Rakon Limited (RAK) 2019 Annual Report
Rakon Limited
Annual Report 2019
2
2
Table of Contents
Directors’ Report _______________________________________________________________________________ 3
Statement of Comprehensive Income ______________________________________________________________ 4
Statement of Changes in Equity ___________________________________________________________________ 5
Balance Sheet _________________________________________________________________________________ 6
Statement of Cash Flows ________________________________________________________________________ 7
Notes to the Financial Statements_________________________________________________________________ 9
Independent Auditor’s Report ___________________________________________________________________ 52
Shareholder Information _______________________________________________________________________ 59
Corporate Governance Report ___________________________________________________________________ 63
Directory ____________________________________________________________________________________ 71
3
3
Directors’ Report
The Directors are responsible for ensuring that the financial statements fairly present the financial position of the Group as at 31 March
2019 (FY2019) and their financial performance and cash flows for the year ended on that date.
The Directors consider that the financial statements of the Company and the Group have been prepared using appropriate accounting
policies, consistently applied and supported by reasonable judgements and estimates, and that all relevant financial reporting and
accounting standards have been followed.
The Directors believe that proper accounting records have been kept, which enable, with reasonable accuracy, the determination of the
financial position of the Company and the Group and facilitate compliance of the financial statements with the Financial Markets Conduct
Act 2013.
The Directors consider they have taken adequate steps to safeguard the assets of the Company and the Group and to prevent and detect
fraud and other irregularities.
During the year the Company acquired the remaining 51% interest in Rakon India Private Limited for US$5.5m; prior to this Rakon India was
a joint venture. The Directors note that there were no other material changes in the nature of the business undertaken by the Company
and the Group in the past year.
The Directors present the financial statements set out in pages 4 – 51, of Rakon Limited and subsidiaries for the year ended 31 March 2019.
The Board of Directors of Rakon Limited authorised these financial statements for issue on 16 May 2019.
Financial results
Rakon Limited has reported a full year net profit after tax of $3.4m (2018: $10.0m).
Sales revenue for the year was $114m, up $12.9m or 13% on the prior year, with increased revenue across the telecommunications and
space & defence markets and decreased revenue in the global positioning market. Gross profit for the year was $51.7m, up $8.4m or 19%
on the prior year. Gross profit increased from the flow through of higher revenue; the consolidation of Rakon India’s operations from May
2018; and from the improved mix of business in products and markets. Operating expenses for the year were $47.3m, up $5.7m compared
to the prior year.
During the year, the Company moved from a net cash position of $7.4m at 31 March 2018 to a net debt position of $7.7m at 31 March 2019
with the acquisition of the remaining 51% interest in Rakon India and investment in inventory and equipment to meet growing demand,
predominantly in the telecommunications market. As at 31 March 2019, Rakon’s shareholders’ equity stood at $90.0m, funding 66% of total
assets.
The Board maintains a dividend policy, such that a dividend will be paid of up to 50% of the after tax profit, if considered fiscally appropriate
by the Directors. The Board has determined that no dividend will be paid for the year ended 31 March 2019.
Donations and audit fees
The Group made donations totalling $14,000 during the year. Amounts paid to PricewaterhouseCoopers for audit and other services are
shown in section B2 d) of the financial statements.
On behalf of the Directors
_______________________________ _______________________________
B Irvine BJ Robinson
Chair CEO, Managing Director
4
4
Statement of Comprehensive Income
For the year ended 31 March 2019
The accompanying notes form an integral part of these financial statements.
20192018
Note $000s$000s
Continuing operations
RevenueB2 a)113,985101,127
Cost of sales(62,317)(57,828)
Gross profit51,66843,299
Other operating incomeB2 b)1212,421
Operating expensesB2 d)(47,338)(41,626)
Other gains – netB2 c)7184,624
ImpairmentD1 a)-(120)
Operating profit5,1698,598
Finance income
D1 c)373
Finance costsD1 c)(571)(504)
Share of gain/(loss) of associates and joint ventureB4 b)839(1,915)
Net dilution gain on Thinxtra sharesB4 c)-4,815
Profit before income tax5,47410,997
Income tax expenseD1 d)(2,110)(998)
Net profit for the year3,3649,999
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Decrease in fair value cash flow hedges(1,812)(372)
Cost of hedging 31-
Exchange differences on translation of foreign operations1,3292,766
Income tax relating to components of other comprehensive income507104
Items that will not be reclassified subsequently to profit or loss
Changes in fair value of equity investments at fair value through other
comprehensive income - Thinxtra
(454)-
Other comprehensive income for the year, net of tax
(399)2,498
Total comprehensive income for the year2,96512,497
Profit attributable to equity holders of the Company3,3649,999
Total comprehensive income attributable to equity holders of the Company2,96512,497
Earnings per share for continuing operations attributable to the equity holders of the
Company
CentsCents
Basic earnings per shareD10 a)1.5 4.4
Diluted earnings per shareD10 b)1.5 4.3
5
5
Statement of Changes in Equity
For the year ended 31 March 2019
The accompanying notes form an integral part of these financial statements.
Share c apital
Retained
earningsOther reservesTotal equity
Note$000s$000s$000s$000s
Balance at 31 March 2017
181,035 (83,218) (23,260) 74,557
Net profit after tax for the year
- 9,999 - 9,999
Currency translation differences
D5 - - 2,766 2,766
Cash flow hedges, net of tax
D5 - - (268) (268)
Total comprehensive income for the year
- 9,999 2,498 12,497
Contribution of equity net of transaction costs
(1 1 ) - -
(1 1 )
Employee share schemes
Value of employee servicesD5
- - 8 8
Balance at 31 March 2018
181,024 (73,219) (20,754) 87,051
Net profit after tax for the year
- 3,364 - 3,364
Currency translation differences
D5 - - 1,329 1,329
Cash flow hedges, net of tax
D5 - - (1,274) (1,274)
Changes in fair value of equity investments at fair
value through other comprehensive income - Thinxtra
D5 - - (454) (454)
Total comprehensive income for the year
- 3,364 (399) 2,965
Balance at 31 March 2019
181,024 (69,855) (21,153) 90,016
6
6
Balance Sheet
As at 31 March 2019
The accompanying notes form an integral part of these financial statements.
20192018
Note$000s$000s
Asse ts
Curre nt asse ts
Cash and cash equivalentsD2 a)4,71910,364
Trade and other receivables
B3 b)38,22028,395
Derivative financial instruments D2 b)3071,078
Financial asset at fair value through profit and lossD2 b)19211
InventoriesB5 a)39,31024,171
Current income tax asset
561146
Total current assets
83,13664,365
Non-current assets
Derivative financial instruments D2 b)258334
Financial asset at fair value through other comprehensive income - Thinxtra
B4 d)4,549-
Trade and other receivables
B3 b)2,2672,716
Property, plant and equipmentD3 a)19,39413,481
Intangible assets
B5 b)9,1499,115
Investment in associate B4 b)10,39914,640
Interest in joint ventureB4 b)-2,876
Deferred tax assetD47,3525,906
Total non-current assets
53,36849,068
Total asse ts
136,504113,433
Liabilities
Current liabilities
Bank overdraft
D2 e)11,5012,824
BorrowingsD2 e)47498
Trade and other payablesD2 d)26,39819,107
Deferred consideration on acquisition – Rakon IndiaB61,885-
Derivative financial instrumentsD2 b)945235
ProvisionsD3 b)
471961
Deferred revenue – SiwardB2 b)-101
Total current liabilities41,67423,326
Non-current liabilities
Derivative financial instruments
D2 b)34378
Borrowings
D2 e)412-
ProvisionsD3 b)2,9902,734
Deferred tax liabilities
D41,069244
Total non-current liabilities4,8143,056
Total liabilities46,48826,382
Ne t asse ts90,01687,051
Equity
Share capitalD6 a)181,024181,024
Other reservesD5
(21,153)(20,754)
Accumulated losses(69,855)
(73,219)
Total equity90,016
87,051
7
7
Statement of Cash Flows
For the year ended 31 March 2019
The accompanying notes form an integral part of these financial statements.
20192018
Note
$000s$000s
Operating activities
Cash provided from
Receipts from customers114,974101,691
R&D grants received1,8941,726
Other income received583
116,926103,420
Cash was applied to
Payment to suppliers and others(71,695)(57,998)
Payment to employees(46,286)(36,735)
Interest paid(459)(536)
Income tax paid(254)(247)
(118,694)(95,516)
Net cash flow from operating activities(1,768)7,904
Investing activities
Cash was provided from
Net proceeds from sale of Thinxtra shares-3,178
Sale of property, plant and equipment824,754
827,932
Cash was applied to
Purchase of property, plant and equipment(6,188)(3,236)
Purchase of intangibles(720)(840)
Purchase of shares in CRIB6 a)(5,848)-
(12,756)(4,076)
Net cash flow from investing activities(12,674)3,856
Financing activities
Cash was applied to
Share issuance cost-(11)
Repayment of principal on borrowings-(4,500)
Finance lease payments(24)(31)
Cash was applied to financing activities(24)(4,542)
Net cash flow from financing activities(24)(4,542)
Net (decrease)/increase in cash and cash equivalents(14,466)7,218
Effects of exchange rate changes on cash and cash equivalents144246
Cash and cash equivalents at the beginning of the year7,54076
Cash and cash equivalents at the end of the year(6,782)7,540
Composition of cash and cash equivalents
Cash and cash equivalentsD2 a)4,71910,364
Bank overdraftD2 e)(11,501)(2,824)
Total cash and cash equivalents(6,782)7,540
8
8
Statement of Cash Flows
For the year ended 31 March 2019
Net cash reconciliation
An analysis of net debt and the movements in net cash is presented below.
20192018
Note
$000s$000s
Reconciliation of net profit to net cash flows from operating activities
Reported net profit after tax3,3649,999
Adjustments for
Depreciation expenseD3 a)3,7652,504
Amortisation expenseB5 b)2,0371,838
ImpairmentD1 a)-120
Increase in estimated doubtful debts4757
Provisions providedD3 b)
342159
Employee share based expenseD1 b)-8
Movement in foreign currency439(590)
Monetised cash flow hedge, net of taxB2 c)-(1,096)
Deferred revenue ̶ Siward technology license agreementB2 b)(101)(2,351)
Share of net profits/(losses) of associates and joint ventureB4 b)(839)1,915
Deferred tax movement231
382
Loss/(gain) on disposal of property, plant and equipment(82)(2,155)
Thinxtra shares – fair value adjustmentB2 c)-(1,852)
Net Dilution gain on Thinxtra shares-(4,815)
Change in operating assets and liabilties
Increase in trade and other receivables(5,007)
(146)
Decrease in provisions(246)(645)
(Increase)/decrease in inventories(9,145)115
Increase in trade and other payables2,7814,557
Increase/(decrease) in tax provisions218(50)
Net cash flow from operating activities(1,768)7,904
Othe r asse t
Cash/ bank
overdraft
Othe r
borrowing
due within
1 ye ar
Othe r
borrowing
due after
1 ye ar
Bank
borrowing
due within
1 ye ar
Bank
borrowing
due after
1 ye arTotal
$000s$000s
$000s$000s$000s$000s
Balanc e as at 1 A pril 2 0 1 776(30)(31)(4,500)-(4,485)
Ca s h fl ows7,218-314,500-11,749
Foreign exchange changes246(1)---245
Balanc e as at 3 1 M arc h 2 0 1 87,540(31)---7,509
Ca s h fl ows(14,466)-24--(14,442)
Foreign exchange changes144----144
Balanc e as at 3 1 M arc h 2 0 1 9(6,782)(31)24--(6,789)
Liabilities from financing activities
9
9
Notes to the Financial Statements
A. General information _____________________________________________________________________ 10
B. Calculation of key numbers ________________________________________________________________ 10
B1. Segment information ___________________________________________________________________ 10
B2. Pr ofit and loss information _______________________________________________________________ 12
B3. Financial assets and liabilities_____________________________________________________________ 15
B4. Interests in associates and joint venture ____________________________________________________ 17
B5. Non-financial assets and liabilities _________________________________________________________ 22
B6. Business combination – acquisition of Centum Rakon India Private Limited ________________________ 25
C. Risk ___________________________________________________________________________________ 26
C1. Critical accounting estimates and assumptions _______________________________________________ 26
C2.
Financial risk management _______________________________________________________________ 27
C3. Capital management ___________________________________________________________________ 32
D. Other information _______________________________________________________________________ 33
D1. Other profit and loss information __________________________________________________________ 33
D2. Other financial assets and liabilities ________________________________________________________ 34
D3. Other non-financial assets and liabilities ____________________________________________________ 38
D4. Deferred income tax ____________________________________________________________________ 41
D5. Other reserves _________________________________________________________________________ 42
D6. Contributed equity _____________________________________________________________________ 42
D7. Contingencies _________________________________________________________________________ 42
D8. Commitments _________________________________________________________________________ 43
D9. Related party information _______________________________________________________________ 44
D10. Earnings per share ____________________________________________________________________ 44
D11. Share based payments ________________________________________________________________ 45
D12. Summary of other significant accounting policies ___________________________________________ 46
D13. Imputation balances __________________________________________________________________ 50
D14. Principal subsidiaries __________________________________________________________________ 50
D15. Subsequent events ____________________________________________________________________ 51
10
10
A.General information
Rakon Limited (‘the Company’) and its subsidiaries (‘the Group’) design and manufacture frequency control solutions for a wide range of
applications. Rakon has leading market positions in the supply of crystal oscillators to the telecommunications, global positioning and space
& defence markets. The Company is a limited liability company incorporated and domiciled in New Zealand. It is registered under the
Companies Act 1993 with its registered office at 8 Sylvia Park Road, Mt Wellington, Auckland.
The financial statements of the Group have been presented in New Zealand dollars unless otherwise indicated.
The financial statements have been approved for issue by Rakon’s Board of Directors (‘the Board’) on 16 May 2019.
B.Calculation of key numbers
B1.Segment information
The chief operating decision maker assess the performance of the operating segments based on a non-GAAP measure of ‘Underlying EBITDA’
defined as:
‘Earnings before interest, tax, depreciation, amortisation, impairment, employee share schemes, non-controlling interests, adjustments for
associate’s and joint venture’s share of interest, tax & depreciation, loss on disposal of assets and other cash and non-cash items (Underlying
EBITDA)’, refer note B1 c).
Underlying EBITDA is a non-GAAP measure that has not been presented 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 cash and non-cash items 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.
Underlying EBITDA as non-GAAP financial information has been extracted from the financial statements for the year. Except for Underlying
EBITDA, other information provided to the chief operating decision maker is measured in a manner consistent with GAAP. The Directors
provide a reconciliation of Underlying EBITDA to net profit for the year, refer note B1 c).
Accounting policy
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The
chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been
identified as the Managing Director, Sales and Marketing Director and Chief Financial Officer.
Segment results
NZUKFranc e
China –
T' make r
1
Australia ̶
Thinxtra
6
India
2
Othe r
3
Total
$000s$000s$000s$000s$000s$000s$000s$000s
Sales to external customers64,376-45,058--4,551-113,985
Inter-segment sales285-33---(323)(5)
Segment revenue64,661-45,091--4,551(323)113,980
Underlying EBITDA7,8571,691(1,312)2,136-2,60529313,270
Depreciation and amortisation2,4265151,775--1,099(13)5,802
Income tax (expense)/credit(858)(214)31--(420)(649)(2,110)
Total assets
4
65,7662,14132,12910,399-23,0852,984136,504
Investment in associates---10,399---10,399
Additions of property, plant,
equipment and intangibles
3,1914821,395--1,986-7,054
Total liabilities
5
27,3735919,798
468-7,49776146,488
31 March 2019
11
11
1
Includes Rakon Limited’s 40% share of investment in Chengdu Timemaker Crystal Technology Co. Limited and Shenzhen Taixiang Wafer
Co. Limited, refer note B4 b).
2
On 2 May 2018, the Group acquired the remaining 51% of the issued shares it did not own in Centum Rakon India Private Limited (‘CRI’),
a previously held joint venture which provides products and services to the frequency control industry. Subsequent to acquisition, the name
was changed to Rakon India Private Limited. Refer note B6.
3
Includes investments in subsidiaries, Rakon Financial Services Limited, Rakon UK Holdings Limited, Rakon Investment HK Limited, and
Rakon HK Limited.
4
The measure of assets has been disclosed for each reportable segment as it is regularly provided to the chief operating decision maker
and excludes intercompany balances eliminated on consolidation.
5
The measure of liabilities has been disclosed for each reportable segment as it is regularly provided to the chief operating decision maker
and excludes intercompany balances eliminated on consolidation.
6
Rakon Limited holds a 21.4% interest in Thinxtra Limited, refer note B4 d) for further information.
Reconciliation of Underlying EBITDA to net profit for the year
NZUKFranc e
China –
T' make r
1
India –
Centum
Rakon
2
Australia ̶
Thinxtra
6
Othe r
3
Total
$000s$000s$000s$000s$000s$000s$000s$000s
Sales to external customers63,812-37,315----101,127
Inter-segment sales163-5---33201
Segment revenue63,975-37,320---33101,328
Underlying EBITDA 7,6111,5911,3342,115(9)(430)(118)12,094
Depreciation and amortisation2,5175081,408---(91)4,342
Impairment120------120
Income tax (expense)/credit(623)(129)29---(275)(998)
Total assets
4
51,8193,25537,3269,3502,8765,2903,517113,433
Investment in associates---9,350-5,290-14,640
Investment in joint venture----2,876--2,876
Additions of property, plant,
equipment and intangibles
2,4634411,255---44,163
Total liabilities
5
11,98746213,459---47426,382
31 March 2018
20192018
Continuing operations$000s$000s
Underlying EBITDA13,27012,094
Depreciation and amortisation(5,802)(4,342)
One off cash gains -1,096
Employee share schemes-(8)
Finance costs – net(534)(501)
Adjustment for associates and joint venture share of interest, tax and depreciation (1,120)(1,751)
Net dilution gain on Thinxtra shares-4,815
Impairment-(120)
Loss on asset sales/disposal(6)(25)
Other non-cash items(334)(261)
Profit before income tax5,47410,997
Income tax expense(2,110)(998)
Net profit for the year3,3649,999
12
12
B2.Profit and loss information
Revenue
Rakon is a global high technology company that designs and manufactures advanced frequency control and timing solutions. These are used
in the telecommunications, global positioning and space & defence markets.
The Group has one main revenue stream which is the sale of manufactured finished products. The majority of the revenue earned by the
Group is derived from the contracts with one single performance obligation which is the sale of products. Revenue is measured based on
consideration specified in a contract with the customer and excludes amounts collected on behalf of third parties. The Group recognizes
revenue when it transfers control over a product to a customer. Revenue is presented net of value added tax (VAT) and discounts and after
eliminating intragroup sales.
The impact from the adoption of the new standard has been disclosed in note D12 c).
Revenue has been historically recognised at the time when the legal title of the products passes to the customer. It has been determined
that the customer obtains control of the product at the same time as legal title passes to the customer, typically on delivery. In relation to
the contract price, it has been determined that there are no material changes under NZ IFRS 15 to the accounting of variable consideration.
No element of financing is deemed present as the sales are made with a credit term of 30 – 90 days which is consistent with market practice.
A receivable is recognised when the goods are delivered as this is the point of time that the consideration is unconditional because only the
passage of time is required before the payment is due.
Long-term contracts – space and defence segment in France
The Group has long-term contracts in the space and defence segment in France. For these contracts, the revenue is recognised over time
because the Group’s performance creates an asset which does not have an alternative use to the Group, and the Group has an enforceable
right to be paid for work completed to date. The Group uses the percentage-of-completion to determine the appropriate amount to
recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting
period as a percentage of total estimated costs for each contract.
Breakdown of revenue from all sources
Breakdown of revenue by region
The Group’s trading revenue is derived in the following regions. Revenue is allocated based on the country in which the customer is located.
Breakdown of revenue by market segment
20192018
$000s$000s
Sales of goods
113,22799,916
Revenue from services758
1,211
Total revenue113,985101,127
20192018
$000s$000s
As i a53,79941,330
North America25,79323,940
Europe
31,67133,069
Othe rs
2,7222,788
Total revenue by region113,985101,127
20192018
$000s$000s
Telecommunications53,59940,457
Global Positioning20,49825,999
Space and Defence31,58327,984
Othe r8,3056,687
Total revenue by market segment113,985101,127
13
13
Other operating income
Accounting policy
Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements.
Breakdown of other operating income:
Critical accounting estimates and assumptions – prior year
Investment by Siward Crystal Technology Company Limited (‘Siward’) and attribution of proceeds
Siward is a Taiwan based crystal manufacturer, which is listed on the Taiwan Stock Exchange. In February 2017, Siward paid US$10m cash
in return for 38,016,681 fully paid ordinary shares in Rakon and rights arising from a technology license agreement. Siward took up one
appointment on Rakon’s Board.
At 31 March 2019, the transfer under the technology licence agreement was fully completed (2018: 99%) and revenue of $0.1m (2018:
$2.4m) recognised.
Other gains – net
1
In 2018, the sale of land and buildings at Argenteuil, France was completed, and gain on sale of $2.1m recognised.
2
During December 2017, Thinxtra undertook additional capital raising (Series B). During this capital raising Rakon sold 199,242 shares for
A$3.0m to applicants who missed out on a Series B allotment. In 2018, a resultant gain of NZ$1.9m was realised.
3
Includes realised and unrealised gains/(losses) arising from accounts receivable and accounts payable. Hedge accounting is sought on the
initial sale of goods and purchase of inventory, subsequent movements are recognised in trading foreign exchange.
20192018
$000s$000s
Other income2070
Income from technology license agreement with Siward
1012,351
Total other operating income1212,421
20192018
$000s$000s
(Loss)/Gain on disposal of property, plant, equipment, and intangible
1
(82)2,155
Sale of shares in Thinxtra
2
-1,852
(82)4,007
Foreign exchange gains – net
Forward foreign exchange contracts
Held for trading46122
Gain on revaluation of foreign denominated monetary assets and liabilities
3
754495
Total foreign exchange gains – net800617
Total other gains – net7184,624
14
14
Operating expenses
Accounting policy
Proceeds such as grants and tax credits associated to operating expenses are directly net off the related expense. These research and
development costs have a government related grant or tax credit related to the operating expense, which have been identified separately
in the breakdown of operating expenses below.
20192018
$000s$000s
Operating expense by function
Selling and marketing9,8099,905
Research and development11,0299,712
General and administration26,50022,009
Total operating expenses47,33841,626
Operating expenses include
Depreciation – inclusive of depreciation included in cost of sales (note D3 a)3,7652,504
Amortisation (note B5 b)2,0371,838
Research and development expense12,87311,771
Research and development government grant(847)(739)
Research and development tax credit(997)(1,320)
Restructure costs – inclusive of restructure costs included in cost of sales (note D3 b)-159
Rental expense on operating leases2,6132,268
Costs of offe ri ng c re di t
Bad debt recoveries/(write-offs)-19
Allowance for expected credit loss provision 475-
Governance expenses
Directors' fees358390
Auditors' fees
Principal auditor's fees622537
Breakdown of fees:
Audit fees for current year 551460
Half year financial statements agreed procedures2423
Government R&D credits reviews1421
Annual Shareholders' Meeting procedures88
Treasury advisory services 2525
Audit services other auditors2423
Sundry expenses
Donations145
15
15
B3.Financial assets and liabilities
Financial instruments
Financial instruments comprise of cash and cash equivalents, trade and other receivables, trade and other payables, borrowings and
derivative financial instruments.
Financial instruments by category
The line items in the tables above only include financial instruments. Trade and other receivables in note B3 b) and trade and other payables
in note D2 d) include both financial and non-financial items.
31 March 2019
Financial
asse ts at
amortise d c ost
A t fair value
through profit
and loss
A t fair value
through other
comprehensive
income
Derivatives
used for
hedgingTotal
Assets per balance sheet$000s$000s$000s$000s$000s
Derivative financial instruments (note D2 b)-19-565584
Trade and other receivables
37,126---37,126
Cash and cash equivalents (note D2 a)
4,719---4,719
Fair value through other comprehensive
income - Thinxtra
--4,549-4,549
Total assets per balance sheet
41,845194,54956546,978
31 March 2019
Liabilities at
fair value
through the
profit and loss
Derivatives
used for
hedging
Financial
liabilities at
amortise d c ostTotal
Liabilities per balance sheet$000s$000s
$000s$000s
Borrowings--12,38712,387
Derivative financial instruments (note D2 b)951,193-1,288
Trade and other payables--14,47114,471
Deferred consideration on acquisition –
Rakon India
1,885--1,885
Total liabilities per balance sheet
1,9801,19326,85830,031
31 March 2018
Cash and
receivables
A t fair value
through profit
and loss
Derivatives
used for
hedgingTotal
Assets per balance sheet$000s$000s$000s$000s
Derivative financial instruments (note D2 b)
-2111,4121,623
Trade and other receivables 30,159
--30,159
Cash and cash equivalents (note D2 a)10,364-
-10,364
Total assets per balance sheet40,523
2111,41242,146
31 March 2018
Liabilities at
fair value
through the
profit and loss
Derivatives
used for
hedging
Other financial
liabilitiesTotal
Liabilities per balance sheet
$000s$000s$000s$000s
Borrowings--2,9222,922
Derivative financial instruments (note D2 b)
91222-313
Trade and other payables-
-12,80012,800
Total liabilities per balance sheet
9122215,722
16,035
16
16
Trade and other receivables
Accounting policy
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment.
As of 31 March 2019, trade receivables of $816,000 (2018: $64,000) were impaired and provided for. These receivables are calculated in
accordance with the expected credit loss (ECL) model.
Breakdown of trade and other receivables
1
Other receivables includes research and development tax credits and government grants.
The fair value of trade and other receivables are equivalent to the carrying values.
The following table summarises the impact of doubtful debt and expected credit loss on the trade receivables balance. The movement in
the provision for the expected credit loss during the year was as follows:
Aging
Included in trade and other receivables are the below amounts which were past due but not impaired. These relate to a number of
customers for whom there is no recent history of default.
20192018
$000s$000s
Trade receivables33,96025,932
Less: allowance for expected credit loss
(816)(64)
Net trade receivables33,14425,868
Prepayments1,448952
GST/VAT re ce i va bl e1,913-
Receivables from related parties (note D9 b)349307
Other receivables
1
3,6333,984
Total trade and other receivables
40,48731,111
Less non-current other receivables
1
2,2672,716
Current trade and other receivables
38,22028,395
Current
More than 30
days past due
30 days to
180 days past
due
More than
180 days past
due Total
$000s$000s$000s$000s$000s
Gross carrying amount of trade receivables 28,0334,60061471333,960
Expected loss rate
1.6%2.6%16.9%20.0%
Allowance for the expected credit loss(449)(120)(104)(143)(816)
20192018
$000s$000s
Up to 3 months4,6004,475
3 to 6 months6141,522
Over 6 months713167
Total overdue trade receivables5,9276,164
17
17
Currencies
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
The maximum exposure to credit risk at balance date is the carrying value of each class of receivable mentioned above. The Group does not
hold any collateral as security.
