REL: 1402 HRS Rakon Limited
ADDRESS: RAK: RAK - Annual Meeting Address from the Chairman
Rakon Limited ASM 2010: Chairman's Speech
Now that we are at the informative part of our meeting I would like to
encourage you to ask as many questions as you wish about the operations and
strategic plan of your company. I am especially keen that you go away from
this meeting with a better understanding of the business you own a piece of.
Often Annual Shareholder Meetings get diverted by people asking very detailed
questions about the accounts which can detract from the main purpose of the
meeting; which I believe is to hear about the business how it is travelling,
what are the plans and expectations for the future. If you have specific
concerns about the accounts that you want to air of course please do so but
also if you require detailed points of clarification then you may find it
more efficient to talk to one of the Team after the meeting and we will
happily explain anything you want to know.
Our results for the fiscal year ended March 31 this year show an after tax
loss of $5.4m with a positive EBITDA of $4.3m. Importantly the EBITDA for the
second half of FY 2010 was $7m ahead of the EBITDA for the first half of that
As you know this result was forced upon us by the Global Financial Crisis as
almost all of our customers adjusted to life under a new fiscal regime.
It's interesting to note that many businesses made considerable returns in
the heady years that preceded this crash and a large number of those are now
not with us or in such a state that they may never recover. The major reason
being that their strategies were flawed, so when everything is going up its
easy, when everything is going down you better have a plan that is based on
logic and identified customer demand for the present and the future.
As Warren Buffet once said "when the tide goes out you sure find out who's
Rakon has always had a plan, and that is; "To be the World's Leading Supplier
of Frequency control products, based upon a global design and production
platform that has the resources, drive, scale and scope, to stay ahead of all
In other words Rakon wants to be "The heartbeat of global communications".
Our Managing Director Brent Robinson will talk more about that following me,
and provide you with insights and an overview of our plans for the future.
While last year produced a financial result we don't wish to repeat, it was
something of a hiccough along our planned path, caused by factors beyond our
control. As you can see from the graph behind me of our EBITDA results and
aspirations we are moving back to our growth path that we pointed out when we
listed in 2006 and updated in more detail three years ago when we purchased
FCP in Europe.
During the last two years many firms have had to cut costs and team members
severely to survive, and to some extent we reduced team numbers and costs in
certain areas. But we also believe in our plan and know that during difficult
times is the right time to invest in both growth and R and D when our
competitors are not. So last year our R and D spend of $10.5m was the same as
the previous year, standing us in good stead for the future
Part of this money ($1.5 million) has been provided by the New Zealand
Government and we would like to recognise their support for a business like
Rakon and our place in assisting the growth of our Nation's economy.
Also during last year we raised $65m of capital to forge ahead with our
growth plan to build in Chengdu China. We raised this via the New Zealand
capital markets and to those investors who understand our plan and showed the
confidence to invest we again thank you, and have no hesitation in saying
that we know you will be well rewarded for that decision.
Mentioning reward and Rakon in the same sentence may have a hollow ring to
many of our shareholders and so I would like to mention a few points on that
There is no doubt that in the heady days pre the GFC that our shares got
overbought and driven to very high prices, but then so did most stocks. Now
we would argue that we have been seriously oversold as investors have moved
from growth stocks to income stocks.
Yes Rakon's share price has fluctuated, but our plan hasn't and its chances
of success have only been enhanced by the GFC and the global trends in Data
Distribution, i.e Communication. That age old demand that has migrated from
stone tablets to paper to the printed word to telephones to radio or TV and
now to mobile devices and the internet. The demand for more data, whether
voice, words or pictures is on a steep upward curve generating the need for
more and enhanced infrastructure plus devices to receive or send it.
You can see it right here in New Zealand with the Government's drive to lay
fibre optic cable to your homes and the number of people using I Pads, I
Phones and Blackberries.
