NOT PRICE SENSITIVE
REL: 1341 HRS Rakon Limited
ADDRESS: RAK: 2016 ASM - Chairman's Address
16 September 2016
Rakon Limited (NZX:RAK)
2016 ANNUAL SHAREHOLDERS' MEETING - CHAIRMAN'S ADDRESS
Fellow shareholders, thank you for your attendance today and the active
interest you have shown in Rakon's performance and future. You have signalled
a strong desire for change, motivated by the belief that such change will
improve the fortunes of this business that we together own.
As I mentioned in my letter to you of 18 August, over the past year or more
the Board has vigorously debated a number of areas of change required to
improve Rakon. The key subjects being: the composition of the Board, the
strategies to enhance the profit performance and the urgency required to
become consistently profitable, providing value growth and a dividend for all
Change is very easy to suggest, but as I'm sure you all understand, a lot
harder to implement. You need to ensure it enhances value rather than
destroys it. The culture of any organisation is paramount and any adjustments
need to be handled with care to ensure that all stakeholders - our team, our
customers, our suppliers, our bankers and of course our shareholders - are
all treated with appropriate balance.
We respect and fully understand the energy shown by the New Zealand
Shareholders' Association (NZSA) to represent their views of the company's
situation and the changes they believe are required to enhance value for all
shareholders. Naturally we won't agree on everything each other says, but we
value theirs and your rights to a democratic process, as you voice your
opinion either through correspondence or voting as to what should change and
what we should take note of.
Rakon has performed well below expectations over the past 5 years and while
we thought fiscal year 2015 was the beginning of a sustainable return to
profit, it wasn't. As Directors and senior management of Rakon, we accept
responsibility for these inadequate results.
Many things have been said and reported, some correct and some incorrect. A
major point that needs correcting, concerns the income of the Managing
Director and the Sales and Marketing Director. In 2012 the Board introduced a
self-imposed freeze on all Directors' fees and included the remuneration of
the executive Directors within that freeze. The remuneration packages of the
executive Directors and other senior managers consists of their base salaries
plus bonus entitlements based on performance targets. The return to after tax
profit in fiscal year 2015 triggered those entitlements and bonuses were paid
during the 2016 year after approval by the Board. Their base salaries remain
frozen as have all Director's fees. I recognise that others will say "well
they received more money - therefore they weren't frozen!", however in the
strict sense of our contractual arrangements with them they were. The
non-executive Directors' fees will remain frozen and any change will be a
subject for a new Board to consider in the future.
As I mentioned in my 18 August letter to shareholders, the executive
Directors' remuneration packages have been under review. I can announce today
that as a first step, their base salaries have been reduced by 12.5% and
there will be no bonus entitlements for this fiscal year. This will reduce
the income they receive by 28% compared to what was detailed in our 2016
Annual Report. This review is ongoing to ensure market parity with similar
global organisations from the start of FY2018.
As you are aware Rakon is a component supplier, (like providing grapes or
corks to a winemaker) and despite our market leading technology, is generally
at the mercy of our customers and the activity within their markets. The
ability we have to drive volume demand is very limited given our position
within the supply chain. For the last twelve months or so, there has been
significant change within our customers' ownership structures and to their
base markets which has made it very difficult for Rakon to grow its profit.
Earlier this year the Board reacted to this market climate and approved a CEO
led initiative to reduce operating costs by 20%. This activity will be
completed by the end of this fiscal year. The consequent reduction in costs
will enhance next year's profit, but as the costs of change need to be
considered in this year, the overall impact on FY2017 is minimal.
No matter the outcome of today's Directors' elections, suitable new Directors
will be introduced to the Board. The number and timing will depend upon the
candidates and the speed of the process. It is important to note that none of
the existing Directors is opposed to this change and supports such change
that is positive and value enhancing for all shareholders. We intend seeking
the names of good candidates from major shareholders and the NZSA.
I mentioned in my August letter, that if re-elected today I won't be seeking
another term and will remain to ensure proper change to the governance, the
capital structure and profit of Rakon. I can also inform you today that
Rakon's Founder Warren Robinson, has told me that he intends to retire before
next year's Annual Shareholders' Meeting and consequently won't be seeking
another term as a Director. As I mentioned in my August shareholder letter,
Warren deserves to retire with dignity. I feel confident that some years from
now, Rakon's current difficulties will be well behind it and largely
forgotten; people should be able to look back then with pride on what Warren
began nearly half a century ago.
So in many respects this is a watershed meeting and change is a major focus.
Besides the Board structure, strategy, cost reductions, we are always alert
to global changes within our industry that could provide quality capital and
strategic partners for Rakon. Over the past year we have had a few
discussions in this vein, with nothing yet materialising that we feel would
be value accretive for all shareholders. We will continue to remain alert to
global opportunities that will enhance the long term value of Rakon.
Rakon is not new to change with our senior team having made many adjustments
to reduce costs and enhance margins. For instance, two years ago they
successfully shifted our UK activities to New Zealand generating a
significant enhancement in gross margin. We will always be open to change
that enhances value for all stakeholders. We want Rakon to grow recurring
after tax profits and pay a regular dividend.
Finally, we like most people don't particularly like being told off in
public, but given our roles as Directors we accept such rebuke goes with the
territory and accept the reprimands. I can ensure you that we understand and
respect your points of view, and no matter the voting outcomes today the
Board will be working as hard as possible to get Rakon delivering more for
- Chairman's Address ends -
Chief Financial Officer
(09) 571 9206 / 027 898 7899
Rakon is a global high technology company and a world leader in its field.
The company designs and manufactures advanced frequency control and timing
solutions for telecommunications, global positioning and space and defence
applications. Rakon products are found at the forefront of communications
where speed and reliability are paramount. The company's products create
extremely accurate electric signals which are used to generate radio waves
and synchronise time in the most demanding communication applications. Rakon
has five manufacturing plants including two joint venture plants and has five
research and development centres. Customer support centres are located in ten
Rakon is proud of its New Zealand heritage; it was founded in Auckland in
1967. It is a public company listed on the New Zealand stock exchange, NZSX,
ticker code RAK.
Louise Howe (Media Liaison)
+64 21 2060985
End CA:00289200 For:RAK Type:ADDRESS Time:2016-09-16 13:41:36