B4.Interests in associates and joint venture
Accounting policy
Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially
recognised at cost.
Joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and
obligations of each investor, rather than the legal structure of the joint arrangement. The Group’s joint venture is accounted for using the
equity method.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s
share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive
income of the investee. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying
amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity,
including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint ventures are
eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary
to ensure consistency with the policies adopted by the Group. The carrying amount of equity-accounted investments is tested for
impairment in accordance with the policy described in note D12 e).
The carrying amounts of the investments are reviewed at each balance date to determine whether there is any indication of impairment. If
any such indication exists, the asset’s recoverable amount is estimated being the higher of an asset’s fair value less costs to sell and the
asset’s value in use. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.
Impairment losses are recognised in the statement of comprehensive income.
Breakdown of interest in associates and joint venture
Set out below are the associates and joint venture of the Group. The entities listed below have share capital consisting solely of ordinary
shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of business, and the
proportion of ownership interest is the same as the proportion of voting rights held.
20192018
$000s
$000s
NZD1,764606
USD
23,59417,250
EUR10,66312,396
GBP
703837
INR
3,530-
Othe r
23322
Total trade and other receivables40,487
31,111
Nature of Measurement2019201820192018
20192018relationshipmethod$000s$000s$000s$000s
Chengdu Timemaker Crystal
Technology Co. Ltd
1
China40%40%AssociateEquity method9,9748,925
Shenzhen Taixiang Wafer Co.
Ltd
1
China40%40%AssociateEquity method425425
Total Timemaker Group10,3999,3501,050908
Thinxtra Pty Limited
3
Australia-21.4%AssociateEquity method-5,290(287)(2,273)
10,39914,640763(1,365)
Centum Rakon India Private Ltd
2
India-49%Joint ventureEquity method-2,87676(550)
-17,516839(1,915)Total carrying amount of equity accounted associates and joint venture
Equity accounted
(loss)/profit
Country of
incorporation
% of ownership
interest
Total c arrying amount of assoc iate s
Net investment
Name of entity
18
18
1
The Group has a 40% interest in two related companies: Chengdu Timemaker Crystal Technology Co. Limited and Shenzhen Taixiang Wafer
Co. Limited, which provide products and services to the frequency control products industry.
2
On 2 May 2018, the Group assumed full ownership of Centum Rakon India Private Limited (CRI) by acquiring the remaining 51% interest
of shares and subsequently changed the name to Rakon India Private Limited. Prior to the acquisition, CRI was a joint venture.
3
Due to loss of significant influence, on 1 June 2018, the Group has reclassified the investment in Thinxtra Pty Limited (Thinxtra), as a
financial asset at fair value through other comprehensive income. Refer also note B4 d).
Summarised financial information for associates and joint venture
The tables below provide summarised financial information for the associates and joint venture of the Group. The information disclosed
reflects the amounts presented in the financial statements of the relevant associates and joint venture and not the Group’s share of those
amounts. They have been amended to reflect adjustments made by the entity when using the equity method, including fair value
adjustments and modifications for differences in accounting policy. The total Timemaker Group is an aggregate of Chengdu Timemaker
Crystal Technology Co. Limited and Shenzhen Taixiang Wafer Co. Limited.
In June 2017, Chengdu Shen-Timemaker Crystal Technology Co. Limited, a company in the Timemaker Group, was merged with Chengdu
Timemaker Crystal Technology Co. Limited.
20192018201920182019201820192018
$000s$000s$000s$000s$000s$000s$000s$000s
Summarised Balance Sheet
Curre nt asse ts
Cash & cash equivalents--2,9043,138222,9063,140
Other current assets--17,78615,4501,1351,13518,92116,585
Total current assets--20,69018,5881,1371,13721,82719,725
Non-current assets--25,09724,200--25,09724,200
Current liabilities
Financial liabilities (excluding
trade payables)
--11,3718,434--11,3718,434
Other current liabilities--8,92310,36473738,99610,437
Total current liabilities--20,29418,798737320,36718,871
Non-current liabilities
Other non-current liabilities--5581,678--5581,678
Total non-current liabilities--5581,678--5581,678
Ne t asse ts--24,93522,3121,0641,06425,99923,376
Total Time make r
Group
Chengdu Timemaker
Crystal Technology Co.
Ltd
Shenzhen Taixiang
Wafe r Co. L td
Chengdu Shen-
Timemaker Crystal
Technology Co. Ltd
20192018201920182019201820192018
$000s$000s$000s$000s$000s$000s$000s$000s
Summarised Statement of
Comprehensive Income
Revenue--28,26024,481--28,26024,481
Depreciation and amortisation-(74)(3,071)(1,809)--(3,071)(1,883)
Interest expenses--(576)(1,017)--(576)(1,017)
(Loss)/profit for the period-(166)2,6252,469--2,6252,304
Total Time make r
Group
Chengdu Shen-
Time make r Crystal
Technology Co. Ltd
Chengdu Timemaker
Crystal Technology
Co. Ltd
Shenzhen Taixiang
Wafer Co. Ltd
19
19
20192018201920182019201820192018
$000s$000s$000s$000s$000s$000s$000s$000s
Reconciliation of net assets to
carrying amount
Rakon's share in %
40%40%40%40%
40%
40%40%40%
Rakon's share of associates' and
joint venture's net assets
--9,9748,92542542510,3999,350
Carrying amount
--9,9748,92542542510,3999,350
Movement in carrying amount
Opening net assets 1 April9,3507,930
Equity accounted profit1,050908
Foreign exchange movement(1)512
Carrying amount10,3999,350
Chengdu Shen-
Timemaker Crystal
Technology Co. Ltd
Chengdu Timemaker
Crystal Technology Co.
Ltd
Shenzhen Taixiang
Wafe r Co. L td
Total Time make r
Group
2019201820192018
$000s$000s$000s$000s
Summarised Balance Sheet
Curre nt asse ts
Cash & cash equivalents-1,159-11,117
Other current assets-11,721-2,091
Total current assets-12,880-13,208
Non-current assets-5,518-10,509
Current liabilities
Financial liabilities (excluding trade payables)-2,157-
149
Other current liabilities-3,645-1,400
Total current liabilities-5,802-1,549
Non-current liabilities
Other non-current liabilities-269
- -
Total non-current liabilities
-269- -
Ne t asse ts
-12,327
-22,168
Centum Rakon India Private LtdThinxtra Pty Ltd
2019201820192018
$000s$000s$000s$000s
Summarised Statement of Comprehensive Income
Revenue-14,951-615
Interest income-130-37
Depreciation and amortisation-(1,340)-(1)
Interest expense-(118)--
Loss for the year-(1,121)-(7,642)
Centum Rakon India Private LtdThinxtra Pty Ltd
20
20
Investment in Thinxtra
Thinxtra Pty Limited (‘Thinxtra') is an 'Internet of Things' (IoT) business that started in 2016. Thinxtra's focus is on establishing an IoT network
in Australia, New Zealand and Hong Kong and providing products, services and solutions enabling connectivity of devices to the network.
Thinxtra’s business model is based on subscription for access to the network, platform solutions and the sale of IoT products. Further
information is available at www.thinxtra.com.
Rakon was one of the founding members of Thinxtra in 2016 and has a 21.4% ownership interest at 31 March 2019.
Loss of significant influence and fair value re-measurement (1 June 2018)
On 1 June 2018 Rakon lost significant influence in Thinxtra and ceased equity accounting the investment. In accordance with NZ IAS 28
Investments in Associates and Joint Ventures at 1 June 2018, the investment held was measured at fair value of $12.2m and a gain of $7.2m
recognised in profit and loss. In determining the fair value at 1 June 2018, the Directors obtained an independent valuation report and
adopted the lowest valuation in the range given in that report. In determining a valuation range the independent valuation report relied on
the October 2017 capital raise which was oversubscribed and the subsequent sale of 199,763 shares by Rakon in November 2017 to those
who missed out on the capital raise. Further, effective 1 June 2018, the Group elected to present subsequent changes in fair value of its
investment in Thinxtra in other comprehensive income, refer note D12 b) for accounting policy. These amounts were presented in the
unaudited consolidated interim financial statements of the Group for the six months ended 30 September 2018.
Restatement of the valuation of the Investment in Thinxtra at 1 June 2018 as previously disclosed in the unaudited 30 September 2018
consolidated interim financial statements
Upon re -examining the information available, the Directors consider the 1 June 2018 valuation of $12.2m which as noted above relied on
the independent valuation report, based on historical capital raise and limited external transactions dated back to October and November
2017 was not appropriate and should be restated. Accordingly, the valuation reported in the 30 September 2018 financial statements of
$12.2m has been reassessed resulting in a revised valuation of $5.0m of the investment at 1 June 2018. The previously recognised gain of
$7.2m in the 30 September 2018 consolidated interim financial statements is reversed. This restatement will be disclosed in the unaudited
consolidated interim financial statements of the Group for the six months ending 30 September 2019.
Valuation methodology
In undertaking the restated fair value assessment as at 1 June 2018, it was considered that one single valuation method would not provide
an appropriate result. Accordingly, the Directors have used a range of valuation techniques which provide different scenario outcomes.
These outcomes have then been assigned a probability based on the available information and Directors’ judgement.
The methodology and overall outcome is summarised as follows:
The valuation was between A$5.25 and A$6.52 per share with a value of A$5.89 per share resulting in a restated valuation of $5.0m at 1
June 2018. This is also consistent with the equity accounted value of the investment as at 1 June 2018.
2019201820192018
$000s$000s$000s$000s
Reconciliation of net assets to carrying amount
Rakon's share in %
49%21.5%
Rakon's share of associates' and joint venture's net assets-6,040-4,775
Goodwill---515
Cumulative impairment-(3,164)-
-
Carrying amount-2,876-
5,290
Movement in carrying amount
Opening net assets 1 April2,8763,7225,2904,074
Equity accounted Gain/(loss)76(550)(287)(2,273)
Foreign exchange movement42(296)-
-
De-recognition of joint venture and associates(2,994)-(5,003)-
Gain on share price dilution recognised---4,815
Reduction in carrying value from sale of shares during the year---(1,326)
Net carrying amount -2,876-5,290
Centum Rakon India Private LtdThinxtra Pty Ltd
Valuation TechniqueIndicative ViewProbability Assigned
A: Discounted cash flowMost likely75%
B: Last successful capital raise, October 2017 which raised A$20mPossible25%
21
21
Sensitivities on key inputs
The Directors recognise that the valuation outcomes under each technique are dependent on assumptions used. The following table
provides an analysis of the impact on the final valuation where key assumptions are changed as described in b) to c) below.
Sensitivities on probability weightings assigned
The Directors recognise that the final valuation is dependent on probabilities assigned to the scenario under each valuation technique used.
The following table provides an analysis of the impact on the final
valuation where the probability weightings are changed.
To provide an indication about the reliability of the inputs used in
determining fair value, the Directors classified the fair valuation of
Thinxtra investment as a level 3 investment. Instruments are classified
as level 3 only if one or more of the significant inputs for the valuation
is not based on observable market data.
Subsequent capital raise offers by Thinxtra between September 2018 and March 2019
In September 2018 Thinxtra announced a new capital raise offer aimed at raising A$20m. This offer was not filled with the main impediments
being; the offer price was out of alignment with the maturity of the business; there were anti-dilution rights held by existing security holders
which were an impediment to any new investors; and Thinxtra’s two main shareholders elected not to participate in the capital raise
offering.
A revised limited special offer was announced in March 2019 to raise A$4m. This was expected to allow Thinxtra to sufficiently develop its
business in preparation for additional funding to be raised through equity, debt or M&A activity to allow it to achieve breakeven. The
Directors determined that Rakon would not participate in the March 2019 special offer due to the requirement to prioritise spend in its core
business. This capital raise was successful and A$5m was raised with the offering closing on 18 April 2019. In the Directors’ view this was a
special offer with a placement discount and was not indicative of the fair value of the Company.
Valuation of the investment in Thinxtra at 31 March 2019
As set out below, the Directors have determined the valuation range of Thinxtra at 31 March 2019, with a value recognised of $4.6m. In
forming this view, it was recognised that there is a high level of volatility and judgement required in valuing Thinxtra given its early stage of
business; the new and developing IoT market and ecosystem in which it operates; the volatility in prices achieved by historic capital raises,
it being a private company investment; and the track record of the Company achieving its forecast performance.
Consistent with the revised valuation approach adopted at 1 June 2018, in undertaking the fair value assessment, given the range of
potential outcomes, it was considered that one single valuation method would not provide an appropriate result. Accordingly, the Directors
have used a range of valuation techniques which provide different scenario outcomes. These outcomes have then been assigned a
probability based on the available information and directors judgement. The methodology and overall outcome is summarised as follows:
The resultant valuation was between A$4.83 and A$6.11 per share with a value of A$5.47 adopted in the 31 March 2019 financial
statements. This has resulted in fair value of $4.6m at 31 March 2019 with the reduction of $0.4m since 1 June 2018 being reflected in other
comprehensive income.
Sensitivities on key inputs
The Directors recognise that the valuation outcomes under each technique are dependent on assumptions used. The following table
provides an analysis of the impact on the final valuation where key assumptions are changed as described in b) to d) below:
Sensitivities on probability weightings assigned
The Directors recognise that the final valuation is dependent on probabilities assigned to the scenario under each valuation technique used.
The following table provides an analysis of the impact on the final valuation where the probability weightings are changed.
ScenarioAssumptions changesValuation NZ$change
a) Base case valuationbase case5.0
b) DCFCash flow is 50% lower than forecast3.7(1.3)
c) DCFDiscount rate is 5% higher4.2(0.8)
An opposite change in assumptions would have the equal but opposite effect on the valuation.
Valuation TechniqueIndicative ViewProbability Assigned
A: Discounted cash flowLikely40%
B: Last successful capital raise, March 2019 which raised A$5mLikely30%
C: Replacement cost of assetsLikely30%
D: Liquidation valueUnlikely0%
ScenarioAssumptions changesValuation NZ$change
a) Base case valuationbase case4.6
b) Discounted cash flowCash flow is 50% lower than forecast3.4(1.1)
c) Discounted cash flowDiscount rate is 10% higher3.0(1.5)
d) Replacement costReplacement cost is 20% lower3.8(0.8)
Valuation Technique
Base case
Alternate
case
change in
valn NZ$m
A: Discounted cash flow75%85%
B: Last capital raise
Octobe r 2017
25%15%
100%100%
Valuation NZ$5.03.9( 1.1)
22
22
To provide an indication about the reliability of the inputs
used in determining fair value, the Directors classified the fair
valuation of Thinxtra investment as a level 3 investment.
Instruments are classified as level 3 only if one or more of the
significant inputs for the valuation is not based on observable
market data.
Recognition of net dilution gain in Thinxtra – prior year
Critical accounting estimate
During the year to 31 March 2018, Thinxtra issued convertible preference shares. As at 31 March 2019 and during the year to 31 March
2018, Rakon held only ordinary shares in Thinxtra. In calculating Rakon’s share of the net assets of its investment in Thinxtra, the Directors
have determined that the convertible preference shares dilute Rakon’s investment in Thinxtra.
The key judgement applied was that the Directors concluded that the rights attached to the convertible preferences shares over and above
the ordinary shares are protective and not substantive in nature. Therefore, the percentage ownership Rakon holds in Thinxtra is based on
their proportion of shares including all convertible preference shares, as these shares hold the same voting rights as ordinary shares.
Supporting the above judgement is the fact that Rakon sold ordinary shares in November 2017, shortly after the convertible preference
share issue, at the same price as convertible preference shares were issued. Should the protective rights attached to the convertible
preference shares be triggered, these shareholders would be entitled to up to 1.2 times the issue price of the convertible preference shares,
potentially reducing the net assets available to ordinary shareholders. As noted above the Directors judge these to be protective rights that
are not substantive as at 31 March 2018.
Net dilution gain
During the year to 31 March 2018 Thinxtra issued new fully paid shares at a price in excess of what Rakon purchased shares at which resulted
in a significant increase to its net assets. The increased number of shares diluted Rakon’s shareholding percentage. For Rakon, the gain from
Rakon’s share of new capital invested outweighed the loss from the dilution in shareholding. A net gain of $4.8m was recognised in the year
to 31 March 2018.
B5.Non-financial assets and liabilities
Inventories
Accounting policy
Inventories are stated at the lower of cost (weighted average cost) or net realisable value. Costs comprise direct materials, direct labour
and appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses.
Breakdown of inventories
Obsolescence
An inventory obsolescence provision of $5, 132,000 (2018: $4,584,000) is included in the inventory figures above. Significant judgements
made in determining the provision include:
Ageing of inventory
Forecast revenue and likely consumption of inventory
Historical revenue and actual consumption of inventory
Specific identification of items of inventories for which the net realisable value is deemed lower than cost.
During the year inventory of $1,168,000 (2018: $5,141,000) was scrapped, of which $553,000 (2018: $5,141,000) was provided for. The net
amount included in cost of sales from an increase in the obsolescence provision was $1,101,000 (2018: $1,292,000).
20192018
$000s
$000s
Raw materials15,8958,767
Work in progress17,66710,896
Finished goods5,7484,508
Total inventories39,31024,171
Valuation TechniqueBase case
Alternate
case
change in
valn NZ$m
A: Discounted cash flow40%30%
B: Last capital raise April 201930%50%
C: Replacement cost30%20%
100%100%
Valuation NZ$4.64.0( 0.6)
23
23
Intangible assets
Accounting policy
Amortisation
Amortisation is charged to the Statement of Comprehensive Income on a straight-line basis over the estimated useful lives below:
Software assets and capitalised costs of developing systems are recorded as intangible assets and amortised unless they are directly related
to a specific item of hardware, and in that case are recorded as property, plant and equipment.
Patents and software
Identifiable intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure is expensed as incurred.
Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is
recognised in the statement of comprehensive income as an expense as incurred. Any research and development taxation credits and
government grant funding for research and development are recognised when eligibility criteria have been met and treated as a reduction
in expenses.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially
improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has
sufficient resources to complete development. Other development expenditure is recognised in the Statement of Comprehensive Income
as an expense as incurred.
Total capitalised research and development costs are $6. 8m (2018: $7.9m) made up of product development assets and assets under
construction.
Impairment
During the year, specific product development projects and projects in progress were reviewed for recoverability based on the expected
cash flows to be generated by the projects. The expected cash flows supported the carrying values and no impairment was noted.
GoodwillNil
Patents20 years
Softwa re2 – 10 years
Product development5 - 10 years
Assets under course of constructionNil
24
24
Breakdown of intangible assets
GoodwillPatentsSoftware
Product
development
Asse ts unde r
constructionTotal
$000s$000s$000s$000s$000s$000s
Year ended 31 March 2018
Opening net book value -4587604,4563,7939,467
Foreign exchange differences-463751242637
Additions--13114763890
Disposals--(248)(41)-(289)
Amortisation charge--(403)(1,435)-(1,838)
Amortisation reversal on
disposals
--248--248
Transfers--28898(926)-
Closing net book amounts-5044354,5043,6729,115
At 31 March 2018
Cost 1,8462,9468,61010,2643,67227,338
Accumulated amortisation and
impairment
(1,846)(2,442)(8,175)(5,760)-(18,223)
Net book value-5044354,5043,6729,115
Year ended 31 March 2019
Opening net book value -5044354,5043,6729,115
Foreign exchange differences-(2)(6)(25)(4)(37)
Additions 1,294-734473172,131
Disposals--(25)(102)(20)(147)
Amortisation charge--(325)(1,712)-(2,037)
Amortisation reversal on
disposals
--22102-124
Transfers--1173,248(3,365)-
Closing net book amounts1,2945022916,4626009,149
At 31 March 2019
Cost 3,1402,9448,76913,83260029,285
Accumulated amortisation and
impairment
(1,846)(2,442)(8,478)(7,370)-(20,136)
Net book value1,2945022916,4626009,149
25
25
B6.Business combination – acquisition of Centum Rakon India Private Limited
On 2 May 2018, the Group acquired the remaining 51% of the issued shares in Centum Rakon India Private Limited (CRI), a previously held
joint venture which provides products and services to the frequency control industry. Consideration was US$5.5m and the acquisition is
part of the Group’s overall manufacturing strategy, providing a low cost manufacturing platform and in addition, access to the local Indian
market in the longer term. Consideration of US$4,125,000 was paid on 2 May 2018 with US$1,375,000 payable within 18 months of
acquisition date. The fair value of the US$1,375,000 was estimated based on a discount rate of 5.90%. The deferred consideration has been
revalued at year end to $1,885,000.
Details of the purchase consideration, the fair value of net assets acquired and goodwill
The pre-existing 49% share of equity which was acquired on 25 March 2008, was re-measured to fair value and the currency translation
reserve relating to the pre-existing 49% share of equity was recycled through the profit and loss component of the Statement of
Comprehensive Income.
The goodwill is attributable to synergies expected to arise. None of the goodwill is expected to be deductible for tax purposes. A deferred
tax asset of $568,000 has been recognised in relation to the fair value adjustments.
Purchase price consideration
$000s
Cash paid5,848
Deferred consideration
1,789
Less deemed settlement of pre-existing net trade balances
(1,249)
Total purchase price consideration6,388
Provisional
fair value
Adjust-
ments
Final fair
value
$000s$000s$000s
Cash and cash equivalents1,500-1,500
Property, plant and equipment3,750-3,750
Inventories5,8691255,994
Trade and other receivables5,002-5,002
Trade and other payables(4,510)-(4,510)
Overdraft(1,320)-(1,320)
Employee benefit obligations(343)(250)(593)
Net deferred tax assets1,379371,416
Less deemed settlement of pre-existing net trade balances(1,249)-(1,249)
Net identifiable assets acquired10,078(88)9,990
The fair value of the assets and liabilities recognised as a result of the acquisition are as
follows
Re-measurement of previously held 49% equity interest
$000s$000s$000s
Carrying value of equity interest prior to acquisition 2,994-2,994
Gain on re-measurement1,944(42)1,902
Re-measured previously held equity interest4,938(42)4,896
Net loss in business combination on previously held equity interest
Gain on re-measurement of previously held equity interest1,944(42)1,902
Loss on reclassification of currency translation reserve(2,013)-(2,013)
Net loss in business combination on previously held equity interest(69)(42)(111)
Goodwill on acquisition
Net assets acquired10,078(88)9,990
Less fair value of previously held 49% equity interest
(4,938)42(4,896)
Goodwill on acquisition1,248461,294
Total purchase consideration
6,388-6,388
Provisional
amount
Adjust-
ments
Final
amount
26
26
Acquisition related costs
Acquisition related costs of $204,000 are included in administrative expenses in the profit and loss component of the Statement of
Comprehensive Income.
Revenue and profit contribution
The acquired business contributed revenues of $4,551,000 and net profit of $1,026,000 to the Group for the period from 2 May 2018 to 31
March 2019. If the acquisition had occurred on 1 April 2018, consolidated revenue and consolidated profit after tax for the year ended 31
March 2019 would have been $4,764,000 and $923,000 respectively. For April 2018, the Group recorded $76,000 equity accounted profit
for the owned 49% equity interest.
C.Risk
C1. Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the
related actual results. The estimates and assumptions that involved a higher degree of judgement or complexity and of items which are
more likely to be materially adjusted due to estimates and assumptions turning out to be wrong are included in section B and C. Specifically
these are:
Calculation of inventory obsolescence (note B5 a)
Estimated useful life of intangible assets (note B5 b)
Expected credit loss provision (note B3 b)
Thinxtra valuation (note B4 d)
Acquisition of CRI (note B6)
Prior year investment by Siward, attribution and apportionment of proceeds (note B2 b)
Estimate and judgements not included above are detailed below.
Impairment of assets
The Group has assessed as at 31 March 2019 whether any indicators of impairment exist. In doing so management and the Directors have
considered factors including the current profitability of the Group and the market capitalisation value of the Company in comparison to the
Group's net asset value. Detailed assessments were conducted for inventory (note B5 a), intangible assets (note B5 b), trade and other
receivables (note B3 b) and property, plant and equipment (note D3 a). The Directors consider the net asset values of the Group to be
appropriate.
Critical accounting estimates and assumptions
The Group tests annually for indicators of impairment, in accordance with the accounting policy stated in note D12 e). The recoverable
amounts of cash generating units (‘CGU’) have been forecasted based on value-in -use calculations. These calculations require the use of
estimates.
These calculations use pre-tax cash flow projections based on financial forecasts covering a five year period due to product life cycles, pricing
trends and longer term expected currency trends.
Key assumptions used in ‘value in use’ calculations
CGU Assumption Range 5 Year CAGR
New Zealand Annual sales growth rate
1
5% to 9% 7.1%
Gross margin %
2
48% to 56% n/a
France Annual sales growth rate
1
2% to 12% 6. 0%
Gross margin %
2
28% to 30% n/a
India Annual sales growth rate
1
5% to 10% 6.8%
Gross margin %
2
19% to 21% n/a
China Annual net profit growth rate
3
3% to 58% 20.6%
Free cash flow
3
4% to 133% 47.5%
Free cash flow is used in the above tables as the China assets are held through Rakon’s investment in associates.
1
Sales growth – Management have forecasted sales to grow over the period of the cash flow projection, due to a combination of factors
including industry forecasts for the key market segments in which Rakon operates, future product innovation and estimations of its own
share of the market reflective of the quality of its product range and technology advantages. Management have forecast a future increase
in revenues for the NZ, France and India CGUs specifically as a result of its product positioning which is expected to meet the future increased
technology specification that will be demanded in the telecommunications segment.
27
27
2
Gross margin – Management forecasted gross margin based on past performance and its expectations of market development also taking
into account gradual decline in average selling prices. Anticipated industry trends, product innovations, manufacturing efficiency and raw
material cost improvements have also been factored into these gross margin assumptions.
3
China, net profit – Management forecasted net profit based on a combination of factors including industry forecasts for the key market
segments, future product innovation and estimations of its own share of the market reflective of the quality of its product range and
technology advantages.
These assumptions have been used for the analysis of each CGU within the business segment. The discount rates used are pre-tax and
reflect specific risks relating to the relevant segments.
Significant estimate: impact of possible changes in key assumptions
New Zealand CGU
The recoverable amount is estimated to be $47.6m (2018: $43.6m). This exceeds the carrying amount of the CGU at balance date by $5.7m
(2018: $9.9m). If the sales volumes used in the value-in -use calculation had been 2.0% lower than management’s estimates, the Group
would have recognised an impairment against the carrying amount of net assets of $0.9m. If the gross margin percentage used in the value-
in -use calculation had been 1.0% lower than management’s estimates, the Group would have recognised an impairment against the carrying
amount of net assets of $2.2m. If the pre-tax discount rate applied to the cash flow projections was 15. 0% instead of 13.6%, the recoverable
amount of the CGU would equal its carrying amount.
