Rakon FY2021 Results Announcement
Results announcement
Results for announcement to the market
Name of issuer Rakon Limited (RAK)
Reporting Period 12 months to 31 March 2021
Previous Reporting Period 12 months to 31 March 2020
Currency New Zealand Dollar
Amount (000s) Percentage change
Revenue from continuing
operations
$128,260 8%
Total Revenue $128,260 8%
Net profit/(loss) from
continuing operations
$9,638 142%
Total net profit/(loss) $9,638 142%
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
$0.42 $0.36
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Please refer to the Commentary 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 +64 (0)9 571 9225
Contact email address anand.rambhai@rakon.com
Date of release through MAP
27/05/2021
Audited financial statements accompany this announcement.
---
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
© 2019 Rakon Limited. All Rights Reserved. Unauthorised use or publication is expressly prohibited.
27 May 2021
5G momentum drives Rakon’s growth
Revenue $128.3 million, 8% higher than FY2020
Underlying EBITDA
1
$23.5 million, 59% higher than FY2020
Net profit after tax $9.6 million, 142% higher than FY2020
Rapid response and ongoing adaption through worldwide Covid-19 disruptions
Sustained growth in Telecommunications revenue, driven by increased 5G momentum
Market opportunities captured through agility and strong supply chain relationships
FY2022 guidance confirmed of Underlying EBITDA range of $27-32 million
All amounts are in New Zealand Dollars
Rakon (NZX.RAK) today announced strong improvements in revenue and earnings for the year to 31 March 2021,
as sustained demand from the global telecommunications sector for its industry-leading frequency control and
timing solutions helped to offset the significant disruptions of the Covid-19 pandemic.
Revenue for the year to 31 March 2021 rose 8% to $128.3 million from $119.0 million a year earlier. Gross margin
improvements and careful cost management drove a 59% increase in underlying EBITDA to $23.5 million (2020:
$14.8m), ahead of the company’s guidance of $20-22 million. Net profit after tax rose 142% to $9.6 million from
$4.0 million in the same period a year ago.
Rakon Chair Bruce Irvine said the company’s FY2021 performance was a testament to the capability, resilience
and commitment of Rakon’s global team, and the agility and responsiveness of the business.
“It has been a particularly challenging year. Rakon’s strong performance through these challenges reflects the
sustained demand for its industry-leading products and builds on the solid operating improvements made in
recent years.”
Managing Director Brent Robinson said: “This result has been achieved despite the considerable disruptions of
the Covid-19 pandemic, and it demonstrates our position as the supplier of choice in high-reliability connectivity
solutions. We have captured market growth opportunities in Telecommunications, Datacentres and NewSpace,
as well as responding to an unexpected and substantial opportunity that arose from global chip shortages
resulting from the factory fire at Asahi Kasei Microdevices (AKM) in Japan in October 2020.
“Rakon has played to its strengths, responded to market challenges and opportunities, and
scaled appropriately
to meet demand and grow the business.”
1
Refer to Note 5 of the FY2021 audited consolidated financial statements for an explanation of how ‘Non-GAAP Financial Information’ is
used, including a definition of ‘Underlying EBITDA’ and reconciliation to net profit after tax
Page 2 of 3 w w w . r a k o n . c o m
Market segment performance
Revenue from the Telecommunications segment was $77 million, up 18% from FY2020. There was increased
demand for Rakon’s 5G products, including solutions based on its Mercury +
TM
chip, as network operators
advanced the deployment of new 5G networks and enhanced existing networks.
A move by major telecommunications infrastructure providers to design Rakon’s proprietary 5G millimetre wave
technologies into their networks to enable wireless 5G high-speed broadband, represents a major achievement
in the second half of the year. These design wins give Rakon confidence that demand for its 5G
telecommunications technologies will continue to accelerate in line with increasing global expectations for
highly reliable, high-speed communications and data transfer.
Revenue from the Space and Defence segment was $30 million, up 7% from FY2020. The increase was primarily
due to growth in Rakon’s French and Indian space businesses. Initial deliveries were made for a major low-orbit
satellite constellation and the company was also delighted to celebrate Rakon-designed and manufactured
products being on board NASA’s Mars Perseverance Rover during its successful mission to Mars. A strong order
book for Space and Defence is expected to deliver continued growth over the next year.
