RAK FY2020 Results Announcement
Results announcement
Results for announcement to the market
Name of issuer
Rakon Limited (RAK)
Reporting Period
12 months to 31 March 2020
Previous Reporting Period
12 months to 31 March 2019
Currency
NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$118,980 4.4 %
Total Revenue
$118,980 4.4%
Net profit/(loss) from
continuing operations
$3,980 18.3%
Total net profit/(loss)
$3,980 18.3%
Interim/Final Dividend
Amount per Quoted Equity
Security
No dividends are proposed to be paid.
Imputed amount per Quoted
Equity Security
Not Applicable
Record Date
Not Applicable
Dividend Payment Date
Not Applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$0.36 $0.35
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Please refer to the comments on the following pages and the audited
financial statements released in conjunction with this announcement
Authority for this announcement
Name of person
authorised
to make this announcement
Maureen Shaddick
Contact person for this
announcement
Anand Rambhai
Contact phone number
(09) 571 9225
Contact email address
anand.rambhai@rakon.com
Date of release through MAP
29/06/2020
Audited financial statements accompany this announcement.
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Rakon Limited
T +64 9 573 5554, F +64 9 573 5559
8 Sylvia Park Road, Mt Wellington, Auckland 1060, New Zealand
Private Bag 99943, Newmarket, Auckland 1149, New Zealand
Page 1 of 3 w w w . r a k o n . c o m
© 2015 Rakon Limited. All Rights Reserved. Unauthorised use or publication is expressly prohibited.
RAK FY2020 RESULTS ANNOUNCEMENT COMMENTARY
29 June 2020
Steady revenue growth, strong cash flow & promising future
1
All amounts are in NZ$ unless otherwise indicated.
2
Refer to Note 4 of the 2020 audited consolidated financial statements for an explanation of how ‘Non-GAAP Financial Information’ is used,
including a definition of ‘Underlying EBITDA’ and reconciliation to NPAT.
3
Refers to the year ended 31 March.
High technology company Rakon Limited (‘Rakon’ or the ‘Group’) is pleased to post net profit after tax of $4.0m
(2019: $3.4m), and Underlying EBITDA of $14.8m (2019: $13.3m) for the year ended 31 March 2020. Rakon has
exceeded its earlier guidance of $12m to $14m for 2020, reflecting a much stronger than expected finish to the
year from a higher share of business in the Telecommunications segment.
Reported Underlying EBITDA for the year to 31 March 2020 includes a positive impact of $3.1m from the
adoption of IFRS 16 Leases.
Momentum continues to build in the Telecommunications market and Rakon’s new Mercury+, Neptune and
Mercury ultra-stable frequency control products have gone into the early deployment of 5G in South Korea,
China and the US. Rakon products are designed into all of the major global suppliers of 5G technology, so remains
well placed for future growth.
Managing Director Brent Robinson said recent global events caused by the Covid-19 pandemic demonstrate
more than ever the need for high performing telecommunications infrastructure. Rakon is confident the demand
for 5G will accelerate with increasing global expectation for highly reliable, high-speed communications and data
transfer. The call for high performance frequency control products is also emerging for autonomous vehicle and
health applications and continues to evolve in the Space and Defence and Global Positioning markets. Rakon’s
strategy is to be first to market and world leading for frequency control solutions.
Rakon’s revenue was higher from data centre customers, as they invested to meet growing world-wide data
needs. Further expansion into this industry will continue to be a focus in the coming year. Revenue from
Global Positioning was lower due to price competition within a particular high volume, low margin segment.
Rakon continues to move away from low margin consumer products.
Space and Defence also saw lower revenue for the year due predominantly to the phasing of long-term
projects. However, Rakon remains confident and well placed in the Space and Defence market and is exploring
new opportunities for its products to capitalise in the new space sector where there is growing use of low
earth orbit satellites replacing traditional geo orbital satellites.
During the year, the inventory obsolescence provision rose by $3.3m. Consumption of slow moving products
was lower than expected and a more aggressive view was taken. Actions continue in the coming year to
streamline and reduce exposure to slow moving products.
NZ$m
1
, audited2020
3
2019
3
% change
Revenue119.0114.0+4%
Underlying EBITDA
2
14.813.3+11%
Net profit after tax4.03.4+18%
Operating expenses48.147.3+2%
Operating cash flow9.4(1.8)+632%
Net debt7.97.7+3%
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Reported operating cash flow was $9.4m for the year however included $3.1m relating to IFRS 16 Leases. Overall
net debt was $7.9m (2019: $7.7m) and included the final $2.1m payment for the acquisition of Rakon India.
Rakon Group now owns 100% of its manufacturing business in India. This is a cornerstone in Rakon’s
manufacturing strategy and also provides a solid footprint for expansion into the India market.
During the year ended 31 March 2020, Rakon continued to focus on developing its photolithography
microfabrication process for the NZ manufacturing plant. “The recently announced XMEMS NanoQuartz
technology which competes with silicon based technology has been well received” said Brent Robinson.
Covid-19 has had a negative short-term impact on the Group with the New Zealand and Indian manufacturing
operations severely restricted for periods of time, however the medium to long term effects are not expected
to be materially adverse. Some of Rakon’s business was recognised as essential and continued or resumed
operations during the Covid-19 lockdowns. All manufacturing is forecast to return to full production by the end
of June 2020.
Brent Robinson said “Covid-19 could have been much worse for Rakon and I am immensely proud of the way
our team responded to safeguard the future of the company”.
The Board of Directors has declared that no dividend is to be paid for 2020. Rakon maintains a dividend policy
such that it will pay a dividend of up to 50% of the after tax profit, if considered fiscally appropriate. The payment
of dividends is subject to the approval of Rakon’s bank, ASB Bank, under its facility arrangement.
The Directors confirm that this 2020 results announcement is based on audited results which are not subject to
any qualification.
Brent Robinson
Chief Executive Officer & Managing Director
-ends-
Contact:
Anand Rambhai (CFO)
09 571 9225
Media Liaison:
Louise Howe
021 206 0985
www.rakon.com
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 and Defence. Rakon products are found at the forefront of communications where
speed and reliability are paramount. The company’s products create extremely accurate electric signals which
are used to generate radio waves and synchronise time in the most demanding communication applications.
Page 3 of 3 w w w . r a k o n . c o m
Rakon has five manufacturing plants, including two joint venture plants, and has six research and development
centres. Customer support personnel are located in sixteen 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.
Other Information
A. Control gained and lost over Entities (NZX Listing Rules Appendix 2)
Rakon Limited has gained control over the following entities during the period:
Nil
B. Associates & Joint Ventures (NZX Listing Rules Appendix 2)
Rakon Limited has the following associate entities and joint venture arrangements.
Shareholding
Chengdu Timemaker Crystal Technology Co. Limited 40%
Shenzhen Taixiang Wafer Co, Limited 40%
The contribution of Chengdu Timemaker and Shenzhen Taixiang (together the Timemaker group) to Rakon
Limited’s net results from ordinary activities is a net profit after tax of $797,000 (2019: net profit after tax
$1,050,000).
C. Business Changes (NZX Listing Rules Appendix 2)
Nil
D. Directors’ Declaration (NZX Listing Rules Appendix 2)
The Directors declare that the financial statements released in conjunction with this announcement have
been prepared in compliance with applicable financial reporting standards. The accounting policies the
Directors consider critical to the portrayal of Rakon Limited’s financial condition and results which require
judgements and estimates about matters which are inherently uncertain are disclosed in each note of the
audited financial statements that form part of this announcement.
---
Rakon Ltd
Financial Statements
2020
Rakon Limited
2
Table of Contents
Directors’ Statement .....................................................................................................................................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 ................................................................................................................... 44
Rakon Limited
3
Directors’ Statement
The Directors are responsible for ensuring that the financial statements fairly present the financial position of the Group as at 31 March 2020
(FY2020) and the financial performance and cash flows for the year ended on that date.
The Directors consider that the financial statements of 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.
The Directors present the financial statements, set out in pages 4 – 43, of Rakon Limited and subsidiaries for the year ended 31 March 2020.
The Board of Directors of Rakon Limited authorised these financial statements for issue on 29 June 2020.
On behalf of the Directors
_______________________________ _______________________________
BR Irvine BJ Robinson
Chair CEO, Managing Director
Rakon Limited
4
Statement of Comprehensive Income
For the year ended 31 March 2020
The accompanying notes form an integral part of these financial statements.
20202019
Note $000s$000s
Continuing operations
Revenue5118,980 113,985
Cost of sales(66,947) (62,317)
Gross profit52,033 51,668
Other operating income728121
Operating expenses6(48,081) (47,338)
Other (losses)/gains – net8(438)718
Operating profit3,5425,169
Finance income9837
Finance costs9(1,063)(571)
Share of net profits of associates and joint venture16797839
Profit before income tax3,2845,474
Income tax credit/(expense)21696 (2,110)
Net profit for the year attributable to equity holders of the Company3,9803,364
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Decrease in fair value cash flow hedges(7,247) (1,812)
Cost of hedging 57031
Exchange differences on translation of foreign operations4,1401,329
Income tax relating to components of other comprehensive income2,029507
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
(1,632)(454)
Other comprehensive income for the year, net of tax (2,140)(399)
Total comprehensive income for the year attributable to equity holders of the Company1,8402,965
Earnings per share attributable to the equity holders of the CompanyCentsCents
Basic earnings per share231.8 1.5
Diluted earnings per share231.8 1.5
Rakon Limited
5
Statement of Changes in Equity
For the year ended 31 March 2020
The accompanying notes form an integral part of these financial statements.
Share capital
Retained
earningsOther reservesTotal equity
Note$000s$000s$000s$000s
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
24 - - 1,329 1,329
Cash flow hedges, net of tax
24 - - (1,274) (1,274)
Changes in fair value of equity investments at fair value through other
comprehensive income – Thinxtra
24 - - (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
Net profit after tax for the year
- 3,980 - 3,980
Currency translation differences
24 - - 4,140 4,140
Cash flow hedges, net of tax
24 - - (4,648) (4,648)
Changes in fair value of equity investments at fair value through other
comprehensive income – Thinxtra
24 - - (1,632) (1,632)
Total comprehensive income for the year
- 3,980 (2,140) 1,840
Balance at 31 March 2020
181,024 (65,875) (23,293) 91,856
Rakon Limited
6
Balance Sheet
As at 31 March 2020
The accompanying notes form an integral part of these financial statements.
20202019
Note$000s$000s
Assets
Current assets
Cash and cash equivalents105,0864,719
Trade and other receivables1142,379 38,220
Derivative financial instruments 2527307
Financial asset at fair value through profit or loss25219
Inventories1237,624 39,310
Current income tax asset889561
Total current assets86,007 83,136
Non-current assets
Derivative financial instruments 25-258
Financial asset at fair value through other comprehensive income – Thinxtra172,9184,549
Trade and other receivables112,7022,267
Property, plant and equipment1318,924 19,394
Right-of-use assets159,730-
Intangible assets149,0039,149
Investment in associates1611,714 10,399
Deferred tax asset219,2467,352
Total non-current assets64,237 53,368
Total assets150,244 136,504
Liabilities
Current liabilities
Bank overdraft1812,848 11,501
Borrowings18145474
Trade and other payables1922,252 26,398
Lease liabilities152,741-
Deferred consideration on acquisition – Rakon India-1,885
Derivative financial instruments255,040945
Provisions20714471
Deferred income – government wage subsidy112,000-
Total current liabilities45,740 41,674
Non-current liabilities
Derivative financial instruments 252,840343
Borrowings18-412
Lease liabilities156,704-
Provisions202,9182,990
Deferred tax liabilities211861,069
Total non-current liabilities12,6484,814
Total liabilities58,388 46,488
Net assets91,856 90,016
Equity
Share capital22181,024 181,024
Other reserves24(23,293) (21,153)
Accumulated losses(65,875) (69,855)
Total equity91,856 90,016
Rakon Limited
7
Statement of Cash Flows
For the year ended 31 March 2020
The accompanying notes form an integral part of these financial statements.
