REL: 1400 HRS Rakon Limited
MEETING: RAK: Rakon Annual Meeting Addresses from the Chairman and MD
RAKON LIMITED ASM 11 SEPTEMBER 2008
Addresses by the Chairman and the Managing Director at Rakons' ASM held at
2pm 11 September 2008 are shown below:
Welcome to our third Annual Shareholders Meeting it's a pleasure to be able
to address you here today as joint owners of Rakon Ltd.
The results for Rakon's financial year ending March 31st 2008 produced an
EBITDA of $25.4 million i.e. 26% ahead of the previous year; but this, as I
mentioned in the Annual report, was not as good as your Directors would have
Nevertheless it was still a commendable effort in the face of a persistently
high New Zealand dollar, underperformance from our French operations and
toughening global conditions.
Those Global economic conditions have worsened significantly since this time
last year and will continue to provide a stiff head wind for us for the
remainder of fiscal 2009 and who knows for how far beyond.
Despite these tough markets the team at Rakon is working very hard and making
good progress across most business fronts this year. You will hear more
detail on this from our Managing Director Brent Robinson in a minute.
The New Zealand dollar has very recently retraced a lot of its large gains
against the US dollar of the last 12 months. We are naturally happy about
this, having maintained cover at the low end of our policy range. This means
that we will realize some of this benefit in our immediate financial results
and importantly in the medium term if rates remain, and continue lower this
will provide a significant boost to our earnings for the medium and longer
Remembering that ever 1 cent shift for the full year in the Kiwi Dollar
against the US Dollar has an impact of between $1 and $1.5 million annual
EBITDA for Rakon.
In France we have shifted a significant amount of that production to our new
Joint Venture with Centum Electronics in India. This shift is designed to
achieve similar or higher quality products than previously delivered from
France and at a cost which is significantly lower. Given that it was going to
take time to get the Indian operation up and running properly we didn't
expect instant results but the early signs are very encouraging and will
provide us with the opportunity to grow this business profitably Meantime the
French production efficiency improvements are progressing and are subject to
close and constant review with a goal of having this business providing high
quality R&D and niche, extremely high specification product as a key part of
Rakon's portfolio .
You will recall that our French operations were included in our acquisition
of Frequency Control Products Ltd last year which significantly broadened
Rakon's market penetration and added to our sales and R and D capabilities.
We sold a small non-strategic piece of that business to the management this
year for our book value and pleasingly all the other parts of business are
traveling well with continued strong financial performance from our UK
factory and exciting developments from our engineering team.
So since our last ASM it has been a very busy time at Rakon building a Global
business based upon our strategic footprints.
Those footprints are now largely in place or in the process of being built;
Research and Development in the UK, France and NZ, our flagship high quality,
high volume production facility in NZ, High value and high quality production
facilities in the UK, and France, and High Quality, low cost, high volume
production facilities either operational or being developed in India and
China. The latter two are underpinned by valuable joint ventures and the fact
that they stand at the center of the two largest potential markets in the
We also have a global sales and business development team spread across all
the major markets.
Building and growing a Global business is not an easy task, it takes time
patience and persistence and a lot of travel by the key members of the Team.
Encouraging and maintaining a culture that can maximize the value from our
core assets and our agreed strategic direction is undoubtedly the most
difficult task and one that requires constant personal attention from the
senior members of our Team.
Rakon's strategic direction is very closely aligned with the World's desire
to do every thing faster than before (i.e. the "need for speed" of which I am
sure you are all familiar). To do more in less time people need to use
electronic aids; e.g. GPS, Mobile phones, PDA'S and a host of other wireless
devices or the networks supporting those devices. This constant consumer
demand for enhanced functionality drives the manufacturers of those end
products (e.g. the mobile phone or PND makers) to seek more accuracy which
in turn drives those manufacturers and the network providers to upgrade to
higher spec'd Frequency Control Products that are Rakon's specialization.
Rakon has been and will always be driven to remain at the fore-front of the
highest quality timing synchronization products. With our global spread of R
and D and production we are determined to ensure that we will maintain this
leading edge of quality and always at a competitive price for that quality.
So in summary the last 12 months have not been easy and we are going to have
to work very hard this year to achieve the results we want. Those efforts
won't necessarily bring all of the rewards in this financial year as our
goals are long term; growing the business into a long staying very profitable
We are confident that we have our strategic direction is right, our
investments required for solid growth in place and our team is now beginning
to perform around the world toward a level that will allow us to maximize the
returns we require.
Everything is beginning to connect wirelessly and we are confident that
worldwide manufacturers of products and networks wanting to take advantage of
this growing "wirelessness" will require Rakon's people and product expertise
to help them solve their problems and stay at the leading edge of their
Naturally we will have to fight for market share with global competitors but
we are well positioned and emotionally ready to sustain those challenges and
fight for what we want in new and emerging markets.
In closing I would like to thank our team of dedicated people around the
world who work hard to deliver the results your Directors expect, and to you
our shareholders for your continued interest in the business.
I would now like to hand over to our Managing Director Brent Robinson.
Managing Director's Address
Good afternoon and welcome to Rakon's third annual shareholders meeting.
I'll start by making some comments about our current business performance
then move to an update on the growth of GPS and the strategic direction of
As Bryan noted, weakening consumer and commercial markets have impacted our
business in the YTD and we do not see this abating in the near term.
From NZ we now expect sales volume for the current financial year to be
approximately 20% ahead of FY08. We have retained our leading position with
our large customers who are still growing strongly although at a slower rate
than previously expected. Sales growth from our smaller GPS customers is less
robust, pulling the overall growth rate down.