Revenue from the Positioning segment was $14 million, down by $4.9 million from FY2020. Revenue was lower
from the aeronautical and emergency beacon markets as global travel was suppressed, and from the anticipated
decline in low-margin commoditised products. Steady growth was achieved in the higher-margin, precision
industrial applications used in autonomous agriculture and mining equipment.
Solid revenue growth is expected in the Positioning segment over the next year, with significant orders received
for TCXO products (a key component in a range of applications including customer devices) due to global
shortages. Additionally, demand in the aeronautical and beacon sub-segments is expected to recover as local
and global travel resumes, and further growth in autonomous equipment is anticipated in line with the
increasing standardisation of automation.
Covid-19 response
The initial impact of Covid-19 was severe, affecting all Rakon’s global operations. Manufacturing at plants in New
Zealand and India was heavily constrained during the first quarter. Prompt mitigation actions were taken,
including health and safety measures and cost reductions to protect Rakon’s people and the business.
Mr Robinson said the company had worked hard over the year to ensure continuity of its operations through
ongoing disruptions.
“We have continued to adapt to the conditions of each country and to ensure the ongoing safety of our people.
Most recently, the outbreak in India has impacted Rakon India’s manufacturing operation, where unfortunately
a small number of our 500 employees in Bengaluru have contracted the virus through community transmission,
and sadly, there has been one death of a long-serving employee.”
New product development
New product designs were rapidly deployed during the year to capture significant opportunities stemming from
the world-wide chip shortages. The company was also pleased to advance the adoption of its new, leading-edge
XMEMS
TM
technology with strategic design-in wins with key Tier 1 customers. XMEMS
TM
is Rakon’s next
generation manufacturing process which enables a new suite of smaller, higher-performing, technologically
advanced products.
Mr Robinson said Rakon’s global manufacturing platform and industry-wide networks and relationships enabled
the company to navigate considerable supply chain disruptions to fulfil increased demand. “New equipment has
been built and software enhanced to increase manufacturing capacity for new products. This has established a
solid platform for delivery in FY2022.”
Page 3 of 3 w w w . r a k o n . c o m
Balance sheet
The strong cash flows generated through the year strengthened the company’s balance sheet, resulting in a net
cash position of $5.0 million by the end of FY2021 compared to a net debt
2
position of $7.9 million at the same
point in 2020.
Rakon maintains a dividend policy that it will pay a dividend of up to 50% of the after tax profit if considered
fiscally prudent.
Mr Robinson said the company would continue to maintain a conservative balance sheet as it manages ongoing
uncertainties and risks, and looks to consolidate its improved performance and reserves in FY2022.
Accordingly, Directors have determined not to declare a dividend for the period to 31 March 2021.
Outlook
Looking ahead, the company expects solid revenue growth in FY2022, driven by significant orders stemming
from current global TCXO shortages and continued expansion in the 5G, datacentre and NewSpace segments.
Rakon also has funding lines in place to support future growth opportunities and as a buffer for adverse events.
Mr Robinson said the uplift due to the global TCXO shortages is expected to be sustained with deliveries
scheduled through FY2022 and FY2023. “Supply is anticipated to normalise beyond that period, however Rakon
is confident it will retain a good share of this market as customers diversify their supplier base for continuity of
supply.”
Rakon confirms its Underlying EBITDA guidance range of $27-32 million for the year to 31 March 2022.
-Ends-
Contact:
Brent Robinson Anand Rambhai
Managing Director Chief Financial Officer
+64 9 571 9201 +64 9 571 9225
About Rakon
Rakon is a world leader in the design and manufacture of advanced frequency control and timing solutions. It
plays a critical role in enabling the networks and applications that bring together a wirelessly connected world,
and its products are found at the forefront of communications where speed and reliability are paramount. Over
more than 50 years, Rakon has built long standing relationships with customers and industry partners in the
Telecommunications, Global Positioning, Space and Defence sectors and is a supplier of choice in these sectors.