20202019
Note$000s$000s
Operating activities
Cash provided from
Receipts from customers116,396 114,974
R&D grants received1,5571,894
Other income received3658
117,989 116,926
Cash was applied to
Payment to suppliers and others(58,364) (71,695)
Payment to employees(48,860) (46,286)
Interest paid(918)(459)
Income tax paid(446)(254)
(108,588) (118,694)
Net cash flow from operating activities9,401 (1,768)
Investing activities
Cash was provided from
Sale of property, plant and equipment4482
4482
Cash was applied to
Purchase of property, plant and equipment(3,753) (6,188)
Purchase of intangibles(774)(720)
Purchase of shares in Centum Rakon India Private Limited(2,148) (5,848)
(6,675) (12,756)
Net cash flow from investing activities(6,631) (12,674)
Financing activities
Cash was applied to
Lease liabilities payments(3,078)-
Finance lease payments-(24)
Cash was applied to financing activities(3,078)(24)
Net cash flow from financing activities(3,078)(24)
Net decrease in cash and cash equivalents(308) (14,466)
Effects of exchange rate changes on cash and cash equivalents(672)144
Cash and cash equivalents at the beginning of the year(6,782)7,540
Cash and cash equivalents at the end of the year10(7,762) (6,782)
Rakon Limited
8
Statement of Cash Flows
For the year ended 31 March 2020
The accompanying notes form an integral part of these financial statements.
31 March 31 March
20202019
Note$000s$000s
Reconciliation of net profit to net cash flows from operating activities
Reported net profit after tax3,9803,364
Adjustments for
Depreciation and amortisation expense68,8235,802
Increase in allowance for expected credit loss4475
Interest expenses164-
Provisions provided415342
Movement in foreign currency1,608439
Deferred revenue – Siward technology licence agreement-(101)
Share of net profits of associates and joint venture16(797)(839)
Deferred tax movement21(919)231
Gain on disposal of property, plant and equipment-(82)
9,2986,267
Change in operating assets and liabilities
Increase in trade and other receivables(4,594) (5,007)
Increase/(decrease) in provisions171(246)
Decrease/(increase) in inventories3,020 (9,145)
(Decrease)/increase in trade and other payables(2,146)2,781
(Decrease)/increase in tax provisions(328)218
Total impact of changes in working capital items(3,877) (11,399)
Net cash flow from operating activities9,401 (1,768)
Rakon Limited
9
Notes to the Financial Statements
1. General information ...................................................................................................................... 10
2. Impact of Covid-19 ........................................................................................................................ 10
3. Statement of accounting policies .................................................................................................. 11
4. Segment information .................................................................................................................... 12
5. Revenue......................................................................................................................................... 14
6. Expenditure included in net profit ................................................................................................ 15
7. Other operating income ................................................................................................................ 17
8. Other (losses)/gains – net ............................................................................................................. 17
9. Net finance (costs)/income ........................................................................................................... 17
10. Cash and cash equivalents ............................................................................................................ 17
11. Trade and other receivables ......................................................................................................... 18
12. Inventories .................................................................................................................................... 19
13. Property, plant and equipment..................................................................................................... 20
14. Intangible assets ............................................................................................................................ 21
15. Leases ............................................................................................................................................ 24
16. Interest in associates and joint venture ........................................................................................ 26
17. Investment in Thinxtra – financial asset at fair value through other comprehensive income ..... 28
18. Borrowings .................................................................................................................................... 29
19. Trade and other payables ............................................................................................................. 30
20. Provisions for other liabilities and charges ................................................................................... 31
21. Taxation ......................................................................................................................................... 31
22. Share capital .................................................................................................................................. 33
23. Earnings per share ......................................................................................................................... 33
24. Other reserves ............................................................................................................................... 34
25. Derivative financial instruments ................................................................................................... 34
26. Financial risk management ........................................................................................................... 36
27. Share based payments .................................................................................................................. 41
28. Principal subsidiaries ..................................................................................................................... 41
29. Commitments ................................................................................................................................ 42
30. Related party information ............................................................................................................. 43
31. Contingencies ................................................................................................................................ 43
32. Subsequent events ........................................................................................................................ 43
Rakon Limited
10
1. General information
Rakon Limited (‘the Company’) and its subsidiaries (‘the Group’) are a global technology company that design and manufacture leading 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, and its registered office is at 8 Sylvia Park Road, Mt Wellington, Auckland.
The financial statements of the Group have been presented in New Zealand dollars and has been rounded to the nearest thousands unless
otherwise indicated.
2. Impact of Covid-19
Covid-19 has had a negative short-term impact to the Group with the New Zealand and Indian operations severely restricted for periods of time.
In the medium to longer term Covid-19 is not expected to have a material adverse effect on the Group. The telecommunications segment is a
major part of the Group’s operations and Covid-19 has increased the reliance on remote communications, reliable telecommunications
infrastructure and higher network capacities. At this stage the Group has not seen a material negative change in demand for its products due to
Covid-19 including those used in non-telecommunications segments (i.e. global positioning, space and defence). Further, the Group has not seen
a material negative impact on its customers or suppliers.
The effect of Covid-19 to date on specific areas of the business is explained below.
a. Manufacturing operations
In the period from late March 2020 to the end of April 2020 operations were significantly affected due to severe government imposed closures
of manufacturing operations in New Zealand and India. Both the New Zealand and Indian manufacturing operations were able to resume during
April 2020. The New Zealand operation is now back to normal manufacturing capacity with the Indian operations expected to achieve this by the
end of June 2020. The French manufacturing operations were able to continue operating through the period. Non-manufacturing activities were
not significantly impacted with most staff working remotely. Reduced global airfreight capacity made movement of materials difficult for a
period, however movement of materials is no longer an issue.
b. Customers
No material adverse impact has been observed to date in respect of Rakon’s customers. Aging of receivables and cash collections continues to
be within normal ranges and no requests to defer payments have been received to date. The business is not aware of any key customers being
in financial distress due to Covid-19 and no changes to terms have been made as a result of Covid-19. These factors were taken into account in
the assessment of the expected credit loss provision (note 11).
c. Mitigation actions
A number of actions were taken to mitigate the initial effects on the business, these include;
Ceasing or deferring expenditure (including capital expenditure, incentive payments, temporary rent reductions)
Applying salary reductions across a large part of the employee base for a period of nine weeks from April 2020
Reducing directors’ fees by 50% for the quarter beginning April 2020
Accessing government support where eligible and appropriate to enable the retaining of staff for as long as possible. This was through
initiatives such as wage subsidies, funded furlough’s and through access to longer-term state backed funding in France. The New Zealand
wage subsidy applied for in March 2020 is included in trade and other receivables (note 11) and deferred income – government wage
subsidy for equivalent amounts. The grants from the governments are recognised where there is reasonable assurance that the grant
will be received and the Group will comply with all attached conditions. These are recorded in the Statement of Comprehensive Income
over the period necessary to match them with the costs that they are intended to compensate. No wage subsidies have been recognised
in the current Statement of Comprehensive Income.
d. Going concern assessment
As part of the response to Covid-19, the company undertook detailed planning and forecasting of the business covering a number of scenarios
and took into consideration the current and expected future effects of Covid-19 on the Group. Examples of scenarios modelled include; an
extended period of closure for the New Zealand and Indian manufacturing operations; Group revenue being lower than forecast; higher than
expected growth in inventory. The assessment showed the ‘base case’ or ‘most likely’ outcome was that cash flow and net debt forecasts would
be within bank facility limits and covenants. Further, most downside scenarios modelled could be accommodated apart from a scenario where a
second outbreak was to occur and the New Zealand and Indian manufacturing operations were closed for two months. No new information or
developments have become evident up to the date of signing of these financial statements that would materially adversely impact the base case
forecast.
The Directors concluded that these financial statements are prepared on a going concern basis, taking into account the above and acknowledge
the uncertainties around forecasting earnings in the Covid-19 environment. The Directors note that such uncertainties do not represent material
uncertainties related to going concern.
Rakon Limited
11
e. Impairment of assets
Covid-19 is not expected to have a fundamental negative impact in the medium to long term on Rakon’s customers, suppliers or Rakon’s value
proposition. Covid-19 has increased the reliance on remote communications, reliable telecommunications infrastructure and higher network
capacities. The forecasts used to underpin the asset impairment assessments (notes 13 and 14) include the negative short-term impacts of Covid-
19.
f. Inventory (note 12)
The Group has not seen a material negative change in demand for its products due to Covid-19. Accordingly, Covid-19 is not expected to adversely
impact the carrying value of inventory.
g. Derivatives and hedging (note 25)
Derivatives used for hedging are potentially affected by Covid-19 where the forecast hedged items or counterparty credit risks are materially
impacted. The Group’s forecasts for exposures which are hedged are not significantly impacted by Covid-19. The impact of Covid-19 on
counterparty credit risk is also assessed and not considered material.
3. Statement of accounting policies
a. Basis of preparation and measurement base
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 2020 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 Tier 1 for-profit entity.
The financial statements have been prepared on a historical cost basis, with the exception of derivative financial instruments and equity
instruments, which are measured at fair value.
b. Basis of consolidation
The financial statements of the subsidiaries are included in the Company’s financial statements from the date on which control commences until
the date on which control ceases, refer note 28 for further information on subsidiaries. All material intercompany transactions, balances and
unrealised gains on transactions between the subsidiaries are eliminated on consolidation. Interests in associates and joint ventures are
accounted for using equity method, refer note 16.
c. Critical accounting estimates and judgements
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. The estimates and assumptions that
involved a higher degree of judgement or complexity, or are significant to financial statements are listed below and disclosed within the specified
notes:
Calculation of inventory obsolescence (note 12)
Estimated useful life of product development assets (note 14)
Impairment of assets (note 14)
Calculations of right-of-use assets and lease liability (note 15)
Thinxtra valuation (note 17)
Estimation of year end income tax and deferred tax (note 21)
Estimation of contingent liabilities (note 31)
d. Significant accounting policies and new accounting standards
Accounting policies are disclosed within each of the applicable notes to the financial statements. The principal accounting policies applied in the
preparation of these financial statements have been consistently applied except for the new accounting standard, NZ IFRS 16 Leases that replaces
the requirements in NZ IAS 17 Leases. The Group adopted NZ IFRS 16 Leases from 1 April 2019 and have elected to apply it retrospectively with
the cumulative effect of initially applying the standard recognised at the date of initial application. Under this method the Group has not restated
comparatives for this reporting period, refer note 15.
