REL: 1433 HRS Rakon Limited
ADDRESS: RAK: RAK - Annual Meeting Addresses from the Chairman and MD
Rakon Limited ASM 14 August 2009
Addresses by the Chairman and the Managing Director at Rakon's ASM held at
2pm, 14 August 2009 are shown below:
Welcome to our fourth Annual Shareholders' Meeting it's a privilege and a
pleasure to address you as joint owners of Rakon Ltd.
Your Company's financial results for the year ending March 31st 2009
reflected the very difficult global economic conditions, delivering an EBITDA
of $18.5m which was close to most commentators expectations.
Also, importantly the operating cash flow generated was $16.6m, highlighting
the team's good control of assets and costs.
Rakon has a very clear strategy for significant growth over the next 5 years
in two very broad directions. GPS based products and Telecommunications
Infrastructure. In both those wide marketplaces significant growth and change
is beginning with Rakon being built into almost all the key opportunities.
We will see the beginnings of this trend in this financial year; but the
lead-times from testing, approving and specifying our chips until final
products hit the market, can take up to 3 years. Consequently we will only
see the beginnings of the revenue growth in this fiscal year and much more in
the next fiscal year.
Within our traditional GPS markets we have been under price pressure both at
the retail level and from our Japanese competitors discounting to try and
gain share. As I mentioned last year we have to remain competitive and have
largely met their prices where necessary. This has impacted upon our
profitability which we will mitigate with new advanced products under
development for this space and for the growing mobile phone business.
As GPS is now migrating into mobile phones, a category the market calls smart
phones. This is expected, next year, to represent just over 10% of all 1.2
billion mobile phones produced annually. We would expect this migration to
continue until almost all mobile phones have a GPS in them, just like most
mobiles today have a camera.
GPS in phones will have more uses than just checking your location on a map.
For instance it will allow the network providers to know where you are and
offer different price plans for different locations, the GPS in you phone can
enhance social networking e.g., know here your friends are and vice versa.
And so the applications will develop and as has happened with SMS and other
applications, the users will develop smarter and more advanced uses that will
drive demand for better functionality and speed. A shift that plays into our
hands as the technology leader in this space.
Perhaps calling 'mobile phones', phones is now a misnomer when they are
largely mobile data devices as we receive and send e-mails, surf the net
store information etc on them.
This enhanced 'wirelessness' as I mentioned last year is driving significant
change in the other part of our business, as countries try to rapidly roll
out fibre optic cable or wireless networks to keep up with the ever
increasing demand for better and faster data communication highways. Rakons
OCXOs, VCXOs and High level TCXOs are an integral part of this new
development in most countries now.
In the Shareholders review we sent you in June there is a very useful chart
on page 19 which explains very simply where all our products fit into the
various marketplaces, their value volume and performance relationships and
where they are manufactured.
This chart also highlights our business plan in a very simple form and as I
have said previously all those plans are now beginning to gain traction.
Our manufacturing facilities around the world are producing very well and the
capacity constraints we had in France have now largely been overcome with the
integration of our JV in India. We expect the aggregate of this business to
become profitable on a run rate basis in the latter part of this year.
Our current JV in China with Timemaker is performing well with sales volumes
reaching new highs and profitability good. Timemaker will be our partner as
we continue to expand in China and move more of our high volume manufacturing
to that part of the world.
So all of this looks very good for your company as our planning and
opportunities meet, but as I have said we will be unlikely to see much of the
benefits of those outcomes in this financial year.
Rakon's manufacturing platform is geared up to handle a return to the
previous volume growth path and consequently we will have to endure a year of
uncertain and potentially modest results before the better profits flow.
Frankly I am not too concerned about this as I know the positive benefits of
the future plans and the current engagements we have in place with
significant market makers in most companies around the world.
In closing there is one subject I must touch on rather strongly as a New
Zealander and Business man fully invested in companies here - that is the
subject of the New Zealand Dollar.
As New Zealanders we are looking for an export led recovery to get us out of
our current malaise and build a base for sound future economic growth. This
desire is predicated upon the belief that such a recovery will be from a wide
range of products to diverse markets, balancing our reliance upon traditional
While exports will go to many markets the dominant theme is that prices are
largely delivered in US dollars.
Unfortunately the USD is not currently in favor globally and that weakness is
translated into a strong Kiwi someway above our long run mean, at a time when
counter-intuitively the New Zealand's economy is at a low point.
Naturally all exporters would like the Kiwi to be lower, but from a planning
and investment perspective the enhanced volatility we have seen over the past
year ($0.80 to $0.50 and now $0.67) makes it doubly difficult to make sound
strategic decisions about the future.
Overseas traders profit from playing with our currency and they do so partly
because as a nation we borrow so much off shore for non export producing
assets, such as investment housing.
There has to be a way we can selfishly bring some stability to this see-saw.
I have no instant pudding answer but I do know that what we are currently
doing isn't working and we need to urgently re-examine our goals and find new
and New Zealand focused solutions. We are happy to help if required.
In summary Rakon is in good health strategically, all our operational points
are performing well and gaining constant improvement.
We will have to endure another year of modest results but following that we
should be able to look forward to an upturn based upon growing markets and
our strong presence in them.