The company has manufacturing plants in New Zealand, France and India; six research and development centres
and sixteen customer support offices worldwide. Founded in Auckland in 1967, Rakon is proud of its New
Zealand heritage. It is a public company, listed on the New Zealand stock exchange, NZX, ticker code RAK.
www.rakon.com
2
Excluding NZ IFRS 16
---
Rakon Limited
Financial Statements
2021
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 ................................................................................................................... 39
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 2021
(FY2021) 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 – 38, of Rakon Limited and subsidiaries for the year ended 31 March 2021.
The Board of Directors of Rakon Limited authorised these financial statements for issue on 27 May 2021.
On behalf of the Directors
___________________________ _______________________________
BR Irvine BJ Robinson
Chair CEO, Managing Director
4
Statement of Comprehensive Income
For the year ended 31 March 2021
The accompanying notes form an integral part of these financial statements.
20212020
Note $000s$000s
Continuing operations
Revenue6
128,260118,980
Cost of sales(69,344)(66,947)
Gross profit58,91652,033
Other operating income82,60428
Operating expenses
Selling and marketing
(9,441)(9,585)
Research and development7
(13,644)(12,842)
General and administration(25,936)(25,654)
Total operating expenses(49,021)(48,081)
Other (losses)/gains – net9(1,181)(438)
Operating profit
11,3183,542
Finance income10298
Finance costs10(1,628)(1,063)
Share of net profits of associates171,446797
Profit before income tax11,1653,284
Income tax (expense)/ credit22(1,527)696
Net profit after tax for the year attributable to equity holders of the Company9,6383,980
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
D
ecrease in fair value cash flow hedges
9,906(7,247)
Cost of hedging (105)570
Exchange differences on translation of foreign operations(4,826)4,140
Income tax relating to components of other comprehensive income
(2,745)2,029
Items that will not be reclassified subsequently to profit or loss
Changes in fair value of equity investments – Thinxtra203(1,632)
Other comprehensive income for the year, net of tax 2,433(2,140)
Total comprehensive income for the year attributable to equity holders of the Company12,0711,840
Earnings per share attributable to the equity holders of the CompanyCentsCents
Basic earnings per share244
.2 1.8
Diluted earnings per share244.2 1.8
5
Statement of Changes in Equity
For the year ended 31 March 2021
The accompanying notes form an integral part of these financial statements.
Share c apital
Retained
earnings
Other reservesTotal equity
Note$000s$000s$000s$000s
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
25 - - 4
,140 4,140
Cash flow hedges, net of tax
25 - - (
4,648) (4,648)
Changes in fair value of equity investments at fair value
through other comprehensive income – Thinxtra
25 - - (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
Net profit after tax for the year
- 9
,638 - 9,638
Currency translation differences25
- - (4,826) (4,826)
Cash flow hedges, net of tax
25 - - 7
,056 7,056
Changes in fair value of equity investments at fair value
through other comprehensive income – Thinxtra
25 - - 203 203
Total comprehensive income for the year
- 9
,638 2,433 12,071
Balance at 31 March 2021
181,024 (
56,237) (20,860) 103,927
6
Balance Sheet
As at 31 March 2021
The accompanying notes form an integral part of these financial statements.
20212020
Note
$000s$000s
Asse ts
Curre nt asse ts
Cash and cash equivalents11
15,0735,086
Trade and other receivables1238,90642,379
Inventories1337,69937,624
Derivative financial instruments 26
2,52127
Financial asset at fair value through profit or loss263332
Current income tax asset478889
Total current assets95,01086,007
Non-current assets
Property, plant and equipment14
18,29618,924
Intangible assets157,5849,003
Right-of-use assets167,1959,730
Interest in associates1712,33311,714
Trade and other receivables123,8432,702
Financial asset at fair value through other comprehensive income – Thinxtra183,1202,918
Derivative financial instruments 26587-
Deferred tax asset226,3989,246
Total non-current assets59,35664,237
Total asse ts154,366150,244
Liabilities
Current liabilities
Bank overdraft19
3,59912,848
Borrowings196,433145
Trade and other payables20
26,02622,252
Lease liabilities16
2,2722,741
Deferred income122,8062,000
Provisions21330714
Derivative financial instruments26295,040
Total current liabilities
41,49545,740
Non-current liabilities
Provisions21
3,1342,918
Lease liabilities165,4186,704
Derivative financial instruments 262602,840
Deferred tax liabilities22132186
Total non-current liabilities8,94412,648
Total liabilities
50,43958,388
Ne t asse ts103,92791,856
Equity
Share capital23
181,024181,024
Other reserves25(20,860)(23,293)
Accumulated losses(56,237)(65,875)
Total equity103,92791,856
7
Statement of Cash Flows
For the year ended 31 March 2021
The accompanying notes form an integral part of these financial statements.