Following adoption of NZ IFRS 16 Leases, the disclosed lease liabilities and right-of-use assets in the interim financial statements of the Group for
the period ended 30 September 2019 have been restated to reflect an error in the lease payments of Rakon India Private Limited. The revised
lease liabilities and right-of-use assets at 30 September 2019 is $9,978,000 and $10,204,000 respectively, an increase of $1,297,000 and
Rakon Limited
12
$1,287,000. The impact of this change on the reported interest on the lease liabilities and depreciation on the right-of-use assets for the period
ended 30 September 2019 was not material.
The Group has also reviewed the NZ IFRIC 23 Uncertainty over Income Tax Treatment and has concluded that there is no impact of this on the
financial statements.
e. New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 March 2020 reporting periods and
have not been early adopted by the Group. These standards are not expected to have a material impact on the Group.
f. Foreign currency translation
Functional and presentation currency
The financial statements of each entity in the Group are measured using the currency of primary economic environment in which the entity
operates (‘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
Foreign currency transactions are translated into the relevant functional currency at the exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance date are translated to functional currency at the foreign
exchange rate at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income, within
other (losses)/gains – net, except when deferred in other comprehensive income (OCI) as qualifying cash flow 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 at foreign exchange rates at the
dates the fair value was determined.
The assets and liabilities of all of the Group companies (none of which has 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, 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 at the dates of the transactions. Exchange differences arising from the
translation of foreign operations are recognised in the foreign currency translation reserve, refer note 23.
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 at the balance date.
4. Segment information
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, Chief Operating Officer and Chief Financial Officer.
The chief operating decision maker also 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)’.
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.
Rakon Limited
13
Segment results
Information related to each reportable segment is set out below.
1
Includes Rakon Limited’s 40% share of investment in Chengdu Timemaker Crystal Technology Co. Limited and Shenzhen Taixiang Wafer Co.
Limited, refer note 16.
2
On 2 May 2018, the Group acquired 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 of the investment
was changed to Rakon India Private Limited. Rakon India contract manufactures telecommunications products that are sold by Rakon France.
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.
NZUKFranceIndia
2
China –
T'maker
1
Other
3
Total
$000s $000s $000s $000s $000s $000s $000s
Sales to external customers70,382- 45,764 2,834-- 118,980
Inter-segment sales499-- 21,923- (117) 22,305
Segment revenue70,881- 45,764 24,757- (117) 141,285
Underlying EBITDA9,634 1,813 (1,690) 3,169 2,214(353) 14,787
Depreciation and amortisation3,972648 2,236 1,838-129 8,823
Income tax credit/(expense)1,012(186)31-- (161)696
Total assets
4
71,021 3,130 36,364 25,341 11,714 2,674 150,244
Investment in associates---- 11,714- 11,714
Additions of property, plant, equipment and
intangibles
2,587480635920-- 4,622
Total liabilities
5
36,131 1,385 12,426 7,544-902 58,388
31 March 2020
NZUKFranceIndia
2
China –
T'maker
1
Other
3
Total
$000s $000s $000s $000s $000s $000s $000s
Sales to external customers64,376- 45,058 4,551-- 113,985
Inter-segment sales285-33 23,092- (323) 23,087
Segment revenue64,661- 45,091 27,643- (323) 137,072
Underlying EBITDA 7,857 1,691 (1,312) 2,605 2,136293 13,270
Depreciation and amortisation2,426515 1,775 1,099-(13) 5,802
Income tax credit/(expense)(858) (214)31(420)- (649) (2,110)
Total assets
4
65,766 2,141 32,129 23,085 10,399 2,984 136,504
Investment in associates---- 10,399- 10,399
Additions of property, plant, equipment and
intangibles
3,191482 1,395 1,986-- 7,054
Total liabilities
5
27,373591 9,798 7,497468761 46,488
31 March 2019
Rakon Limited
14
b. Reconciliation of Underlying EBITDA to net profit for the year
5. Revenue
The Group generally recognises revenue when the performance obligations are satisfied by transferring control of products to the customer
based on the specified contract price. Typically, control transfers to the customer at the same time as the legal title of the products are passed
to the customer. This is usually on delivery of the products. The transaction price includes all amounts that the Group expects to be entitled to
net of any sales taxes.
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 as 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.
Revenue from contracts with customers
Timing of revenue recognition
The performance obligation of the products and services transferred over time which were in progress at 31 March 2019 were completed during
the year.
Revenue analysis
The Group predominately operates in one segment, its primary business being the design, manufacture, marketing and the sale of frequency
control solutions. There is one main revenue stream, which is the sale of manufactured finished products.
Market segment
The Group’s products are used in the telecommunications, global positioning and space & defence markets.
20202019
Continuing operations$000s$000s
Underlying EBITDA14,787 13,270
Depreciation and amortisation(8,823) (5,802)
Finance costs – net(1,055)(534)
Adjustment for associates and joint venture share of interest, tax and depreciation(1,447) (1,120)
Loss on asset sales/disposal(11)(6)
Other non-cash items(167)(334)
Profit before income tax3,2845,474
Income tax credit/(expense)696 (2,110)
Net profit for the year3,9803,364
20202019
$000s$000s
Products transferred at a point in time116,032 110,837
Products and services transferred over time2,9483,148
118,980 113,985
20202019
$000s$000s
Telecommunications65,167 53,599
Global Positioning18,915 20,498
Space and Defence28,230 31,583
Other6,6688,305
Total revenue by market segment118,980 113,985
Rakon Limited
15
Geographical segment
The Group’s trading revenue is derived in the following regions. Revenue is allocated based on the country in which the customer is located.
6. Expenditure included in net profit
Additional information in respect of expenses included in the Statement of Comprehensive Income is as follows.
Operating expenses by function
Breakdown of significant expenses by nature
20202019
$000s$000s
Asia60,474 53,799
North America26,959 25,793
Europe29,073 31,671
Others2,4742,722
Total revenue by region118,980 113,985
Assets and liabilities related to contracts with customers
20202019
$000s$000s
Total current contract assets9502,788
Total current contract liabilities(392)(929)
5581,859
20202019
$000s$000s
Revenue recognised in relation to contract liabilities
Revenue recognised that was included in the contract liability balance at the beginning of the period9291,916
Asset recognised for costs to fulfil a contract
Assets recognised from costs incurred to fulfill a contract446792
20202019
$000s$000s
Selling and marketing9,5859,809
Research and development13,888 11,029
General and administration24,608 26,500
Total operating expenses48,081 47,338
20202019
$000s$000s
Employee benefit expenses
Wages and salaries45,253 43,872
Contributions to defined plans666644
Increase in liability for French retirement indemnity plan (note 20)220265
Increase in liability for long service leave (note 20)17965
Total employee benefit expenses
46,318 44,846
Depreciation (note 13)3,9253,765
Amortisation (note 14)2,2002,037
Depreciation on right-of-use assets (note 15)2,698-
Rental expense-2,613
Donations614
Rakon Limited
16
1
The fee relates to the annual audit of the local territory financial statements .
2
Other audit related services comprise other non-assurance services undertaken by PwC in their capacity as auditor. Other audit related services
in 2019 comprise an agreed upon procedures engagement in relation to proxy vote scrutineering.
3
Other assurance services comprise provision of treasury related financial markets risk analysis and commentary.
Employee benefits expenses
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.
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.
Rental expenses
In the current year, the Group has adopted NZ IFRS 16 Leases which has changed the classification of rental expenses, refer note 15. Rental
payments exclusive of GST/VAT previously classified as rental expenses are now recorded to reduce the lease liabilities. Depreciation on right-
of-use assets are recorded to reflect the use of leases. Related finance cost is also recorded in the Statement of Comprehensive Income.
Research and development
Expenditure on research activities has been undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
Any research and development taxation credits and government grant funding for research and development are recognised when eligibility
criteria have been met and there is a reasonable assurance that tax credits and the grants will be received.
20202019
$000s$000s
Research and development grants/credits
Research and development government grant(961)(847)
Research and development tax credit(1,196)(997)
Total research and development grants/credits(2,157) (1,844)
Fees to the auditors
Audit and review of financial statements
PwC New Zealand 374 369
PwC India35 21
PwC China50 48
PwC France96 110
PwC UK41 26
BDO Limited (Hong Kong)
1
16 12
T S Tay Public Accounting Corporation ( Singapore)
1
9 7
Morison (Mauritius)
1
5 5
Total audit and review fees626 598
Assurance and audit related services
Performed by PwC New Zealand
Annual Shareholders' Meeting procedures
2
-8
Performed by PwC France
Certification of expenditure on R&D activities5 -
Total assurance and audit related services5 8
Other services
Performed by PwC New Zealand
Government R&D credits reviews-14
Other services
3
26 26
Performed by PwC India
Research and development expenses review2 -
Total other services fees28 40
Total fees paid to auditors659 646
Rakon Limited
17
Grants and tax credits from government are recognised at their fair value. The research and development grants and tax credits are recognised
in trade and other receivables (note 11), and in the Statement of Comprehensive Income over the period necessary to match them with the costs
that they are intended to compensate.
7. Other operating income
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 and the residual revenue of
$0.1m recognised.
8. Other (losses)/gains – net
1
Includes realised and unrealised (losses)/gains arising from accounts receivable and accounts payable.
9. Net finance (costs)/income
Interest income is recognised in the Statement of Comprehensive Income as it accrues, using the effective interest method.
Overdraft interest rate
The average interest rate was as follows. Additional information on borrowings is in note 18.
ASB facility in New Zealand 6.53% (2019: 5.15%)
SBI facility in India 10.55% (2019: 9.95%)
10. Cash and cash equivalents
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.
20202019
$000s$000s
Other income2820
Income from technology license agreement with Siward-101
Total other operating income28121
20202019
$000s$000s
Gain/(loss) on disposal of property, plant, equipment, and intangible33(82)
Foreign exchange (losses)/gains – net
Forward foreign exchange contracts
Held for trading(29)46
Revaluation of foreign denominated monetary assets and liabilities
1
(442)754
Total foreign exchange (losses)/gains – net(471)800
Total other (losses)/gains – net(438)718
20202019
$000s$000s
Finance income
Interest income837
Finance costs
Interest expense on bank borrowings(899)(459)
Interest on deferred consideration on acquisition – Rakon India (53)(100)
Unwinding of lease make good provision discount(16)(12)
Interest on lease liabilities(95)-
Total finance costs(1,063)(571)
Net finance costs(1,055)(534)
Rakon Limited
18
11. Trade and other receivables
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.
Trade receivables are customers whom the Group has been able to validate acceptable credit quality. These are amounts due for goods sold or
services performed in the ordinary course of business and are non-interest bearing. They are generally due for settlement within 30 to 120 days.
Trade and other receivables balances
1
Other receivables includes research and development related tax credits and government grants, and Covid-19 government wage subsidies
($2.0m), refer note 2. A corresponding deferred income for the government wage subsidy of $2.0m was also recorded.
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.
The trade receivables balances included $6,700,000 (2019: $6,500,000) representing 19.7% (2019: 25.1%) due from the Group’s three largest
customers. The balances due from these customers are current and are considered a low credit risk to the Group.
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.
Allowance for expected credit loss
Impairment losses on trade receivables are presented as net impairment losses within operating profit. Trade receivables are written off when
considered to have become uncollectable. Subsequent recoveries of amounts previously written off are credited against the same line item.