France CGU
The recoverable amount is estimated to be $21.9m (2018: $30.0m). This exceeds the carrying amount of the CGU at balance date by $2. 8m
(2018: $4.4m). If the sales used in the value-in -use calculation had been 2.0% lower than management’s estimates, the Group would have
recognised an impairment against the carrying amount of net assets of $2. 9m. If the gross margin percentage used in the value-in -use
calculation had been 1.0% lower than management’s estimates, the Group would have recognised an impairment against the carrying
amount of net assets of $4. 4m. If the pre-tax discount rate applied to the cash flow projections was 14. 6% instead of 13.5%, the recoverable
amount of the CGU would equal its carrying amount.
India CGU
The recoverable amount is estimated to be $17.1m (2018: $5.9m). This exceeds the carrying amount of the CGU at balance date by $1. 7m
(2018: $3.0m). If the sales used in the value-in -use calculation had been 4.0% lower than management’s estimates, no impairment would
result. If the gross margin percentage used in the value-in -use calculation had been 2.0% lower than management’s estimates, the Group
would have recognised an impairment against the carrying amount of net assets of $1.7m. If the pre-tax discount rate applied to the cash
flow projections was 29.3 % instead of 27.1%, the recoverable amount of the CGU would equal its carrying amount.
China CGU
The recoverable amount is estimated to be $9. 9m (2018: $13. 1m). This exceeds the carrying amount of the CGU at balance date by $2. 8m
(2018: $3. 8m). If free cash flow was 10.0% lower than management’s estimates, no impairment would result. If the pre-tax discount rate
applied to the cash flow projections was 17. 0% instead of 14.8%, the recoverable amount of the CGU would equal its carrying amount.
Cash flows beyond the five year period are extrapolated using the estimated growth rates stated below.
C1 b)Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision
for income taxes and recognition of deferred tax assets in relation to losses. There are many transactions and calculations for which the
ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different
from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which
such determination is made.
C2.Financial risk management
The Group has exposure to the following risks:
Credit risk
Liquidity risk
Market risk
2019201820192018
New Zealand1.90%2.50%13.60%14.00%
United Kingdom2.50%2.50%12.10%11.10%
Fra nce1.30%2.50%13.50%13.00%
India3.50%2.50%27.10%24.20%
China2.50%2.50%14.80%14.20%
Growth rateDiscount rate (pre-tax)
28
28
This section presents information about the Group’s exposures to each of the above risks including the Group’s objectives, policies,
processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included
throughout these consolidated financial statements.
The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has
established the Audit and Risk Committee, which together with the Board, is responsible for developing and monitoring the Group’s risk
management policies.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and
controls and to monitor risk adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a
disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group’s risk management is predominantly controlled at head office in New Zealand (Group treasury) under policies approved by the
Board. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board
provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest
rate risk, and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
Where all relevant criteria are met, hedge accounting is applied to remove the accounting mismatch between the hedging instrument and
the hedged item. This will effectively result in recognising interest expense at a fixed interest rate for the hedged floating rate loans and
inventory at the fixed foreign currency rate for the hedged purchase.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group’s receivables from customers.
The adoption of IFRS 9 has changed the Group’s loss impairment method by replacing the incurred loss approach with a forward-looking
expected credit loss (ECL) approach. From 1 April 2018, the Group has been recording the allowance for expected credit losses for all debt
financial assets not held at fair value through the profit and loss (FVPL) in this section all referred to as ‘financial instruments’. Equity
instruments are not subject to impairment under IFRS 9.
Trade and other receivables
The Group has financial assets of trade receivables from sales of inventory that are subject to the expected credit loss model.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss or LTECL), unless
there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected
credit loss.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics
and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the
trade receivables for the same types of contracts. The Group has concluded that the expected loss rates for trade receivables are a
reasonable approximation of the loss rates for the contract assets.
Previous accounting policy for impairment of trade receivables
In the prior year, impairment of trade receivables was assessed based on the incurred loss model. Individual receivables which were known
to be uncollectible were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine
whether there was objective evidence that an impairment had been incurred but not yet been identified. For these receivables the
estimated impairment losses were recognised in a separate provision for impairment.
Risk Exposure arising fromMeasurement M anage me nt
Market risk – foreign exchange
Recognised financial assets
and liabilities not
denominated in currency
units
Ca s h fl ow fore ca s ti ng
Sensitivity analysis
Foreign currency forwards
and foreign currency options
Market risk – interest rate
Bank overdraft at variable
rates
Sensitivity analysis Interest rate swaps
Credit risk
Cash and cash equivalents,
trade receivables, derivative
financial instruments
Aging analysis Credit ratings Credit limits
Liquidity risk
Borrowings and other
liabilities
Rolling cash flow forecasts
Availability of committed
credit lines and borrowing
facilities
29
29
Group considered that there was evidence of impairment if any of the following indicators were present:
significant financial difficulties of the debtor
probability that the debtor will enter bankruptcy or financial reorganisation, and
default or late payments (more than 30 days overdue).
Receivables for which an impairment provision was recognised were written off against the provision when there was no expectation of
recovering additional cash.
The restatement on transition to IFRS 9 as a result of applying the expected credit risk model was immaterial.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s
customer base, including the default risk of the industry and country, in which customers operate, has less influence on credit risk. The
Group’s most significant customer accounts for 10% (2018: 10%) of external revenue with the next most significant customer accounting
for 9% (2018: 7%) of external revenue. The Group’s most significant customer accounts for $11.2m (2018: $10.1m) revenue, is in the
telecommunications segment and is supplied out of India and New Zealand.
The Group has established credit policies under which each new customer is analysed individually for credit-worthiness before payment
and delivery terms and conditions are agreed. The Group’s review includes trade references and external ratings, where appropriate and in
some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount; these limits
are reviewed periodically. Customers that fail to meet the Group’s benchmark credit-worthiness may transact with the Group only on a
prepayment basis.
Credit quality of financial assets
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 March is set
out below other than for derivatives which is shown in note D2 b.
The maximum exposure to credit risk for trade receivables at 31 March by currency of denomination is set out in note B3 b).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Typically, the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including
the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such
as natural disasters. In addition, the Group maintains the following lines of credit:
Current year
On 30 November 2018 the facilities with ASB were restructured and increased. At 31 March 2019 the following facilities were in place:
$15.5m overdraft limit. Interest is payable at the ASB Corporate Indicator Rate plus applicable margin. Also refer to note C3 b).
The increase compared to the previous facility relates to additional working capital required for growth in the
telecommunications business supplied out of India and New Zealand. This overdraft was drawn for the purchase of Rakon India.
Facilities are secured by a general security deed over all the present and future assets and undertakings of the Group and the Group has
agreed to certain capital requirements, restrictions on dividend distributions and capital expenditure. The financial covenants include net
tangible assets to total tangible assets, net debt to Underlying EBITDA and Underlying EBITDA to interest. Interest is based on wholesale
market interest rates, bank margin and applicable line fee. The Company was in compliance with all required financial covenants during the
year.
Prior year
$1.7m cash advance facility with ASB. The interest rate is reset every 30 – 90 days and interest is payable based on the bank
bill rate for that interest period, the term funding premium and the applicable margin.
$9.8m overdraft limit. Interest is payable at the ASB Corporate Indicator Rate plus applicable margin. The $2.0m increase
compared to the previous facility relates to additional working capital for the Rakon India business and requires the release of
securities held by CRI’s current banks within four months of the date of the acquisition date.
2019
2018
$000s$000s
Financial assets at fair value through profit or loss (note D2 b)19211
Trade and other receivables (note B3 b)
40,48731,111
Cash and cash equivalents (note D2 a)4,71910,364
Forward exchange contracts and collar options used for hedging (note D2 b)5651,412
Total exposure to credit risk45,79043,098
Carrying amount
30
30
The following table shows the contractual undiscounted cash flow maturities of financial liabilities, including interest payments and
excluding the impact of netting agreements:
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, whilst optimising the return on risk.
The Group enters into derivatives in the ordinary course of business and also incurs financial liabilities, in order to manage market risks. All
such transactions are carried out within the guidelines set by the Board and Audit and Risk Committee. Generally, the Group seeks to apply
hedge accounting in order to manage volatility in the Statement of Comprehensive Income.
Currency risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional
currencies of the Group’s entities, primarily New Zealand Dollars (NZD), Sterling (GBP) and the Euro (EUR). The currencies in which these
sales and purchases transactions are primarily denominated are US Dollars (USD), Japanese Yen (JPY), Indian Rupees (INR), NZD, GBP and
EUR. The Group uses foreign currency forward exchange contracts and collar options to hedge its currency risk.
Exposure to currency risk
The table below summarises the foreign exchange exposure on the net monetary assets of the Group against its respective functional
currency, expressed in NZD.
31 March 2019
Carrying
amount
6 months or
le ss6 – 12 months1 – 2 years2 – 5 years
$000s$000s$000s$000s$000s
Financial liabilities
Derivatives (note D2 b)1,288(750)(343)(195)-
Trade and other payables (note D2 d)26,398(26,398)---
Bank overdraft (note D2 e)11,501(11,501)---
Finance leases (note D2 e)817(405)(412)--
Total financial liabilities40,004(39,054)(755)(195)-
31 March 2018
Carrying
amount
6 months or
le ss6 – 12 months1 – 2 years2 – 5 years
$000s$000s$000s$000s$000s
Financial liabilities
Derivatives (note D2 b)313(99)(10)(78)(126)
Trade and other payables (note D2 d)19,107(19,107)---
Bank overdraft (note D2 e)2,824(2,824)---
Finance leases (note D2 e)31(15)(16)--
Total financial liabilities22,275(22,045)(26)(78)(126)
USDEURGBPJPYINR
$000s$000s$000s$000s$000s
31 March 201917,397(1,533)(460)(5,751)1,205
31 March 2018
16,155850165(617)-
31
31
The following significant exchange rates applied during the year:
Sensitivity analysis
Underlying exposures
A 10% weakening of the NZD against the following currencies at 31 March would have increased (decreased) equity and profit or loss by
the amounts shown below. Based on historical movements, a 10% increase or decrease in the NZD is considered to be a reasonable estimate.
This analysis assumes that all other variables, in particular interest rates remain constant. The analysis was performed on the same basis
for 2018.
A 10% strengthening of the NZD against the above currencies at 31 March would have had the equal but opposite effect on the above
currencies to the amount shown above, on the basis that all other variables remain constant.
Forward foreign exchange contracts
A 10% weakening of the purchased currencies below against the forward foreign exchange contracts outstanding at 31 March, would have
increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular
interest rates, remain constant. The analysis is performed on the same basis for 2018.
Interest rate risk
Under the Group’s Treasury Management Policy, a minimum of 50% of term debt is required to be on fixed interest rates. The Group adopts
a policy to manage its exposure to interest rates by considering fixed interest rate swap agreements.
NZD201920182019
2018
USD
0.67680.71490.68060.7277
EUR0.58870.61180.60440.5858
GBP
0.51880.53980.51540.5134
INR
47.479046.799646.987046.9569
JPY75.112779.209675.180076.8400
A ve rage rateReporting date rate
10% weakening2019201920182018
EquityProfit or lossEquityProfit or loss
$000s$000s
$000s$000s
USD1,9331,9331,7951,795
EUR
(170)(170)9494
GBP(51)(51)1818
JPY(639)(639)(69)(69)
INR
134134--
Fair value Equity Profit or lossFair value Equity Profit or loss
$000s$000s$000s$000s$000s$000s
Forward foreign exchange contracts - Cash flow hedge
Net buy NZD s ell USD
5,811(5,811)-1,294(2,719)-
Forward foreign exchange contracts - held for trading
Net buy NZD s ell EUR
(28)231231159(353)(353)
Net buy NZ s ell GPB
20277277
(91)(472)(472)
Net buy NZ s ell INR
119(496)(496)---
20192018
32
32
Profile
At 31 March the interest rate profile of the Group’s interest bearing financial instruments was:
Sensitivity analysis
An increase of 100 basis points in interest rates at 31 March would have increased (decreased) equity and profit or loss by the amounts
shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. The analysis for 2019 was
performed on the same basis as 2018.
A decrease of 100 basis points in interest rates at 31 March would have the opposite impact to what is shown above.
C3.Capital management
The Board’s policy is to maintain a capital base (made up of debt and equity) so as to sustain future development of the business. There
were no changes to the Group’s approach to capital management during the year.
Current year
The Group is reliant on its bank facility (refer note D2 e) and equity as the principal sources of capital management. The ability of the Group
to remain in compliance with its banking covenants has been considered by the Directors in the adoption of the going concern assumption
during the preparation of these financial statements.
Bank facilities
On 30 November 2018 the facilities with ASB were restructured and increased, refer note C2 b).
Facilities are secured by a general security deed over all the present and future assets and undertakings of the Group and the Group has
agreed to certain capital requirements, restrictions on dividend distributions and capital expenditure. The financial covenants include net
tangible assets to total tangible assets, net debt to Underlying EBITDA and Underlying EBITDA to interest. Interest is based on wholesale
market interest rates, bank margin and applicable line fee.
Compliance with bank covenants is dependent on the Group’s financial performance. The Directors have approved a five year forecast and
business valuation impairment model. The Directors forecast that the Group will trade at levels appropriate to manage its working capital
requirements and meet its bank covenants for the period of at least 12 months from the date of authorisation of these financial statements.
The Directors have considered the achievability of the assumptions underlying those forecasts, including forecast sales and positioning the
business for the future. Forecasts indicate that the Group will meet all covenants and net cash requirements for at least 12 months from
the date of authorisation of these financial statements and that there is sufficient headroom to allow for downward sensitivities, should the
actual revenue and margin levels be lower than forecast.
20192018
Variable rate instruments$000s$000s
Financial assets (note D2 a)
4,71910,364
Financial liabilities
(11,501)(2,824)
Net variable rate instruments(6,782)
7,540
Fixed rate instruments
Financial liabilities
(176)(224)
Net fixed rate instruments(176)(224)
2019201920182018
EquityProfit or loss
EquityProfit or loss
$000s$000s$000s
$000s
Variable rate instruments(68)(68)(28)(28)
Fixed rate instruments76765858
33
33
D.Other information
D1.Other profit and loss information
Summary of impairments
The Group has assessed as at 31 March 2019 whether any indicators of impairment exist. In undertaking such an assessment, no indicators
of impairment were identified in the current year.
Employee benefits expenses
Accounting policy
Employee entitlements to salaries, wages and annual leave to be settled within 12 months of balance date represent present obligations
resulting from employees’ services provided up to the balance date. These are calculated at undiscounted amounts based on remuneration
rates that the Group expects to pay.
Breakdown of employee benefits expenses
Net finance (costs)/income
Accounting policy
Interest income is recognised in the statement of comprehensive income as it accrues, using the effective interest method.
Breakdown of finance (costs)/income
20192018
$000s$000s
Property, plant & equipment (note D3 a)
-120
Total impairment
-120
20192018
$000s
$000s
Wages and salaries
43,87237,216
Contributions to defined contribution plans644570
Increase/(decrease) in liability for French retirement indemnity plan (note D3 b)265(23)
Increase in liability for long service leave (note D3 b)65114
Redundancy expense (note D3 b)-159
Employee share scheme (note D5)-8
Total employee benefits expenses44,84638,044
20192018
$000s$000s
Financial income
Interest income373
Financial expenses
Interest expense on bank borrowings(459)(492)
Interest on deferred consideration on acquisition - Rakon India (100)-
Unwinding of lease make good provision discount(12)(12)
Total financial expenses(571)(504)
Net finance costs(534)(501)
34
34
Income tax expense
Accounting policy
Income tax on the net profit for the year comprises current and deferred tax. Income tax is recognised in the profit and loss component of
the Statement of Comprehensive Income, with the exception of other items that relates to other comprehensive income, in which case it is
recognised in other comprehensive income.
Breakdown of income tax expense
The weighted average applicable tax rate was 39% (2018: 9%).
D2.Other financial assets and liabilities
Cash and cash equivalents
Accounting policy
Cash and cash equivalents comprise of cash balances, call deposits, and other short term highly liquid investments with original maturities
of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value and bank overdrafts. Bank overdrafts are shown separately from borrowings on the balance sheet.
20192018
$000s$000s
Current tax(1,879)(616)
Deferred tax expense (note D4)(231)(382)
Income tax expense(2,110)(998)
20192018
Reconciliation of income tax expense $000s$000s
Profi t be fore ta x
5,47410,997
Tax calculated at domestic tax rates applicable to profits in the respective countries(1,540)(2,943)
Foreign exchange difference in income tax calculation-15
Expenses not deductible
(276)(73)
Non-taxable income6841,890
Expenses deductible for tax purposes
3418
Prior year adjustment46296
Associate and joint venture results reported net of tax
95(541)
Movement in deferred tax subsquent to business combination(427)-
Recognition and utilisation of previously unrecognised tax losses347610
Tax losses for which no deferred income tax asset was recognised(1,073)(270)
Income tax expense(2,110)(998)
The tax on the Group's result before tax differs from the theoretical amount that would arise using the weighted average tax
rate applicable to the results of the consolidated entities.
20192018
$000s$000s
Cash at bank and on hand
4,71910,364
Cash, cash equivalents and bank overdrafts include the following for the purposes of the
Statement of Cash Flows
Cash and cash equivalents4,71910,364
Bank overdrafts (note D2 e)(11,501)(2,824)
Total cash and cash equivalents(6,782)7,540
35
35
Derivative financial instruments
The Group is exposed to certain risks relating to its ongoing business operations. To mitigate the risks the Group uses derivative financial
instruments such as cross-currency swaps and interest rates swaps. When the Group designates certain derivatives to be part of a hedging
relationship, and they meet the criteria for hedge accounting, the hedges are classified as cash flow hedges.
Derivative financial instruments are held for risk and asset management purposes only and not for the purpose of speculation. The Group’s
risk management strategy and how it is applied to manage risk is explained further in note C2.
The following table sets out the notional amount of derivative instruments designated in a hedge relationship-by-relationship type as well
as the related carrying amounts.
Trading derivatives are classified as a current asset or liability. The full fair value of a hedging derivative is classified as a non-current asset
or liability if the remaining maturity of the hedged item is more than 12 months, or as a current asset or liability if the maturity of the hedged
item is less than 12 months.
Forward foreign exchange contracts
The notional principal amounts of the outstanding forward foreign exchange contracts at 31 March 2019 were $42,421,152 (2018:
$33,624,000). The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates
during the next 24 months. Gains and losses recognised in the hedging reserve in equity on forward foreign exchange contracts will be
recognised in the Statement of Comprehensive Income, in the period or periods during which the hedged forecast transaction affects the
Statement of Comprehensive Income.
Interest rate swap contracts
At balance date, one interest rate swap was in place with $3m of borrowings fixed at 4.17%, expiring June 2020. The interest rate swap,
with a fair value of -$100,000 (2018: -$145,000), is exposed to fair value movements if interest rates change.
Recognised fair value measurements
Derivative financial instruments
Derivative financial instruments are initially recognised at fair value exclusive of any transaction costs on the date a derivative contract is
entered into and are subsequently re-measured to their fair value at each reporting date.
All derivatives are recognised as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses
arising from the change in fair value of derivatives, except those that qualify as effective cash flow hedges, are immediately recognised in
the Statement of Comprehensive Income.
2019201920182018
Asse tsLiabilitiesAsse tsLiabilities
$000s$000s$000s$000s
Interest rate swaps – cash flow hedge-100-126
Forward foreign exchange contracts – cash flow hedges2748371,242-
Forward foreign exchange collar option – cash flow hedges29125617096
Total derivative financial instruments5651,1931,412222
Less: non-current forward foreign exchange – cash flow hedges25834333478
Current - derivative financial instruments3078501,078144
Forward foreign exchange contracts – held for trading199521191
Total - derivative financial instruments
3269451,289235
36
36
Reclassifications of financial instruments on adoption of IFRS 9
On the date of initial application, 1 April 2018, the financial instruments were as follows, with any reclassifications noted:
Equity instruments
The Group subsequently measures all equity investments at fair value. Where the Group has elected to present fair value gains and losses
on equity investments in other comprehensive income (OCI), there is no subsequent reclassification of fair value gains and losses to the
profit and loss component of the Statement of Comprehensive Income. Dividends from such investments continue to be recognised as other
income in the profit and loss component of the Statement of Comprehensive Income when the Group’s right to receive payments are
established. Changes in the fair value of financial assets at fair value through profit and loss (FVPL) are recognised in other gains/(losses) in
the profit and loss component of the Statement of Comprehensive Income. Impairment losses (and reversal of impairment losses) on equity
investments measured at fair value through other comprehensive income (FVOCI) are not reported separately from other changes in fair
value.
Derivatives and hedging
The effective portion of changes in the fair value of cash flow hedges is recognised (including related tax impacts) through OCI in the cash
flow hedge reserve in equity. The ineffective portion is recognised immediately in the Statement of Comprehensive Income. The balance of
the cash flow hedge reserve in relation to each particular hedge is transferred to the profit or loss in the period when the hedged item
affects profit or loss. Hedge accounting is discontinued when a hedging instrument expires or is sold or terminated, or when a hedge no
lo nger meets the criteria for hedge accounting. The cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in the profit or loss. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately transferred to the profit or loss.
Hedge ineffectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments
to ensure that an economic relationship exists between the hedged item and hedging instrument.
For hedges of foreign currency purchases, the Group enters into hedge relationships where the critical terms of the hedging instrument
match exactly with the terms of the hedged item. The Group therefore performs a qualitative assessment of effectiveness. If changes in
circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging
instrument, the Group assesses these terms that no longer match to assess hedge effectiveness.
In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally
estimated, or if there are changes in the credit risk of the derivative counterparty.
The Group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment
dates, maturities and notional amount. The Group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion
of the outstanding loans up to the notional amount of the swaps. As all critical terms matched during the year, the economic relationship
was 100% effective.
Hedge ineffectiveness for interest rate swaps is assessed using the same principles as for hedges of foreign currency purchases . It may
occur due to:
the credit value/debit value adjustment on the interest rate swaps which is not matched by the loan, and
differences in critical terms between the interest rate swaps and loans.
Original (IAS 39)Ne w (IFRS 9)Original New Difference
$000
$000$000
Non-current financial asset
Derivative financial instruments - Cash flow hedgesFVOCIFVOCI334334
-
Tr a de a nd other r ec ei va bl es
Amorti sed costAmorti sed cost
2,716
2,716-
Current financial assets
Derivative financial instruments - Held for trading FVPLFVPL211211-
Tr a de a nd other r ec ei va bl es
Amorti sed costAmorti sed cost
28,39528,395-
Cash and cash equivalents Amorti sed costAmorti sed cost10,364
10,364-
Derivative financial instruments - cash flow hedges FVOCIFVOCI1,0781,078-
Current financial liabilities
Derivative financial instruments - Held for trading
FVPLFVPL
9191-
Derivative financial instruments - Cash flow hedgesFVOCIFVOCI144
144-
Non-current financial liabilities
Derivative financial instruments - Cash flow hedgesFVOCIFVOCI7878-
Carrying amount Measurement category
37
37
There was no ineffectiveness during 2019 or 2018 in relation to the interest rate swaps.
During the year, the following amounts were recognised in profit or loss in relation to foreign currency transactions and interest rate swaps:
Effects of hedge accounting on the financial position and performance
The effects of the foreign currency related hedging instruments on the Group’s financial position and performance are as follows:
Trade and other payables
Accounting policy
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method.
Breakdown of trade and other payables
The carrying amounts of trade and other payables are assumed the same as their fair values due to their short term nature.
Borrowings
Accounting policy
Interest bearing borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, interest
bearing borrowings are measured at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption
amount, recognised in the Statement of Comprehensive Income over the period of the borrowings, using the effective interest method.
Arrangement fees are amortised over the term of the loan facility.
2019
$000s
Net foreign exchange loss included in sales (note D5)
591
Net gain on foreign currency forwards not qualifying as hedges included in other gains (Note B2c)46
201920192019
$000s$000s$000s
Foreign
currency
options
Foreign
currency
forwards
Interest rate
swaps
Notional amount
32,94042,4213,000
Maturity date
MAY-1 9 to
SEP-2 0
APR-19 to
OCT-2 0
J UN-2 0
Hedge ratio
1:11:11:1
Change in intrinsic value of outstanding hedging instruments (31)--
Weighted average strike rate for the year:
GBP/USD
1.34
--
NZD/USD0.69
--
Weighted average contract rate for the year:
NZD/USD
-
0.74
-
GBP/USD-
1.33
-
EUR/USD-
1.14
-
INR/USD-
71.56
-
20192018
$000s$000s
Trade payables13,4397,015
Amounts due to related parties (note D9 b)4681,874
Employee entitlements8,9087,803
Accrued expenses3,5831,839
GST/VAT pa ya bl e-576
Total trade and other payables26,39819,107
38
38
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12
months after balance date.
Breakdown of borrowings
Bank borrowings
During the year bank borrowings were restructured (refer note C2 b). The average interest rate during the year on this facility was 5.15%
(2018: 5.97%).
Bank overdrafts and borrowings are secured by first mortgage over all the undertakings of Rakon Limited and any other wholly owned
present and future subsidiaries.
The exposure of the Group’s bank borrowings to interest rate changes and the contractual re-pricing dates at the balance dates are as
follows:
D3.Other non-financial assets and liabilities
Property, plant and equipment
Accounting policy
Initial recording and subsequent measurement
Items of property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. The cost of purchased
property, plant and equipment is the value of the consideration given to acquire the assets and the value of other directly attributable costs,
which have been incurred in bringing the assets to the location and condition necessary for their intended service. Where parts of an item
of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant or equipment.
Subsequent costs
The Group recognises in the carrying amount of an item of property, plant or equipment the cost of replacing part of such an item when
that cost is incurred, only when it is probable that the future economic benefits embodied with the item will flow to the Group and the cost
of the item can be measured reliably. All other costs are recognised in the Statement of Comprehensive Income as an expense when
incurred.
Depreciation
Depreciation of property, plant and equipment, other than freehold land, is calculated on a straight line basis so as to expense the cost of
the assets to their expected residual values over their useful lives as follows:
20192018
$000s$000s
Current
Obligations under finance lease40531
Other borrowings6967
Bank overdrafts11,5012,824
Current borrowings11,9752,922
Non-current
Obligations under finance lease412-
Non-current borrowings412-
20192018
$000s$000s
6 months or less11,5012,922
Total bank borrowings including overdraft11,5012,922
Land
Buildings
Leasehold improvements
Computer hardware
Plant and equipment
Furniture and fittings
Assets under course of constructionNil
Nil
15 – 20 years
3 – 25 years
1 – 10 years
1 – 20 years
3 – 20 years
39
39
The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each balance date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘other
gains/(losses) – net’ in the Statement of Comprehensive Income.
Breakdown of property, plant and equipment
Provisions for other liabilities and charges
Accounting policies
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and
it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and
where appropriate, the risks specific to the liability.
