesses. And ordinarily, we'd expect sort of 2/3 to 3/4 of that order book to be sort of in the next 12 months.

Excellent. Very clear. And maybe just a couple of quick ones, just on the inventory levels. Obviously, global supply chain is still under pressure. Can you maybe just talk through how we should expect that to progress over FY '23?

I would suggest our inventory levels have peaked and capped, and we're managing our supply chain not back to a normal state, but it is quite -- there's not significant variables we're managing. So we're actually bringing our inventory levels back to probably pre-COVID levels.

Pre-COVID level of FY '23? Or might it take a bit longer than that?

No. As we mentioned, I think, at the half, our inventory is at those significant safety levels that we had built in, they're coming off. So we should expect inventory gains from a cash perspective.

Okay. Excellent. Just, Michael, just really a couple of quick ones. Just on depreciation in second half, it was $11 million, a little bit down in the first half. Can you maybe just talk through what we should expect FY '23? And similarly, on the tax expense, I know you said you expect around the 26% for the full year. In the second half, that was down 24%. So just wondering if we should expect more like a 24% in FY '23. That's all for me.

On the tax, if I do that one first, Mitchell, yes, as we continue to see more of our profits come from our Communications business, we would expect that effective tax rate to still come down a couple of points from the 26%. So the 24% is a pretty good estimate at this point. And on the depreciation, which is largely driven by amortization of our products, we're not expecting that to be significantly different going forward. Obviously, as these new detectors come onstream, we will start amortizing that cost. So we would expect some level of increase over FY '23, but it's probably not overly material.

Your next question comes from Aaron Muller from Canaccord Genuity.

Congratulations on the results. Just a couple of things. Back in May, the update you talked about the fact that you expect Metal Detection to form new base from which to grow, implying some expectation that Metal Detection would grow from FY '22. Is that still the case, do you think?

We have that expectation moving forward. We're quite optimistic. We've got a new range of detectors coming out. Our sales -- our field sales people are back in market. As we mentioned during the presentation, we're opening up new geographical locations. So optimistically, all the key strategic initiatives are ramped up and out. So we would have that expectation that it will be a positive year for Minelab off of base. Yes, we keep saying FY '21 was unprecedented. So we need to move on from that. And we've understood the impacts of Sudan. And now we clearly can move the business forward.

And it sounds like, I mean, you obviously back in that region, and you expect it to grow from here in Sudan. But are you seeing any signs right now? I mean, the first 6, 7 weeks, have sales of the Sudan recommenced at all?

I would say what we saw in the back half of FY '22 is what we're seeing now. And you need to appreciate, this is not the gold season. We start the gold season in that region starts from September, October onwards. So that's when we would start seeing the trend line go up.

Yes. Great. And then on Comms, you referred to strong growth expected in FY '23. I just remember at the time of the acquisitions of DTC and Zetron, you did talk about the market opportunity there was for sort of 20% growth. Is that still the case? And how do we think about the growth opportunity in Comms generally?

I think that at the moment, our Q1 and H1 for this financial year looks very good. I think it's strong growth. I think we continue to talk double digits. And so all the market activity, the products, the performance with major customers has all been positive. So I won't be specific on the percentage, but we're definitely seeing quite a -- it exceeds our expectations...

Right. And just 2 more things. There's a lot of press around IVAS budgets being cut, et cetera. Do you think the -- is IVAS in that order book of $149 million?

Yes. We've got the remaining contract for this financial year. And then hopefully, we're fortunate for the next financial years when that goes back up. At this point in time, those orders are in the order book. They will be shipped. Obviously, what you read and what you get presented when you're with the customers sometimes not aligned. The last piece of press on IVAS has been positive, I must say, from press that you get out in the marketplace. So -- and we've done a tremendous job in achieving the technical requirements of that contract. We really reestablished ourselves in that market space and with that customer. So we see here today, and we think the remaining on that contract will be shipped in accordance to its contractual obligations.

Okay. And finally, it looks as though the DTC and Zetron [indiscernible], obviously, but if you back out that, the sort of original Tactical and LMR didn't do so well, how much of that $149 million is from Tactical and LMR? And are you seeing Tactical improve at all on the military side?

Yes. I can talk about pipeline. There's quite a bit of interest back in the HF world. Now that spend is back into that defense frame, the Ukraine conflict and obviously, there's a lot of discussion about Taiwan, so the pipelines look strong from the legacy HF business. As you would know, some of that sales cycle is a bit longer. The LMR and command control, we're seeing great benefits now because we can sell a solution. And coming back from the states and spending time with the customers in certain areas, I think we're going to get a bit of a rebound in LMR.

Your next question comes from Elijah Mayr from CLSA.

Just a quick couple from me, maybe just starting with Metal Detection. Can you sort of break out what the gold and Recreational sales were for the full year?

Yes. So Elijah, I mean, we talk just broadly that, that Recreational business sort of circa $100 million, $120 million. And then Gold Mining is the balance. We do, do $15 million, $20 million in countermine as well. So those proportions are relatively consistent to what we've talked about previously.

Okay. And then maybe just on market share, can you sort of comment on the market share and maybe the key regions in North America and Europe on the Recreational side, what you've seen during the second half?

Yes. I would say nothing's really changed too substantially on any of those metrics, Elijah.

Just sort of, I guess, following from a few products that were released into the market from competitors, just saying if there was any impact seen from the Minelab business and from new releases from competitors or market shares in maintenance.

Yes, I would suggest -- I would imagine you're referring to some of the gold detector that's been recently released. The gold markets are in a completely different spot. So our coin and treasure releases into the U.S. and Europe in this half, I think, would just assist with our market share gains, yes.

Yes. And then maybe just on the inventory. Obviously, you stepped up and made a conscious decision by you guys as well given supply chain. Is there any risk with new products being released that some of that inventory becomes obsolete or becomes the sell-through?

The way we manage the pipelines, we actually allow for some cannibalism of the pipeline. So you can never say it's going to be perfect, but we do the best of sort of ramping one up and phasing one down. So we just need to see how the sales hold up. I don't perceive it to be material at this point in time.

We've got a very long history in Minelab being able to clear out any of the older products. So we've actually -- in Minelab's history, we've never had an issue.

Understood. And then maybe just one final one on Comms, just on the order book. I think at the first half, Communications had a forward order book of the $163 million and now to $149 million. Is there some seasonality in the way that order book is constructed? Or how should we think about that changing [indiscernible]?

I think an order books [indiscernible] in time, I guess our view is that if those numbers are circa, the numbers we presented twice, I think that actually shows that we've got definitely a run rate moving forward. The other ones that we don't talk about in the presentations are how strong our pipelines are. And if you add the 2 together, I think we're going to keep having strong order books moving forward. So we would hope over the next half, that order book tends to -- continues to increase to give us greater yearly coverage. So I wouldn't read too much. There's no seasonality in the order book, if I sum up the answer to your question.

[Operator Instructions] Your next question comes from Jason Palmer at Taylor Collison.