REL: 1430 HRS Rakon Limited
ADDRESS: RAK: Rakon Annual Meeting: Managing Director's Address
Brent Robinson - Rakon Managing Director's speech - Annual Shareholders
Meeting - 7th September 2012
Good afternoon and thanks Bryan.
I will comment shortly on our strategic position but before I do I will recap
on our financial results for the previous financial year and the current
Our 2012 year EBITDA of NZ$13.1 million was below our target and expectation
we had when I addressed this meeting 12 months ago.
The most significant factor causing this was a slowdown in spending in the
Telecommunications sector. As you will know in the middle of last year the
economic problems of Europe grew and the forecasted US rebound was slower
than projected. As a consequence Telecommunications operators slowed their
investment in base stations, fibre and network equipment which in turn
reduced demand for our components. This impacted the results of our UK and
French businesses and our Indian Joint Venture. Importantly the reduction we
have seen is only market related; our position with existing and emerging
customers has over this timeframe strengthened.
In other segments of our business the contribution was mixed. Revenue
derived from the Smart Wireless Device market grew and margins increased as
we improved our product cost and product mix. High Reliability revenue and
earnings were up on the prior year and in line with expectations as we
benefitted from the contribution of a full year from the acquisition of Temex
made in the previous year. The now mature GPS Positioning market shrunk
slightly as expected due to a reduction in the sales of personal navigation
devices and slower demand for emergency beacon products. The contribution
from our Timemaker JV was down on the prior year as aggressive customer
behaviour squeezed margins.
The strength of the NZD continued to also have an impact on Rakon's results.
Gains realised from our hedging programme offset some of this impact but with
the NZ currency continuing to trade at sustained high levels there is real
impact on our earnings. Structurally the best means of managing this risk is
to diversify the manufacturing base into lower cost environments to both
improve margins and better balance the currency exposures. We have been
doing this in India and China and will continue to grow in these markets.
Whilst earnings were below our target, underlying revenue increased slightly
(up 4%) despite market conditions and improvements in working capital through
inventory reduction and improved terms of trade boosted operating cash flow
to NZ$7.9 million.
Viewed in isolation our recent results clearly need to improve. However it
is worth noting Rakon has continued to perform better than most of our peers
over the last 5 years. We are currently the seventh largest frequency
control products company in the world measured by revenue and I consider we
have an enviable platform, product range and team to strengthen our position.
In this context, over the last few years Rakon has continued its legacy of
product innovation. We have been focussed on providing products and solutions
for future generations of communications and positioning technologies and
without doubt we have industry leading solutions for all the sectors we are
For the Smart Wireless Device products where cost is so important we have
pioneered new technology using a crystal plus a sensor nearly halving the
cost of the frequency reference. Rakon has been intimately involved with
integrated circuit vendors developing specifications and key solutions. This
helped further strengthen our reputation as a key solution provider for
frequency control in this industry sector. This coupled with our state of the
art low cost manufacturing operation in Chengdu China has attracted world
leading phone producers from around the world and also within China to use
Rakon. Our market share in this sector continues to grow.
Our product innovation has also been strong for the Telco space. Since the
release of our Mercury product last year, a world first, we have continued to
develop derivative products and the many design wins we have had in next
generation networks has been outstanding. These high margin products will be
mass produced in both New Zealand and the UK in the near future.
In addition to the breakthrough Mercury product, we have also continued to
broaden our product offering to Telecom equipment suppliers with industry
leading products and specifications. These products have been all targeted at
next generation 4G networks and infrastructure. All leading equipment
providers have been quick to design these products into their new offerings,
the recent deal with Huawei being an example. These products will undoubtedly
continue to drive market share growth and although the Telco sector has
contracted this year, data growth will soon force Telco operators to invest
and I expect Rakon will certainly be a prime beneficiary.
In 2010 you will recall we acquired a French Space and Defence business
formerly called Temex. Over the past 2 years we have invested in expanding
our team with a strong focus on research and development and product
management to enhance the performance of our product range. Recently we
released a new Ultra Low Noise Oven Controlled Xtal Oscillator designed for
Radar applications with absolutely stunning performance and another world
first. This product has already been quickly picked up by the industry
clearly demonstrating the depth of knowledge and quality of our High
Reliability team. In this High Reliability sector we have also further
expanded our customer base in Space applications with new contracts to sign
with the Chinese Academy of Space Technology, here too I believe our product
offering will lead to substantial growth.
Before I close I would like to show you a few slides on some of our
operations around the globe.
(Presentation slide show starts showing photographs and facts about Rakon's
global manufacturing and design facilities.)
As you can see, we have built a world class design and manufacturing platform
to deliver sustained and secure earnings over the long term. As Bryan said
we did expect to be further ahead than we are now, however external factors
out of our control have influenced recent performance. I feel very confident
we have never been better positioned and we will continue our growth well
into the future and hence bring the returns we are all looking for.
End CA:00227050 For:RAK Type:ADDRESS Time:2012-09-07 14:30:06