Land and
buildings
Leasehold
improve -
ments
Plant and
equipment
Computer
hardwareOthe r
Asse ts
under
construct-
ionTotal
$000s$000s$000s$000s$000s$000s$000s
Year ended 31 March 2018
Opening net book value 5292,0557,5462733511,99112,745
Foreign exchange differences-82173201782374
Additions-1211,1593241621,5073,273
Disposals-(3,061)(3,243)(434)(76)(13)(6,827)
Depreciation charge-(398)(1,809)(250)(47)-(2,504)
Depreciation reversal on disposals-2,8903,15843458-6,540
Impairment--(94)--(26)(120)
Transfers-27553111(592)-
Closing net book amounts5291,7167,4433784662,94913,481
At 31 March 2018
Cost 4,8877,45080,7255,0402,4802,975103,557
Accumulated depreciation and
impairment
(4,358)(5,734)(73,282)(4,662)(2,014)(26)(90,076)
Net book value5291,7167,4433784662,94913,481
Year ended 31 March 2019
Opening net book value 5291,7167,443
3784662,94913,481
Foreign exchange differences(4)(35)(54)(12)(21)(40)(166)
Additions-5522,414728562,4676,217
Additions on acquisition -983,540479283,749
Disposals--(667)(29)
(5)(76)(777)
Depreciation charge-(470)(2,940)(292)(63)-(3,765)
Depreciation reversal on disposals--62728--655
Transfers-414643207(1,084)-
Closing net book amounts5252,27511,006
8255194,24419,394
At 31 March 2019
Cost
4,8838,47986,6015,7512,5964,270112,580
Accumulated depreciation and
impairment
(4,358)(6,204)(75,595)(4,926)(2,077)(26)(93,186)
Net book value5252,27511,0068255194,24419,394
40
40
Retirement provision
The Group’s net obligation in respect of the French retirement indemnity plan is the amount of future benefit that employees have earned
in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is
discounted to its present value and the fair value of any related assets is deducted. The French retirement indemnity plan entitles permanent
French employees to a lump sum on retirement. The payment is dependent on an employee’s final salary and the number of years of service
rendered.
French employees are entitled to a retirement pay-out once they have met specific criteria. This is a one off payment based on service time
at retirement date. A provision has been created to recognise this cost taking in consideration the time served, probability of attainment
and discount rates. An actuarial valuation was performed at 31 March 2019.
Long service leave
The Group’s net obligation in respect of long service leave is the amount of future benefit that employees have earned in return for their
service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present
value.
New Zealand employees are entitled to long service leave after the completion of 10 years’ continuous service, in the form of special holidays
and allowance. A provision has been created to recognise this cost, taking into consideration the time served, probability of attainment and
discount rates.
Lease make good
Rakon is required to restore the leased premises at Mt Wellington, Auckland, New Zealand to their original condition at the end of the
respective lease terms. A provision is recognised for the present value of the estimated expenditure required to remove any leasehold
improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the lease terms.
Restructure provision
During 2017 a proposal for re-organisation was discussed with the Work Inspection Administration and Workers Council in France and
communicated to the employees of Rakon France SAS as a plan to restructure. During the year, the restructure plan was concluded.
Breakdown of provisions for other liabilities and charges
Retirement
provision
Long service
le ave
Restructure
provision
Lease make
good
Total
$000s$000s$000s$000s$000s
At 31 March 20171,9414178336283,819
(Credited)/charged to the Statement of
Comprehensive Income
(23)11415912262
Used during the year(109)(61)(645)-(815)
Foreign exchange
337-92-429
At 31 March 20182,1464704396403,695
Charged to the Statement of Comprehensive Income26565-12342
Used during the year-(72)(439)-(511)
Foreign exchange(80)--15(65)
At 31 March 20192,331463-6673,461
Represented by
Current portion154317--471
Non-current portion2,177146-6672,990
Total provisions for other liabilities and charges2,331463-6673,461
41
41
D4.Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and current tax
liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same jurisdiction, is as follows:
1
Includes deferred tax arising from financial instruments (cash flow hedges) and inventory provisioning.
At balance date Rakon Limited had total tax losses of $26,743,000 (2018: $29,266,000) of which $8,908,000 (2018: $9,396,000) are
recognised in deferred income tax assets. Accordingly, $17,835,000 (2018: $19,901,000) of tax losses have not been recognised in deferred
income tax assets. Rakon Limited’s tax losses have no expiry date. During the year Rakon Limited recognised tax losses of $1,712,000 (2018:
$2,180,000) which were not previously recognised in deferred income tax assets. These were fully utilised against current year taxable
income. Deferred income tax assets are recognised for tax losses to the extent that the related tax benefit is expected to be realised through
future taxable profits.
20192018
$000s$000s
Deferred tax assets
7,3525,906
Deferred tax liabilities
(1,069)(244)
Net deferred tax asset
6,2835,662
20192018
$000s$000s
The gross movement in the deferred income tax account is as follows:
Opening balance
5,6626,668
Foreign exchange differences(3)112
Losses transferred to subsidiaries(209)(389)
Deferred tax on cash flow hedge
496(347)
Acquisition of subsidiaries568-
Income statement expense (note D1 d)(231)
(382)
Closing balance6,2835,662
Property,
plant &
equipmentIntangibles
Employee
benefitsOthe r
1
Future
inc ome tax
benefit
Total
$000s$000s$000s$000s$000s$000s
At 31 March 2017223-
4143,0123,0196,668
(Charged)/credited to profit or loss(180)-88(291)1(382)
Losses transferred to subsidiaries----(389)(389)
Charged to equity---(347)-(347)
Foreign exchange difference5--107-112
At 31 March 201848
-5022,4812,6315,662
(Charged)/credited to profit or loss(321)-149(138)79(231)
Losses transferred to subsidiaries----(209)(209)
Acquisition of subsidiaries---568-568
Charged to equity---496-496
Foreign exchange difference---(3)-(3)
At 31 March 2019(273)-6513,4042,5016,283
42
42
D5.Other reserves
D6.Contributed equity
Share capital
Accounting policy
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as
a deduction, net of tax, from the proceeds.
At 31 March 2019 the total number of ordinary shares, including treasury shares, is 229,055,272 shares (2018: 229,055,272) made up as
follows:
226,961,983 are fully paid shares (2018: 226,961,983)
321,972 unpaid ordinary shares were on issue and held in trust on behalf of participants in the Rakon Share Plan (2018: 321,972)
1,771,317 unpaid ordinary shares were held by Rakon ESOP Trustee Limited for future allocation to participants (2018:
1,771,317)
At 31 March 2019, the share capital remained unchanged at $181,024,000.
D7.Contingencies
Prior to acquisition, Rakon India has received income tax assessments, which are in dispute. The Directors of Rakon India believe the
positions are likely to be upheld and accordingly no provision was made in Rakon India’s financial statements. The below summarises the
potential impacts on Rakon India’s tax balances if the assessments are upheld, and in which case, the exiting joint venture partner will
assume 51% of the liability.
Income taxes
2011/12 – an increase in taxable income of $1.6m (tax value $750,000)
2013/14 – no increase in taxable income (tax value $480,000)
Indirect taxes
December 2010/ August 2012 – excess input credit availed (tax value $840,000)
Foreign
currency
translation
reserve
Hedging
reserve
Share option
reserve
Othe r
comprehensive
income
re valuationTotal
$000s$000s$000s$000s$000s
At 31 March 2017
(27,478)1,1623,056-(23,260)
Cash flow hedges
Fair value gains/(losses) in year-
(930)--(930)
Tax on fair value gains -260--260
Transfers to sales-558--558
Tax on transfers to income tax expense-(156)--(156)
Subsidiaries2,982---2,982
Associates and joint venture(216)---(216)
Fair value of share options issued--8-8
At 31 March 2018(24,712)8943,064-(20,754)
Cash flow hedges
Fair value gains/(losses) in year-(1,221)-
-(1,221)
Cost of hedge-
31--31
Changes in fair value of equity investments at fair value
through other comprehensive income - Thinxtra
---(454)(454)
Tax on fair value losses -342--342
Transfers to sales-(591)
--(591)
Tax on transfers to income tax expense-165--165
Subsidiaries1,330-
--1,330
Associates and joint venture(1)---(1)
At 31 March 2019(23,383)(380)3,064(454)
(21,153)
43
43
D8.Commitments
Capital commitments
Capital expenditure contracted for at the balance date but not yet incurred is $194,000 (2018: $433,000).
Leases
Accounting policy
The Group is the lessee. Leases where the lessor retains substantially all the risk and rewards of ownership are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive
Income on a straight line basis over the period of the lease.
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised
at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease
payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are recognised in finance costs in profit or loss.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term.
Finance lease – Group as lessee
Operating lease commitments – Group as lessee
The Group leases various factories, offices and warehouses under non-cancellable operating lease agreements. The lease terms are between
1 and 7 years and the majority of lease agreements are renewable at the end of the lease period at market rate.
The Group also leases motor vehicles under operating lease agreements. The lease terms are for 3 years. The lease expenditure is charged
to the Statement of Comprehensive Income.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
20192018
$000s$000s
No later than 1 year
40531
Later than 1 year and no later than 5 years412-
Total minimum lease payments81731
Less amounts representing finance charges(26)(1)
Present value of minimum lease payments79130
Included in the financial statements as
Current borrowings (note D2 e)
40531
Non-current borrowings (note D2 e)412-
Total finance lease included in borrowings81731
20192018
$000s$000s
No later than 1 year2,6892,155
Later than 1 year and no later than 5 years6,7555,904
Later than 5 years9381,640
Total non-cancellable operating leases10,3829,699
44
44
D9.Related party information
No amounts owed by a related party have been written off or forgiven during the year. Related party transactions were transacted at arm’s
length.
Key management compensation
Transactions and year end balances
D10.Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Group, by the weighted average
number of ordinary shares on issue during the year.
20192018
$000s$000s
Salaries and other short-term employee benefits
3,7673,437
Share based payments
-15
Total key management compensation3,7673,452
20192018
$000s$000s
Sales to joint venture, Centum Rakon India Private Limited-125
Purchases from joint venture, Centum Rakon India Private Limited
(1,284)(13,204)
Purchases from associate, Chengdu Shen-Timemaker Crystal Technology Co. Limited(233)(243)
Engineering support charges to joint venture, Centum Rakon India Private Limited-47
Net transactions(1,517)(13,275)
Receivables:
Centum Rakon India Private Limited-64
Rakon HK Limited13993
139
157
Payable s:
Centum Rakon India Private Limited
-
1,858
Chengdu Shen-Timemaker Crystal Technology Co. Limited232-
2321,858
Following are sales and purchases to/from Siward Crystal Technologies Co. Limited
Sa les
210190
Purchases(236)(174)
Engineering support services-115
Net transactions(26)131
Receivables from Siward Crystal Technologies Co. Limited210150
Payables to Siward Crystal Technologies Co. Limited23616
20192018
000s000s
Weighted average number of ordinary shares on issue (note D6 a)226,962226,962
Continuing operations
Earnings attributable to equity holders of the Group ($000s)3,3649,999
Basic earnings per share (cents per share)1.54.4
45
45
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares: restricted ordinary shares and
share options.
D11.Share based payments
Accounting policy
The Group’s management awards qualifying employees’ bonuses, in the form of share options and conditional rights to redeemable ordinary
shares, from time to time, on a discretionary basis. These are subject to vesting conditions and their fair value is recognised as an employee
benefit expense with a corresponding increase in other reserve equity over the vesting period. The fair value determined at grant date
excludes the impact of any non-market vesting conditions, such as the requirement to remain in employment with the Group. Non-market
vesting conditions are included in the assumptions about the number of options that are expected to vest and the number of redeemable
ordinary shares that are expected to transfer. At each balance date the estimate of the number of options expected to vest and the number
of redeemable ordinary shares expected to transfer is revised and the impact of any change in this estimate is recognised in the Statement
of Comprehensive Income with a corresponding entry to equity. The proceeds received net of any directly attributable transaction costs are
credited to share capital when the options are exercised, or the conditional rights to redeemable ordinary shares are transferred.
Rakon Share Plan
In March 2006, Rakon Limited established a share plan to enable selected employees of Rakon Limited to acquire shares in the Company
through the plan trustee, Rakon ESOP Trustee Limited.
Under the terms of the share plan, 2,759 ordinary shares were issued at deemed market value at that time to Rakon ESOP Trustee Limited
to hold on behalf of the participating employees. Following a share split on 13 April 2006, the resulting number of shares under this plan
was 859,137. All shares issued to Rakon ESOP Trustee Limited have been allocated. The shares rank equally in all respects with all other
ordinary shares issued by the Company. The outstanding loan balance provided by Rakon Limited to participating employees in respect of
these shares totals $195,000 (2018: $195,000). Loans are provided on an interest free basis and the employee may repay all or part of the
loan at any time. No repayments were due at 31 March 2019 (2018: nil). The Trust Deed makes provision for the Company to require
repayment of the loans in certain circumstances.
As at 31 March 2019, 321,972 (31 March 2018: 321,972) shares were held by Rakon ESOP Trustee Limited.
Shares issued under the share plan are held on trust by Rakon ESOP Trustee Limited. A participating manager may request the trustee to
transfer the relevant shares to him or her, provided the loan to that manager has been repaid in full.
The Company may remove and appoint trustees at any time. The Directors and shareholders of Rakon ESOP Trustee Limited are Bryan
Mogridge and Bruce Irvine.
Shares held by the share plan represent approximately 0.14% of the Company's total shares on issue as at balance date (2018: 0.14%).
Rakon Employee Share Option Scheme (2015)
During the year, no options were exercised and all remaining options lapsed as the benchmark share price was not achieved. The weighted
average fair value of options granted of $0.018 per option was determined using the Black-Scholes valuation model. The significant inputs
into the model were the following: weighted average share price of $0.25 at the grant date, exercise price shown above, volatility of 15%,
dividend yield of 0%, an average expected option life of 2 years and an annual risk-free interest rate of 4%. The volatility was measured at
the standard deviation of continuously compounded share returns, based on statistical analysis of daily share prices from the 12 months
preceding July 2014. There have been no allocations since July 2014.
20192018
000s000s
Weighted average number of ordinary shares on issue (note D6 a)
226,962226,962
Adjustments for dilutive potential ordinary shares (restricted ordinary shares and share
opti ons)
3223,622
Weighted average number of ordinary shares for diluted earnings per share227,284230,584
Continuing operations
Earnings attributable to equity holders of the Group ($000s)3,3649,999
Diluted earnings per share (cents per share)1.54.3
46
46
Share options outstanding at 31 March:
D12.Summary of other significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements have been set out in sections B to
D. Additional relevant policies are detailed below and have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The Company is registered under the Companies Act 1993 and is a FMC reporting entity under Part 7 of the Financial Markets Conduct Act
2013. The financial statements of the Group have been prepared in accordance with the requirements of Part 7 of the Financial Markets
Conduct Act 2013 and the NZX (Main Board) Listing Rules.
These consolidated financial statements for the year ended 31 March 2019 have been prepared in accordance with New Zealand Generally
Accepted Accounting Practice (NZ GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZ
IFRS), other New Zealand accounting standards and authoritative notices that are applicable to entities that apply NZ IFRS. The consolidated
financial statements also comply with International Financial Reporting Standards (IFRS). The Group is a profit-oriented entity for the
purposes of complying with NZ GAAP. These financial statements comprise Rakon and its subsidiaries.
The financial statements have been prepared on a historical cost basis, except for: derivative financial instruments – measured at fair value,
and equity instruments – measured at fair value.
The preparation of financial statements in accordance with NZ IFRS requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from
these estimates, refer to section C1.
Financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or
have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Fair value estimates
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement, or for disclosure purposes.
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a
variety of methods and makes assumptions that are based on market conditions existing at each balance date. Techniques, such as
estimated discounted cash flows, are used to determine fair value for financial instruments. The fair value of forward exchange contracts
and collar options is determined using forward exchange market rates at the balance date.
The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The
fair value of financial liabilities for disclosure purposes, is estimated by discounting the future contractual cash flows at the current market
interest rate that is available to the Group for similar financial instruments.
20192018
Option Price
Number of
Options
Number of
Options
Opening balance -3,300,0003,300,000
Granted
0.25
--
Cancelled
0.25--
La ps ed-(3,300,000)-
Closing balance
0.25
-3,300,000
20192018
Exercise
price
Benchmark
price
Number of
Options
Number of
Options
Year ended 31 March
0.250.3
-3,300,000
47
47
Classification of financial assets
The Group classifies its financial assets in the following categories:
Financial asset at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Derivative financial instruments
Other financial assets at amortised cost.
The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its
financial assets at initial recognition and re-evaluates this designation at each reporting date with the exception of financial assets at fair
value through other comprehensive income.
Financial assets at fair value through profit or loss
This category has two subcategories: financial assets held for trading and those designated at fair value through profit or loss on initial
recognition. For accounting purposes, derivatives are categorised as held for trading unless they are designated as hedges. Assets in this
category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance
date.
Financial assets at fair value through profit and loss are carried at fair value. Realised and unrealised gains and losses arising from changes
in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the Statement of Comprehensive Income,
in the period in which they arise.
The Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions,
involving the same instruments or other instruments that are substantially the same and discounted cash flow analysis.
The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired.
Impairment testing of trade receivables is described in note B3 b).
Classification of financial assets at fair value through other comprehensive income
On disposal of these equity investments, any related balance within the FVOCI reserve is reclassified to retained earnings. Equity securities
which are not held for trading, and which the Group has irrevocably elected at initial recognition to recognise in this category. These are
strategic investments and the Group considers this classification to be more relevant.
Other financial assets at amortised cost
Receivables and other financial assets are classified as subsequently measured at amortised cost on the basis of both the Group’s business
model for managing the financial assets and the contractual cash flow characteristics of the financial asset. If collection of the amounts is
expected in one year or less they are classified as current assets.
Other financial assets at amortised cost include loans to related parties and trade and other receivables.
Derivative financial instruments
In accordance with its wider risk management, it is the Group’s strategy to apply cash flow hedge accounting to keep its foreign currency
revaluation fluctuations within its established limits, refer note 0 and D2 c). Applying cash flow hedge accounting enables the Group to
reduce the cash flow fluctuations arising from foreign exchange risk on an instrument or Group of instruments, or to hedge mismatches. A
cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised
asset or liability or a highly probable forecast transaction that could affect profit or loss.
Changes in accounting policy and disclosures
New and amended accounting standards adopted by the Group
A number of new accounting standards and amendments have been adopted effective 1 April 2018.
NZ IFRS 15 Revenue from contracts with customers
The Group adopted NZ IFRS 15 Revenue from Contracts with Customers from 1 April 2018, resulted in changes in accounting policies which
are disclosed in note B2 a). The group applied NZ IFRS 15 using the modified retrospective method.
Following a detailed review of the Group’s portfolio of contracts, management concluded that the implementation of NZ IFRS 15 has no
material impact on the opening balance sheet, therefore no transition adjustments have been made. The details of the review process are
outlined below.
To assess the impact of NZ IFRS 15 on the Group it has reviewed all significant contracts and the five‑step method was applied to assess the
impact on revenue recognition. The five‑step method for recognising revenue from contracts with customers involves consideration of the
following:
1. Identifying the contract with the customer
2. Identifying performance obligations
3. Determining the transaction price
4. Allocating the transaction price to distinct performance obligations; and
5. Recognising revenue.
48
48
Applying this approach, the adoption of NZ IFRS 15 resulted in changing the timing of revenue recognition for specific long-term contracts
related to the space and defence segment in France. Previously the Group recognised the revenue in relation to these contracts on the
delivery of the product to the customer, whilst under NZ IFRS 15, revenue should be recognised over time. The impact of the new standard
for year ended 31 March 2019 was significant due to the timing of completion of performance obligations.
The table below shows the amount by which each financial statement line item affected in the current year by NZ IFRS 15 as compared to
NZ IAS 18 and the related interpretations that were in effect before the change.
NZ IFRS 9 Financial instruments
NZ IFRS 9 Financial Instruments became effective for periods beginning on 1 January 2018. NZ IFRS 9 makes changes to the classification
and measurement of financial instruments, introduces a new expected loss model when recognising expected credit losses (ECL) on financial
assets, and introduces new general hedge accounting requirements.
The accounting for the Group’s financial liabilities remains the same as it was under NZ IFRS 39. The adoption of NZ IFRS 9 has changed the
Group’s accounting for impairment losses for financial assets by replacing NZ IFRS 39’s incurred loss approach with a forward-looking ECL
approach.
The ECL model, further described in note B3 b), applies to all the Group’s financial assets measured at amortised cost.
The Group has applied IFRS 9 retrospectively without restating the comparative information for 2018 as permitted by the transitional
provisions. The difference between the previous carrying amount of financial instruments and the carrying amount of those instruments at
1 April 2018 measured in accordance with NZ IFRS 9 has not been restated.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. For
assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are
not held for trading, classification will depend on whether the Group has made an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other comprehensive income (FVOCI).
Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss, as follows:
Where the hedged item subsequently results in the recognition of a non-financial asset (such as inventory), both the deferred hedging gains
and losses and the deferred time value of the option contracts or deferred forward points, if any, are included within the initial cost of the
asset. The deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss (for example through cost
of sales).
The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings, is recognised in profit or loss
within finance cost at the same time as the interest expense on the hedged borrowings.
When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs,
resulting in the recognition of a non-financial asset such as inventory. When the forecast transaction is no longer expected to occur, the
cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.
New and amended standards and interpretations not yet adopted
NZ IFRS 16 Leases
NZ IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between
operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay
rentals are recognised. The only exceptions are short-term and low-value leases.
The group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption.
All right of use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).
The standard will have no effect on the underlying cash flows, however amounts paid for leases will be reclassified from operating activity
to financing activity in the Statement of Cash Flows.
NZ IAS18
NZ IFRS 15
adjustment
NZ IFRS 15
For the year ended 31 March 2019$000s$000s$000s
Revenue (note B2a)111,6172,368113,985
Trade and other receivables (note B3b)38,1192,36840,487
Cost of sales(61,607)(710)(62,317)
Inventory (note B5a)40,020(710)39,310
49
49
On adoption at 1 April 2019, and expected impact at 31 March 2020 is as follows:
The above has no cash effect to the Group and the change is for financial reporting purposes only.
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic
substance of the underlying events and circumstances relevant to that entity (‘the functional currency’). The consolidated financial
statements are presented in New Zealand dollars, (‘the presentation currency’), which is the functional currency of the parent.
Transactions and balances
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance date are translated to New Zealand dollars at the foreign exchange rate ruling
at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income, within other
gains/(losses) – net, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment
hedges. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair
value are translated to New Zealand dollars at foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of all of the Group companies (none of which have a currency of a hyper-inflationary economy) that have a
functional currency that differs from the presentation currency, including goodwill and fair value adjustments arising on consolidation, are
translated to New Zealand dollars at foreign exchange rates, ruling at the balance date. The revenues and expenses of these foreign
operations are translated to New Zealand dollars, at rates approximating to the foreign exchange rates ruling at the dates of the
transactions.
Exchange differences arising from the translation of foreign operations are recognised in the foreign currency translation reserve.
Borrowings and other currency instruments designated as hedges of such investments are taken to shareholders’ equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and are translated at the foreign exchange rates ruling at the balance date.
Impairment of non-financial assets
The carrying amounts of the Group’s non-financial assets are reviewed at each balance date to determine whether there is any indication
of impairment. If any such indication exists, the asset’s recoverable amount is estimated being the higher of an asset’s fair value less costs
to sell and the asset’s value in use. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit
exceeds its recoverable amount. Impairment losses are recognised in the Statement of Comprehensive Income.
For goodwill, the recoverable amount is estimated at each balance date. Impairment losses recognised in respect of cash generating units
are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units and then, to reduce the carrying amount
of the other assets in the unit on a pro rata basis.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
On Adoption of
IFRS 16
Expected impact
31 March 2020
$000s$000s
Asset will increase9,7837,611
Liabilities will increase
(9,783)(8,831)
Net Asset Impact
-(1,220)
Operating expenses will decrease215
Interest expenses will increase66
50
50
Employee entitlements
Superannuation schemes
The Group’s New Zealand and overseas operations participate in their respective government superannuation schemes, whereby the Group
is required to pay fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions
if the fund does not have sufficient assets to pay all employees the benefits relating to the employee service in the current and prior periods.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee
benefit expense when they are due.
Income tax
Income tax on the profit or loss for the years presented, comprises current and deferred tax. Income tax is recognised in the Statement of
Comprehensive Income except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is
recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance
date and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor
taxable profit and differences relating to investments in subsidiaries, associates and joint venture to the extent that they will probably not
reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance date.
A deferred tax asset shall be recognised for the carry forward of unused tax losses and unused tax credits, to the extent that it is probable
that future taxable profit will be available, against which the unused tax losses and unused tax credits can be utilised.
D13.Imputation balances
D14.Principal subsidiaries
Accounting policy
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be
measured at fair value, which shall be calculated as the following: the total of the acquisition date fair values of the assets transferred by
the Group, the liabilities incurred by the Group to former owners, the equity issued by the Group and the amount of any non-controlling
interest in the acquiree either at fair value or at the proportional share of the acquiree’s identifiable net assets. Acquisition related costs
are expensed as incurred.
All material transactions between subsidiaries or between the parent company and subsidiaries are eliminated on consolidation. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Disposal of subsidiaries
When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost,
with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.
This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
20192018
$000s$000s
Imputation credit available for use in subsequent periods11,20311,202
51
51
Subsidiaries at balance date
Rakon ESOP Trustee Limited and Rakon PPS Trustee Limited are classified as in-substance subsidiaries and are consolidated into the Group
financial statements.
D15.Subsequent events
The Directors are not aware of any material events subsequent to the balance date 31 March 2019.
Country of
incorporation
Balanc e
date
20192018
Rakon America LLCMarketing supportUSA31-Mar100100
Rakon Singapore (Pte) LimitedMarketing supportSingapore31-Mar100100
Rakon Financial Services LimitedFinancingNew Zealand31-Mar100100
Rakon International LimitedMarketing supportNew Zealand31-Mar100100
Rakon UK Holdings LimitedHolding companyUnited Kingdom31-Mar100100
Rakon UK LimitedResearch and developmentUnited Kingdom31-Mar100100
Ra kon Fra nce SAS R&D, manufacturing and sales Fra nce31-Mar100100
Rakon HK Limited
Holding companyHong Kong31-Mar5050
Rakon (Mauritius) LimitedHolding companyMauritius31-Mar100100
Rakon Investment HK Limited
Holding companyHong Kong31-Mar100100
Rakon Crystal Electronic
International Limited
Marketing supportChina31-Mar100100
Rakon India Pvt Limited Manufacturing, R&D and sales India31-Mar10049
Rakon ESOP Trustee LimitedShare trusteeNew Zealand31-Mar--
Rakon PPS Trustee LimitedShare trusteeNew Zealand31-Mar--
% interest held by group
Name of entityPrincipal activities
52
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent auditor’s report
To the shareholders of Rakon Limited
We have audited the financial statements which comprise:
the balance sheet as at 31 March 2019;
the statement of comprehensive income for the year then ended;
the statement of changes in equity for the year then ended;
the statement of cash flows for the year then ended; and
the notes to the financial statements, which include significant accounting policies.