The Group applies NZ IFRS 9 Financial Instruments simplified approach to measure the expected credit loss provision that uses a lifetime expected
loss allowance for all trade receivables and contract assets. This provision was based on the historical credit losses, and adjusted to reflect the
current and forward-looking information on factors affecting the ability of the customers to settle the receivables. The forward looking
assumptions also included recent customer aging profile, which remained unchanged to pre-Covid-19.
Information on how Covid-19 impacts the Group is disclosed in note 2.
20202019
$000s$000s
Cash at bank and on hand5,0864,719
Cash, cash equivalents and bank overdrafts include the following for the purposes of the Statement of Cash
Flows
Cash and cash equivalents5,0864,719
Bank overdrafts (note 18)(12,848) (11,501)
Total cash and cash equivalents(7,762) (6,782)
20202019
$000s$000s
Trade receivables35,083 33,960
Less: allowance for expected credit loss(763)(816)
Net trade receivables34,320 33,144
Prepayments9871,448
GST/VAT receivable1,4061,913
Receivables from related parties (note 30)201349
Other receivables
1
8,1673,633
Total trade and other receivables45,081 40,487
Less non-current other receivables
1
2,7022,267
Current trade and other receivables42,379 38,220
Rakon Limited
19
The loss allowance was determined as follows.
The reconciliation of the loss allowance is as follows.
12. Inventories
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.
Inventory classification and balances
b. Obsolescence
An inventory obsolescence provision of $8,713,000 (2019: $5,132,000) is included in the inventory figures above. During the year, consumption
of slow moving inventory was lower than previously anticipated. As a result, obsolescence provisions were increased against specific slow moving
and aged categories of inventory. The carrying value of other inventory items were also reviewed in detail with adjustments to provisions made
on an item-by-item basis.
Significant judgements made in determining the provision include:
Aging of inventory
Forecast revenue and likely consumption of inventory
Historical revenue and actual consumption of inventory
Specific identification of inventory items for which the net realisable value is deemed lower than cost
The Group has not seen a material negative change in demand for its products due to Covid-19. Accordingly, Covid-19 is not expected to adversely
impact the carrying value of inventory.
During the year inventory of $1,437,000 (2019: $1,168,000) was scrapped.
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
As at 31 March 2020
Gross carrying amount of trade receivables 29,2724,3381,134339 35,083
Expected loss rate 1.3%2.6%16.9%20.0%
Allowance for the expected credit loss39011319268763
As at 31 March 2019
Gross carrying amount of trade receivables 28,0334,600614713 33,960
Expected loss rate 1.6%2.6%16.9%20.0%
Allowance for the expected credit loss449120104143816
20202019
$000s$000s
Allowance for expected credit loss as at 1 April 201981664
Increase in allowance recognised in profit or loss during the year4475
Unused amount reversed(77)-
Foreign exchange difference2065
Acquisition of subsidiaries-212
Allowance for expected credit loss as at 31 March 2020763816
20202019
$000s$000s
Raw materials13,042 15,895
Work in progress19,016 17,667
Finished goods5,5665,748
Total inventories37,624 39,310
Rakon Limited
20
13. Property, plant and equipment
Items of property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses.
Cost
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.
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.
b. Depreciation methods and useful lives
Depreciation of property, plant and equipment, other than freehold land, is calculated on a straight-line basis to expense the cost of the assets
to their expected residual values over their useful lives as follows:
Land
Nil
Buildings
15 – 20 years
Leasehold improvements
3 – 25 years
Plant and equipment
1 – 20 years
Computer hardware
1 – 10 years
Furniture and fittings
2 – 20 years
Assets under construction
Nil
Land and
buildings
Leasehold
improve-
ments
Plant and
equipment
Computer
hardwareOther
Assets under
constructionTotal
$000s $000s $000s $000s $000s $000s $000s
As at 1 April 2018
Cost 4,887 7,450 80,725 5,040 2,480 2,975 103,557
Accumulated depreciation & impairment
(4,358) (5,734) (73,282) (4,662) (2,014)(26) (90,076)
Net book value529 1,716 7,443378466 2,949 13,481
Year ended 31 March 2019
Opening net book value 529 1,716 7,443378466 2,949 13,481
Foreign exchange differences(4)(35)(54)(12)(21)(40) (166)
Additions-552 2,41472856 2,467 6,217
Additions on acquisition -98 3,54047928 3,749
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 amounts525 2,275 11,006825519 4,244 19,394
Rakon Limited
21
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 (losses)/
gains – net’ in the Statement of Comprehensive Income.
14. Intangible assets
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.
Land and
buildings
Leasehold
improve-
ments
Plant and
equipment
Computer
hardwareOther
Assets under
constructionTotal
$000s $000s $000s $000s $000s $000s $000s
As at 31 March 2019
Cost 4,883 8,479 86,601 5,751 2,596 4,270 112,580
Accumulated depreciation & impairment
(4,358) (6,204) (75,595) (4,926) (2,077)(26) (93,186)
Net book value525 2,275 11,006825519 4,244 19,394
Year ended 31 March 2020
Opening net book value 525 2,275 11,006825519 4,244 19,394
Foreign exchange differences141139288343722661
Additions10137 1,98532131 1,304 3,788
Disposals--(82) (146)(10)(49) (287)
Depreciation charge(57) (463) (2,992) (346)(67)- (3,925)
Depreciation reversal on disposals--711461-218
Transfers8114361729- (1,500)-
Transfers to Intangible assets----- (925) (925)
Closing net book amounts1,430 2,131 10,893863511 3,096 18,924
At 31 March 2020
Cost 5,845 8,798 89,409 5,989 2,654 3,122 115,817
Accumulated depreciation & impairment
(4,415) (6,667) (78,516) (5,126) (2,143)(26) (96,893)
Net book value1,430 2,131 10,893863511 3,096 18,924
GoodwillPatentsSoftware
Product
development
Assets under
constructionTotal
$000s$000s$000s$000s$000s$000s
As at 1 April 2018
Cost 1,8462,9468,610 10,2643,672 27,338
Accumulated amortisation & 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)
Additions1,294-734473172,131
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
Rakon Limited
22
Cost
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.
Product development
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 development costs are $6.1m (2019: $6.8m) made up of product development assets and assets under construction. 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 including the impact of Covid-19. The expected cash flows supported the carrying values and no impairment was
recorded.
The Group estimates the useful life of the new product development assets based on the judgement of the technical advancements of such
assets and experiences with similar assets. The actual useful life may be shorter or longer depending on technical innovations and competitor
actions.
Covid-19 is not expected to have a material adverse impact on the recoverability of product development assets as most are related to the
growing telecommunications segment. Further information on how Covid-19 impacts the Group is in note 2.
Amortisation and useful lives
Amortisation is charged to the Statement of Comprehensive Income on a straight-line basis over the estimated useful lives as follows:
Impairment tests for goodwill and the cash generating units (CGUs)
Goodwill is attributed to business units acquired through business combination. The business units are also determined to be the CGUs of the
Group. Goodwill is tested annually for impairment or more frequently if there is an impairment indicator.
GoodwillPatentsSoftware
Product
development
Assets under
constructionTotal
$000s$000s$000s$000s$000s$000s
As at 31 March 2019
Cost 3,1402,9448,769 13,832600 29,285
Accumulated amortisation & impairment(1,846) (2,442) (8,478) (7,370)- (20,136)
Net book value1,2945022916,4626009,149
Year ended 31 March 2020
Opening net book value 1,2945022916,4626009,149
Foreign exchange differences-33727213325
Additions --265355214834
Disposals--(8)(5)(28)(41)
Amortisation charge--(398) (1,802)- (2,200)
Amortisation reversal on disposals--83-11
Transfers--437361(798)-
Transfers from property, plant & equipment----925925
Closing net book amounts1,2945356025,6469269,003
At 31 March 2020
Cost 3,1402,9779,470 14,815926 31,328
Accumulated amortisation & impairment(1,846) (2,442) (8,868) (9,169)- (22,325)
Net book value1,2945356025,6469269,003
Goodwill
Nil
Patents
20 years
Software
2 –10 years
Product development
5 –10 years
Assets under construction
Nil
Rakon Limited
23
The current balance of goodwill was generated when on 2 May 2018, the Group acquired the remaining 51% of the issued shares it did not own
in CRI, a previously held joint venture. Subsequent to acquisition, the name of the investment was changed to Rakon India Private Limited.
The carrying amounts of Group’s other non-financial assets are reviewed at each balance date to determine whether there is any indication of
impairment.
If an indicator of impairment exists, the asset’s or CGU’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 CGU exceeds its recoverable
amount. Impairment losses are recognised in the Statement of Comprehensive Income.
Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to CGUs 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. Accumulated impairment losses on goodwill are
not reversed.
Key assumptions for impairment test
The Group concluded at 31 March 2020 that indicators of impairment existed. In making this assessment management and the Directors
considered factors including the current profitability of the Group, the market capitalisation value of the Company in comparison to the Group's
net asset value and the impact of Covid-19 on the Group’s operations (note 2). As a result, the Group has estimated the recoverable amount of
its CGUs on a value-in-use basis and determined that there is no impairment.
The value-in-use are based on Board approved cash flow forecasts covering a five-year period. Covid-19 negatively impacts the near term
forecasts used for the value-in-use calculations. This is predominantly due to the New Zealand and India manufacturing operations being severely
restricted for a limited period in March/April 2020. Further information on how Covid-19 impacts the Group is in note 2.
Key assumptions used in ‘value in use’ calculations
CGU Assumption Range 5 Year CAGR
New Zealand Annual sales growth rate
1
3% to 12% 5.4%
Gross margin %
2
49% to 55% n/a
France Annual sales growth rate
1
2% to 33% 11.4%
Gross margin %
2
26% to 36% n/a
India Annual sales growth rate
1
9% to 29% 17.9%
Gross margin %
2
21% to 31% n/a
China Annual net profit growth rate
3
3% to 25% 9.2%
Free cash flow
3
44% 207.6%
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.
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.
Significant estimate: impact of reasonably possible changes in key assumptions
New Zealand CGU
The recoverable amount is estimated to be $65.9m (2019: $47.6m). This exceeds the carrying amount of the CGU at balance date by $16.4m
(2019: $5.7m). If the sales volumes used in the value-in-use calculation had been 5.0% lower than management’s estimates, the Group would
have recognised an impairment against the carrying amount of net assets of $2.7m. 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 $5.2m. If the pre-tax discount rate applied to the cash flow projections was 16.0% instead of 12.3%, the recoverable amount of
the CGU would equal its carrying amount.
France CGU
The recoverable amount is estimated to be $48.2m (2019: $21.9m). This exceeds the carrying amount of the CGU at balance date by $21.7m
(2019: $2.8m). If the sales used in the value-in-use calculation had been 6.5% lower than management’s estimates, the Group would have
recognised an impairment against the carrying amount of net assets of $1.9m. 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
Rakon Limited
24
of $0.8m. If the pre-tax discount rate applied to the cash flow projections was 13.9% instead of 10.3%, the recoverable amount of the CGU would
equal its carrying amount.
