RAK
12/09/2014 13:25
ADDRESS
REL: 1325 HRS Rakon Limited
ADDRESS: RAK: 2014 ASM - Chairman's Address
12 September 2014
RAKON LIMITED (NZX: RAK)
2014 ANNUAL SHAREHOLDERS MEETING - CHAIRMAN's ADDRESS
Fellow shareholders, welcome to this the 9th Annual Shareholders Meeting of
Rakon Limited. This meeting is for the shareholders and provides an
opportunity for you to question the Board and senior management about the
business and if necessary improve your understanding of the firm's results,
plans and strategies. There will be an opportunity during general business to
ask any question you wish about Rakon, or if you prefer, the Directors and
senior team will be pleased to talk to you one-on-one after the meeting.
Last year at this meeting, shareholders overwhelmingly agreed (99%) to the
Board's recommendation that we sell an 80% equity stake in Rakon Crystal
Chengdu (RCC) and remove ourselves from the smart wireless device component
market (SWD), that our Chengdu factory was targeted at. It was a very wise
decision as that market has become even more difficult and our exit was very
timely.
The senior team did an excellent job in arranging that transaction and
completing the sale.
With the sale of RCC underway and the change in focus for Rakon to the
growing and more profitable Telecommunications' market, the Board kept the
pressure on the senior team to generate further efficiencies that would build
an even stronger platform for future profit growth. That pressure has brought
about significant reductions to the personnel employed worldwide by Rakon
with the notable planned closure of the United Kingdom factory, shifting that
production to New Zealand, and the sped up transfer of Oven Compensated
Crystal Oscillators (OCXO's) production from France to our Joint Venture in
India. The resultant redundancies were significant with over 210 personnel
being made redundant (or not re-employed) at a cost of $7.2million. These
redundancies and costs do not include those made as a result of the exit from
RCC, and that have been well telegraphed to the markets previously.
Reducing the number of people in our global team, is not something the Board
likes to do, but as with all businesses there are times when the difficult
decisions need to be made to ensure a transition to a more favourable growth
path.
The financial result for last year, as I am sure you are well aware, was an
after tax loss of $83.8 million, of which $79.4 million was attributable to
Rakon's shareholders, with the balance belonging to non-controlling
interests. Of the total, $63.8 million was from non-cash charges resulting
from the Rakon Crystal Chengdu loss on sale, exit from the smart wireless
device market and other impairment charges including goodwill.
Analysing the results more deeply, the reported Underlying EBITDA loss of
$7.5 million included total restructuring costs of $10.4 million, which meant
that the business operations produced a positive Underlying EBITDA of $2.9
million. Not a great result, but importantly a positive one.
Our guidance for this financial year (that we provided to the market some
time ago) is to improve on last year's result and generate an Underlying
EBITDA of between $10 million and $15 million. We remain confident of
achieving this - showing that Rakon is on track to return to profitability.
As I mentioned previously, we have made significant changes to our business
in both France and the UK.
Changes in France will significantly reduce costs by concentrating the OCXO
manufacturing at our Joint Venture in India (Centum Rakon India) where costs
are much lower and quality is not compromised.
For the UK, we will have completely closed our manufacturing facility (at our
Lincoln plant) by the end of October, with all production being shifted to
New Zealand. This move creates further operating efficiencies and positions
us well to make further adjustments to ensure our manufacturing costs and
quality are at the leading edge of the business we supply globally.
Despite all this necessary disruption and change, Brent and his team have
been steadily growing the business and gaining market share in new and
important market segments. Most of this growth is driven off the back of the
growing global demand to handle more data traffic and the mobile network
evolution into 4G. Brent will talk more about this in his address, but what
we have been signalling and planning for over the past 2 years is now gaining
momentum and Rakon is well placed as the market leader, in both technology
and volume share to capitalise on this growth.
Interestingly, all this disruption and change has added a new energy to the
senior team at Rakon, being more determined than ever to produce results that
they know the firm is capable of and yet has fallen well short of over the
past few years. As well, the very competitive market environment in the SWD
market and the fight against an overvalued Kiwi dollar has made us stronger,
more resilient and determined to succeed. With the Kiwi weakening over the
past month it does assist our profit goals, but it won't allow us to reduce
our energies and efforts to generate the return that we are confident Rakon
can deliver.
Our balance sheet ended the financial year in good shape with only $6.4
million of net debt and an asset base that is capable of supporting the
business growth anticipated. We expect the debt to rise by about $10 million
as we pay for the remaining restructuring changes mentioned, but anticipate
this being repaid as we realise proceeds from the sale of surplus properties
in both France and the UK.
In summary, it has been a very busy year where we have accomplished all the
strategic tasks we set ourselves and as a result we have been able to
restructure and realign Rakon. We believe that Rakon is well positioned now
to take advantage of the market growth we have anticipated and are now seeing
in our customer's order books. We expect this market growth to continue over
the next few years keeping pace with the constant demand for data and
improved networks to handle this growth.
Last year I stated that, "The Board is unanimously determined to ensure that
Rakon's future is about solid profit growth, little or no debt and as soon as
possible to start to pay a dividend to shareholders from the business's cash
flows." That determination still exists and we feel confident that the
changes made this year will get us a few steps closer to those goals.
To you as shareholders I would like to thank you for your patience with
Rakon. It has not been an easy journey for all of us who own shares and the
pace of change never seems fast enough. Quartz crystal manufacture and the
creation of sophisticated frequency control devices involves very high tech
manufacturing processes that need dedicated equipment and facilities as well
as highly trained people who have many years' experience. Changing from one
market to another and locations is not as simple as completing a software
re-write, it involves much more and the significant adjustments required can
take at least 18 months as a minimum.
The senior team at Rakon have completed a first class job of realigning the
business well within that minimum time frame and as Chairman I would like to
thank them for their efforts in what they have and continue to achieve as we
move forward. That team is very confident of the future and believe that the
new growth path we have established will be achieved and provide the returns
that the Board and our shareholders expect.
I would now like to hand over to our Managing Director, Brent Robinson to
provide more detail about the markets we address and how our products of
today and tomorrow will provide those.
Brent .....
- Chairman's Speech ends -
About Rakon
Rakon Limited is a global high technology company that designs and
manufactures world leading frequency control solutions. Embedded in
telecommunications infrastructure, satellites in space, GPS products, smart
phones and tablets, our products are at the forefront of enabling
connectivity - faster and more reliably.
Disclosure of Non-GAAP Financial Information
Rakon has used 'Underlying EBITDA' as a measure of non-GAAP financial
information in this announcement and it is defined as:
"earnings before interest, tax, depreciation, amortisation, impairment, loss
on disposal of assets, employee share schemes, non-controlling interests,
adjustments for associates and joint ventures share of interest, tax &
depreciation, and other non-cash items."
'Underlying EBITDA' is a non-GAAP measure, with its presentation not being in
accordance with GAAP. The Directors present 'Underlying EBITDA' as a useful
non-GAAP measure to investors, in order to understand the underlying
operating performance of the Group and each operating segment, before the
adjustment of specific non-cash charges and before cash impacts relating to
the capital structure and tax position. 'Underlying EBITDA' is considered by
the Directors to be the closest measure of how each operating segment within
the Group is performing. Management uses the non-GAAP measure of 'Underlying
EBITDA' internally, to assess the underlying operating performance of the
Group and each operating segment.
The use of 'Underlying EBITDA' in this guidance announcement is a forecast
for FY2015 and is not from audited financial statements for the full year.
End CA:00255179 For:RAK Type:ADDRESS Time:2014-09-12 13:25:25