Our opinion
In our opinion, the accompanying financial statements of Rakon Limited (the Company), including its
subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as
at 31 March 2019, its financial performance and its cash flows for the year then ended in accordance
with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and
International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised)
Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance
Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our firm carries out other services for the Group in the areas of treasury advisory services, agreed
upon procedures in relation to the Annual General Meeting and half year financial statements, as well
as review procedures over the confirmation of the Eligible Research and Development Expense
claimed under the Growth Grant. The provision of these other services has not impaired our
independence as auditor of the Group.
53
PwC
52
Our audit approach
Overview
An audit is designed to obtain reasonable assurance whether the
financial statements are free from material misstatement.
Overall Group materiality: $1,140,000, which represents 1% of
revenue.
Given the changes in the business during recent years, in our
judgement, revenue provided a more stable measure for establishing
our materiality benchmark.
We have determined that there are three key audit matters:
Impairment risk for non-financial assets
Valuation of research and development costs associated with the
development of new products
Accounting for the investment in Thinxtra Limited.
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the financial statements as a whole as set out above. These,
together with qualitative considerations, helped us to determine the scope of our audit, the nature,
timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the financial statements and
our application of materiality. As in all of our audits, we also addressed the risk of management
override of internal controls including among other matters, consideration of whether there was
evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the financial statements as a whole, taking into account the structure of the Group, the
accounting processes and controls, and the industry in which the Group operates.
We conducted a full scope audit over two segments, New Zealand, including the investment in
Thinxtra, and France and a limited review was conducted for India. Together these make up 100% of
external revenue. We conducted specific audit procedures for the UK subsidiary and for the
investment in Timemaker.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current year. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
54
PwC
53
Key audit matter How our audit addressed the key audit matter
Impairment risk for non-financial assets
As noted in note C1a, the Directors assess
assets annually for impairment. The
Directors look initially for indicators of
impairment which requires a level of
judgement.
When the market capitalisation is lower
than the net asset value of the Group this
can be an indicator of potential
impairment of non-financial assets held by
the Group. Market capitalisation of the
Group at 31 March 2019 was $75.6 million
compared to the carrying value of the net
assets of $90 million.
The Directors performed an assessment of
impairment on an asset class basis as well
as performing a business valuation for the
Group as a whole. The business valuation
was prepared on a value in use basis using
a discounted cash flow model.
The key assumptions used by the
Directors in the discounted cash flow
model are included in note C1a of the
financial statements which include:
Annual sales growth rate
Gross margin
Terminal growth rates
Discount rates
The results of the Directors’ assessment
are detailed in note C1a.
Our audit procedures included the following:
We updated our understanding of business processes
and controls applied in the assessment of indicators of
impairment of non-financial assets and determining
any impairment required.
In considering the results of the Directors’ assessment
of impairment on an asset class basis we have:
Considered the historical recoverability of
inventory balances and whether there is any
indication of impairment.
Assessed whether there were indicators of
impairment for intangible R&D assets, which has
been discussed in the key audit matter below.
Considered the recoverability of deferred tax
assets.
In considering the discounted cash flow model used for
the assessment of impairment of the business as a
whole we have:
Compared cash flow forecasts used in the
discounted cash flow models to the latest Board
approved budgets and long-term forecasts.
Tested the mathematical accuracy of the
underlying model and agreed the carrying value of
each CGU to the audited financial records.
Assessed the reliability of forecasts by performing
a look back analysis of historical forecasts against
actual results.
Considered key assumptions used in the
discounted cash flow models, in particular the
estimated sales growth rates, by agreeing to
supporting evidence of:
-Historical sales
-Current orders in place
-Communications with customers
-External market forecast reports.
Engaged our valuation expert to assess and
challenge the assumptions for terminal growth
rates and discount rates used by management by
comparing them to relevant industry rates and
performing sensitivity analysis on those rates.
55
PwC
54
Key audit matter How our audit addressed the key audit matter
Performed a sensitivity analysis on the cash flows
to determine whether a reasonably possible
change in assumptions could lead to a conclusion
that the assets are impaired.
Assessed the adequacy of disclosures in the
financial statements to ensure that they are
compliant with the requirements of NZ IFRS.
As a result of these procedures we did not propose any
adjustments.
Valuation of research and development
costs associated with the development of
new products
Rakon incurs costs with respect to
developing new products. This is included
within the product development and
assets under construction categories of
intangible assets (note B5b of the financial
statements) and amounts to $6.8 million
at 31 March 2019. There is a risk that the
costs that are being capitalised for
development may not meet the criteria for
capitalisation as an intangible asset under
NZ IFRS.
In particular, there is judgement and often
uncertainty around the potential for
success of new projects as well as the
technical feasibility and probable future
economic benefits associated with new
and existing projects primarily with
respect to telecommunications
infrastructure products.
The Directors assessed the future income
generating ability of capitalised
development expenditure by referring to
current demand for the products now in
production and to the business case for
future sales of products not yet in
production.
Our audit procedures included the following:
We updated our understanding of how the costs
for research and development are captured and
approved for capitalisation and the controls over
these processes.
We obtained an understanding of the projects
which have been capitalised during the year and,
on a sample basis, agreed costs incurred to
supporting documentation and approval.
We assessed overall costs capitalised for
compliance with Group policies and the
requirements defined in NZ IFRS for capitalisation
of research and development costs.
For those products in production, where costs
have been capitalised, we challenged the Directors’
assessment of the future income expected from
those products by comparing the estimate with the
level of sales currently being achieved.
We challenged the Directors’ assessment of the
future income expected from new
telecommunications infrastructure products by
comparing the estimate with the level of sales of
previous generations of telecommunications
infrastructure products and with market forecast
reports.
As a result of these procedures we did not propose any
adjustments.
56
PwC
55
Key audit matter How our audit addressed the key audit matter
Accounting for the investment in Thinxtra
Limited
Rakon holds ordinary shares in Thinxtra
Limited (“Thinxtra”), which was an equity
accounted associate investment in the
prior year. On 1 June 2018, Rakon lost
significant influence triggering a change in
the accounting method from equity
accounting to a financial asset carried at
fair value.
We considered the valuation of the
investment in Thinxtra a key audit matter
because of the uncertainty involved in the
estimation process and the significant
judgements the Directors make in
determining the fair value. Changes in the
assumptions applied as part of the
estimation process can lead to significant
movements in the fair value of the
investment.
The Directors developed a valuation
methodology based on a range of
valuation techniques with different
assigned probabilities based on the
available information and Directors’
judgement, as disclosed in note B4d. This
methodology was applied to estimate the
fair value of the investment as at
1 June 2018 and as at 31 March 2019.
The Directors also considered sensitivity
by determining other reasonably possible
scenarios and assessing the impact on the
valuation of these scenarios.
The results of the Directors’ assessment
and sensitivity analysis is detailed in note
B4d.
Our audit procedures included:
We obtained an understanding of the valuation
methodology developed by the Directors and the
key assumptions they applied in determining the
fair value of investment in Thinxtra as at 1 June
2018 and 31 March 2019.
We agreed the key inputs in the valuation model to
unaudited information obtained by management
from Thinxtra.
We considered the discounted cash flow model
approach which formed part of the Directors’ basis
of valuation. We determined the underlying
forecasts used in the model were not sufficiently
reliable due to Thinxtra’s business being at an
early stage of development, the history of not
meeting budgeted results and the reliance on
raising additional funding to achieve those
forecasts. Accordingly, this required us to take a
different valuation approach to that taken by the
Directors.
We engaged our valuation expert to provide
support in our assessment of the fair value of the
investment as at 1 June 2018 and 31 March 2019.
Our expert’s assessment was based on the
following valuation approaches:
-Consideration of the share price achieved in
Thinxtra’s capital raise that closed on 18 April
2019, adjusted for an estimated discount to
fair value that would be expected in the
circumstances of that capital raise.
-Cost to replicate approach based on the
capital contributed and the losses incurred to
date on the basis that a purchaser would avoid
those costs to reach the position that Thinxtra
is currently in.
-Look-back assessment of the fair value at
1 June 2018 given the circumstances and
events between 1 June 2018 and
31 March 2019.
We considered a range of reasonably possible
alternative scenarios. For each scenario, we
assessed whether the changes were reasonably
possible and tested the impact of those changes on
the valuation.
57
PwC
56
Information other than the financial statements and auditor’s report
The Directors are responsible for the annual report. Our opinion on the financial statements does not
cover the other information included in the annual report and we do not and will not express any form
of assurance conclusion on the other information.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed on the other information that we obtained prior to
the date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard, except that
not all other information was available to us at the date of our signing. Prior to the date of this report
we had received and read the Directors’ Report. The Shareholder Information and Corporate
Governance sections of the annual report are expected to be made available to us after the date of our
report.
Responsibilities of the Directors for the financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole,
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (NZ) and ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Key audit matter How our audit addressed the key audit matter
We assessed the adequacy of disclosures in the
financial statements to ensure that this is compliant
with the requirements of NZ IFRS.
Based on our work we consider that, given the
estimation uncertainty for an investment in a business
of this nature, the fair value determined by the
Directors at 1 June 2018 and at 31 March 2019 is
within the range of reasonable expected outcomes.
58
PwC
57
A further description of our responsibilities for the audit of the financial statements is located at the
External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-
report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinions we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Lisa Crooke.
For and on behalf of:
Chartered Accountants
16 May 2019
Auckland
59
59
Shareholder Information
Directors and Directors’ remuneration
The names of the current Directors of Rakon together with short biographies for each of them are set out in the 2019 Annual Review and
on the Company’s website.
Subject to approval by shareholders of the total pool for non-executive director remuneration, non-executive directors of Rakon receive
fees determined by the Board on the recommendation of the People Committee plus reasonable travelling, accommodation and other
expenses incurred in the course of performing their duties as directors. Shareholders approved a total pool of $360,000 for the
remuneration of non-executive directors of Rakon in September 2012.
The following people held office as directors of Rakon during the year ended 31 March 2019; their independence status and the
remuneration they received during that period are set out below:
Name Category Remuneration
Bruce Robertson Irvine Independent (Chair since 7 August 2018)
$95,000
Brent John Robinson
1
Executive (Managing Director)
$815,802
Keith William Oliver Independent
$60,000
Yin Tang Tseng Non-Executive
$61,378
Roger Yao
Non-Executive (alternate director of Yin Tang
Tseng)
Lorraine Mary Witten Independent
$60,000
Robert Keith Hamilton (Keith) Watson
2
Independent
$31,667
Bryan William Mogridge
3
Independent (former Chair)
$50,000
1
Employed by Rakon as Managing Director and Chief Executive Officer and receives salary and other benefits in respect of his
employment.
2
Appointed as a director on 21 September 2018.
3
Ceased as a director 7 August 2018.
Directors of subsidiaries
Directors of the Company’s subsidiaries do not receive any remuneration or other benefits in respect of their appointments. The
remuneration and other benefits of any such directors (not being directors of Rakon Limited) who are employees of the Group totalling
$100,000 or more during the year ended 31 March 2019 are included in the relevant bandings for remuneration disclosed in this Shareholder
Information section of the 2019 Annual Report.
The following people held office as directors of subsidiary companies at 31 March 2019:
Entity Director (or authorised representative where noted)
Rakon America LLC John Mundschau (authorised representative)
Rakon Singapore (Pte) Limited Brent Robinson, Darren Robinson, Warren Robinson, Damian Boon
Rakon Financial Services Limited Brent Robinson, Darren Robinson
Rakon International Limited Brent Robinson
Rakon UK Holdings Limited Brent Robinson, Darren Robinson, Sinan Altug, Philip Davies
Rakon UK Limited Brent Robinson, Darren Robinson, Sinan Altug, Philip Davies
Rakon France SAS Brent Robinson
Rakon (Mauritius) Limited
Brent Robinson, Darren Robinson, Neernaysingh Madhour, Kamalam Pillay
Rungapadiachy
Rakon Investment HK Limited Brent Robinson
Rakon Crystal Electronic International Limited Daryoush Shahidi (authorised representative)
Rakon HK Limited Brent Robinson, Darren Robinson, Zhuzhi Ye, Rongguo Chen
Rakon ESOP Trustee Limited Bryan Mogridge, Bruce Irvine
Rakon PPS Trustee Limited Bryan Mogridge, Bruce Irvine
Rakon India (Private) Limited Brent Robinson, Clifford Hand, P.M. Unnikrishnan
60
60
Directors’ interests
As permitted by the Companies Act 1993 and the Company’s constitution, the Company has granted certain indemnities to the Directors
and specified employees of the Company or any related company in respect of liability and legal costs incurred by those directors and
specified employees in their capacity as directors and/or employees of the Company or any related company. As permitted by the
Companies Act 1993 and the Company’s constitution, the Company has arranged directors’ and officers’ liability insurance which insures
those persons indemnified for certain liabilities and costs.
The Company maintains an interests’ register in accordance with the Companies Act 1993 and the Financial Markets Conduct Act 2013. The
following are particulars of entries, including the date of disclosure shown in brackets, made in the Company’s interests’ register for the
year ended 31 March 2019 and through until 31 May 2019:
Bruce Robertson Irvine
Appointed as Director of Cowes Bay Holdings (NZ) Limited (26 April 2018)
Resigned as Director of Godfrey Hirst NZ Limited (2 July 2018)
Appointed as Director of Gough Group Holdings Limited and various group companies (5 November 2018)
Resigned as Director of PGG Wrightson Limited (30 April 2019)
Keith William Oliver
Resigned as Director of Vigil Nominees No.2 Limited (13 July 2018)
Resigned as Director Vigil Monitoring Limited (13 July 2018)
Appointed as Director of Wellington Drive Technologies Limited (27 March 2019)
Robert Keith Hamilton Watson
Appointed as Director of Rakon Limited (21 September 2018)
Director of New Zealand Institute of Economic Research (21 September 2018)
Director of Working Assets Consulting Limited, Working Assets Limited and other Working Assets companies (1 November 2018)
Director of Cranleigh Forests Limited (1 November 2018)
Director of Dovedale Forests Limited (1 November 2018)
Shareholder and Director of Complete 3D Limited (1 November 2018)
Director of Petrena Miller Design Limited (19 December 2018)
Lorraine Mary Witten
Appointed as Director of Horizon Energy Group (1 November 2018)
Resigned as Director of Zag Limited formerly known as Solitus Limited (21 February 2019)
Resigned as Director of StarNow Limited (31 March 2019)
Bryan William Mogridge
Resigned as Director of Rakon Limited on 7 August 2018
Resigned as Rakon’s appointed Director of Thinxtra Pty Limited (1 June 2018)
Appointed as Director and Chair of Thinxtra Pty Limited (3 July 2018)
Directors’ shareholdings
Directors’ shareholdings as recorded in the interests’ register of the Company as at 31 March 2019 are set out below:.
Name Category Shareholding
Brent Robinson shares held with beneficial interest 34,846,237
Bruce Irvine shares held with beneficial interest 454,278
shares held with non-beneficial interest
1
2,093,299
shares held with non-beneficial interest 289,824
Lorraine Witten shares held with beneficial interest 120,000
Keith Watson shares held with beneficial interest 100,000
Bryan Mogridge shares held with beneficial interest 2,013,926
shares held with non-beneficial interest
1
2,093,299
1
Bryan Mogridge and Bruce Irvine jointly hold the same parcel of 2,093,299 ordinary shares as trustees of the Rakon ESOP Trustee
Limited.
61
61
Employees’ remuneration
During the year ended 31 March 2019, the number of employees or former employees of Rakon Limited and its subsidiaries, not being
directors of Rakon Limited received remuneration including the value of other benefits in excess of $100,000 in the following bands:
Remuneration
Number of
employees
Remuneration
Number of
employees
$100,000 – $110,000 20 $230,001 – $240,000 2
$110,001 – $120,000 14 $240,001 – $250,000 3
$120,001 – $130,000 14 $250,001 – $260,000 3
$130,001 – $140,000 9 $260,001 – $270,000 2
$140,001 – $150,000 11 $270,001 – $280,000 1
$150,001 – $160,000 3 $280,001 – $290,000 2
$160,001 – $170,000 9 $290,001 – $300,000 2
$170,001 – $180,000 7 $300,001 – $310,000 1
$180,001 – $190,000 5 $320,001 – $330,000 2
$190,001 – $200,000 7 $340,001 – $350,000 1
$200,001 – $210,000 5 $470,001 – $480,000 1
$210,001 – $220,000 3 $510,001 – $520,000 1
$220,001 – $230,000 2 $670,001 – $680,000 1
The remuneration above includes the fair value attributable to employee share schemes.
Substantial quoted equity security holders
The following information is given pursuant to Section 293 of the Financial Markets Conduct Act 2013.
According to the notices given under Financial Markets Conduct Act 2013 (or its predecessor the Securities Markets Act 1988), the following
persons were substantial product holders in the Company as at 31 March 2019 in respect of the number of voting securities below. As at
31 March 2019, the Company had one share class on issue, comprising of 229,055,272 voting shares:
Name Shareholding Interest Number Held %
Siward Crystal Technology Co. Limited beneficial relevant interest
38,016,681
16.60
Trusts Limited non-beneficial relevant interest
24,930,823
10.88
Warren John Robinson beneficial relevant interest
24,930,823
10.88
Brent John Robinson direct beneficial relevant interest 9,915,414 4.33
beneficial relevant interest 24,930,823 10.88
Darren Paul Robinson direct beneficial relevant interest 9,914,180 4.33
beneficial relevant interest 24,930,823 10.88
Spread of quoted equity securities holders and holdings as at 26 April 2019
Size of holding
Number of
holders
%
Total number
held
%
1 – 99 14 0.30 788 0.00
100 – 199 54 1.16 7,028 0.00
200 – 499 192 4.11 58235 0.03
500 – 999 269 5. 76 175,304 0.08
1,000 – 1,999 677 14.49 875,026 0.38
2,000 – 4,999 1,167 24.98 3,570,921 1.56
5,000 – 9,999 696 14.90 4,519,030 1.97
10,000 – 49,999 1,203 25.75 23,629,552 10.32
50,000 – 99,999 173 3.70 11,494,706 5.02
100,000 – 499,999 184 3.94 33,875,602 14.79
500,000 – 999,999 17 0.36 11,693,804 5.11
1,000,000 – 99,999,999 25 0.55 139,155,276 60.74
Total 4,671 100.00 229,055,272 100.00
62
62
Twenty largest equity security holders as at 26 April 2019
Name Shareholding %
Siward Crystal Technology Co. Limited 38,016,681 16.59
Warren John Robinson & Trusts Limited 24,930,823 10.88
Accident Compensation Corporation
1
10,283,084 4.49
Brent John Robinson 9,915,414 4.32
Darren Paul Robinson 9,914,180 4.32
Michael Walter Daniel & Nigel Geoffrey Ledgard Burton & Michael Murray
Benjamin (Wairahi A/C)
8,000,000 3.49
JBWere (NZ) Nominees Limited (52093 A/C) 6,744,900 2.94
Etimes Group International Limited 3,697,716 1.61
Iconic Investments Limited 2,608,192 1.13
Stuart Robert Kidd 2,113,000 0.92
Rakon ESOP Trustee Limited 2,093,289 0.91
Craig John Thompson 1,959,829 0.85
Fergus David Elliott Brown 1,902,706 0.83
Hang Men Tee & Nuanla Or Sodrung 1,650,000 0.72
F B Trustee Limited 1,586,311 0.69
HLR Holdings Company Limited 1,584,736 0.69
Wo Zhou Yang 1,428,716 0.62
NZ Permanent Trustees Limited
1
1,200,000 0.52
Trevor John Logan 1, 100,000 0.48
Ling Te Hu 1,058,824 0.46
1
Held through New Zealand Central Securities Depository Limited, which is a depository that allows electronic trading of securities by
members.
NZX waivers
For the purposes of Rakon’s disclosure obligation under Rule 3.7.1 (g) Rakon confirms that it transitioned to the NZX Listing Rules (dated 1
January 2019) (NZX Listing Rules) with effect from 1 April 2019 (Transition Date) and from that date has relied on the class ruling granted
by NZX Regulation (NZXR) for a period from and including 1 January 2019 to, and including, 30 June 2020, granting waivers from NZX Listing
Rules 1.1.1(a), 2.18.1(a) and 2.20.1 to the extent those NZX Listing Rules would require a Transitioning Equity Issuer to have a Governing
Document that complies with NZX Listing Rules 2.18.1(a) and 2.20.1 from its Transition Date.
Rakon notes that it is a condition of the waivers granted that Rakon puts a resolution at its next scheduled annual meeting after its Transition
Date to approve a Governing Document which is compliant with the NZX Listing Rules and until Rakon adopts a NZX Listing Rules compliant
Governing Document it will comply with, and procure that its directors will comply with the NZX Listing Rules from its Transition Date as if
the content requirements of Rules 2.18.1 and 2.20.1 were contained in Rakon’s Governing Document (i.e. Rakon’s Constitution).
There were no other NZX waivers granted or published by NZX within or relied upon in the 12 months ending 31 March 2019.
Credit rating
The Company does not currently have an external credit rating status.
Exercise of disciplinary powers
The NZX or the Financial Market Authority have not taken any disciplinary action against the Company during the financial year ended 31
March 2019.
63
63
Corporate Governance Report
Introduction
The Board is committed to conducting business in the right way and maintaining the highest standards of corporate behaviour and
accountability. Rakon’s board regularly reviews Rakon’s corporate governance framework and supports best practice reporting.
In its 2018 Corporate Governance Report the Board noted several items which Rakon was progressing to ensure compliance with the NZX
Corporate Governance Code released in 2017 and the Board is pleased to be able to comment on its progress with those matters in this
year’s report.
In this 2019 report, the Board explains the extent to which the Rakon corporate governance framework meets the recommendations of the
NZX Corporate Governance Code 1 January 2019 (‘NZX Code’) and, where applicable, there is an explanation of why a NZX Code
recommendation has not been followed and the alternative practices followed in lieu of that recommendation.
Rakon elected to transition to the NZX Listing Rules 1 January 2019 (‘NZX Listing Rules’) with effect from 1 April 2019.
The information in this Corporate Governance Report is current as at 10 June 2019 and has been approved by the board of Rakon.
The key corporate governance documents referred to in this report are available on Rakon’s website at:
http://www.rakon.com/corporate/investor/ir-gov
Rakon is listed on the NZX Main Board and is subject to regulatory control and monitoring by both the NZX and the Financial Markets
Authority (‘FMA’).
Principle 1 – Code of ethical behaviour
Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these standards
being followed throughout the organisation.
Rakon is committed to ensuring the highest ethical standards are maintained by directors, employees and suppliers, contractors and
consultants to the Company in all activities conducted by or in the interests of the Company.
Recommendation 1.1 The board should document minimum standards of ethical behaviour to which issuer’s directors and employees
are expected to adhere (a code of ethics).
Ethical standards and guiding principles are set out in Rakon’s Business Code of Conduct which is available on the Company’s website and
was last reviewed in May 2019. Additional guidance for directors on the requirement to maintain high standards of honesty, integrity and
ethical conduct is provided in the Board Charter which was last reviewed in March 2019 and which is available on the Company’s website.
The Business Code of Conduct requires directors and employees to promptly report material breaches of the Code. To support this
expectation of disclosure of breaches of the Business Code of Conduct, as well as disclosure of other wrongdoing or suspected wrongdoing,
the Board has developed a Protected Disclosure (whistle blowing) Policy which was approved by the Board in May 2019 and is available on
the Company’s website.
Rakon has processes in place to enable training for all new and existing employees to ensure awareness and understanding of the Business
Code of Conduct and other Company policies. Rakon is exploring new innovative and effective processes for ensuring awareness and for
receiving assurance of understanding and compliance.
Recommendation 1.2 An issuer should have a financial product dealing policy which applies to directors and employees.
Rakon has a Financial Product Trading Policy to mitigate the risk of insider trading in Rakon securities by directors and employees. A copy
of this is available on Rakon’s website. This policy was last reviewed and updated by the Board in March 2019 and was then circulated to
directors and employees along with further guidance on the application of the policy. Additional trading restrictions apply to Restricted
Persons as defined in the policy, including directors and certain employees. Details of directors’ shareholdings as at 31 March 2019 are set
out in the Shareholder Information section of the 2019 Annual Report.
Principle 2 – Board composition and performance
To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives.
The Rakon board has ultimate responsibility for the strategic direction of Rakon and oversight of the management of Rakon, with the aim
of increasing shareholder value and ensuring the obligations of the Company are met.
Recommendation 2.1 The board of an issuer should operate under a written charter which sets out the roles and responsibilities of the
board. The board charter should clearly distinguish and disclose the respective roles and responsibilities of the board and management.
The Rakon board operates under a written charter which: sets out the structure of the Board and the procedures for the nomination,
resignation and removal of directors; outlines the respective responsibilities and roles of the Directors and management; and identifies
procedures to ensure that the Board meets regularly, conducts its meetings in an efficient and effective manner and that each Director is
fully empowered to perform his or her duties as a Director of the Company and to fully participate in meetings of the Board.
Day to day management of Rakon is undertaken by the executive teams under the leadership of the Managing Director, through a set of
delegated authorities which are reviewed regularly.
In discharging their duties, directors have direct access to and may rely upon Rakon’s senior management and external advisers. Directors
have the right, with the approval of the Chair or by resolution of the Board, to seek independent legal or financial advice at the expense of
Rakon for the proper performance of their duties.
64
64
Recommendation 2.2 Every issuer should have a procedure for the nomination and appointment of directors.
While the appointment of new directors is the responsibility of the whole board, the People Committee Charter outlines the Committee’s
particular duties and responsibilities in relation to the selection and appointment of new directors and succession planning.
The People Committee is responsible for identifying and recommending candidates for the role of Director, taking into account such factors
as it deems appropriate, including tenure, capability, skill sets, experience, diversity, qualifications, judgement and the ability to work with
other directors.
During its latest director search the Committee used a skills matrix as one of the tools to assist with identifying and assessing existing
directors’ skills and competencies and future skills and competencies to meet the Company’s future governance requirements.
The number of elected directors and the procedure for their appointment, retirement and re-election at annual meetings is set out in the
Constitution of the Company and the NZX Listing Rules, noting changes to the Rakon Constitution to ensure compliance with the NZX Listing
Rules will be proposed for approval by shareholders at the annual meeting to be held in 2019.
All directors, including any executive Director must retire by rotation and if eligible stand for re-election at the third annual meeting or three
years after their last election whichever is longer. Any Director appointed since the previous annual meeting must also retire and is eligible
for election.
The Board supports the separation of the roles of Chair and Chief Executive Officer and the appointment of an independent Chair.
Recommendation 2.3 An issuer should enter into written agreements with each newly appointed director establishing the terms of their
appointment.
The Board has determined that new directors will receive a letter of appointment to agree the key terms and conditions of their appointment
as directors of Rakon. To date the Board has relied on the general rules and practice including appointment, tenure, duties and
responsibilities and requirements outlined in relevant legislation, the NZX Listing Rules, the Company’s Constitution and the Board Charter
as encompassing the key terms and conditions and expectations of Rakon directors.