India CGU
The recoverable amount is estimated to be $21.0m (2019: $17.1m). This exceeds the carrying amount of the CGU at balance date by $2.1m
(2019: $1.7m). If the sales used in the value-in-use calculation had been 3.0% lower than management’s estimates, no impairment would result.
If the gross margin percentage used in the value-in-use calculation had been 3.0% lower than management’s estimates, the Group would have
recognised an impairment against the carrying amount of net assets of $1.3m. If the pre-tax discount rate applied to the cash flow projections
was 24.3% instead of 22.7%, the recoverable amount of the CGU would equal its carrying amount.
China CGU
The recoverable amount is estimated to be $12.0m (2019: $9.9m). This exceeds the carrying amount of the CGU at balance date by $0.3m (2019:
$2.8m). If free cash flow was 10.0% lower than management’s estimates, the Group would have recognised an impairment against the carrying
amount of net assets of $1.4m. If the pre-tax discount rate applied to the cash flow projections was 22.0% instead of 15.8%, the recoverable
amount of the CGU would equal its carrying amount.
Growth Rates and Discount Rates
The discount rates used are pre-tax and reflect specific risks relating to the relevant segments. Cash flows beyond the five-year period are
extrapolated using the estimated growth rates stated below. The growth rates are consistent with the industries in those relevant territories.
15. Leases
The Group leases various properties, equipment and cars. Lease terms are negotiated on an individual basis and contain a wide range of different
terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Until 31 March 2019, leases of property, plant and equipment were classified as either finance or operating leases, refer note 29.
The Group has adopted NZ IFRS 16 Leases retrospectively from 1 April 2019, and recognised leases as a right-of-use asset and a corresponding
lease liability for the period in which the leased asset is available for use to the Group. The Group has not restated comparatives for the 31
March 2019 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments
arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 April 2019.
Adjustments recognised on adoption of NZ IFRS 16 Leases
On adoption of NZ IFRS 16 Leases, the Group recognised lease liability in relation to leases that had previously been classified as operating leases
under the principles of NZ IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using
the estimated incremental borrowing rate as at 1 April 2019, and which ranged between 4.3% and 10.0%. The incremental borrowing rate is
based where possible on the third party financing rate as the starting point and adjusted for any changes in conditions of financing. If not, the
Group uses the build-up approach that starts with a risk free interest rate, adjusted for the credit risk for leases and for any specific lease
conditions. The lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. In
determining the lease term, the management considers all facts that creates an economic incentive to exercise the extension option. Where it is
reasonably certain that the lease will not be extended, the extension is not included in the lease term for calculation. Extension options for
manufacturing plants and offices are included in the lease liability. The Group has chosen the option to measure the right-of-use asset at an
amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognised immediately before the date
of initial application.
Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are
reduced for lease payments made. The future variable increases in the leases are not factored in the calculation. When the leases are reviewed
and such changes are effected, the lease liability will be reassessed and adjusted against the right-of-use asset. Right-of-use assets are amortised
on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset.
2020201920202019
New Zealand1.90%1.90% 12.30% 13.60%
United Kingdom2.50%2.50%9.40% 12.10%
France1.32%1.30% 10.30% 13.50%
India3.50%3.50% 22.70% 27.10%
China2.50%2.50% 15.80% 14.80%
Growth rateDiscount rate (pre-tax)
Rakon Limited
25
Summary at 1 April 2019
Recognition of lease liability
Recognition of right-of-use assets
Movements in right-of-use assets during the year
During the year, interest expense on lease liabilities was $95,000 (note 9), and depreciation expense of $2,698,000 on right-of-use assets.
Changes due to adoption of NZ IFRS 16 Leases
The change in accounting policy affected the following items in the balance sheet on 1 April 2019:
Right-of-use assets: increase by $11,175,000
Prepayments: decrease by $672,000
Borrowings: decrease by $812,000
Lease liabilities: increase by $11,315,000
2019
$000s
Operating lease commitments as at 31 March 201910,382
Discounted using the Group's borrowing rate at the date of initial application10,213
Finance lease liabilities recognised as at 31 March 2019812
Adjustments as a result of a different treatment of extension options290
Lease liability recognised as at 1 April 201911,315
At 1 April 20192020
$000s$000s
Represented by
Current lease liabilies2,8562,741
Non-current lease liabilities8,4596,704
Total lease liabilities11,3159,445
At 1 April 20192020
$000s$000s
Properties9,9358,843
Equipment928669
Motor vehicle312218
Total right-of-use assets11,1759,730
Properties Equipment Motor vehicleTotal
$000s$000s$000s$000s
Cost
At 1 April 2019
9,935928312 11,175
Additions
64114067848
Foreign exchange differences
4352716478
At 31 March 2020
11,0111,095395 12,501
Accumulated depreciation
Charge for current year
2,1114151722,698
Foreign exchange differences
5711573
At 31 March 2020
2,1684261772,771
Carrying amount as at 31 March 20208,8436692189,730
Rakon Limited
26
The Underlying EBITDA, segment assets and segment liabilities for 31 March 2020 increased as a result of the change in accounting policy which
are detailed below.
In applying NZ IFRS 16 Leases for the first time, the Group has used the following practical expedients permitted by the standard:
the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
reliance on previous assessments on whether leases are onerous
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts
entered into before the transition date, the Group relied on its assessment made applying NZ IAS 17 Leases and NZ IFRIC 4 Determining whether
an Arrangement Contains a Lease.
16. Interest in associates and joint venture
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. 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 the Statement of Comprehensive Income. 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 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. 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.
Breakdown of interest in associates and joint venture
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.
$000s $000s$000s
NZ1,649 5,1424,891
UK155798776
France632 2,7132,723
India442845827
Other182232228
3,060 9,7309,445
Segment
liabilities
Underlying
EBITDA Impact
Segment
assets
Nature of Measurement2020 2019 2020 2019
2020 2019 relationship method$000s $000s $000s $000s
Chengdu Timemaker Crystal
Technology Co. Ltd
1
China 40% 40% Associate
Equity
method
11,259 9,974
Shenzhen Taixiang Wafer Co. Ltd
1
China 40% 40% Associate
Equity
method
455 425
Total Timemaker Group
11,71410,3997971,050
Thinxtra Pty Limited
3
Australia 0% 0% Associate
Equity
method
- - - (287)
11,71410,399797763
Centum Rakon India Private Ltd
2
India 0% 0% Joint venture
Equity
method
- - - 76
11,71410,399797839
Total carrying amount of equity accounted associates and joint venture
Equity accounted
(loss)/profit
Country of
incorporation
% of ownership
interest
Total carrying amount of associates
Net investment
Name of entity
Rakon Limited
27
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 (FVOCI), refer note 17.
Timemaker Group
The Timemaker Group is the world’s largest quartz wafer manufacturer and a key supplier to Rakon. The tables below provides summarised
financial information for the Timemaker Group. The information disclosed reflects the amounts presented in the financial statements of the
relevant associates 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.
Covid-19 has not materially impacted the Timemaker Group with the business continuing to operate uninterrupted through the March/April
2020 period. Minor impacts were noted including difficulty recruiting staff and logistics issues due to supply chain interruptions.
202020192020 201920202019
$000s$000s$000s$000s$000s$000s
Summarised Balance Sheet
Current assets
Cash & cash equivalents3,5672,904323,5702,906
Other current assets26,890 17,7861,2121,135 28,102 18,921
Total current assets30,457 20,6901,2151,137 31,672 21,827
Non-current assets26,178 25,097-- 26,178 25,097
Current liabilities
Financial liabilities (excluding trade payables)13,456 11,371-- 13,456 11,371
Other current liabilities13,1198,9237873 13,1978,996
Total current liabilities26,575 20,2947873 26,653 20,367
Non-current liabilities
Other non-current liabilities1,912558--1,912558
Total non-current liabilities1,912558--1,912558
Net assets28,148 24,9351,1371,064 29,285 25,999
Total Timemaker Group
Chengdu Timemaker Crystal
Technology Co. Ltd
Shenzhen Taixiang Wafer Co.
Ltd
202020192020 201920202019
$000s$000s$000s$000s$000s$000s
Summarised Statement of Comprehensive Income
Revenue27,509 28,260--27,509 28,260
Depreciation and amortisation(2,661) (3,071)--(2,661) (3,071)
Interest expenses(491)(576)--(491)(576)
Profit for the period1,9882,625--1,9882,625
Total Timemaker Group
Chengdu Timemaker Crystal
Technology Co. Ltd
Shenzhen Taixiang Wafer Co.
Ltd
202020192020 201920202019
$000s$000s$000s$000s$000s$000s
Reconciliation of net assets to carrying amount
Rakon's share in %
40%40%
40%
40%40%40%
Rakon's share of associates' and joint venture's
net assets
11,2599,97445542511,714 10,399
Carrying amount
11,2599,97445542511,714 10,399
Movement in carrying amount
Opening net assets 1 April10,3999,350
Equity accounted profit7971,050
Foreign exchange movement518(1)
Carrying amount11,714 10,399
Chengdu Timemaker Crystal
Technology Co. Ltd
Shenzhen Taixiang Wafer Co.
LtdTotal Timemaker Group
Rakon Limited
28
Other joint venture and associate
On 2 May 2018, the Group assumed full ownership of CRI and subsequently changed the name to Rakon India Private Limited.
On 1 June 2018 due to loss of significant influence, the Group has reclassified the investment in Thinxtra, as a financial asset at FVOCI, refer note
17.
17. Investment in Thinxtra – financial asset at fair value through other comprehensive income
Subsequent to losing significant influence in Thinxtra and ceasing equity accounting of the investment on 1 June 2018, the Group elected to
present changes in fair value of its investment in other comprehensive income. Refer note 26 for accounting policy.
Thinxtra
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 7.1% ownership interest at 31 March 2020 (March 2019: 17.8%). This is
calculated on a fully diluted basis including the exercise of existing options.
Valuation of the investment in Thinxtra at 31 March 2020
It is 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 not actively traded; and the track record of the Company in achieving its forecast performance.
The Directors have used a range of valuation techniques as it was considered that one single valuation method would not provide an appropriate
result. Accordingly, the Directors have assigned a probability based weighting based on the available information and Directors’ judgement. The
Directors recognise there is a high risk the valuation will change significantly over time and have chosen to adopt this consistent overall
methodology for the valuations reported at 31 March 2019 and 31 March 2020.
For the year ended 31 March 2020, the Directors recognise that a valuation of $4.4m achieved where a higher weighting is given to the discounted
cash flow method, reflects more closely the likelihood that Thinxtra will execute its plans including an eventual listing. However, the Directors
also recognise that relevant accounting standards require more weighting to be applied to observable inputs, in this case, the average price
achieved for the A$9m capital raise in February 2020 of A$2.29 per share. Therefore the final valuation of $2.9m was adopted resulting from a
higher weighting given to the A$9m capital raise price.
In forming the Directors’ judgement, the Directors have taken into consideration whether there is an active market in Thinxtra as indicated by
the recent capital raise and concluded that there is not. However the Directors have concluded that the weighting that should be attributed to
the capital raise should be higher than in the previous year, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs. If there is an active market, the fair value would be considered to be the recent share issue price as the investment would
be treated as a Level 1 investment under the fair value hierarchy (refer to scenarios below).