20212020
Note$000s$
000s
Operating activities
Cash provided from
R
eceipts from customers123,876116,396
Advance from customers2,806-
R&D grants received1,8121,557
Covid-19 government assistance2,517-
Interest received2336
131,034117,989
Cash was applied to
Payment to suppliers and others(59,087)(58,364)
Payment to employees(50,060)(48,860)
Interest paid(534)(918)
Income tax paid(1,294)(446)
(110,975)(108,588)
Net cash inflow from operating activities20,0599,401
Investing activities
Cash was provided from
Sale of property, plant and equipment-44
-44
Cash was applied to
Purchase of property, plant and equipment(4,194)(3,753)
Purchase of intangibles(882)(774)
Purchase of shares in Centum Rakon India Private Limited-(2,148)
(5,076)(6,675)
Net cash outflow from investing activities(5,076)(6,631)
Financing activities
Cash was provided from
Proceeds from borrowings6,450-
6,450-
Cash was applied to
Lease liabilities payments(2,962)(3,078)
Cash was applied to financing activities(2,962)(3,078)
Net cash inflow from financing activities3,488(3,078)
Net increase/(decrease) in cash and cash equivalents18,471(308)
Effects of exchange rate changes on cash and cash equivalents765(672)
Cash and cash equivalents at the beginning of the year(7,762)(6,782)
Cash and cash equivalents at the end of the period11,474(7,762)
Composition of cash and cash equivalents
Cash and cash equivalents1115,0735,086
Bank overdraft19(3,599)(12,848)
Total cash and cash equivalents11,474(7,762)
8
Statement of Cash Flows (continued)
For the year ended 31 March 2021
The accompanying notes form an integral part of these financial statements.
20212020
$000s$000s
Reconciliation of net profit to net cash flows from operating activities
Reported net profit after tax9
,6383,980
Adjustments for
Depreciation and amortisation expense8,6928,823
Net increase in allowance for expected credit loss734
Interest expenses17164
Provisions provided(338)415
Movement in foreign currency(961)1,608
Share of net profits of associate(1,446)(797)
Deferred tax movement(67)(919)
5,9709,298
Change in operating assets and liabilities
Decrease/ (increase) in trade and other receivables1,498(4,594)
(Increase)/decrease in inventories(1,870)3,020
(Decrease)/increase in provisions(168)171
Increase/(decrease) in trade and other payables4,528(2,146)
Decrease/(increase) in tax provisions463(328)
Total impact of changes in working capital items4,451(3,877)
Net cash flow from operating activities20,0599
,401
9
Notes to the Financial Statements
1. General information ...................................................................................................................... 10
2. Impact of Covid-19 ......................................................................................................................... 10
3. Going concern ................................................................................................................................ 10
4. Statement of significant accounting policies ................................................................................. 10
5. Segment information ..................................................................................................................... 11
6. Revenue ......................................................................................................................................... 13
7. Expenditure included in net profit ................................................................................................. 14
8. Other operating income ................................................................................................................ 16
9. Other (losses)/gains – net .............................................................................................................. 16
10. Net finance (costs)/income ........................................................................................................... 16
11. Cash and cash equivalents ............................................................................................................. 17
12. Trade and other receivables .......................................................................................................... 17
13. Inventories ..................................................................................................................................... 18
14. Property, plant and equipment ..................................................................................................... 19
15. Intangible assets ............................................................................................................................ 20
16. Leases............................................................................................................................................. 22
17. Interest in associate ....................................................................................................................... 24
18. Financial asset at fair value through other comprehensive income – Thinxtra ............................ 25
19. Borrowings ..................................................................................................................................... 26
20. Trade and other payables .............................................................................................................. 28
21. Provisions ....................................................................................................................................... 28
22. Taxation ......................................................................................................................................... 29