Recommendation 2.4 Every issuer should disclose information about each director in its annual report or on its website, including a
profile of experience, length of service, independence and ownership interest and director attendance at board meetings.
Information about each Director is available on the Rakon website and in the 2019 Annual Review which is available on the Company’s
website at the same time as the 2019 Annual Report. The Company maintains an interests’ register and particulars of the entries made in
the interests’ register during the year ended 31 March 2019 in relation to directors’ interests are disclosed in the Shareholder Information
section of the 2019 Annual Report.
Board meetings and attendance
The Board meets as often as it deems appropriate including sessions to review the performance of the business against plans and to consider
the strategic direction of Rakon and Rakon’s forward-looking business plans. Video and/or phone conferences are also used as required.
The table below sets out directors’ attendances at the Board and Committees’ meetings during the year ended 31 March 2019. In total,
there were eleven board meetings, three Audit and Risk Committee meetings and four People Committee meetings.
Board
Meetings
Audit & Risk
Committee
People
Committee
Total number of meetings held 11 3 4
Bruce Irvine 11 3 3
Keith Oliver 10 - 4
Brent Robinson 11 3 3
Lorraine Witten 10 3 4
Roger Yao: Alternate Director appointment for
Yin Tang Tseng
2
11 - 1
Keith Watson
3
6 2 -
Bryan Mogridge
1
4 1 2
1
Ceased as a director of Rakon Limited 7 August 2018.
2
Roger Yao was appointed by the Board as alternate director for Yin Tang (Tony) Tseng in June 2017. He attends Rakon board meetings
and provides support for Tony who continues to be actively engaged in the activities of the Board. Tony is the current Chair of Siward
Crystal Technology Co. Limited, a substantial shareholder (16.6%) in Rakon.
3
Appointed as a director of Rakon Limited 21 September 2018.
Recommendation 2.5 An issuer should have a written diversity policy which includes requirements for the board or a relevant committee
of the board to set measurable objectives for achieving diversity (which, at a minimum, should address gender diversity) and to assess
annually both the objectives and the progress in achieving them. The issuer should disclose the policy or a summary of it.
Rakon has recognised the value of diversity of thinking and skills in its recruitment practices and its management and governance and has
sought to create inclusive work environments where all of its people are valued and respected. Rakon recognises diversity means one or
more of a number of different characteristics including but not limited to gender, ethnic background, religion, age, marital status, culture,
disability, economic background, education, language, physical appearance and sexual orientation. Rakon considers different backgrounds,
communication styles, life-skills and interpersonal skills of directors and employees are of value in building diverse teams.
65
65
Rakon has developed a formal Diversity and Inclusion Policy which was approved by the Board in May 2019 and is available on the Company’s
website. As required under that policy, Rakon has set objectives for measuring and promoting diversity and inclusion within the Company.
Progress on these objectives is required to be monitored and assessed by the People Committee and the Board at least annually.
As at 31 March 2019, females represented 20% (FY18: 14%) of Directors and Officers (as defined in NZX listing Rule 3.8.1(c) of the Company.
A quantitative breakdown of the number of male and female directors and the number of male and female Officers as at 31 March 2019
and as at 31 March 2018 is set out in the table below. In that table the Chief Executive Officer who is the Managing Director is included as
a Director and Officers are the direct reports of the Chief Executive Officer having key functional responsibilities.
31 March 2019 31 March 2018
Directors
Females 1 1
Males 5 5
Officers
Females 2 1
Males 7 7
Recommendation 2. 6 Directors should undertake appropriate training to remain current on how best to perform their duties as directors
of an issuer.
The Company encourages all directors to undertake appropriate training and education so that they may best perform their duties. This
includes attending presentations on changes in governance, legal and regulatory frameworks; attending technical and professional
development courses; and attending presentations from industry experts and key advisers. In addition, updates are provided to the Board
on relevant industry and Company issues. A number of Rakon’s directors are members of the Institute of Directors.
Recommendation 2.7 The board should have a procedure to regularly assess director, board and committee performance.
The Board regularly considers individual and collective performance, together with the skill sets, training and development and succession
planning required to govern the business. An evaluation of board performance was undertaken during the year ended 31 March 2019.
Consistent with the requirements of the Board Charter for regular reviews of performance, another evaluation of board performance is
scheduled in the Board’s work plan to be undertaken in the year ending 31 March 2020, along with the evaluation of individual directors’
performance and committee performance.
The Board’s Committees’ charters also require the Committees to undertake a self-review process, including receiving feedback from the
Board as a whole and reporting to the Board on the outcome of the reviews.
Recommendation 2.8 A majority of the board should be independent directors.
The Board currently comprises of six directors: five non-executive directors, four of whom are independent including the independent Chair,
and one executive Director who is the Managing Director and Chief Executive Officer. In order for a Director to be independent, the Board
has determined, among other things, that he or she must not be an executive of Rakon and must have no disqualifying relationships. The
Board provides guidance for determining independence in its Charter and follows the guidelines in the NZX Listing Rules.
The Board recognises that from time to time it is appropriate for the Board to confer without executive directors or other senior
management present.
Recommendation 2.9 An issuer should have an independent chair of the board. If the chair is not independent then the chair and the
CEO should be different people.
The Chair of Rakon is an independent director. While the Board Charter does not require the chair of the Board to be an independent
director, if the Directors appoint a fellow Director as Chair who is not independent then they are required to disclose this fact in the
Company’s annual report, along with reasons justifying such a decision and the Chair and the Managing Director or Chief Executive Officer
shall not be the same person.
Principle 3 – Committees
The Board should use committees where this will enhance its effectiveness in key areas, while still retaining board responsibility.
The Board has delegated a number of its responsibilities to committees to assist in the execution of the Board’s responsibilities.
The current committees of the Board are the Audit and Risk Committee and the People Committee (‘Committees’).
The Committees review and analyse policies and strategies which are within their terms of reference. They examine reports, information
and proposals and, where appropriate, make recommendations to the full Board. Committees do not take action or make decisions on
behalf of the Board unless specifically mandated by prior board authority to do so.
The Committees meet as required and have terms of reference (charters), which are approved and reviewed by the Board. Copies of the
Audit and Risk Committee Charter and the People Committee Charter are on the Rakon website and were last approved in March 2019.
All members of the Board receive the minutes of each Committee meeting and all directors are entitled to attend any Committee meeting.
In pursuing its duties and responsibilities, each Committee is empowered to seek any information it requires from employees and to obtain
independent legal or other professional advice. Each Committee is required to report to the Board after each meeting of the Committee.
From time to time, special purpose committees may be formed to review and monitor specific projects with senior management.
66
66
Recommendation 3.1 An issuer’s audit committee should operate under a written charter. Membership on the committee should be
majority independent and comprise solely of non-executive directors of the issuer. The chair of the audit committee should be an
independent director and not the chair of the board.
The Audit and Risk Committee’s purpose and key objectives are to ensure oversight of all matters related to the financial accounting and
reporting of the Company, monitoring the processes undertaken by external auditors and internal audit activity, operational risk
management and compliance with all financial corporate governance requirements. Its duties and responsibilities include:
Reviewing the consolidated financial statements and making recommendations on financial and accounting policies.
Reviewing the performance of the external auditor and recommending to the Board their appointment and removal if required.
Overseeing the adequacy and effectiveness of internal controls and operational risk management including insurance.
The Audit and Risk Committee’s Charter provides that the Committee must be comprised solely of directors of Rakon, have a minimum of
three members, have a majority of independent directors and have at least one Director with an accounting or financial background. The
makeup of the current members of this Committee complies with these requirements.
Members of the Audit and Risk Committee as at the date of this report are Lorraine Witten (Chair), Bruce Irvine and Keith Watson. The Chair
of the Audit and Risk Committee is not the Chair of the Board.
Recommendation 3.2 Employees should only attend audit committee meetings at the invitation of the audit committee.
Management may attend meetings at the invitation of the Audit and Risk Committee and the Committee routinely has committee member-
only time with the external auditor without management present.
Recommendation 3.3 An issuer should have a remuneration committee which operates under a written charter (unless this is carried out
by the whole board). At least a majority of the remuneration committee should be independent directors. Management should only
attend committee meetings at the invitation of the remuneration committee.
During the financial year ended 31 March 2019, the Board determined to combine the duties and responsibilities of the Remuneration
Committee and the Nomination Committee under one committee known as the People Committee. While the membership of each of the
committees had been the same, a new charter reflecting the combined responsibilities was formally approved by the Board in March 2019.
The Committee’s work plan reflects duties and responsibilities that would otherwise be covered by separate remuneration and nomination
committees.
The People Committee’s purpose and key objective is to assist the Board in establishing coherent human resources, remuneration and
Director nomination policies and practices. Its duties and responsibilities include:
Overseeing, reviewing and making recommendations to the Board in relation to human resources strategy, management
succession planning, employee incentive schemes, remuneration arrangements for the Managing Director and senior
management and directors and compliance with applicable human resources legislation; and
Overseeing, reviewing and making recommendations to the Board in relation to the selection and appointment of new directors,
processes for identifying and assessing skills and competencies, Director succession planning and effective induction and training
programmes for new and existing directors in order that the Board is comprised of directors who contribute to the successful
management of the Rakon Group.
The Committee’s Charter requires that a majority of its membership shall be independent directors and that the Chair shall be independent.
Currently, the Chair and all other members of the Committee are independent directors.
Members of the People Committee as at the date of this Report are Keith Oliver (Chair), Bruce Irvine, and Lorraine Witten. Management
may attend meetings at the invitation of the Committee.
Recommendation 3.4 An issuer should establish a nomination committee to recommend director appointments (unless this is carried
out by the whole board), which should operate under a written charter. At least a majority of the nomination committee should be
independent directors.
As reported in respect of Recommendation 3.3 the Board elected to combine its Remuneration and Nomination Committees into one People
Committee. This change is considered as sensible from an administrative perspective and facilitates regular oversight of both remuneration
and nomination matters through the year.
Recommendation 3.5 An issuer should consider whether it is appropriate to have any other board committees. All committees should
operate under written charters. An issuer should identify the members of each of its committees and periodically report member
attendance.
The Board Charter specifically requires the Board to assess regularly whether there is a need for any further standing committees and the
Board acknowledges that any committee established should operate under a written charter. The Audit and Risk Committee and the People
Committee Charters are available on the Rakon website and their members are identified on the Rakon website and in the Company’s
annual reports along with their attendance at the Committees’ meetings.
Currently health and safety matters are the responsibility of the full Board with oversight of legislative compliance and policy by the People
Committee.
Recommendation 3.6 The board should establish appropriate protocols that set out the procedure to be followed if there is a takeover
offer for the issuers including any communications between insiders and the bidder. The board should disclose the scope of independent
advisory reports to shareholders. These protocols should include the option of establishing an independent takeover committee, and
the likely composition and implementation of an independent takeover committee.
Rakon has not developed specific policy governing the Board’s response to a takeover situation. Current legal advice on process that should
be followed in the event of a takeover offer is readily accessible by directors in their online Resource Centre. In the case of a takeover offer,
67
67
Rakon will form an Independent Takeover Committee to oversee disclosure and response, and engage expert legal and financial advisors to
provide advice on procedure.
Principle 4 – Reporting and disclosure
The Board should demand integrity in financial and non-financial reporting, and in the timeliness and balance of corporate disclosures.
Rakon’s directors are committed to keeping investors and the market informed of all material information about the Company and its
performance, in a timely manner.
Recommendation 4.1 An issuer’s board should have a continuous disclosure policy.
Rakon has a Continuous Disclosure Policy to ensure that material information is identified, reported, assessed and disclosed promptly and
without delay to the market. This policy was reviewed and updated by the Board in March 2019 and was then circulated to directors and
employees along with further guidance on the application of the policy.
In addition to all information required by law, Rakon also seeks to provide sufficient meaningful information to ensure stakeholders and
investors are well informed, including financial and non-financial information.
Recommendation 4.2 An issuer should make its code of ethics, board and committee charters and the policies recommended in the NZX
Code, together with any other key governance documents available on its website.
The key corporate governance documents referred to in this Corporate Governance Report are available on Rakon’s website at
http://www.rakon.com/corporate/investor/ir-gov
Recommendation 4.3 Financial reporting should be balanced, clear and objective. An issuer should provide non-financial disclosure at
least annually, including considering environmental, economic and social sustainability factors and practices. It should explain how
operational or non-financial targets are measured. Non-financial reporting should be informative, include forward looking assessments,
and align with key strategies and metrics monitored by the board.
Financial information
Rakon’s business management teams are responsible for implementing and maintaining appropriate accounting and financial reporting
principles, policies and internal controls designed to ensure compliance with accounting standards and applicable laws and regulations.
The Board’s Audit and Risk Committee oversees the quality and integrity of external financial reporting, including the accuracy,
completeness, clarity, balance and timeliness of financial statements. It reviews Rakon’s full and half-year financial statements and makes
recommendations to the Board concerning accounting policies, areas of judgement, compliance with accounting standards, stock exchange
and legal requirements, and the results of the external audit. All matters required to be addressed and for which the Committee has
responsibility were addressed during the reporting period.
For the financial year ended 31 March 2019, the Directors believe that proper accounting records have been kept which enable, with
reasonable accuracy, the determination of the financial position of the Company and facilitate the compliance of the financial statements
with the Financial Markets Conduct Act 2013. The Chief Executive Officer and Chief Financial Officer have confirmed in writing to the Board
that Rakon’s external financial reports present a true and fair view of the Company’s financial position in all material aspects.
Rakon’s full and half-year financial statements are available on the Company’s website.
Non-financial information
Rakon discusses its strategic objectives and its progress towards achieving these in the Chair and Chief Executive Officer’s commentary in
its reports to shareholders.
Rakon is committed to ensuring the protection of the world's environment and natural resources. As part of this commitment, Rakon has
achieved ISO14001 certification at the following sites: Auckland ‒ New Zealand and Bangalore ‒ India.
Across its global facilities, Rakon is integrating an Environmental Management System (EMS) to deliver continuous improvement in this
area.
Details of Rakon’s commitment to the environment and human rights can be viewed on the Company’s website at
http://www.rakon.com/corporate/about/corp-policies. This includes the Company’s policy on the restriction of hazardous substances
(RoHS/RoHS2); and Rakon’s positions on Conflict Minerals and Slavery and Human Trafficking.
The Company also invests in a number of social responsibility initiatives that support employees and the communities in which it operates.
To date Rakon has not sought to adopt a specific reporting framework for ESG policies and practices. Rakon nevertheless continues to focus
on continuous improvement of its ESG practices and may consider more structured reporting in the future.
Principle 5 – Remuneration
The remuneration of directors and executives should be transparent, fair and reasonable.
Oversight of policy and processes in relation to the remuneration of directors and executives is a key responsibility of the People Committee.
Recommendation 5.1 An issuer should recommend director remuneration to shareholders for approval in a transparent manner. Actual
director remuneration should be clearly disclosed in the issuer’s annual report.
The total remuneration available for directors is approved by shareholders. The Board determines the level of remuneration paid to
directors from the approved collective pool. Directors also receive reimbursement for reasonable travelling, accommodation and other
expenses incurred in the course of performing their duties.
The annual fee pool limit is $360,000 and was approved by shareholders at the 2012 Annual Shareholders’ Meeting.
68
68
Any proposed increases in non-executive directors’ fees and remuneration will be put to shareholders for approval.
If independent advice is sought by the Board, the consultants will be required to declare their independence. If the Board elects to state
publicly that it is relying on such advice in respect of its remuneration proposal, a summary of the findings will be disclosed to shareholders
as part of the approval process.
Recommendation 5.2 An issuer should have a remuneration policy for remuneration of directors and officers which outlines the relative
weightings of remuneration components and relevant performance criteria.
While Rakon has had established guidelines in place in regards to remuneration of its executives, it has developed a formal Remuneration
(Directors and Executives) Policy which was approved by the Board in May 2019. This policy recognises that investors have a particular
interest in director and executive remuneration and that the remuneration of directors and executives should be transparent, fair and
reasonable and outlines the framework within which Rakon determines remuneration for its directors and executives.
Rakon applies a fair and equitable approach to remuneration having regard to the financial position of the Company and the external
environment.
The policy records that Rakon and its People Committee may obtain independent advice and relevant market data and benchmarking in
New Zealand and other regions in which it operates from appropriately qualified consultants to assist in setting remuneration for its
executives, Chief Executive and directors. External advice is sought on a regular basis to ensure remuneration is benchmarked to the
market.
Director remuneration
Board role Approved
remuneration
Chair $120,000
Non-executive director $60,000
Details of individual directors’ remuneration are set out in the Shareholder Information section of the 2019 Annual Report.
Executive remuneration
In general, executive remuneration comprises of a fixed base salary and an at risk short-term incentive (STI) payable annually. Some
executives also receive fringe benefits. At risk incentives, including any STI, are payable at the Board’s discretion and by reference to targets
set at the commencement of the period, which are generally based on financial measures including Company earnings targets, progress
against objectives related to the strategic plan and other personal objectives.
Recommendation 5.3 An issuer should disclose the remuneration arrangements in place for the CEO in its annual report. This should
include disclosure of the base salary, short-term incentives and long-term incentives and the performance criteria used to determine
performance based payments.
CEO remuneration
The review and approval of the Chief Executive Officer’s remuneration is the responsibility of the People Committee and the Board.
External advice is sought on the remuneration of the Chief Executive Officer and was last obtained in 2018.
The Chief Executive Officer’s remuneration comprises a fixed base salary, fringe benefits, and an at risk STI. At risk incentives are payable at
the Board’s discretion and by reference to targets agreed with the Chief Executive Officer based on financial measures including earnings
targets, progress against objectives related to the strategic plan and other personal objectives. The remuneration detailed below relates to
payments made to Brent Robinson in the year ended 31 March 2019 (FY2019) (but not any STI payments earned and to be paid in the 2020
financial year). The breakdown of the Chief Executive Officer’s STI for FY2019 was 30% of Base Salary with performance measures linked
50% to achievement of certain Company performance targets and linked 50% to achievement of certain personal objectives. The same
breakdown was applicable to the Chief Executive Officer’s STI for the year ended 31 March 2018 (FY2018).
Base Salary Benefits Subtotal
At Risk Incentive
Total
Remuneration
STI % STI achieved
against maximum
FY2019 $634,139 $34,064 $668,202 $147,000 77 % $815,202
FY2018 $619,358 $33,044 $652,402 $73,500 40 % $725,902
Principle 6 – Risk management
Directors should have a sound understanding of the material risks faced by the issuer and how to manage them. The board should
regularly verify that the issuer has appropriate processes that identify and manage potential and material risks.
The Board has overall responsibility for the Company’s system of risk management and internal control.
69
69
Recommendation 6.1 An issuer should have a risk management framework for its business and the issuer’s board should receive and
review regular reports. An issuer should report the material risks facing the business and how these are being managed.
The Board delegates day-to-day management of risk to the Chief Executive Officer. The Audit and Risk Committee provides additional and
more specialised oversight of the Company’s risks to support the Board’s oversight. As recorded in the Audit and Risk Committee’s Charter
the Board delegates specific responsibilities to the Committee in regards to risk assurance. The Committee’s work plan and meeting
schedule provide dedicated time for review of the Company’s risk management framework, financial risks, operational risk registers and
review of the Company’s risk appetite. The Committee is required to report its findings to the full Board. In the year ended 31 March 2019
the Board commenced a practice of maintaining a strategic risks register for review and updating at each board meeting.
The executive team and other senior management are required to identify significant risks affecting the business and develop structures,
practices and processes to manage and monitor these risks. Each half year the Chief Financial Officer reports to the Audit and Risk
Committee on other risks including but not limited to fraud, cyber security and business continuity and related risk management, including
insurances.
The Board is satisfied that the Company’s significant risks are identified and reviewed and intends to further develop and implement
improvements to the Company’s risk management framework in FY2020.
Rakon maintains insurance policies that it considers adequate to meet its insurable risks.
Details of Rakon’s financial risk management are available in section C2 of the Notes to the Financial Statements in the 2019 Annual Report.
Recommendation 6.2 An issuer should disclose how it manages its health and safety risks and should report on its health and safety risks,
performance and management.
Health and safety matters are the responsibility of the full Board with oversight of legislative compliance and policy review by the People
Committee.
The Rakon board recognises that effective management of health and safety is essential for the operation of a successful business, and its
intent is to prevent harm and promote wellbeing for employees, contractors and customers. The Board is responsible for governance and
oversight of the Company’s health and safety framework including ensuring that the systems used to identify and manage health and safety
risks: foster an effective health and safety culture, set clear expectations, are fit for purpose, and are effectively implemented, properly
resourced, regularly reviewed and continuously improved.
Rakon has a number of operational subsidiary businesses outside New Zealand in India, France and the United Kingdom, each of which is
responsible for managing its own health and safety framework. Each business prepares monthly reports which are submitted to Rakon’s
General Manager People & Capability, with a monthly report to the Board, providing up-to-date information on key performance indicators,
activities and key events. The Board receives reports of Incident Rates including Lost Time Incidents and Near Misses, analysis of each
reported incident, schedules recording the timing and performance of drills, training and audits and the Company’s Critical Risk Register.
The Board is satisfied that there is a comprehensive health and safety framework in place.
The Company’s Lost Time Injuries recorded in its New Zealand operations in the year to 31 March 2019 numbered three (FY 2018:one)
Rakon is currently formalising a global Health & Safety Policy to achieve consistency of behaviour, processes and expectations across all
subsidiary businesses.
Principle 7 – Auditors
The Board should ensure the quality and independence of the external audit process.
The Rakon board is committed to ensuring audit independence, both in fact and appearance, in order that Rakon’s external financial
reporting is viewed as being highly objective and without bias.
Recommendation 7.1 The board should establish a framework for the issuer’s relationship with its external auditors.
The Audit and Risk Committee reviews the quality and cost of the audit undertaken by the Company’s external auditors and provides a
formal channel of communication between the Board, senior management and external auditors.
As outlined in the Audit and Risk Committee Charter the Committee regularly meets with the external auditor to approve the terms of
engagement, audit partner rotation (at least every five years) and audit fee, and to review and provide feedback in respect of the annual
audit plan. A comprehensive review and formal assessment of the independence and effectiveness of the external auditor is undertaken
periodically. The Committee routinely has time with the external auditor without management present. The Audit and Risk Committee also
assesses the auditor’s independence on an annual basis.
For the financial year ended 31 March 2019, PricewaterhouseCoopers (PwC) was the external auditor for Rakon.
All audit work at Rakon is fully separated from non-audit services, to ensure that appropriate independence is maintained. Other services
provided by PwC in FY2019 were non-audit related and involved the provision of advice. These services were deemed to have no effect on
the independence or objectivity of the auditor in relation to audit work. The fees paid to PwC for audit and non-audit work are identified at
section B2 d) in the Notes to the Financial Statements in the 2019 Annual Report.
Rakon’s External Auditor Independence Policy will be reviewed by the Audit and Risk Committee in the year ending 31 March 2020 to ensure
it provides comprehensive and current guidance on the services that may or may not be performed by the external auditor.
PwC has provided the Audit and Risk Committee with written confirmation that, in their view, they were able to operate independently
during FY2019.
70
70
Recommendation 7.2 The external auditor should attend the issuer’s annual meeting to answer questions from shareholders in relation
to audit.
The audit partner of the Company’s external auditor, PwC, is asked to attend the Company’s annual meetings, and to be available to answer
questions from shareholders at those meetings. The PwC audit partner attended Rakon’s 2018 Annual Shareholders’ Meeting.
Recommendation 7.3 Internal audit functions should be disclosed.
Rakon has a number of internal controls overseen by the Audit and Risk Committee and/or the Board which are supported by policy,
processes and procedures and regular reporting. These include controls for computerised information and management systems, cyber risk
and information security, business continuity management, insurance, health and safety, conflicts of interest, prevention and identification
of fraud and legislative compliance. The Company does not have an internal audit function. From time to time, the Company engages
external audit services to review its systems and internal controls.
Principle 8 – Shareholder rights and relations
The board should respect the rights of shareholders and foster constructive relationships with shareholders that encourage them to
engage with the issuer.
The Board is committed to open and regular dialogue and engagement with shareholders. Rakon seeks to ensure that investors understand
its activities by communicating effectively with them and giving them access to clear and balanced information.
Recommendation 8.1 Issuers should have a website where investors and interested stakeholders can access financial and operational
information and key corporate governance information.
Rakon maintains a website www.rakon.com where shareholders and other stakeholders may obtain up-to-date financial and operational
information and key governance information along with other information about the Company and its products.
The Company’s annual Corporate Governance Reports will be available on the Company’s website in the relevant annual report and as a
separate document including any updated versions of the Corporate Governance Report issued after the publication of the relevant annual
report.
Recommendation 8.2 An issuer should allow investors the ability to easily communicate with the issuer, including providing the option
to receive communications from the issuer electronically.
Rakon has a calendar of communications and events for shareholders, including but not limited to:
Annual and Interim Reports.
Market announcements.
Annual meetings.
Ad hoc investor presentations to institutional investors and retail brokers.
Easy access to information through the Rakon website www.rakon.com
Access to management and the Board via a dedicated email address investors@rakon.com
Shareholders are actively encouraged to attend the Company’s annual meetings and may raise matters for discussion at these events, and
vote on major decisions which affect Rakon. Voting is by poll, upholding the ‘one share, one vote’ philosophy.
All shareholders are given the option to elect to receive electronic communications from the Company.
In addition to shareholders, Rakon has a wide range of stakeholders and maintains open channels of communication for all audiences,
including brokers, the investing community and the New Zealand Shareholders’ Association and regulators, as well as Rakon employees,
customers and suppliers.
Recommendation 8.3 Quoted equity security holders should have the right to vote on major decisions which may change the nature of
the issuer in which they are invested.
In accordance with the Companies Act 1993, Rakon’s Constitution and the NZX Listing Rules, Rakon refers major decisions which may change
the nature of Rakon to shareholders for approval.
Recommendation 8.4 If seeking additional equity capital, issuers of quoted securities should offer further equity securities to existing
security holders of the same class on a pro rata basis, and no less favourable terms before further equity securities are offered to other
investors.
The Board notes the NZX Code recommendation in relation to considering the interests of all existing financial product holders. The Board
will take account of the recommendation in the event of a capital raise as well as the expectation that it should explain why any capital
raising method other than pro-rata was preferred when reporting against the NZX Code.