Given our past and high market share in supplying the GPS market Rakon is
often thought of as a supplier to device manufacturers such as GPS, Smart
Phones and the like; and yes we do supply those firms and have a high market
share in all cases but since our purchase of FCP in 2007 we have broadened
our base and now have a very significant presence in supplying the
infrastructure/ data network markets. It is very important to understand this
because besides adding balance to our earnings potential the fiscal results
from the device market and the network market are quite different.
Both categories are forecast to grow very strongly (as can be seen by the
graph behind me) and they are naturally linked as more handheld devices
demand more bandwidth and therefore more and enhanced networks. However the
price pressure on our products is much less in the network business as our
components are critical and a very small percentage of the overall build cost
as opposed to the demands in consumer goods to constantly reduce the bill of
By way of comparison 3 years ago 80% of our profits came from devices and 20%
from high reliability, such as aerospace, whereas today devices are 40%, high
reliability is still 20% and the networks now represent 40% and growing.
In summary all these new and growing smart devices and their networks,
anywhere in the World must have as their heartbeat frequency control products
of very high specification, as made by Rakon.
Back to our shares; I've always seen the people who own shares as being
divided into two broad categories; shareholders and share traders. The former
are there because they know and understand the company and its plan and want
to gather the economic benefit that delivering on a sound plan will provide.
The Traders look to make money out of shares not necessarily the company,
they may be individuals who just buy and sell daily or institutions who have
to meet quarterly results targets for portfolio values. Although these latter
two are vastly different in form they both influence the short term price of
a share while the Holders are there for the long game and the economic values
that flow. Rakon has a very sound long game and that hasn't altered in fact
it has improved given the serious stress testing of the past 2 years. The
only thing that has altered has been our share price and while we would
prefer that to be more representative of the value in our plan we are
realistic about the world equity markets current status.
Rakon's Board of directors and team members own nearly 40% of the company and
have great confidence in our plans and future- We definitely eat our own
cooking. We are not driven by out share price, we are driven by our plan.
Frankly there is nothing unique about this consistency of purpose, another
firm I'm involved with, Mainfreight has a similar approach and while their
results currently far exceed ours it took awhile for Mainfreight to prove its
plan and for the market to accept its consistency of purpose. Mainfreight
began life 10 years after Rakon but listed on the stock exchange a decade
before. The graph behind me shows how long it took for the market to value
that plan and delivery of the same.
While discussing our shares I would also like to address the topic of a
dividend. At last year's Annual meeting I was asked when we would pay one and
I mentioned at the time that paying a dividend is out of line with our growth
aspirations and plan, and will remain so for a year or two. We have been
consistent about this position right from our prospectus when we listed in
However the board is also realistic about the source of the company's capital
and reviews the subject annually, aware that it is something we would fully
support when prudent.
In recent times there has been some publicity about the appointment process
of Directors with questions asked about females being appointed to Boards and
including a time limit on Directorships. I would like to address those points
now, in case such questions should arise today.
Rakon has a Director's appointments policy. We won't appoint anybody upon
racial or sexual bias and we only want the best people with relevant
experience who can enhance our Growth Plan; by contribution to and
questioning thoroughly our strategies and advising on proper corporate
governance. Our policy on time limits is not based upon some arbitrary time
but rather on the person's contributions and performance- so in simple terms
if they are not contributing then it's time to go and be replaced by someone
who can contribute more. We undertake regular performance reviews of the
Recently we purchased a very valuable company in Europe, Temex, for 400,000
euro. This is not a lot of money in the scheme of things but Temex provides
Rakon with significant leading edge technologies and access to markets that
we can grow which they couldn't. Also they have a very good senior production
and development team who add considerable experience and depth to our
existing European team. Brent will cover Temex in more detail in his
Regarding the outlook for our business this financial year, it looks positive
across all fronts and at this stage we believe we will be within the range
forecast by equity market analysts' of an EBITDA between $25 and $30 million.
I would now like to hand over to your Managing Director Brent Robinson and
before doing repeat my opening remarks inviting you, within the period of
General Business to ask as many questions as you like about the operations
and strategic plans for your company.
Thank you and over to Brent...
End CA:00199587 For:RAK Type:ADDRESS Time:2010-09-10 14:02:45