The Directors reviewed all the available information to date including Thinxtra’s audited financial statements, current capital raise activity and
other shareholder communications including the impact of Covid-19. The impact of Covid-19 includes the short-term deferment of forecast
revenue and a delay to the original IPO timeline. This is not expected to materially change the future realisation of Rakon’s investment.
Valuation methodology and key inputs
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, key
inputs and overall outcome is summarised as follows:
2020 201920202019
$000s$000s$000s$000s
Movement in carrying amount
Opening net assets 1 April- 2,876-5,290
Equity accounted gain/(loss)-76-(287)
Foreign exchange movement-42--
De-recognition of joint venture and associate- (2,994)-(5,003)
Net carrying amount ----
Centum Rakon India Private Ltd Thinxtra Pty Ltd
Valuation TechniqueWeighting Assigned
A: Discounted cash flow (discount rate 15%)30%
B: February 2020 capital raise of A$9m at A$2.29 per share70%
Rakon Limited
29
The valuation was based on Rakon having a 7.1% shareholding which assumed all existing share options were exercised and all shares were issued
under the capital raise offer that was open.
The resultant valuation of A$3.64 is adopted in the 31 March 2020 financial statements (2019: A$5.82).
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 weightings assigned to each scenario/valuation technique combination. The
following table provides an analysis of the impact on the final valuation where the 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.
18. Borrowings
The Group is reliant on its bank facilities 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.
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.
Line of credits
The Group maintains following line of credits.
Current year
ASB
At 31 March 2020 a $15.2m combined trade facility and a $3.3m overdraft facility was in place.
On 26 May 2020 the facilities with ASB were extended. The Company has agreed to reduce the combined trade facility of $15.2m as follows:
Up to 29 June 2020: $13.2m
From 30 June 2020 to 30 September 2020: $11.2m
From 1 October 2020 to 31 December 2020: $7.7m
From 1 January 2021: $5.7m
Facilities are secured by a general security deed over all the present and future assets and undertakings of the Group. 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.
State Bank of India
Rakon India has an existing facility with State Bank of India including ₹150m (NZ$3.2m) which can be used for cash based working capital
requirements.
Prior year
On 30 November 2018 the facilities with ASB were restructured and increased. At 31 March 2019 a $15.5m overdraft facility was in place. Interest
was payable at the ASB Corporate Indicator Rate plus applicable margin. The increase to the previous facility was due to additional working
capital required for growth in the telecommunications business supplied out of India and New Zealand. This overdraft was drawn for the purchase
of Rakon India.
ScenarioAssumptions changesValuation NZ$m change
a) Base case valuationbase case2.9
b) Discounted cash flowCash flow is 50% lower than forecast2.1(0.8)
c) Discounted cash flowDiscount rate is 1% higher (ie 16%)2.7(0.2)
Valuation Technique
Base case
Alternate
case A
Alternate
case B
Discounted cash flow30%70%0%
Last A$9m capital raise70%30% 100%
100% 100% 100%
Valuation NZ$m2.94.41.8
change in valn NZ$m+1.4-1.1
Rakon Limited
30
Borrowings balance
The Group has adopted NZ IFRS 16 Leases from 1 April 2019, refer note 15 for information on lease obligations.
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.
Borrowings costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised. Other borrowing
costs are expensed in the period in which they incur, refer note 9.
Net debt reconciliation
On adoption of NZ IFRS 16 Leases, the Group recognised lease liabilities. Refer note 15 for more information.
19. Trade and other payables
Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial period, which are
unpaid. These are unsecured and are usually paid within 60 days of recognition. They are recognised initially at their fair value and subsequently
measured at amortised cost using the effective interest method.
20202019
$000s$000s
Current
Obligations under finance lease-405
Other borrowings14569
Bank overdrafts12,848 11,501
Current borrowings12,993 11,975
Non-current
Obligations under finance lease-412
Non-current borrowings-412
20202019
$000s$000s
6 months or less12,848 11,501
Total bank borrowings including overdraft12,848 11,501
Other asset
Cash/ bank
overdraft Borrowings Lease liabiltiesTotal
$000s$000s$000s$000s
Balance as at 1 April 20187,540(98)-7,442
Cash flows(14,466)24- (14,442)
Acquisitions-(812)-(812)
Foreign exchange changes144--144
Balance as at 31 March 2019(6,782)(886)- (7,668)
Cash flows(308)-3,0782,770
Acquisitions-(71)(688)(759)
Impact from NZ IFRS 16 Leases adoption-812 (11,315) (10,503)
Foreign exchange changes(672)-(425) (1,097)
Interest on lease liabilties--(95)(95)
Balance as at 31 March 2020(7,762)(145) (9,445) (17,352)
Liabilities from financing activities
20202019
$000s$000s
Trade payables8,882 13,439
Amounts due to related parties (note 31)628468
Employee entitlements9,3308,908
Accrued expenses3,4123,583
Total trade and other payables22,252 26,398
Rakon Limited
31
20. Provisions for other liabilities and charges
A provision is recognised 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.
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 payout 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 2020.
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’ of 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
The Company is required to restore the leased premises at Mt Wellington, Auckland, New Zealand and Bengaluru, India 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.
21. Taxation
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. 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 affect the income tax and deferred tax provisions in the period in which such determination is made.
Retirement
provision
Long service
leave
Restructure
provision
Lease make
good
Total
$000s$000s$000s$000s$000s
At 31 March 20182,1464704396403,695
Charged to the Statement of Comprehensive Income
Additional provisions recognised26565--330
Unwinding of discount
---
1212
Used during the year-(72)(439)-(511)
Foreign exchange
(80)--15(65)
At 31 March 20192,331463-6673,461
Charged to the Statement of Comprehensive Income
Additional provisions recognised220179--399
Unwinding of discount---1616
Unused amount reversed(231)(20)--(251)
Used during the year(154)(104)--(258)
Foreign exchange265--265
At 31 March 20202,431518-6833,632
Represented by
Current portion382332--714
Non-current portion2,049186-6832,918
Total provisions for other liabilities and charges2,431518-6833,632
Rakon Limited
32
Income tax expense
Income tax on the net profit for the year comprises current and deferred tax. Income tax is recognised in the Statement of Comprehensive
Income, with the exception of other items that relate to other comprehensive income, in which case it is recognised in OCI.
The weighted average applicable tax rate was 21% (2019: -39%).
Deferred tax
Deferred taxes arising from temporary differences and unused tax losses are summarised.
1
Includes deferred tax arising from financial instruments (cash flow hedges) and inventory provisioning.
At balance date Rakon Limited had total tax losses of $19,171,000 (2019: $26,743,000) of which $8,908,000 (2019: $8,908,000) are recognised
in deferred income tax assets. Accordingly, $10,263,000 (2019: $17,835,000) 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 $7,895,000 (2019: $1,712,000)
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.
Deferred 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 taxation authority.
20202019
$000s$000s
Current tax(223) (1,879)
Deferred tax expense919(231)
Income tax credit/(expense)696 (2,110)
20202019
Reconciliation of income tax expense $000s$000s
Profit before tax 3,2845,474
Tax calculated at domestic tax rates applicable to profits in the respective countries(580) (1,540)
Expenses not deductible95(276)
Non-taxable income182684
Expenses deductible for tax purposes-34
Prior year adjustment10946
Associate and joint venture results reported net of tax12695
Movement in deferred tax subsquent to business combination-(427)
Recognition and utilisation of previously unrecognised tax losses2,210347
Tax losses for which no deferred income tax asset was recognised(1,446) (1,073)
Income tax credit/(expense)696 (2,110)
Property,
plant &
equipment
Employee
benefitsOther
1
Future income
tax benefitTotal
$000s$000s$000s$000s$000s
At 31 March 2018485022,4812,6315,662
(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
(Charged)/credited to profit or loss(149)1098474919
Losses transferred to subsidiaries---(73)(73)
Charged to equity--1,807-1,807
Foreign exchange difference--124-124
At 31 March 2020(422)6616,3192,5029,060
20202019
$000s$000s
Deferred tax assets
9,2467,352
Deferred tax liabilities
(186)(1,069)
Net deferred tax asset9,0606,283
Rakon Limited
33
Imputation balances
22. Share capital
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 2020 the total number of ordinary shares, including treasury shares, is 229,055,272 shares (2019: 229,055,272) made up as follows:
226,961,983 are fully paid shares (2019: 226,961,983)
321,972 unpaid ordinary shares were on issue and held in trust on behalf of participants in the Rakon Share Plan (2019: 321,972)
1,771,317 unpaid ordinary shares were held by Rakon ESOP Trustee Limited for future allocation to participants (2019: 1,771,317)
At 31 March 2020, the share capital remained unchanged at $181,024,000.
23. 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.
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.
At 31 March 2020, the Group did not have any dilutive options or potential dilutive ordinary shares that could be converted into ordinary shares
(2019: nil). The diluted earnings per share and basic earnings per share were same.
20202019
$000s$000s
Imputation credit available for use in subsequent periods11,204 11,203
20202019
$000s$000s
Weighted average number of ordinary shares on issue (note 22)226,962 226,962
Continuing operations
Earnings attributable to equity holders of the Group ($000s)3,9803,364
Basic earnings per share (cents per share)1.81.5
Rakon Limited
34
24. Other reserves
Foreign currency translation
Recognises exchange differences arising on translation of the foreign controlled entities, as described in note 3. The cumulative amount is
reclassified to the Statement of Comprehensive Income when the investment is disposed.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments and cost of hedging
used in cash flow hedges pending subsequent recognition in the Statement of Comprehensive Income or directly included in the initial cost or
other carrying amount of a non-financial asset or non-financial liability.
Share option
The share-based payments reserve is used to recognise:
the grant date fair value of options issued to employees but not exercised
the grant date fair value of shares issued to employees
the grant date fair value of deferred shares granted to employees but not yet vested
Other comprehensive income revaluation
The Group has elected to recognise the change in fair value of investment in Thinxtra in other comprehensive income, refer note 17.
25. 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. These 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
26.
Foreign
currency
translation
reserve
Hedging
reserve
Share option
reserve
Other
comprehensive
income
revaluationTotal
$000s$000s$000s$000s$000s
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 revenue-(591)--(591)
Income tax on transfers to revenue-165--165
Subsidiaries1,330---1,330
Associates and joint venture(1)---(1)
At 31 March 2019(23,383)(380)3,064(454) (21,153)
Cash flow hedges
Fair value gains/(losses) in year- (4,818)-- (4,818)
Cost of hedge-570--570
Changes in fair value of equity investments at fair value through
other comprehensive income – Thinxtra
--- (1,632) (1,632)
Tax on fair value losses -1,349--1,349
Transfers to revenue- (2,429)-- (2,429)
Income tax on transfers to revenue-680--680
Subsidiaries3,967---3,967
Associates and joint venture173---173
At 31 March 2020(19,243) (5,028)3,064(2,086) (23,293)
Rakon Limited
35
Derivatives and hedge accounting
Where all relevant criteria are met, hedge accounting is applied to the derivatives to remove the mismatch between the hedging instrument and
hedged item. 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.