Before handing over to our Managing Director Brent Robinson I would like to
pay a big tribute to him and his world wide team for the large contribution
they have made over the past year. It's never easy staying positive in the
midst of continual economic challenge and they have done that, kept the new
ideas rolling and the plans moving. Thank you Brent and your team.
Ladies and gentlemen thanks for your attention and now over to Brent.
Managing Director's Address
When I spoke to you at this time last year I highlighted that weakening
consumer and commercial markets were impacting our business. Of course the
events that then unfolded in October and November last year impacted on not
only Rakon, but also on just about every other business in a far more drastic
manner than anyone could have anticipated.
However, twelve months on the level of demand across all parts of our
business has returned quite quickly. Sales volumes are equal or greater than
the levels we saw this time last year, before the economic crisis took hold.
There are divergent views on the sustainability of the recovery so far and
how the next few years will play out. Whilst I am personally cautious, what
is most important to Rakon and to you as our shareholders is that in our
markets we have some unique features which provide Rakon real growth
opportunity, and are to some extent immune to the broader economic
As you know Rakon is the world's leading supplier of TCXOs for GPS
applications. The growth of our company over the past decade has been based
on the emergence of GPS into consumer applications, such as personal
navigation devices, which has grown to a market size of around 40 million
units per annum.
We are now beginning to see the much anticipated move of GPS into the phone
market and volumes are beginning to grow significantly. Independent reports
project that in 2009 sales of mobile phones incorporating GPS will exceed 135
million units, which is 12% of the projected total sales of mobile phones.
By 2014 annual sales of phones incorporating GPS are predicted to exceed 750
Clearly this is a massive market opportunity and one that will be, and
already is, very competitive. Initially we faced some reluctance from phone
manufacturers to bring Rakon in as a supplier, as most of them have active
programs to minimise the number of suppliers they deal with. However phone
manufacturers have learned quickly that achieving good GPS performance in a
phone is not so easy and recently we have had significant opportunity to
pursue business in this area.
The GPS phone market is demanding in terms of technology and in terms of
pricing - it is not enough to have just the best technology. We are ready
for the challenge to secure a significant piece of this market, and we are
confident of selling material volumes in the second half of this financial
As you know in 2008 we completed an investment in Chinese company, Timemaker
who supply the quartz blank used in the manufacture of our crystals and TCXO
products. Timemaker's business was also very subdued in the period from
December to April 2009, but is now performing strongly again with sales
volumes in recent months actually ahead of the same period in the prior year.
As the Chairman noted, in partnership with Timemaker we see more of our high
volume manufacturing moving to China over time.
Whilst GPS in the phone is as huge market new applications continue to emerge
for the GPS function. Over the past 6 months we have seen the emergence of
GPS as a feature in laptop and net book computers. A net book is essentially
a low cost laptop targeted to users whom primarily use their computer for web
surfing and email. A net book is also generally smaller in size than a
laptop making it more portable and therefore suitable for inclusion of GPS
navigation as a feature.
In addition to the significant GPS growth opportunities we are also
successfully growing Rakon's share in the telecommunications sector. This has
been achieved on the back of products that are targeted for new applications,
such as wireless communication and fibre optic networks - which help enable
fast broadband networks so important in today's society.
OCXOs designed in France and manufactured in our Indian JV, and TCXO's based
on our proprietary Pluto IP manufactured in the UK, provides Rakon with a
unique combination of leading product performance at a very competitive cost.
Demand for Rakon in this market has continued to grow steadily despite the
global economic issues. Our customer base has expanded and we expect this to
continue as customers recognise the value of our solution which combines the
experience and expertise from our French engineering group, and
competitiveness of our manufacturing base in India, which is producing
consistent, high quality OCXOs.
Our Pluto based TCXO was designed several years ago by our engineering group
in the UK. In the past year we have introduced new proprietary manufacturing
technology from NZ into our UK manufacturing operation to enable us to ramp
quickly for projected demand increases, particularly from the femtocell
market. We have also established manufacturing capability for this product
in our NZ facility to provide a dual source supply for our customers.
The femtocell market is one that we have invested significant amounts of time
into over the past few years. In simple terms a femtocell is the home
equivalent of the cell phone towers you see as you drive around the city.
The benefits to the user are excellent reception with very high data rates at
minimal cost as your phone locks into your own home network. Femtocells also
benefit the network providers significantly with lower investment
requirements to expand and improve their networks, less backhaul traffic to
pay for and an opportunity to control the broadband data plan for the
To further strengthen our presence in the telecommunications market we have
been developing a VCXO product range in partnership with our Indian JV.
VCXOs or voltage controlled crystal oscillators are another key component in
telecoms hardware - our expertise in TCXOs and OCXOs made this an attractive
segment of the market for Rakon to target. We have begun to ship sample
volumes from NZ and expect to move into volume production in calendar year
As I noted in our letter to Shareholders, I am confident Rakon is well placed
to reap the rewards of our continued endeavour and investment. We have an
excellent and world leading product range and a competitive manufacturing
base, underpinned by innovative technology. Our team is focussed on
continuing to grow Rakon and I appreciate their skill and commitment, which
is significant. I look forward to meeting you at the conclusion of the
End CA:00183499 For:RAK Type:ADDRESS Time:2009-08-14:14:33:14