71
71
Directory
Registered Office
Rakon Limited
8 Sylvia Park Road
Mt Wellington
Auckland 1060
Telephone: +64 9 573 5554
Facsimile: +64 9 573 5559
Website: www.rakon.com
Mailing Address
Rakon Limited
Private Bag 99943
Newmarket
Auckland 1149
Directors
Bruce Irvine
Bryan Mogridge (ceased 7 August 2018)
Keith Oliver
Brent Robinson
Roger Yao
Yin Tang Tseng
Lorraine Witten
Keith Watson (appointed 21 September 2018)
Principal Lawyers
Bell Gully
PO Box 4199
Shortland Street
Auckland 1140
Auditors
PricewaterhouseCoopers
Private Bag 92162
Auckland 1142
Share Registrar
Computershare Investor Services Limited
Private Bag 92119
Victoria Street West
Auckland 1142
Managing Your Shareholding Online:
To change your address, update your payment instructions
and to view your investment portfolio, including transactions, please visit:
www.investorcentre.com/nz
General enquiries can be directed to:
enquiry@computershare.co.nz
Telephone: +64 9 488 8777
Facsimile: +64 9 488 8787
Bankers
ASB Bank
PO Box 35
Shortland Street
Auckland 1140
www.rakon.com
---
2019 REVIEW
Enabling the
Connected Future
2
•
RAKON REVIEW FY2019
$13.3m
RAKON REVIEW FY2019
•
3
Chair’s and CEO’s Report 4
Business and Strategic Focus 7
Board of Directors 8
Achievements FY2019 9
Global Executive Team 10
Rakon India Update 11
Financial Summary 12
Products and Markets 14
Why Customers Choose Rakon 15
Rakon Everywhere 16
Culture & Corporate
Social Responsibility 18
The Future of Connectivity
has Begun 19
Glossary 19
Directory 20
REVENUE
▼
12.7%
$114.0m
UNDERLYING
EBITDA
1
▼
9.7 %
$13.3m
▼
66.4%
$3.4m
NET PROFITOPERATING
CASH FLOW
Contents
REVENUE
NET PROFIT / LOSS
UNDERLYING EBITDA
2
NEW ZEALAND (HQ)
NORTH AMERICA
EUROPE
ASIA
OPERATING EXPENSES
1&2
Refer to the footnote on page 19 for the definition of Underlying EBITDA as a measure of non-GA AP financial information, referred to in this document.
NZ(HQ) 296 India 533 France 95 UK 19 USA 8 Asia 15
Approximate figures as at 31 March 2019.
Rakon has built a world–class
design and manufacturing
platform coupled with a
customer portfolio of global
leaders. Rakon provides
products and solutions
designed into present
and future generations
of communications and
positioning technologies.
akon is a global high technology company
that designs and manufactures world leading
frequency control and timing solutions.
Its products help set the frequencies that all
communications transmit and receive on. They
also hold time and provide a stable timing
reference for electronic equipment around the
world. This enables synchronised time globally,
and the efficient and reliable transfer of data at
ever-increasing precision and speed.
Derek Read
Engineering Project Manager
Harlow, UK
“
Performance Snapshot Financial Year 2019
Global Team Size
Connectivity, Anytime, Anywhere
Rakon products enable
connectivity for a wide
range of applications.
Rakon’s core markets are
telecommunications,
space & defence and
global positioning.
R
$113m
$95m
$101m
$114m
2016 2017 2018 2019
$9. 0 m
$4.0m
$12.1m
2016 2017 2018 2019
$ 47. 8 m
$41.9m
2016 2017 2018 2019
$41.6m
$ 47. 3 m
-$1.7m
-$13.6
2017
$10.0m
2016
2018 2019
$3.4m
All amounts in this document are in NZ $ unless otherwise specified.
“
“
F Y2018 $ 7.9 m
Manufacturing site
Sales & Customer
Support location
Research & Development
(R&D) site
Global
Locations
F Y2019 -$1.8m
12 months ended 31 March 2019.
It is a very exciting time
for everyone in the UK
advanced technology team.
I’m fortunate to get involved
from inception to delivery in
the superb new technologies
we are developing. We
are working closely with
customers, suppliers and
colleagues from around
the world to design and
deliver Rakon’s unique next
generation ASIC-based
products.
We must meet the
demanding challenges of new
technologies and applications
such as 5G, emergency
locator beacons and electric
and autonomous vehicles.
Our ASIC technology is
being designed into many
5G systems by our Tier
One customers. In 2018
we released a new TCXO
ASIC, which is designed to
satisfy the requirements of
emerging applications. In
R&D, the future is now.
4
•
RAKON REVIEW FY2019
Rakon has a key competitive
advantage where we are
able to make very exacting
high performance products.
Reuben Schuitemaker
Graduate Engineer
Equipment Development
Group (EDG)
Auckland, NZ
Chair’s and CEO’s Report
elcome to the 2019 Annual Review of your
company Rakon Limited (‘Rakon’ or the
‘Group’).
Steady growth in core business led to an
improvement in underlying financial performance for
the year ended 31 March 2019 (FY2019). Underlying
EBITDA
3
was $13.3m, compared with $12.1m in
FY2018 and in line with our earlier guidance of $12
– $14m. Net Profit After Tax (NPAT) was $3.4m,
compared with $10m in FY2018. The prior year’s
$10m NPAT included $ 8.8m of gains recognised in
relation to the sale of property in Argenteuil, France
and the dilution gain and sale of shares in Thinxtra
Pty Limited (‘Thinxtra’).
Rakon India Private Limited (‘Rakon India’) was fully
consolidated into the Group from May 2018 and
made a positive earnings contribution. At this time,
Rakon completed the buy-out of the remaining 51%
ownership from its joint venture partner Centum
Electronics Limited (‘Centum’) for US$5.5m.
It was pleasing to see the year-on-year growth
in core net profit (i.e. after one-off gains were
excluded) on the basis of stronger 4.5G and 5G
telecommunications infrastructure demand and
continuing growth in the defence segment. Revenue
was up $12.9m to $114m, with $13.1m growth from
the telecommunications market and $3.6m growth
from space & defence, offset by a $5.5m decline in
the global positioning market.
With most of our sales being in US$ and our financial
performance reported in NZ$, there are always
exchange variations. These are considered under our
treasury policy.
Gross margin improved with growth in our core
business, predominantly from the flow-through
of higher revenue in the telecommunications
segment. Gross margin percentage improved to
45%, compared with 43% in FY2018. This was
mainly from a change in mix toward higher margin
telecommunications and defence business and away
from the lower margin global positioning business.
Operating costs rose with the inclusion of Rakon
W
India on a fully consolidated basis, and one-off costs
relating to integrating that business into the wider
Group. Net debt of $7.7m, compared with a net cash
position of $7.4m in FY2018, reflected the impact
of higher working capital requirements to support
growing revenue, the acquisition of Rakon India and
investment in additional manufacturing capacity
during the year.
Operating cash flow of - $1.8m reflected an
increase in inventory to support the higher
telecommunications demand and the launch of new
telecommunication products out of New Zealand.
Capital expenditure was also higher, with capacity
expansion in the Rakon India plant and additional
spending on infrastructure to enable Rakon India
to operate independently from our previous joint
venture partner Centum.
With a solid global executive team now in place
we are positioned well for future growth and
sustainability.
Operational Overview
In FY2019 we have seen the growth in demand for
our products supporting the upgrade of existing
4G networks to deliver 5G to end users. Demand
is expected to continue for a number of years as
spectrum is released, technology is developed and
end user cases are enabled.
In the near term, ‘fixed wireless access’ to the
home is one example of an application that will be
enabled. This is where 5G, with its greater speed
and increased bandwidth, enables internet access
to homes through wireless mobile networks instead
of physical fibre broadband lines. In the longer term,
there will be the eventual adoption of widespread
Machine-to-Machine (M2M) applications such as
autonomous vehicles and industrial robotics. We are
expecting the roll-out of 5G to be quite drawn-out, in
comparison to the equivalent roll-out for 4G, as the
various waves of technology are released and there
is uptake by the market.
In the meantime there has been a significant
revenue and volume increase for our products for
5G out of New Zealand and India. Rakon products
are being designed into many Tier One Customers’
solutions. Rakon has continued its investment in the
development of new products to meet the future
needs of 5G applications.
Capacity constraints at Rakon India caused delivery
issues during FY2019, although monthly outputs
more than doubled. Market shortages of material
also affected working capital as we put additional
inventory in place.
Rakon India
With Rakon now having full decision-making
control of the low cost manufacturing operation in
India, it was pleasing to see that business’ positive
contribution to the Group’s full-year result.
Rakon India’s facilities were expanded during FY2019
to fulfil growing demand, with 76% year-on-year
growth in OCXO
4
volumes. This was from new
design wins and an increased share of Tier One
customers’ business. Additional floor area was
leased within the existing building, the layout was
streamlined and there was significant investment in
new manufacturing equipment.
Growth also occurred in the domestic space and
defence business in India. The Group is also starting
to leverage the R&D engineering resources in India,
with closer collaboration between our India-based
engineering team and other global engineering teams
for new product developments.
Rakon India’s integration into the wider Rakon Group
is mostly complete
5
and it is now able to operate
independently from Centum. A new management
structure was put in place, investment in
infrastructure made and enterprise resource planning
software (SAP) implemented.
Please also refer to page 11, which provides further
information on key achievements at Rakon India.
Related Party Update
Rakon’s manufacturing partner and major
shareholder, Taiwan-based Siward Crystal
Technology Co. Limited (‘Siward’), was successfully
qualified for major Rakon Tier One customers. This
will enable more Rakon products to be manufactured
at Siward, allowing Rakon to grow market share in
this segment.
Market Update
Telecommunications
The roll-out of 5G continues to provide our biggest
opportunity and our biggest challenge. Rakon is
well positioned, with a good share of business
awarded by Tier One customers. The challenge for
Rakon is to meet existing demand and continue to
bring new products to market that meet the higher
specifications demanded by 5G applications.
Rakon had 25% growth in revenue in this market (on
a US$ basis). Rakon India is delivering a significant
portion of the growth, with Rakon increasing its
share in Tier One Original Equipment Manufacturers
(OEMs) for 4G and 4.5G mobile base stations. Rakon
New Zealand has also had good growth in this market
and is now starting to generate revenue from new
products designed into the beginning of the 5G roll-
out. Early deployments have begun in South Korea,
China and the United States.
Outlook
Rakon expects to maintain and grow market share
as 5G deployment gathers momentum globally, with
the industry predicting a roll-out of at least five years
as the technology is released in various phases. Core
network equipment will need to be upgraded to
support the 5G synchronisation standards.
4G and 4.5G equipment demand is expected to
remain firm in the coming years as applications
requiring 5G come to market.
Global Positioning
Global positioning revenue was down 15% overall.
Our high volume Global Navigation Satellite System
(GNSS) business was lower due to transfers of
production into the Siward factory and the build
up of inventory by a key customer in the prior
year. Industrial high precision GNSS was down,
particularly from the US agricultural and mining
equipment sector, due to global trade uncertainty.
The emergency locator beacon market returned to
long-term average levels after the bubble in FY2018
due to frequency and band changes.
3
Refer to the footnote on page 19 for the definition of Underlying EBITDA as a measure
of non-GA AP financial information, referred to in this document.
4
Product acronyms and definitions are explained in the Glossary on page 19.
5
The Rakon India integration was on target to complete at the time of final due date of this published document (30 June 2019).
RAKON REVIEW FY2019
•
5
Impressive new technologies
are constantly emerging. It’s
always exciting to see the
innovative manufacturing
solutions Rakon has
developed to maintain
our flexible product
platforms, which include the
manufacturing equipment
and processes.
At Rakon, having this
flexibility enables us to cater
for new products.
“
“
6
•
RAKON REVIEW FY2019
RAKON REVIEW FY2019
•
7
Brent Robinson
CEO / Managing Director
Financial Year 2019
Performance Summary
Sowmya Injeti
Product Line Manager
Auckland, NZ
Business and Strategic Focus
Our trusted
brand
Investment
in R&D
Strong ecosystem
partnerships
& customer
relationships
950+
global team
Deep application
expertise
Growth of our
people
Increased
shareholder value
Improved service
and efficiencies for
our customers
Enabling our
customers to
advance technology
INPUTS
OUTPUTS
Enabling applications
that change the way
we live our lives
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
P
R
O
D
U
C
T
S
•
P
R
O
C
E
S
S
E
S
•
B
R
A
N
D
•
I
N
-
H
O
U
S
E
M
A
N
U
F
A
C
T
U
R
I
N
G
•
L
E
A
D
I
N
G
E
D
G
E
D
E
S
I
G
N
D
I
F
F
E
R
E
N
T
I
A
T
I
O
N
S
T
R
A
T
E
G
Y
HOW WE
SUCCEED IN
ENABLING THE
CONNECTED
FUTURE
TECHNOLOGY
LEADERSHIP
KEY FOCUS
WORLD
CLASS
QUALITY
KEY FOCUS
OPERATIONAL
EXCELLENCE
PARTNERSHIPS
L
O
W
C
O
S
T
S
T
R
A
T
E
G
Y
KEY FOCUS
FAST
RESPONSE
TIMES
KEY FOCUS
PROFESSIONAL
EXCELLENCE
& LEADERSHIP
KEY FOCUS
H I G H LY
FLEXIBLE
PRODUCT
PL ATFO R M S
Siward is a leading
manufacturer of high
volume frequency control
products. Partnering with
them has enabled Rakon to
deliver even higher volume,
lower cost solutions to our
customers.
Siward has a highly
competent team with vast
experience and capability in
large scale manufacturing.
The partnership is now well
established and is opening
up many new opportunities
for Rakon, through an
expanded product offering
targeting wider markets and
applications.
Bruce Irvine
Chair
Outlook
A key design win was achieved with an autonomous
electric car manufacturer requiring high specification
Rakon products. This looks likely to open up further
opportunities for us in the near future. We believe
Rakon has a key competitive advantage in this
area, given our ability to design and manufacture
exacting high performance products that can manage
environmental differences.
Competition in the lower-end GNSS module market
in Asia is expected to increase price pressure
in this high volume market. Nevertheless, with
Siward ready to fulfil requirements for this type of
application, Rakon has strong competitive positioning
for future growth. Partnering with Siward is enabling
Rakon to provide a wider frequency control product
offering to our customers and meet the demand for
high volume, low cost production.
Space and Defence
The higher margin space and defence business
experienced moderate growth, with higher defence
spending in North America and Europe offset by
lower spending in Asia. Defence revenue (on a US$
basis) maintained the higher levels of FY2018 (up by
35% in that period).
Rakon’s space revenue grew 15% overall (on a US$
basis), with the inclusion of Rakon India’s domestic
space business. The European space business
was lower as the market transitions to new Low
Earth Orbit (LEO) satellite technology and away
from traditional, larger, geosynchronous orbit (GSO)
satellites. A key design win has been achieved in a
new LEO deployment project (LEO deployments are
part of a new industry segment called ‘New Space’).
Outlook
In the space market, demand is expected to be
down for products supplied into the traditional
GSO satellites as the market transitions to smaller
LEO satellites. The potential for the New Space
market is significant given the increased volume of
satellites expected. With Rakon’s existing customer
relationships, market reputation, and proven
technology, Rakon is well placed to develop new
products to capture future revenue in this market.
Rakon India is well positioned to continue growing its
local Indian space and defence business, its market
share being low in this large market.
Defence spending is expected to remain strong, with
current orders and forecasts supporting this outlook.
Corporate Governance
There were changes to the Board during the year
including the retirement of our Chair, Bryan Mogridge.
Rakon extends its appreciation to Bryan for his
valuable contribution and long service to the company.
A new Chair was appointed and Keith Watson
joined Rakon as a Director. Keith’s management
and governance experience in the technology and
engineering sectors complements the skills, expertise
and experience of our existing Board members.
The Board is committed to maintaining the
highest standards of corporate behaviour and
accountability. The Board again reviewed Rakon’s
corporate governance framework. Consistent
with its undertakings in the 2018 Corporate
Governance Report, new policies were added
covering diversity and inclusion, Directors’ and
executives’ remuneration and employee disclosure
protection. We also reviewed existing practices
and guidance documentation to strengthen the
governance framework and its alignment with the
recommendations in the NZX Corporate Governance
Code.
For a detailed explanation of Rakon’s corporate
governance practices please refer to the Corporate
Governance Report in the Rakon Limited Annual
Report 2019.
Summary
Rakon performed well, with growth in its core
business leading to Underlying EBITDA growth of
$1.2m. The Rakon India acquisition completed and the
integration of the renamed Rakon India business into
the wider Group is mostly complete, with immediate
benefits being realised through positive earnings
contributions to the Group.
Revenue growth came from the telecommunications
market with 4.5G and 5G demand, and from growth in
the defence market.
The roll-out of 5G is expected to support revenue
growth, with Rakon products already designed in by
many Tier One customers.
The key focus ahead is on delivery to meet
existing demand. In addition, Rakon is focused
on the development and release of new products
and specifications to meet the ever-increasing
requirements for higher speed data and New Space
applications.
We look forward to bringing you further updates
including FY2020 performance, at our Annual
Shareholders’ Meeting (ASM) on 9 August 2019.
• Revenue of $114.0m vs. $101.1m in FY2018.
o
Steady growth in core business drove the
improved result.
• Underlying EBITDA of $13.3m vs. $12.1m in
FY2018.
• Net profit after tax of $3.4m vs. $10.0m in
FY2018.
6
• Net debt was $7.7m vs. a net cash position of
$7.4m in FY2018.
7
6
In F Y2018 net profit after tax included $ 8.8m of gains recognised in relation to the sale of property in Argenteuil, France. It also included the dilution gain and sale of shares in Thinxtra.
7
Movement due to the impact of higher working capital requirements to support growing revenue, the acquisition of Rakon India and the investment in additional manufacturing capacity.
Chair’s and CEO’s Report
“
“
8
•
RAKON REVIEW FY2019
RAKON REVIEW FY2019
•
9
Keith Watson
Independent Director
Appointed to Board in 2018.
Keith is a professional
Director with substantial
experience in the technology
and engineering sectors.
He is a Chartered Member of
the Institute of Directors in
New Zealand and has over 30
years’ experience in senior VP
and executive roles, including
positions with Hewlett
Packard in North America,
Asia and New Zealand. He
was Managing Director of
Hewlett Packard New Zealand
from 2004 to 2016. Keith has
governance, management
and leadership experience in
companies across the Asia
Pacific region, the Americas,
Central Europe, the UK,
Australia and New Zealand.
He has previously chaired
Opus International
Consultants Limited and is
a past Board member of the
New Zealand Technology
Industry Association (NZTech)
and the University of Auckland
Business School.
Keith is currently a Director of
the New Zealand Institute of
Economic Research (NZIER),
Acumen Republic Limited and
Complete 3D.
Brent Robinson
Executive Director
Appointed to Board in 2005.
Brent has 40 years at Rakon,
which includes establishing
global operations and
markets and 33 years as
CEO / Managing Director.
Under Brent’s leadership
Rakon has grown into
a global business and a
recognised leader in the
frequency control product
industr y.
Brent is an Honorary
Fellow of the Institution of
Professional Engineers New
Zealand. He was awarded
the New Zealand Hi-Tech
Trust – Flying Kiwi Award
in 2 011.
Bruce Irvine
Chair and Independent Director
Appointed to Board in 2005.
Y in Ta ng Ts e ng
Non-Executive Director
Appointed to Board in 2017.
Yin Tang (Tony) is the current
Chair of Siward Crystal
Technology Co. Limited,
a substantial shareholder
(16.6%) in Rakon.
Tony has over 30 years of
experience in the frequency
control product industry,
having founded Siward in
1988 and grown the company
to become one of the leaders
in the industry globally, with
revenue of US$100 + million.
Tony is a Director of
Securitag Assembly Group
Limited.
Keith Oliver
Independent Director
Appointed to Board in 2017.
Keith is a professional
Director and a business
advisor with ALTO Capital
Limited, where he is also a
Director. He is a past Director
of a range of NZ technology
companies operating in
international markets in Asia,
Europe and the Americas,
several of which he has been
a founder and investor in.
Keith is the Executive Chair
of Blackhawk Tracking
Systems Limited, Chair of
Health Vision (NZ) Limited
and a Director of Wellington
Drive Technologies Limited.
Keith holds a Bachelor of
Engineering (Electrical) with
First Class Honours from the
University of Auckland.
Lorraine Witten
Independent Director
Appointed to Board in 2017.
Lorraine is a professional
Director with extensive
experience in technology and
Information Communications
Technology (ICT) sectors, as
well as competence in
strategy and entrepreneurship.
She is a chartered fellow of
the New Zealand Institute
of Directors and has 25
years’ experience in senior
management and finance
roles, including as past
General Manager of Telecom
Mobile from 1997 to 2001.
Lorraine is Chair of Simply
Security Limited, a company
she founded in 2007, and Chair
of vWork Limited. She is also
a member of the Corrections
Department Audit & Risk
committee and a Director of
TIL Logistics Group Limited
and Horizon Energy Group.
Lorraine is a past Chair
of Kordia Group Limited
and a past Board member
of New Zealand Trade &
Enterprise, among others.
She is a member of Chartered
Accountants Australia and
New Zealand (CA ANZ).
Lorraine holds a Bachelor of
Management Studies with
First Class Honours from the
University of Waikato.
Mirela Munteanu
Quality Manager
Telecommunications
Business Unit
Gennevilliers, France
Board of Directors
Achievements F Y2019
Enabling applications
that change the way we
live our lives
Enabling our customers
to advance technology
Improved service and efficiencies
for our customers
Shareholder value
Growth of our people
A strategic focus on strengthening professional excellence and leadership
through acquisition and development.
• Rakon’s global team was strengthened through the integration of Rakon India into
the Rakon Group.
• Four new leadership positions were created and appointed: Company Secretary,
Head of Global Engineering, Head of Global Product Management and
Managing Director, India.
• Growth of Rakon people continued; 27% of open positions in FY2019 were filled
through internal promotions.
Business more profitable. Underlying EBITDA up on increased revenue.
• Rakon India was integrated into the global business.
11
Rakon India is a high quality
low-cost operating platform which will enable Rakon to meet customer demand and
grow local business.
For a full list of achievements in FY2019 please refer to the Rakon India Update on page 11.
• Recertification of all business units to the latest versions of Quality Management
System (QMS) standards was completed.
• A global quality cost reporting system that is immediately focused on improving
quality in Rakon’s manufacturing operations was established. This will enable it to
establish targets and identify opportunities and priorities for manufacturing cost
reductions across the global organisation.
• The Qualification and Reliability Test Laboratory in NZ was doubled in size. This
has increased the capability to execute new product qualifications and enhanced on-
going reliability testing (for products coming out of NZ). It also provides additional test
capability and support for the global organisation.
• Siward’s manufacturing process for major Rakon Tier One customers was successfully
qualified. This work has established the upgraded process and capabilities at Siward
to manufacture more of Rakon’s products to meet Tier One customer expectations.
• The Delivery In Full, On Time and In Specification (DIFOTIS) measure was adopted
across the global business.
• Next generation (half the size)
crystal technology for
miniature OCXOs
9
(Telecommunications – 5G)
• Improved environmental
sensitivity crystals which are
three times smaller
(Telecommunications – 5G)
• New VCXO platform
(Telecommunications – 5G;
Defence)
• Next generation Application
Specific Integrated Circuit
(ASIC) development for OCXOs
(Telecommunications)
• Development of reduced size,
surface mount OCXO platform
(Telecommunications – 5G)
• Next generation ASIC for
TCXOs
(Telecommunications – 5G)
• Next generation Space
OCXO platform
(Space)
New products introduced
10
in FY2019:
• XOs and VCXOs for New
Space satellite constellations
• OCXOs for New
Space satellite constellations
• XOs for avionics and high
reliability applications
• Space crystal resonators
following the guidelines
of high reliability standards
• 5G Ultra-Stable TCXOs
• High temperature global
positioning TCXOs
• ASIC OCXOs for radio
equipment
• ASIC OCXOs for network
equipment
• Digital OCXOs for 5G
` equipment
• VCOs for radar applications
• Low phase noise OCXOs for
high reliability applications
• Lower cost OCXOs for 4G
and 5G equipment
Some of the R&D technology
developments:
8
Icons represent Rakon’s areas of strategic focus. Refer to graphic on page 7.
9
Product acronyms and definitions are explained in the Glossary on page 19.
10
New products introduced by Rakon to the market are defined as products which have begun sampling.
11
The Rakon India integration was on target to complete at the time of final due date of this published document (30 June 2019).
8
Bruce was Managing Partner
of Deloitte Christchurch from
1995 until his retirement in
2007 to focus on his director
roles.
Bruce is a professional
Director with extensive
experience across a wide
range of industries. He is
a Chartered Fellow of the
Institute of Directors, as
well as an Accredited Fellow
of Chartered Accountants
Australia and New Zealand
(CAANZ).
He is currently Chair of
Heartland Bank Limited,
Market Gardeners Limited
and Skope Industries Limited.
He is also a Director of
Scenic Hotel Group Limited,
House of Travel Holdings
Limited and Gough Group
Holdings Limited.
Bruce is involved in a
voluntary capacity as a
Trustee of Christchurch
Symphony Trust.
“
“
World–class quality
indicates a standard of
excellence. As a world
leader in frequency control
products, Rakon must
deliver excellence and be
the ‘best of the best’ in
terms of product design,
product performance,
customer satisfaction and
value.
To be a world leader in
an evolving competitive
market, focus is always
on achieving world-class
quality.
We must continually
do better and better. It
requires the company to
be agile enough to adjust
its processes, tools and
quality reporting measures
to accommodate changes
in a constantly changing
business environment.
10
•
RAKON REVIEW FY2019
RAKON REVIEW FY2019
•
11
akon acquired 100% ownership of Rakon India
to allow the company to leverage the full potential
of what is a high quality, low-cost operating platform
suitable for growth. The acquisition also provided the
unconstrained ability to align the business with its
international operations, and it has given Rakon direct
access to the growing market in India.
Rakon Senior Programme Manager – Global
Integration Cliff Hand has been based at Bengaluru,
India since April 2018 and has led the integration
programme.
“The integration programme was successful
overall.
We are now operating independently from
Centum and this was achieved four months ahead of
schedule,” he says.
Rakon India Managing Director Arun Parasnis says
the investment into the Bengaluru facility has enabled
scalability of the operations in a short time span.
“We have been able to scale up quickly to meet an
increased market demand.”
Dr. Roy Cann
Head of Global Engineering
Roy joined Rakon in May 2018 as Head
of Global Engineering. He is responsible
for driving new product developments
and further integrating Rakon’s global
engineering teams to leverage the benefits of a
collaborative R&D team. Prior to joining Rakon, Roy held
the position of Electronic Controls Design Manager at
Fisher and Paykel Technologies, where he was responsible
for the design and supply chain management of high
volume microprocessor-based motor controllers across
New Zealand and China.
Prior to this, Roy was an Engineering Director at Trimble for
five years. He has held a number of other senior roles with
multi-site responsibilities, including positions with Avery
Weightronix (UK), Rolls-Royce Aerospace (UK), Meissner
Power Systems (South Africa), and Connetics (NZ). Roy
holds a PhD in Electrical Engineering.
Maureen Shaddick
Company Secretary
Maureen joined Rakon in November 2018.
She provides legal, company secretarial and
regulatory advice and support. She has over
25 years’ experience as a commercial lawyer
and governance adviser in private practice, corporates and
not-for-profit organisations in New Zealand, London and
Dubai.