At the inception of hedge relationship, hedging documentation is prepared to document the economic relationship between hedging instruments
and hedged items with the Group’s risk management objective and strategy for undertaking of hedge transactions. The Group documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are effective in
offsetting changes in cash flows of hedged items. 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, refer note 23. The balance of the cash flow hedge reserve in relation
to each particular hedge is transferred to the Statement of Comprehensive Income in the period when the hedged item affects Statement of
Comprehensive Income. Hedge accounting is discontinued when a hedging instrument expires or is sold or terminated, or when a hedge no
longer 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 Statement of Comprehensive Income. 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 Statement of Comprehensive Income.
The Group designates only the intrinsic value of option as the hedging instrument. These are recognised in the cash flow hedge reserve within
equity. The changes in time value of the options that related to the hedged item are recognised within OCI in the cost of hedging reserve with
equity.
The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings, is recognised in Statement of
Comprehensive Income within finance cost at the same time as the interest expense on the hedged borrowings.
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. 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. Any infectiveness assessed during the year was recognised to the foreign exchange (losses)/gains
— net in the Statement of Comprehensive Income.
Information on how Covid-19 impact the Group’s derivative is in note 2.
The following table sets out the notional amount of derivative instruments.
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 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
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.
There was no ineffectiveness during 2020 in relation to the interest rate swaps (2019: nil).
2020202020192019
Assets LiabilitiesAssets Liabilities
$000s$000s$000s$000s
Interest rate swaps – cash flow hedge-24-100
Forward foreign exchange contracts – cash flow hedges26,178274837
Forward foreign exchange collar option – cash flow hedges25649291256
Total derivative financial instruments276,8515651,193
Less: non-current forward foreign exchange – cash flow hedges-2,840258343
Current - derivative financial instruments274,011307850
Financial asset at fair value through profit or loss21,0291995
Total - derivative financial instruments
295,040326945
Rakon Limited
36
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 -$24,000 (2019: -$100,000), is exposed to fair value movements if interest rates change. During the year, $3,000 (2019: $45,000) net
was charged to the Statement of Comprehensive Income.
The following table summarises Group’s current hedging instruments.
26. Financial risk management
The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk.
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’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.
The impact of Covid-19 on financial risks was reviewed and analysis is outlined under each risk category.
Financial instruments—fair values and risk management
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.
Foreign
currency
options
Foreign
currency
forwards
Interest
rate swaps
Foreign
currency
options
Foreign
currency
forwards
Interest
rate swaps
Notional amount ($'000s)23,420 36,314 3,000 32,940 42,421 3,000
Maturity date
Apr-20 to
May-21
Apr-20 to
Feb-22
Jun-20
May-19 to
Sep-20
Apr-19 to
Oct-20
Jun-20
Hedge ratio
1:11:11:11:11:11:1
Change in intrinsic value of outstanding hedging instruments (879)(31)
Weighted average strike rate on outstanding options
GBP/USD
-1.34
NZD/USD
0.660.69
Weighted average contract rate on forwards
NZD/USD
0.660.74
GBP/USD
1.291.33
EUR/USD
1.141.14
INR/USD
73.7871.56
20202019
RiskExposure arising fromMeasurementManagement
Market risk-foreign exchangeCash flow forecasting Foreign currency forwards and
Sensitivity analysis foreign currency options
Market risk-interest rateBank overdraft at variable rates Sensitivity analysisInterest rate swaps
Credit riskAging analysisCredit limits
Credit ratings
Liquidity riskBorrowings and other liabilities Rolling cash flow forecasts
Recognised financial assets and
liabilities not denominated in
currency units
Cash and cash equivalents, trade
receivables, derivative financial
instruments
Availability of committed credit
lines and borrowing facilities
Rakon Limited
37
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.
Classification of financial assets
The Group classifies its financial assets in the following categories:
Financial asset at fair value through profit or loss (FVPL)
Financial assets at fair value through other comprehensive income (FVOCI)
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 FVOCI.
Financial assets at fair value through profit or loss (FVPL)
This category has two subcategories: financial assets held for trading and those designated at FVPL 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 FVPL 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.
Classification of financial assets at fair value through other comprehensive income (FVOCI)
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 25. 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.
Following table shows the carrying amounts and fair values of financial assets and financial liabilities.
Rakon Limited
38
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.
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. The Group has
established credit policies, and applies the NZ IFRS 9 Financial Instruments simplified approach to measuring expected credit losses which uses a
lifetime expected loss allowance for all trade receivables, refer note 11.
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.
Due to Covid-19, no material adverse impact has been observed to date in respect of Rakon’s customers, refer note 2.
Cash and cash equivalents
While cash and cash equivalents are also subject to the impairment requirements of NZ IFRS 9 Financial Instruments, the identified impairment
loss was immaterial.
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.
The maximum exposure to credit risk for trade receivables at 31 March by currency of denomination is set out under the liquidity risk.
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
20202019
$000s $000s
Current financial assets
Derivative financial instruments – cash flow hedgesFVOCI27565
Derivative financial instruments – held for tradingFVPL219
Trade and other receivablesAmortised cost 45,081 40,487
Cash and cash equivalentsAmortised cost5,0864,719
Non-current financial asset
Financial asset at fair value through other comprehensive income – ThinxtraFVOCI2,9184,549
Derivative financial instruments – cash flow hedgesFVOCI-258
Trade and other receivablesAmortised cost2,7022,267
Current financial liabilities
Derivative financial instruments – cash flow hedgesFVOCI4,011850
Derivative financial instruments – held for tradingFVPL1,02995
Bank overdraftAmortised cost 12,848 11,501
Trade and other payablesAmortised cost 22,252 26,398
Non-current financial liabilities
Derivative financial instruments – cash flow hedgesFVOCI2,840343
Measurement
category
Carrying amount
20202019
$000s$000s
Financial assets at fair value through profit or loss (note 25)219
Financial asset at fair value through other comprehensive income – Thinxtra (note 17)2,9184,549
Trade and other receivables (note 11)45,081 40,487
Cash and cash equivalents (note 10)5,0864,719
Forward exchange contracts and collar options used for hedging (note 25)27565
Total exposure to credit risk53,114 50,339
Carrying amount
Rakon Limited
39
natural disasters. The historical and potential future impact of Covid-19 has been incorporated into detailed forecasts of cash and facility
requirements. Further information on the impact of Covid-19 on the business is in note 2.
The Directors forecast that the Group will trade at levels appropriate to manage its working capital requirements and 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 its net cash requirements and that there is sufficient headroom to allow for downward sensitivities, should the actual
revenue and margin levels be lower than forecast. For further information on going concern, refer note 2.
The following table shows the contractual undiscounted cash flow maturities of financial liabilities, including interest payments and excluding
the impact of netting agreements.
Further information on bank overdraft interest rate is in note 18.
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. Further information on the impact of Covid-19 on the
business is in note 2.
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), the Euro (EUR) and Indian Rupees (INR). The currencies in which
these sales and purchases transactions are primarily denominated are US Dollars (USD), Japanese Yen (JPY), 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 2020
Carrying
amount
6 months or
less6 – 12 months1 – 2 years2 – 5 years5 – 10 years
$000s$000s$000s$000s$000s$000s
Financial liabilities
Derivatives (note 25)7,880 (2,734) (2,320) (1,946)(880)-
Trade and other payables (note 19)22,252 (22,252)----
Bank overdraft (note 18)12,848 (13,305)----
Finance leases (note 18)-----
Lease liabilities (note 15)9,445 (1,396) (1,345) (2,236) (3,550)(918)
Total financial liabilities52,425 (39,687) (3,665) (4,182) (4,430)(918)
31 March 2019
Carrying
amount
6 months or
less6 – 12 months1 – 2 years2 – 5 years5 – 10 years
$000s$000s$000s$000s$000s$000s
Financial liabilities
Derivatives (note 25)1,288(750)(343)(195)--
Trade and other payables (note 19)26,398 (26,398)----
Bank overdraft (note 18)11,501 (11,797)----
Finance leases (note 18)817(405)(412)---
Total financial liabilities40,004(39,350)(755)(195)--
USDEURGBPJPY
$000s$000s$000s$000s
31 March 202015,7493,603 (1,297) (1,164)
31 March 201917,397 (1,533)(460) (5,751)
Rakon Limited
40
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 2019.
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 2019.
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.
Profile
At 31 March the interest rate profile of the Group’s interest bearing financial instruments.
NZD2020201920202019
USD0.6454 0.6768 0.6023 0.6806
EUR0.5816 0.5887 0.5404 0.6044
GBP0.5086 0.5188 0.4833 0.5154
JPY70.239275.112764.960075.1800
Average rateReporting date rate
10% weakening
EquityProfit or lossEquityProfit or loss
$000s$000s$000s$000s
USD1,7501,7501,9331,933
EUR400400(170)(170)
GBP(144)(144)(51)(51)
JPY(129)(129)(639)(639)
INR--134134
20202019
Fair value Equity Profit or loss Fair value Equity Profit or loss
$000s$000s $000s$000s$000s$000s
Forward foreign exchange contracts - Cash flow hedge
Net buy NZD sell USD
8,013 (8,013)-5,811 (5,811)-
Forward foreign exchange contracts - held for trading
Net buy EUR sell USD
(47)(63)(63)(28)231231
Net buy GBP sell USD
(70)(96)(96)20277277
Net buy NZD sell USD
(862) (1,761) (1,761)119(496)(496)
Net buy INR sell USD
895454---
20202019
20202019
Variable rate instruments$000s$000s
Financial assets (note 10)5,0864,719
Financial liabilities(12,848)(11,501)
Net variable rate instruments(7,762)(6,782)
Fixed rate instruments
Financial liabilities
(164)(176)
Net fixed rate instruments(164)(176)
Rakon Limited
41
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 2020 was performed
on the same basis as 2019.
A decrease of 100 basis points in interest rates at 31 March would have the opposite impact to what is shown above.
27. Share based payments
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 (2019: $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 2020 (2019: nil). The Trust Deed makes provision for the Company to require repayment of the loans in
certain circumstances.
As at 31 March 2020, 321,972 (31 March 2019: 321,972) shares were allocated to participants but held by Rakon ESOP Trustee Limited.
Shares issued under the share plan are held on trust by Rakon ESOP Trustee Limited. A participant may request the trustee to transfer the relevant
shares to him or her, provided their loan 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 Keith Oliver 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 (2019: 0.14%).
28. Principal subsidiaries
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.
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 OCI 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 OCI are reclassified to profit or loss.
Equity Profit or lossEquity Profit or loss
$000s$000s$000s$000s
Variable rate instruments(78)(78)(68)(68)
Fixed rate instruments(2)(2)7676
20192020
Rakon Limited
42
Rakon ESOP Trustee Limited and Rakon PPS Trustee Limited are classified as in-substance subsidiaries and are consolidated into the Group
financial statements.
29. Commitments
Capital commitments
Capital expenditure contracted for at the balance date but not incurred is $366,000 (2019: $194,000).
Operating and finance leases
During 2019, the Group was the lessee. Leases where the lessor retains substantially all the risk and rewards of ownership were classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the Statement of
Comprehensive Income on a straight line basis over the period of the lease.
2019 leases pre-adoption of NZ IFRS 16 Leases
From 1 April 2019, the Group has adopted NZ IFRS16 Leases and has recognised right-of-use assets and its corresponding lease liabilities, refer
note 15.
