REL: 1328 HRS Rakon Limited
MEETING: RAK: 2017 Annual Shareholders Meeting - Chairperson's Address
17 August 2017
Rakon Limited (NZX:RAK)
2017 ANNUAL SHAREHOLDERS' MEETING - CHAIRPERSON'S ADDRESS
Fellow shareholders, thank you for your attendance today and your ongoing
interest in Rakon.
The last 12 months have been a year of significant change and the achievement
of important milestones.
As you can see the Board has three new Directors replacing three who departed
over the past twelve months. Also, this ASM is Rakon's Founder, Warren
Robinson's last meeting as he retires today and is not standing for
re-election. Warren started Rakon 50 years ago on April 4th, 1967 and
deserves considerable credit for building a company such as this.
Yes, it's had some tough financial times in the last few years but its
research and development, and its products spread throughout the globe have
revolutionised, timing, GPS and the telecommunications systems in every
country around the world. Something he can be very proud of and we as Kiwis
should be too.
Companies built on solid foundations will last lifetimes and survive the
volatility of markets. I believe Rakon to be such a company and to only judge
it on a very small period of its life is tough, but I understand the impacts
of being a listed company and as fellow shareholders we are sympathetic to
Thank you Warren, for your foresight, energy and ongoing support.
It is also very important to recognise Mrs Robinson for her energy and
support over the past 50 years. Marjorie-Susan a huge thank you.
That belief about the inherent strength of Rakon is obviously shared by
others as we received a good number of high quality candidates in our search
for directors at the end of last year. This search allowed us to appoint
Lorraine (Witten) and Keith (Oliver) in casual roles to be voted on today.
Also, no doubt Tony (Tseng) and Siward saw the future value too when they
provided USD 10 million in return for 38 million shares and a technology
transfer agreement. Tony has a wealth of global experience and is another
causal appointed Director to be voted upon today.
Tony's attendance at our Board meetings is usually undertaken by Roger Yao as
Tony's alternate. Roger is Siward's North America Director and has a better
command of English. You will hear from both of them later today.
Earlier this week we made an announcement about our expectations for this
fiscal year and you can see from that release that the hard work the team has
completed over the past two years is now starting to pay off. I said in my
Annual Review comments that "one swallow doesn't make a summer" but the
positive feeling within the company at the moment is built upon sensible and
solid change, which should see us return to a growing profit path.
That sensible and solid change, which among other things has delivered;
1)An 18% reduction in core operating expenses;
2)An enhanced focus on the areas of business opportunity;
3)Strong new product development that should see us in good stead for the
4)A strong partnership with Siward, our new cornerstone shareholder;
5)A stronger balance sheet including a significant reduction in net bank
debt, which will likely be about only $3 million at the end of September.
In this week's announcement, we forecast an Underlying EBITDA range for
FY2018 of between $9 million to $11 million. This includes an estimate of a
$2 million loss from our start-up investment, Thinxtra, which if backed out
would see a forecast of range of $11 million to $13 million for core Rakon
business, a significant improvement over the prior years.
Thinxtra shouldn't be a drag on Rakon's reported profit for long as it is in
the closing stages of its series B, and likely, last capital raising. This
round is raising AUD $20 million with a significant Australian Government
Institutional investor in the final stages of signing to take AUD $10 million
of the AUD $20 million. The post money value of Thinxtra when the round
closes will be AUD $66.2 million and Rakon will own 23% of the equity. This
will value Rakon's shareholding in Thinxtra at 2.6 times what we paid at
around AUD $15.50 per share and we have 984,000 shares. This will naturally
add to the value of Thinxtra within Rakon's balance sheet but will only yield
a reportable profit if ever we sell some of the shares.
Rakon's involvement in Thinxtra is already providing very useful information
about the IoT (Internet of Things) space and will allow Rakon inside
knowledge that not only allows us to understand the Sigfox network system
that Thinxtra uses, but the competing networks of LORA and NB-IoT. Rakon can
build modules for all three IoT networks on a global basis.
Both of those other networks are beginning to arrive in Thinxtra's areas of
Hong Kong, Australia and New Zealand, all of which is anticipated. Their
arrival through the larger Telco's no doubt brings competition that we are
ready for, but it also drives an uplift in the market opportunity for machine
to machine (M2M) communications. This coming market is huge by comparison to
existing data networks, albeit at much lower prices. This is fine for
Thinxtra as an insurgent and a dedicated IoT network provider.
We see sufficient room in the growing and very large market for all the main
participants to earn a reasonable return on their investments.
By way of background, Thinxtra's network has 70% of Australia covered, 90% of
New Zealand covered and Hong Kong is going live next week with its first base
station in a science-tech park that hosts 400 leading Asian Hi-Tech
companies. The full roll out of Hong Kong will begin in October.
Thinxtra has 1.8 million committed connections for the network providing
committed revenue of close to AUD $20 million over the next 8 years. Within
its sales pipe line Thinxtra has just over 50 million anticipated connections
across Australia and New Zealand which should generate around AUD $300
million in revenue over the next 8 years.
Some very interesting customers are signing up to use the Thinxtra network;
o Sydney based Water Group with 8 water utilities already using the network.
o In Auckland Kordia has arranged for Auckland Transport to connect school
o Silicon Controls, an Australian company has started using the network for
information from gas storage bottles throughout Australia and is about to
launch in the USA. Once they do that Thinxtra will get 15% of the global
network revenue (plus local territory revenue) via the Sigfox global network
That is all very positive news about Thinxtra, but it is important to remind
ourselves that over the past 2-3 years the Rakon team has been working very
hard to restructure and re-direct the company. A few years ago when we
established a plant in Chengdu, China we were Apple's major supplier of
TCXO's and our plan was for significant growth from that relationship. We
knew we had to reduce our manufactured costs to keep that relationship, hence
the China factory. We estimated that we had to be as low as 10% off the price
we were charging at the time and the time to get to that point was short. The
reward for this investment was around another $30+ million of Underlying
EBITDA so it was worth the significant effort required. We achieved all our
price-downs in the timeframe set but unfortunately the gradient of price down
was much steeper than we anticipated and the prices ended up not at 10%, but
less than 5% of the opening prices. We couldn't make money there so we sold
out, yes at a loss but we got back a considerable amount of money, USD $18.8
So, a very unpleasant experience but as we all know everyone learns from such
difficult times and the team at Rakon is no exception. There is a
determination to never return to those difficult times and as you now see
they have the company in a positive shape going forward. Something I believe
they can take some pride in.
With Rakon moving forward; a new strategic plan, a stronger balance sheet and
a refocussed team, I would like to think that this will lead to much better
returns for us all as shareholders. Naturally we will always encounter some
market challenges, but I firmly believe that Rakon is now much stronger both
financially and mentally to deliver for the future.
Thank you and I now hand over to your Managing Director, Brent Robinson.
- Chairperson's Address ends -
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:00305698 For:RAK Type:MEETING Time:2017-08-17 13:28:28