23. Share capital .................................................................................................................................. 30
24. Earnings per share ......................................................................................................................... 31
25. Other reserves ............................................................................................................................... 31
26. Financial risk and capital management ......................................................................................... 32
27. Commitments ................................................................................................................................ 36
28. Principal subsidiaries ..................................................................................................................... 37
29. Related party transactions ............................................................................................................. 37
30. Share based payments ................................................................................................................... 38
31. Contingencies ................................................................................................................................ 38
32. Subsequent events ........................................................................................................................ 38
Notes to the Financial Statements (continued)
10
General information
Rakon Limited (‘the Company’) and its subsidiaries (‘the Group’) are a global technology company that design and manufacture advanced frequency
control and timing solutions for a wide range of applications. Rakon’s core markets are Telecommunications, Space & Defence, and Global
Positioning. The Company is a limited liability company, incorporated and domiciled in New Zealand, and listed on the New Zealand Stock Exchange
(NZX code: RAK). The address of the registered office is 8 Sylvia Park Road, Mt Wellington, Auckland.
The financial statements of the Group have been presented in New Zealand dollars and have been rounded to the nearest thousand unless
otherwise indicated.
Impact of Covid-19
At the start of the 2021 financial year the impact of Covid-19 on the Group was initially severe with the New Zealand, French and Indian operations
curtailed due to government-imposed restrictions. After the initial period of restrictions, the operations were able to return to normal capacity with
additional operating procedures in place. Demand from the telecommunications infrastructure segment continued at high levels as the need for
reliable remote communications and higher network capacities became evident.
There remains a heightened level of uncertainty given the continued presence of Covid-19. The risks and uncertainties faced by the Group relate to
(and are not limited to):
• The impact of wider global economic pressures and shift in market dynamics
• A potential outbreak at one of the Group’s production facilities, significantly affecting site access, production and sales
• Supply chain disruptions
However, the management continuously monitors these risks and plans accordingly to reduce the impact of these on the Group.
Going concern
These financial statements have been prepared on a going concern basis. The Directors are not aware of material uncertainties related to events
or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. In making this assessment management and
the Directors considered factors including the current profitability of the Group, the potential future impact of Covid-19, and the availability of short
term funding, refer note 32.
Statement of significant accounting policies
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.
The consolidated financial statements of the Group 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 certain financial assets and liabilities, and equity
instruments, which are measured at fair value.
The operating expenses previously disclosed in the notes to the financial statements have been re -presented in the Statement of Comprehensive
Income to ensure consistency with the current year disclosures and to provide more meaningful comparison.
Basis of consolidation and equity accounting
The financial statements of the subsidiaries are included in the Group’s financial statements from the date on which control commences until the
date on which control ceases, refer note 28 or 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 by using
the equity method, refer note 17.
Significant accounting estimates and judgements
The preparation of the 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 the financial statements are listed below and disclosed within the specified
notes:
• Calculation of inventory obsolescence (note 13)
• Valuation and estimated useful lives of product development assets (note 15)
Notes to the Financial Statements (continued)
11
• Valuation of the Group’s investment in Thinxtra (note 18)
• Identification of reportable segment
Impairment of assets, calculations of right-of-use of assets and lease liabilities, estimation of year-end income tax and deferred tax, and estimation
of contingent liabilities are no longer considered to be significant accounting estimates and judgement given the impact of these on the current
financial result.
Significant accounting policies and new accounting standards
The significant accounting policies adopted in the preparation of these consolidated financial statements are disclosed within each of the applicable
notes to the financial statements. The accounting policies have been consistently applied to all years presented with exception of the following new
accounting standards.