Operating lease commitments – Group as lessee
The Group leases various factories, offices and warehouses under non-cancellable operating lease agreements. The leases have varying terms
and renewal rights. On renewal the terms are renegotiated.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2020 2019
Rakon America LLCMarketing supportUSA31-Mar100 100
Rakon Singapore (Pte) LimitedMarketing supportSingapore31-Mar100 100
Rakon Financial Services LimitedFinancingNew Zealand 31-Mar100 100
Rakon International LimitedMarketing supportNew Zealand 31-Mar100 100
Rakon UK Holdings LimitedHolding companyUnited Kingdom 31-Mar100 100
Rakon UK LimitedResearch and development United Kingdom 31-Mar100 100
Rakon France SAS R&D, manufacturing and sales France31-Mar100 100
Rakon HK LimitedHolding companyHong Kong 31-Mar5050
Rakon (Mauritius) LimitedHolding companyMauritius31-Mar100 100
Rakon Investment HK Limited Holding companyHong Kong 31-Mar100 100
Rakon Crystal Electronic International LimitedMarketing supportChina31-Mar100 100
Rakon India Pvt Limited Manufacturing, R&D and sales India31-Mar100 100
Rakon ESOP Trustee LimitedShare trusteeNew Zealand 31-Mar--
Rakon PPS Trustee Limited
Share trustee
New Zealand 31-Mar--
% interest held by group
Name of entityPrincipal activities
Country of
incorporation
Balance
date
20202019
$000s$000s
No later than 1 year-405
Later than 1 year and no later than 5 years-412
Total minimum lease payments-817
Less amounts representing finance charges-(26)
Present value of minimum lease payments-791
Included in the financial statements as
Current borrowings (note 18)-405
Non-current borrowings (note 18)-412
Total finance lease included in borrowings-817
20202019
$000s$000s
No later than 1 year-2,689
Later than 1 year and no later than 5 years-6,755
Later than 5 years-938
Total non-cancellable operating leases- 10,382
Rakon Limited
43
30. 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. Following is the summary of transactions between related parties, and closing receivables and payables balances.
1
On 2 May 2018, the Group assumed full ownership of Centum Rakon India Private Limited and subsequently any purchases are treated as
intercompany transactions.
31. Contingencies
Prior to acquisition, Rakon India has received income tax and indirect taxes assessments, which had been 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.
Income taxes
2011/12 – an increase in taxable income of $1.6m (tax value $1,000,000)
2013/14 – no increase in taxable income (tax value $580,000)
Indirect taxes
December 2010/ August 2012 – excess input credit availed (tax value $440,000)
32. Subsequent events
On 13 June 2020 a €3.5m loan was made available to Rakon France for an initial term of 12 months with Rakon France having an option to extend
for up to a further five years at the end of the first 12 months. This loan has certain restrictions that limits it to be used for working capital/treasury
support for the French business only. Interest is payable at zero percent for the initial 12 months along with a guarantee fee of 0.25%. There are
no covenants on the loan and no additional security is required.
On 26 May 2020 the facilities with ASB have also been renewed, refer note 18.
The Directors are not aware of any other material events subsequent to the balance date 31 March 2020. In particular no information has come
to light related to Covid-19’s impact on the Group which is expected to have a material negative effect.
20202019
$000s$000s
Key management and directors' compensation
Salaries and other short-term employee benefits4,0453,767
Directors' fees360358
Total key management and directors' compensation4,4054,125
Transactions with associate and joint-venture
Purchases from associate, Chengdu Shen-Timemaker Crystal Technology Co. Limited(940)(233)
Purchases from joint venture, Centum Rakon India Private Limited
1
- (1,284)
Net transactions(940) (1,517)
Payables to Chengdu Shen-Timemaker Crystal Technology Co. Limited56232
Receivables from Rakon HK Limited163139
Transactions with Siward Crystal Technologies Co. Limited
Sales502210
Purchases(2,218)(236)
Net transactions(1,716)(26)
Receivables from Siward Crystal Technologies Co. Limited38210
Payables to Siward Crystal Technologies Co. Limited572236
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 2020;
● 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 2020, 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 related financial markets risk
analysis and commentary, review procedures over the confirmation of the Eligible Research and
Development Expense claimed under the Research and Development Income Tax incentive scheme in
India and certification of expenditure on Research and Development activities claimed under the
Research and Development subsidy in France. The provision of these other services has not impaired
our independence as auditor of the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
PwC 45
Key audit matter How our audit addressed the key audit
matter
Impairment risk for non-financial assets
As set out in note 14d, the Directors assess
intangible assets and other non-financial 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 2020
was $36.7 million compared to the carrying
value of the net assets of $91.8 million.
Subsequent to the year end the market
capitalisation increased and was $59.5 million as
at 26 June 2020.
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. In preparing this model the Directors
took into account factors including the current
profitability of the Group and the impact of
Covid-19 on the Group’s operations. The key
assumptions in the discounted cash flow model
are included in note 14d of the financial
statements and include:
● Annual sales growth rate
● Gross margin
● Terminal growth rates
● Discount rates
The results of the Directors’ assessment,
including the impact of reasonably possible
changes in assumptions, are detailed in note
14d.
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;
● whether there were indicators of
impairment for intangible product
development assets, which has been
discussed in the key audit matter below;
● the recoverability of deferred tax assets;
● whether there were any specific indicators of
impairment for property, plant and
equipment assets; and
● the effects of Covid-19 on the assets’ values.
In considering the discounted cash flow model
used for the assessment of impairment of the
business as a whole our procedures included the
following:
● Obtained an understanding of the current
and forecast outlook for the business and
management’s basis for determining the key
assumptions in preparing the forecast cash
flows;
● Compared cash flow forecasts used in the
model to budgets and long-term forecasts
approved by the Board subsequent to the
year end;
● Assessed the reliability of management’s
budgeting process by understanding the
differences between the historical and
budgeted performance in previous years;
PwC 46
Key audit matter How our audit addressed the key audit
matter
● Evaluated the key assumptions in particular
the estimated sales growth rates and gross
margins and the potential impact of Covid-
19, by analysing the Group’s past
performance, key trends and
interrelationship of key assumptions and
benchmarking information to market data
where relevant and available;
● Engaged our valuation expert to assist us in
challenging management’s key cash flow
assumptions and to assess the terminal
growth rates, discount rates and a range of
cash flow scenarios; and
● 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 have no
matters to report.
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
14 of the financial statements) and amounts to
$6.1 million at 31 March 2020.
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.
There is judgement and often uncertainty
around the potential for success of new products
as well as the technical feasibility and probable
future economic benefits associated with new
and existing projects primarily with respect to
new 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:
● Updated our understanding of how the costs
for research and development are captured
and, where appropriate, are approved for
capitalisation and the controls over these
processes;
● 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;
● Assessed overall costs capitalised for
compliance with Group policies and the
requirements defined in NZ IFRS for
capitalisation of product development costs;
● For those products in production, where
costs were capitalised and are now being
amortised, 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;
PwC 47
Key audit matter How our audit addressed the key audit
matter
● 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 have no
matters to report.
Compliance with banking facilities
As at 31 March 2020 the Group’s net debt was
$7.9 million. Note 18 to the financial statements
explains that the Group’s bank funding
comprises trade and overdraft facilities with ASB
and a trade facility with the State Bank of India.
The ASB facilities were extended on 26 May
2020 and the trade facility is scheduled to
reduce over the next six months. The ASB
facilities have financial covenants requirements
attached.
In addition, subsequent to the year end, a loan
was made available to Rakon France, as
described in note 32.
We consider forecast compliance with the Group
banking facilities and the financial covenants for
the ASB facilities to be a key audit matter, given
the reduction of the facility limit over the next 6
months and the uncertainties associated with
Covid-19.
The Directors have assessed forecast compliance
with banking facilities by:
● preparing scenario forecasts (base case and
various downside scenarios) for the Group
for the next 12 months from the date of
approval of financial statements;
● assessed the restrictions on the use of the
loan made available to Rakon France;
● using the forecasts to calculate financial
covenant compliance at future covenant test
dates.
The Directors have concluded there are no
material uncertainties related to going concern
and compliance with the requirements of
banking facilities.
We have read the bank agreements and
understood the attached requirements.
We obtained the Group’s cash flow forecasts for
the next 12 months from the date of the approval
of the financial statements and performed the
following audit procedures:
● Ensured the base case cash flow forecast is
consistent with the forecast used for the
impairment assessment;
● Assessed the reasonableness of
management’s forecast scenarios and
performed sensitivities by considering
additional scenarios, taking into account the
restricted use of the bank funding in France;
● Assessed whether the Group is able to fund
the required reduction in the ASB trade
facility limit over the next six months;
● Assessed the ability of the Group to comply
with the covenant requirements by
recalculating covenant compliance at the
measurement dates; and
● Considered the adequacy of disclosure in
notes 2d, 18 and 32 to ensure they
accurately reflect information relevant to
management's assessment of the Group’s
ability to comply with the banking facilities
over the next 12 months.
From our procedures, we have no matters to
report.
PwC 48
Key audit matter How our audit addressed the key
audit matter
Valuation of the investment in Thinxtra Limited
Rakon holds ordinary shares in Thinxtra Limited
(“Thinxtra”), which is a level three investment
accounted for at fair value through Other
Comprehensive Income.
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 valuation techniques with
different assigned probabilities based on the
available information and Directors’ judgement,
as disclosed in note 17.
The Directors also considered sensitivity of the
key inputs in the valuation methodology 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 17.
We performed the following audit procedures:
● Obtained an understanding of the valuation
methodology developed by the Directors and
the key assumptions they applied in
determining the fair value of the investment
in Thinxtra as at 31 March 2020;
● Agreed the key inputs in the valuation model
to unaudited information obtained by
management from Thinxtra;
● 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 and the history of not meeting
budgeted results. Accordingly, this required
us to take a different valuation approach
based wholly on using the observable inputs
from the recent capital raise;
● Engaged our valuation expert to assist in the
valuation of the investment as at 31 March
2020. Our expert concluded that the share
price achieved in the recent capital raise
provided the best evidence of the fair value
at 31 March 2020. Using this price results in
a lower fair value than determined by the
Directors, consistent with the fair value
disclosed in alternate case B sensitivity in
note 17. The difference between the
Directors’ assessment of fair value and our
valuation, was reported to the Directors who
determined that this judgemental difference
was not material in the context of the
financial statements. This difference was
below our overall Group materiality; and
● Assessed the adequacy of disclosures in the
financial statements to ensure that this is
compliant with the requirements of NZ
IFRS.
PwC 49
Our audit approach
Overview
An audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement.
Overall Group materiality: $1,189,800, which represents approximately 1%
of revenue.
In our judgement, revenue provides a more stable measure for establishing
our materiality benchmark and best reflects performance of the Group.
We have determined that there are four key audit matters:
● Impairment risk for non-financial assets
● Valuation of research and development costs associated with the
development of new products
● Compliance with banking facilities
● Valuation of 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 limited review procedures were conducted for India. Together these
represent 100% of external revenue. We conducted specific audit procedures over certain financial
statement line items for the UK subsidiary. Limited review procedures were conducted for the
investment in Timemaker.
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.
PwC 50
In connection with our audit of the financial statements, if other information is included in the annual
report, 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 received
a draft of the annual report and based on the draft we have read, we have nothing to report. We will
read the final version of the annual report when it is made available to us.
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.
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
29 June 2020
Auckland
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.