Our UK business is performing very well. This business is centred around the
Pluto based product - its comparative cost and performance is such that
growth continues to be steady into a range of applications. Overall sales
volume in the YTD is slightly up on the same period last year but product mix
is much improved with a higher proportion of Pluto sales delivering higher
than expected earnings. Orders continue to be steady and we expect a good
result for the year.
Our Indian JV is now operational and volume will begin to ramp up as products
are re-qualified from this new facility as required by some of our customers.
By the end of FY09 we expect to have largely completed this process. Most of
the first half production has as planned been manufactured in France but
demand has been below expectations. In some respects this is fortunate as it
has corresponded with the equipment transfer from France to India, but it
does mean aggregate financial results from this business will be below
expectations for FY09.
The recent severe softening in the NZ$ provides a good offset to the slower
than expected markets. As mentioned by Bryan, our recent practice of
maintaining cover at the low end of policy limits mean we have been able to
take the opportunity in recent weeks to increase the near term cover to our
policy midpoints. Accordingly we now have 60% of the balance of FY09 covered
at an average rate of 72 cents.
Broker estimates for Rakon's FY09 result are currently in quite a wide range.
At the EBITDA level the range is NZ$23.5 to NZ$34.4 million. As we have
previously explained movements in the exchange rate impact significantly on
our earnings. Given exchange rates recorded in the YTD,
Rakon's forward cover position on the US$/NZ$ and assuming an average spot
rate of 68 cents for the balance of the year, we expect to realise an average
rate of just over 72 cents for the full year. On this basis and based on our
current assessment of markets we expect FY EBITDA to fall near the middle of
the brokers range and for second half earnings to be stronger than the first.
Demand for TCXOs used in GPS continues to increase with many applications
still emerging, however with this swelling market also comes increased
competition. Our team in NZ has worked hard to develop new products of
smaller size, lower cost and higher performance at the same time improving
productivity. This has resulted in excellent market retention and has Rakon
well positioned to capture the expected significant increases in future
Personal Navigation Devices still account for the majority of GPS related
sales and we expect growth in this sector to continue in spite of a weakening
We have seen an increasing demand for TCXO's used in GPS enabled cellphones
and now expect this market to grow rapidly over the next 3 years.
Rakon's track record and product roadmap mean we have strong engagement at
many levels with the industry leading manufacturers and chipset manufacturers
to ensure we capture a share of this opportunity.
Beyond personal navigation devices and other traditional uses of GPS, there
are many new and exciting markets emerging such as location based services
for cellular phones, Geotagging pictures and synchronized network timing for
Femtocells. Rakon is investing significant time into these opportunities as
we consider these GPS applications will all help generate demand for our NZ
business for many years to come.
Since listing Rakon has significantly broadened its product range and
markets. In addition to our leading position in GPS developed over many
years, we now are well positioned in telecom infrastructure, aerospace and
emerging wireless markets. We have further strengthened our manufacturing
capability here in NZ as well as expanding it globally.
Our UK operation with its advanced design facility and manufacturing plant is
capturing the majority of the emerging femtocell market. This market is
expected to grow strongly over the next three years. Rakon UK is also
benefitting from the growing demand of high specification TCXO's required for
emergency location, military and aerospace applications.
Our JV in India with Centum Electronic marks an important step in our bid to
become the world leading supplier of Frequency Control Products into the
Telecom infrastructure market.
The French operation will continue to design and develop world-leading
Oven Controlled Crystal Oscillators (or OCXOs). They will also continue to
manufacture high specification SC crystals and very high specification
OCXO's used in military and space applications. The lower specification,
higher volume OCXO's will be manufactured in India. The platform we have
established in India provides us with not only a low cost manufacturing
environment but also access to a massive growing market and a new resource of
skilled engineers so that we can continue to expand our portfolio of products
and grow the business significantly and profitably.
As previously noted we expect demand for our GPS related products to grow
significantly, obviously this requires increased manufacturing capability and
the need for expansion. Recently we announced the formation of our JV in
China called Rakon Crystal (Shenzhen) Ltd, or RCS with the shareholders of
Timemaker. RCS will specialize in the mass production of high spec TCXO's and
crystals needed for GPS and cellular phones. A fact that has perhaps been
overlooked is that not only have we formed the JV to manufacture high spec
TCXOs and crystals but at the same time we also acquired a 40% share of
Timemaker's existing profitable business.
One of the key elements of a GPS TCXO is what is referred to as the crystal
blank. This is a very small piece of quartz crystal that needs to be
meticulously cut and shaped with exacting precision. This is the most labour
intensive process of making crystals and one that is not easily mastered.
Timemaker are the world's leading quartz crystal blank manufacturer producing
over 50 million blanks per month. They are a proven key supplier to Rakon and
to our competitors.
We are now in the final stages of designing a new manufacturing facility in
Shenzhen that will house both RCS and Timemaker. This facility should be
complete and in production by the end of next year.
The JV approach into India and China has allowed Rakon to move with speed
into some of the most rapidly growing regions and markets in the world. This
coupled with our outstanding IP and innovation from NZ, UK and France
positions Rakon exceptionally well to service these opportunities.
Thank you Ladies and Gentlemen
Rakon Limited have provided NZX with the Annual Shareholder Meeting 2008
presentation. A copy of the presentation can be requested by e-mailing
End CA:00169963 For:RAK Type:MEETING Time:2008-09-11:14:00:18