Covid-19 Related Rent Concessions – Amendment to NZ IFRS 16 Leases
In June 2020, the New Zealand Accounting Standards Board provided a practical expedient to NZ IFRS 16 Leases. The expedient allows optional
relief from applying NZ IFRS 16’s guidance on lease modification accounting for rent concessions that occur as a direct consequence of the Covid-
19 pandemic and meet specified conditions. The Group has elected to adopt the expedient for all rent concessions that meet the conditions of NZ
IFRS 16 Leases.
The Group recorded $83,000 relating to rent concessions in the Statement of Comprehensive Income for which practical expedient applied.
New standards and interpretations not yet adopted
There are no new accounting standards issued that would have material impact on the Group.
Foreign currency translation
Functional and presentation currency
The financial statements of each of the Group’s overseas operations are measured using the currency of the primary economic environment in
which the overseas entity operates (the functional currency). The consolidated financial statements are presented in New Zealand dollars, (the
presentation currency), which is also the functional currency of the Company.
Transactions and balances
Foreign currency transactions are translated into the relevant functional currency of the Group’s overseas operations at the exchange rates at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at balance date are translated to the functional currency
at the foreign exchange rate at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive
Income, except for qualifying cash flow hedges which are recognised in other comprehensive income (OCI). 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 that have a functional currency that differs from the Group’s presentation currency, including
goodwill and fair value adjustments arising on consolidation, are translated to New Zealand dollars at foreign exchange rates at 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 25.
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.
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 determination of reportable segments
is a significant judgement. The chief decision maker uses a number of reports to make informed decisions on resource allocation. These include
elements of and/or combination of: business unit reporting; geographical segment reporting; product profitability reporting; and customer
profitability reporting.
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 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.
Except for Underlying EBITDA, other information provided to the chief operating decision maker is measured in a manner consistent with GAAP.
This measure should not be viewed in isolation, nor considered as a substitute for measures reported in accordance with NZ IFRS. This non-
GAAP financial measure may not be comparable to similarly titled amounts reported by other companies.
Notes to the Financial Statements (continued)
12
Segment results
Information relating to each reportable segment is set out below. S egment revenue information is disclosed in note 6.
1
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.
2
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.
Segment description and principal activities
The New Zealand ( NZ) operations manufactures products for Telecommunications, Global Positioning and Space & Defence markets. The facility
also contains a highly experienced design team and continues to develop products and process innovations used in other operations.
Rakon's Harlow design centre (UK) provides support to the Group with precision research and development (R&D) and design for high end products.
France designs high precision and high reliability frequency solutions for Telecommunications, Space & Defence applications. The
telecommunications products are manufactured in India and the space & defence solutions manufactured in France.
Rakon’s India facility in Bengaluru is engaged in the contract manufacturing of telecommunications products that are sold by Rakon France (France-
Telco) and the design and manufacturing of high performance frequency control products for the local Indian, defence, aeronautics and space
markets.
The Timemaker Group (China T’maker) produces crystal blanks and represents the Group’s 40% ownership interest, refer note 17.
Other - Includes investments in subsidiaries, Rakon Financial Services Limited, Rakon UK Holdings Limited, and Rakon Investment HK Limited.
Reconciliation of Underlying EBITDA to net profit after tax for the year
NZUKFranc eIndia
China –
T' make r
Othe rTotal
$000s$000s$000s$000s$000s$000s$000s
Underlying EBITDA15,8622,099(4,260)6,2913,28920323,484
Total assets
1
81,4882,88634,10321,52812,3332,028154,366
Interest in associate----12,333-12,333
Additions of property, plant and equipment,
and intangibles
4,02778470501--5,076
Total liabilities
2
24,8281,50318,5184,540-1,05050,439
NZUKFranc eIndia
China –
T' make r
Othe rTotal
$000s$000s$000s$000s$000s$000s$000s
Underlying EBITDA9,6341,813(1,690)3,1692,214(353)14,787
Total assets
1
71,0213,13036,36425,34111,7142,674150,244
Interest in associate----11,714-11,714
Additions of property, plant and equipment,
and intangibles
2,587480635920--4,622
Total liabilities
2
36,1311,38512,4267,544-90258,388
31 March 2021
31 March 2020
20212020
Continuing operationsNote $000s$000s
Underlying EBITDA23,48414,787
Depreciation and amortisation7(8,692)(8,823)
Finance costs – net10(1,599)(1,055)
Adjustment for associate share of interest, tax and depreciation(1,848)(1,447)
Other non-cash items(180)(178)
Profit before income tax11,1653,284
Income tax (expense)/ credit22
(1,527)696
Net profit after tax for the year9,6383,980
Notes to the Financial Statements (continued)
13
Revenue
The Group designs, manufactures and sells frequency control solutions for a wide range of applications. R evenue is derived from the transfer of
goods over time and at a point in time. Arrangements are agreed with the customers, set out in the terms and conditions which cover, the pricing,
settlement of liabilities, return policies and any other negotiated performance obligations.