Maureen was the General Counsel and Company Secretary
of Genesis Energy from 2003 to 2016. She is the Chair
of Cancer Research Trust New Zealand and has been a
Trustee since 2003. She has also held a number of other
not-for-profit governance roles.
Borja Thomas (Thomas)
Head of Global Product Management
Thomas joined Rakon in April 2015. In his
current role he is responsible for generating
and growing profit for the business through
the existing and future product offering.
Thomas works closely with the Chief Technology Officer
and the engineering and sales teams to prioritise R&D
and bring to market new products that fulfil customer and
market requirements, and are in line with the business’s
vision. He is also responsible for setting strategies and
roadmaps that determine Rakon’s product offering.
Prior to joining Rakon, Thomas was a Product Line
Manager for Nexans (formerly Alcatel) in France and led
the launch of two new product lines addressing the smart
grid and electric vehicle markets.
the company. In his current role he is responsible for Rakon’s
finance, information systems and investor relations functions.
Anand has gained broad financial and commercial
experience in previous roles, including as GM of Finance and
General Manager. His previous experience includes tenures
at Sony, British Telecom and Deloitte. Anand is a member
of Chartered Accountants Australia and New Zealand
(CAANZ).
Margo Thomas
Global General Manager, People and Capability
Margo has been the General Manager
of People and Capability since January
2016. She is responsible for global Human
Resources (HR) strategy, policy, organisational
alignment, talent aquisition and management, remuneration,
recognition, leadership development, change management,
employment relations, consultancy advice, and health and
safety.
Margo has held senior HR positions in a range of industries,
with Crowe Horwath, Spark, Westpac and New Zealand
Post.
Scott Stemper
Global Quality Manager
Scott joined Rakon in January 2015. He
leads the development and improvement of
quality processes and systems to enhance
Rakon’s drive to be the leading provider of
world-class frequency control products.
Scott’s background includes ten years as Global Quality
Manager with Raltron Electronics Corporation and 20
years with CTS Frequency Controls in oscillator product
engineering and quality management roles. He has also held
senior quality management positions with L3 Technologies
and D&S Consultants Incorporated.
Cliff Hand
Senior Programme Manager, Global Integration
Cliff joined Rakon in January 2018. He
is responsible for integration of the
global business and driving operational
improvements in productivity and efficiency
to increase profitability. Prior to joining Rakon, Cliff held the
position of General Manager for the Fairview Group’s Glass
Relate business. He has held cross-functional responsibility
for finance, supply chain, sales and customer services, and
for operations across two sites.
Cliff has held a number of senior positions in a variety of
manufacturing environments, including as CEO for Patchell
Industries Ltd and nine years at Fletcher Building.
Global Executive Team
Roy Cann
Head of Global Engineering
Auckland, NZ
Brent Robinson
CEO / Managing Director &
Chief Technology Officer
Brent joined Rakon in the 1970s as a radio
and electronics apprentice. As a member
of Rakon’s engineering team, he developed
various key product and production technologies and
in 1986 he was appointed Managing Director and Chief
Executive Officer. Under Brent’s leadership Rakon has
grown into a global business and a recognised leader in the
frequency control product industry.
In his capacity as Chief Technology Officer, Brent drives
the business’s technology and innovation.
Darren Robinson
Sales and Marketing Director
Darren has been Marketing Director since
1990, having earlier held various roles
with the company in New Zealand and
overseas. He leads the sales and marketing
activities for Rakon globally and has been instrumental
in the company’s expansion into new markets, its
commercialisation of new applications and its development
of business relationships with many Fortune 500
companies.
Through Darren’s in-depth understanding of the markets
Rakon competes in, he also plays an integral part in
steering its R&D efforts. He guides product development
teams to meet new requirements in emerging applications
and to solve problems for customers. Darren is also a
strong advocate for Rakon’s commitment to fostering local
engineering talent.
Dr. Sinan Altug
Managing Director, Europe
Sinan joined Rakon in 2002. In his role as
Managing Director, Europe, he is responsible
for all aspects of Rakon’s European business
units including manufacturing operations,
engineering, R&D and sales, which contribute significantly
to Rakon’s turnover.
Prior to his current role, Sinan was the Global Business
Development Director, driving Rakon’s entry and growth in
multiple strategic business segments. Before joining Rakon
Sinan held various management positions in the frequency
control product industry. As well as his PhD in Electrical
Engineering he has an MBA.
Anand Rambhai
Chief Financial Of ficer
Anand joined Rakon in January 2012 and was
appointed CFO in November 2018. Anand
brings strong leadership, commercial skills
and in-depth Rakon business knowledge to
Rakon India Update
R
He says Rakon India is also now well equipped for
anticipated future growth.
“Rakon India is in a very good position to meet
growth in the local space, defence and aeronautics
sector in India. We have a 20 member R&D team
equipped to design, develop and qualify frequency
control products for our local market. Rakon also
has an established sales and business development
team. We are working closely with our local industry
and participate in the ‘Make in India’ government
programme.”
Arun says Rakon India is also gearing up to be ready
for anticipated global business growth.
“We have a dedicated team with the right skills
and capabilities to enable Rakon India to ramp up
production further. Rakon India is a world-class
manufacturing facility, and has the flexibility and
scalability to facilitate future growth while optimising
cost.”
Key Achievements FY2019
• Doubled monthly capacit y from
pre-acquisition levels
• Grow th in revenue (up 65%)
compared with F Y2018
• Establishment of senior
leadership team repor ting to the
newly appointed Managing
Director
• Successful implementation of
Enterprise Resource Planning
(ERP) sof t ware (SAP)
• Implemented Rakon key
performance metrics including
Delivery In Full, On Time and
In Specification (DIFOTIS)
• Began embedding Integrated
Business Planning (IBP) process
to further achieve operational
excellence and customer
satisfaction
• Recruitment of 149 new team
members
Areas of focus in F Y2020
• Ramping up production volumes
to meet demand and utilise
increased capacity
• Continuous improvement
initiatives to ensure operational
excellence
• Full embedding of Integrated
Business Planning (IBP) process
and alignment with global business
• Further business development in
the space, aeronautics and
defence markets
• People and organisational
development (to achieve
professional excellence and
leadership)
• Creation of a cohesive culture in
line with Rakon values
• Optimisation of new ERP system
Rakon has invested in and upgraded its world-class manufacturing and research and development facility at Bengaluru, India.
Rakon is leveraging its
global R&D capabilities
to retain its position as a
leading provider of new
technologies in frequency
control.
We are investing in new
manufacturing approaches
to address market needs for
ever-smaller devices,
developing new ASICs and
architectures to facilitate
leading edge oscillator
performance, and creating
advanced multi-physics
simulations to reduce time
to market.
Arun joined Rakon in October 2018. He is
responsible for the Rakon India business,
including financial results, business growth,
R&D and the general management of all business
functions.
Arun has had 30 years of experience in the
electronics industry, overseeing functions
including engineering, operations, business
development and profit and loss management.
His experience across the electronics industry
includes electronic components, consumer
electronics and Electronics Manufacturing
Services (EMS).
Prior to joining Rakon, Arun was the Vice
President of Cyient Limited. He has also held
senior positions at Radiall India Private limited,
Jabil Circuit India Private Limited and Vishay
Components India Private Limited (formerly the
Philips Electronics Passive Components division).
Arun Parasnis
Managing Director, Rakon India
Appointment of Managing Director
“
“
12
•
RAKON REVIEW FY2019
RAKON REVIEW FY2019
•
13
Non-current assets
Trade and other receivables2,2672,716
Derivative financial instruments258334
Financial asset at fair value through
other comprehensive income
4,549–
Property, plant and equipment19,39413,481
Intangible assets9,1499,115
Investment in associate10,39914,640
Interest in joint venture–2,876
Deferred tax asset7,3525,906
Total non-current assets53,36849,068
Total assets136,504113,433
Summary of Revenue and Profit
For the year ended 31 March 2019
2019
$000s
2018
$000s
Revenue113,985101,127
Underlying EBITDA
12
13,27012,094
Depreciation and amortisation(5,802)(4,342)
Net dilution gain on Thinxtra shares–4,815
One-off cash gains realised on derivatives closed out–1,096
Interest(534)(501)
Adjustment for associates and joint venture share of interest, tax and depreciation(1,120) (1,751)
Impairment–(120)
Other non-cash items(340)(294)
Income tax expense(2,110)(998)
Net profit after tax3,3649,999
Summary of Statement of Cash Flows
For the year ended 31 March 2019
2019
$000s
2018
$000s
Net cash flow
– Operating activities(1,768)7,904
– Investing activities(12,674)3,856
– Financing activities(24)(4,542)
Net (decrease)/increase in cash and cash equivalents(14,466)7,218
Foreign currency translation adjustment144246
Cash and cash equivalents at the beginning of the period7,54076
Cash and cash equivalents at the end of the period(6,782)7,540
Balance Sheet
As at 31 March 2019
2019
$000s
2018
$000s
Assets
Current assets
Cash and cash equivalents4,71910,364
Trade and other receivables38,22028,395
Financial asset at fair value through
profit and loss
19211
Derivative financial instruments3071,078
Inventories39,31024,171
Current income tax asset561146
Total current assets83,13664,365
Balance Sheet
As at 31 March 2019
2019
$000s
2018
$000s
Liabilities
Current liabilities
Bank overdraft11,5012,824
Borrowings47498
Trade and other payables26,39819,107
Derivative financial instruments945235
Provisions471961
Deferred consideration on acquisition1,885–
Deferred revenue–101
Total current liabilities41,67423,326
Non-current liabilities
Derivative financial instruments34378
Borrowings412–
Provisions2,9902,734
Deferred tax liabilities1,069244
Total non-current liabilities4,8143,056
Total liabilities46,48826,382
Net assets90,01687,051
Equity
Share capital181,024181,024
Other reserves(21,153)(20,754)
Retained earnings(69,855)(73,219)
Total equity90,01687,051
Total equity and liabilities136,504113,433
This financial summary provides partially
summarised financial information only regarding
the financial performance of Rakon Limited for
the year ended 31 March 2019. Please refer to
the Rakon Limited Annual Report 2019, for the
full financial statements and accompanying
notes.
Operational excellence
is a key focus in the daily
operations at Rakon.
This is because the
operational strategies
implemented are focused
on delivering end products
that fulfil our customer
requirements.
Eden Rima
Inventory Administrator
Supply Chain
Auckland, NZ
Financial Summary
12
Refer to the footnote on page 19 for explanation of
Underlying EBITDA.
“
“
14
•
RAKON REVIEW FY2019
Sara Hoey
Customer Service
Representative
California, USA
Rakon has consistently provided support, responsiveness,
engineering technical expertise and on-time delivery of
production and sample components.
We have very good cooperation with Rakon, and are
satisfied with Rakon’s support from technology, application
and communications aspects.
Rakon’s service and quality are the best, however, we also
need good prices to compete with our competitors.
Rakon is the most preferred OCXO and TCXO supplier for
4G & 5G systems at our company. Thus we need Rakon’s
cooperation to accomplish our 6 billion dollar target for
calendar year 2019.
Products and Markets
Cities where Rakon’s OEM Customers are Based
Telecommunications
The equipment that enables
communications networks to operate.
Includes small cells, 4G / 5G
mobile base stations, microwave,
backhaul networks as well as data
centres, switches, routers and optical
transmission equipment.
OCXOs, TCXOs, VCXOs and XOs
Global Positioning
Includes all Global Navigation
Satellite System (GNSS) equipment
and other positioning systems.
Applications include Personal
Navigation Devices (PNDs), high
precision positioning (surveying,
mining, and agriculture), emergency
locator beacons, aviation, drones,
automotive, asset tracking, and
sport and recreation products.
TCXOs, XOs and Crystals
Space & Defence
Applications where reliability,
precision, and performance are
all critical. Includes New Space,
avionics, radars and other high
reliability applications.
Sub-systems, OCSOs, USOs,
VCSOs, OCXOs, TCXOs, VCXOs,
XOs, VCOs and Crystals
Emerging and Other
Many applications including wireless
control, test and measurement,
smart grids and metering, Machine-
to-Machine (M2M), the Internet
of Things (IoT), as well as other
emerging markets.
OCSOs, OCXOs, TCXOs, VCXOs,
XOs and Crystals
Global Original Equipment Manufacturers
(OEMs) contributing to revenue in FY2019.
47
%
28
%
18
%
7
%
13
New products introduced by Rakon to the market are defined as products which have begun sampling.
New Products Introduced
13
in F Y2019
XOs and VCXOs for
New Space satellite
constellations
What Rakon’s Customers Say
14
Why Customers Choose Rakon
Long holdover and Digital OCXOs for
5G equipment
Space crystal resonators
following the guidelines of
high reliability standards
XOs for avionics
and high reliability
applications
High temperature
global positioning
TCXOs
5G Ultra-Stable
TCXOs
ASIC OCXOs for
telecommunications
equipment
OCXOs for New Space
satellite constellations
OCXOs for 4G and
5G equipment
% Share of Revenue
14
Quotes have been taken from customer satisfaction surveys received. They have been edited for grammar.
Data centres all over the world require
synchronised timing solutions.
RAKON REVIEW FY2019
•
15
VCOs for radar
applications
“
“
At Rakon, we understand
how important fast
response times are to
our customers. In a very
competitive market fast
and accurate responses
are as important as pricing,
lead time and quality.
Customers can count
on our efficient and
knowledgeable team to
respond to any enquiry.
From conception to
finished products, fast
response times are critical
in our ever-evolving
industry.
At Rakon we strive to be
one step ahead, meeting
and exceeding our
customers’ needs. Rakon’s
global network of bright
individuals functions as
a well-tuned machine,
prepared to develop,
support and deliver quality
service and products on
time.
Rakon’s StrengthsWhy Customers Choose Rakon
Technology leaders
Readiness for growth markets
Deep application expertise
In-house R&D teams
Enabling next generation technologies
Global footprint
Localised customer support and faster
response times
Broad product offering
Reduced Approved Vendor List (AVL)
Highly flexible product platforms
Faster time to market
Global manufacturing platform
Optimised performance and cost
World-class quality
Product reliability
Strong ecosystem partnerships and
customer relationships
Trusted brand
50+ years heritage
16
•
RAKON REVIEW FY2019
RAKON REVIEW FY2019
•
17
FY2019 has been fruitful for Rakon in terms of
new opportunities in the space and defence
market. We received the first order for our New
Space OCXO for a new LEO constellation. We won
new customers for our ultra-low noise OCSOs in
America, Europe and Asia. We also won a
government-funded contract to develop new OCSOs
which will enable Rakon access to more applications.
“
Rakon’s superior products
are enabled by its
state-of-the-art crystal
technologies, unique ASIC
solutions and vast know-how of
oscillators applied with digital
processing techniques.
Rakon is distinguished as
the primary partner for
frequency control products
amongst the major equipment
makers of the world. Its
innovative, cost effective and
foresighted solutions solve
the complex requirements of
next generation networks and
applications.
Ullas Kumar
Business Development Manager,
Carrier & Enterprise Networking
Singapore
Nelson Chen
Regional Sales Manager
Taipei, Taiwan
RAKON REVIEW FY2019
•
17
Fabrice Goulven
Strategic Marketing Manager, Space & Defence
Mougins, France
“
Rakon Everywhere
Rakon products are embedded in electronic systems everywhere.
Whether it be within wired or wireless networks, radar, navigation
systems or satellites in space . . .
Rakon products enable connectivity.
16
•
RAKON REVIEW FY2019
Time synchronisation is
becoming critical today
as cellular networks start
to deploy advanced radio
features.
Rakon is an innovator of
frequency control solutions
and delivers significant value
for its customers.
We provide market-leading,
advanced technology for
next-generation mobile
networks.
EMERGENCY
LOCATOR BEACONS
DEEP SEA
CABLE
TELECOM, EARTH
OBSERVATION & GNSS
SATELLITES
ASSET
MANAGEMENT
GROUND &
SHIPBOARD STATIONS
LAUNCH
VEHICLES
AUTONOMOUS
VEHICLES
DRONES & UNMANNED
AERIAL VEHICLES
PRECISION
AGRICULTURE
INDUSTRIAL
AUTOMATION
DATA
CENTRES
MICROWAVE
SPORT & RECREATION
WEARABLES
AIR TRAFFIC CONTROL
& SURVEILLANCE
RADARS
CARRIER ETHERNET
ROUTERS & SWITCHES
LTE-A
SMALL CELLS
CABLE / DSL /
FIBRE TO THE HOME
5G
SMALL CELLS
5G REMOTE
RADIO HEADS
AVIONICS
DEEP SPACE
PROBE
AR / VR
TELEHEALTH
LOW EARTH
ORBIT SATELLITES
VSAT
IoT
IoT
SMART
GRID
LOW POWER
WAN
5G
MACRO
FINANCIAL
NETWORKS
ENTERPRISE
NETWORKS
Acronyms
Augmented Reality & Virtual Reality (AR / VR)
Digital Subscriber Line (DSL)
Long Term Evolution-Advanced (LTE-A)
Ultra-Reliable Low-Latency Communication (URLLC)
Very Small Aperture Terminal (VSAT)
Wide Area Network (WAN)
URLLC
NETWORKS
4G / 5G
RADIO TOWER
Definition of Underlying EBITDA
Rakon has used ‘Underlying EBITDA’ as a measure of non-GA AP financial information in this 2019 Review document. Underlying EBITDA is defined as ‘Earnings before interest, tax, depreciation, amortisation, impairment, employee share schemes, non-controlling
interests, adjustments for associate’s and joint venture’s share of interest, tax and depreciation, loss on disposal of assets and other cash and non-cash items (Underlying EBITDA) ’.
Underlying EBITDA is a non-GA AP measure that has not been presented in accordance with GA AP. The Directors present Underlying EBITDA as a useful non-GA AP measure to investors, in order to understand the underlying operating performance of the Group
and each operating segment, before the adjustment of specific cash and non-cash items 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-GA AP measure of Underlying EBITDA internally, to assess the underlying operating performance of the Group and each operating segment.
Underlying EBITDA as non-GA AP financial information has been extracted from the financial statements for the year. Except for Underlying EBITDA, other information provided to the chief operating decision maker is measured in a manner consistent with GA AP.
The Directors provide a reconciliation of Underlying EBITDA to net profit for the year, refer note B1 c) of the Rakon Limited Annual Report 2019.
Crystal Oscillator (XO)
An XO is a quartz crystal combined with
oscillation circuitry to generate a repeating
electric signal.
Crystal Resonator (Xtal)
At the heart of XOs, VCXOs, TCXOs and OCXOs
are quartz crystals, which are designed to
resonate with electrical stimulation using the
piezoelectric effect.
Oscillator
A circuit or device that generates a repetitive
electric signal and consists of a resonator and
electronic components.
Oven Controlled Crystal Oscillator (OCXO)
A crystal oscillator that uses a miniaturised
oven to keep its internal temperature
constant.
Oven Controlled SAW Oscillator (OCSO)
An oven controlled oscillator using Surface
Acoustic Wave (SAW) technology instead of a
quartz crystal.
Sub-System
A fully programmable system solution
used to upgrade an existing radar, improve
performance and extend its life.
Surface Acoustic Wave resonator (SAW)
At the heart of SAW oscillators are SAW
resonators that use the piezoelectric effect
to generate electrically stimulated acoustic
waves at a resonant frequency.
Temperature Compensated Crystal
Oscillator (TCXO)
A crystal oscillator with additional circuitry
to remove frequency variations due to
temperature change.
Ultra Stable Oscillator (USO)
An extremely stable oscillator used in high-
end space and instrumentation applications.
Voltage Controlled Crystal Oscillator
(VCXO)
A crystal oscillator with an adjustable output
frequency.
Voltage Controlled Oscillator (VCO)
A purely electronic oscillator circuit with an
adjustable output frequency, without the use
of a crystal or SAW resonator.
Voltage Controlled SAW Oscillator (VCSO)
A SAW oscillator with an adjustable output
frequency.
Arun Parasnis
Managing Director
Rakon India
Bengaluru, India
The Future of Connectivity has Begun
Glossary
pplications continue to follow the demand of
the end user, but are limited to the
bandwidth that exists. As data infrastructure
evolves and is rolled out, new applications are
enabled, such as virtual reality and autonomous
vehicles; applications which will radically enhance
and change the way we live.
In the telecommunications market, mobile
networks and technology have been evolving
through 2G, 3G and 4G, with the transition to
5G happening now. The roadmap to full 5G
A
deployment is staggered.
The initial phase uses existing infrastructure with
new 5G radios (4.5G and 5GNR) to immediately
boost the mobile network customer experience.
This is complemented by software defined
networks, where digital systems are used to
coordinate and improve the radio network. In later
phases, deployments of new dedicated 5G radio
equipment (5G standalone) will take place, paving
the way for a fully upgraded 5G network. Full 5G
deployment will enable much faster speeds than
In this ever-changing world where data is being transferred
everywhere at any time, all the markets Rakon serves point
to an increasing demand for timing and frequency control
solutions. The enabling of new applications will bring
together a wirelessly connected world of everything.
4G, and much wider bandwidth, enabling massive
connectivity, better reliability and spectrum
ef ficiency.
In the space and defence market, the need for
data everywhere increases the need for satellite
constellations for communications and Earth
observation. In the global positioning market,
GNSS and communication requirements are
becoming ubiquitous for precision farming,
recreation devices and emergency locator
beacons.
At the core of Rakon’s markets is the need to
send, receive or transfer data as quickly and
accurately as possible. Whatever the application
may be, within every node, within every network,
a stable and reliable timing and frequency
reference is required for the successful transfer
of data. Rakon solutions provide this timing,
enabling the connectivity for today’s applications
as well as the technological possibilities of the
future.
Culture & Corporate Social Responsibility
Corporate Social Responsibility
Rakon is committed to conducting its business in accordance with all applicable laws and
regulations of the countries in which it operates and acts in accordance with the highest
standards of business conduct and ethics. The company is committed to a sustainability
policy which includes the respect for universally recognised standards for the
environment, human rights, labour and ethics. Rakon’s Board is committed to conducting
business in the right way and maintaining the highest standards of corporate behaviour
and accountability. The Corporate Governance Report in the Rakon Limited Annual Report
2019, includes the Board’s commitment with regard to the areas of health and safety,
ethical behaviour and diversity.
Social Contributions
In FY2019 Rakon made a number of small donations to selected charities, largely
where its headquarters are based. Rakon’s social focus is to support initiatives that
aim to improve wellbeing and the quality of life for our next generation. A special
circumstance involved Rakon donating to Victim Support for the families affected
by the Christchurch shooting in March 2019.
As part of a wellness initiative, the team in New Zealand participated in
‘Steptember’ – a challenge of walking 10,000 steps per day in September. The
team raised over ten thousand dollars for The Cerebral Palsy Society of New
Zealand. Rakon New Zealand also awards scholarships and graduate programmes
to top talent to strengthen the industry’s Science, Technology, Engineering and
Mathematics (STEM) base. Rakon recognises the importance of being socially
responsible and will continue to make advances in this area.
Culture
Rakon’s people are passionate about what they
do and are highly engaged in enabling new
technology possibilities. Its customers are global
leaders in their respective fields and enabling
next generation technologies requires agility and
excellence in all areas of the business. Rakon
recruits highly skilled people and leaders globally.
It works at a fast pace and evolves constantly so
that it can quickly bring to market leading products
and solutions for its customers.
Rakon has built a world-class design and
manufacturing platform and a team with depth of
knowledge and experience across a wide range
of roles and functions. Focus is around working
in unity as one team and doing things better each
day. Its engineering and R&D teams collaborate
closely on projects to benefit from the advantages
a truly diverse, global team provides.
Some of the initiatives Rakon supported by way of donation,
sponsorship or voluntary time and expertise in FY2019.
Environment
Rakon has been part of the Carbon Disclosure Project (CDP) since 2011 and reports
on its global CO
2
emissions. The company complies with applicable regulatory
environmental requirements and has ISO14001 certification at its facilities in New
Zealand and India. This is an international standard that sets out the requirements
© All Rights Reserved. All logos displayed are subject to copyright.
Image: Courtesy of the
Auckland Rescue
Helicopter Trust.
Rakon is a supporter of the Auckland Rescue Helicopter Trust.
for an organisation’s environmental management system. Across the global
business initiatives are on-going to reduce waste and become more efficient in
its use of energy and natural resources. The company encourages the creation of
environmentally friendly products through its design and development processes.
RAKON REVIEW FY2019
•
19
18
•
RAKON REVIEW FY2019
When operating within a
high-technology, competitive
market environment there
is constant pressure to
enhance organisational
performance. Great
leadership and professional
excellence are required to
deliver products that fulfil
customer requirements.
In Rakon we endeavour to
meet customer requirements
through technology vision
and business excellence
management. Our
readiness of products for
5G technology and the
acquisition of Centum Rakon
[now Rakon India] to address
global product demand,
are outcomes of visionary
leadership and professional
excellence.
“
“
20
•
RAKON REVIEW FY2019
Registered Office
Rakon Limited
8 Sylvia Park Road
Mt Wellington
Auckland 1060
New Zealand
Telephone: +64 9 573 5554
Website: www.rakon.com
Mailing Address
Rakon Limited
Private Bag 99943
Newmarket
Auckland 1149
New Zealand
Principal Lawyers
Bell Gully
PO Box 4199
Shortland Street
Auckland 1140
New Zealand
Auditors
PricewaterhouseCoopers
Private Bag 92162
Auckland 1142
New Zealand
Bankers
ASB Bank
PO Box 35
Shortland Street
Auckland 1140
New Zealand
Share Registrar
Computershare Investor Services
Limited
Private Bag 92119
Victoria Street West
Auckland 1142, New Zealand
Managing Your Shareholding Online
To change your address, update
your payment instructions or view
your investment portfolio, including
transactions, please visit:
www.investorcentre.com/nz
General enquiries can be directed to:
enquiry@computershare.co.nz
Telephone: +64 9 488 8777
Facsimile: +64 9 488 8787
Directory
---
Rakon Limited
T +64 9 573 5554, F +64 9 573 5559
8 Sylvia Park Road, Mt Wellington, Auckland 1060, New Zealand
Private Bag 99943, Newmarket, Auckland 1149, New Zealand
Page 1 of 1 w w w . r a k o n . c o m
21 June 2019
Rakon Limited (RAK) 2019 Annual Report
Rakon Limited has provided NZX with its Annual Report and Annual Review for the year ended 31
March 2019.
Copies of the report and the review are available today on the company’s website here.
-ends-
Contact:
Anand Rambhai
Chief Financial Officer
Rakon Limited
+64 9 571 9225
About Rakon
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. Its three core markets are Telecommunications,
Global Positioning and Space & Defence.
Rakon products help set the frequency that all communications transmit and receive on. They also hold time
and provide a stable timing reference for electronic equipment around the globe. This enables synchronised
time globally, and the efficient and reliable transfer of data at ever-increasing precision and speed. Rakon has
six manufacturing plants, including two joint venture plants, and has six research and development centres.
Customer support personnel are located in fifteen offices worldwide.
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, NZX, ticker code RAK. www.rakon.com
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.