Sale of goods – at a point in time
The Group 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 product is passed to the customer.
This is usually on terms of delivery of the product. The transaction price includes all amounts that the Group expects to be entitled to, net of any
sales taxes.
A receivable is recognised based on the delivery terms of the products as this is the point in time when the consideration is unconditional.
Products and services transferred over time – space & defence segment in France
The Group has contracts in the Space & 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 method 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.
In case of fixed price contracts, payments are received from the customer based on an agreed payment schedule. A contract liability is recognised
when the payments exceed estimated work completed, and contract asset when estimated work completed exceeds payments.
R evenue by segment
Group revenue analysis
Market segment
The Group’s products are used in the Telecommunications, Global Positioning, and Space & Defence markets.
NZFranc eI
ndiaOthe rTotal
FY2021
$000s$000s$000s$000s$000s
Sales to external customers76,05649,0913,113-128,260
Inter-segment sales4191629,882(112)30,205
Segment revenue76,47549,10732,995(112)158,465
Products transferred at a point in time76,05645,6483,113-124,817
Products and services transferred over time-3
,443--3,443
Sales to external customers76,05649,0913,113-128,260
NZFranc eIndiaOthe rTotal
FY2020$000s$000s$000s$000s$000s
Sales to external customers70,3824
5,7642,834-118,980
Inter-segment sales499-21,923(117)22,305
Segment revenue70,88145,76424,757(117)141,285
Products transferred at a point in time70,38242,8162,834-116,032
Products and services transferred over time-2,948--2,948
Sales to external customers70,38245,7642,834-118,980
20212020
$000s$000s
Telecommunications77,10365,167
Global Positioning13,97418,915
Space and Defence30,20328,230
Othe r6,9806,668
Total revenue by market segment128,260118,980
Notes to the Financial Statements (continued)
14
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.
Assets and liabilities related to contract customers
Customer contracts liabilities are payments received in advance for subsequent delivery of services and goods to the customers. $392,000
recognised as customer contract liabilities in the prior year, was recognised as revenue in the year ended 31 March 2021. The remaining
performance obligations at 31 March 2021 have an expected duration of less than a year.
The performance obligation of the products and services transferred over time which were in progress at 31 March 2020 were completed during
the year. T he remaining performance obligations at 31 March 2021 have an expected duration of less than a year.
Expenditure included in net profit
Additional information in respect of expenses included in the Statement of Comprehensive Income is as follows.
Breakdown of significant expenses by nature
2021 2020
$000s $000s
20212020
$000s$000s
As i a69,95060,474
North America29,03526,959
Europe26,97029,073
Othe rs2,3052,474
Total revenue by geographical segment128,260118,980
20212020
$000s$000s
Total current contract assets3,051950
Total current contract liabilities(1,573)(392)
1,478558
20212020
$000s$000s
Employee benefit expenses
Wages and salaries46,29245,253
One-off redundancy costs1,092-
Contributions to defined plans6716
66
Increase in liability for French retirement indemnity plan (note 21)2002
20
Increase in liability for long service leave (note 21)1501
79
Total employee benefit expenses
48,40546,318
Depreciation on property, plant and equipment (note 14)3,9523,925
Amortisation on intangible assets (note 15)2,0642,200
Depreciation on right-of-use assets (note 16)2,6762,698
Total depreciation and amortisation8,6928,823
Research and development
Research and development expenses
16,01214,999
Research and development government grant(939)(961)
Research and development tax credit(1,429)(1,196)
Net research and development expense13,64412,842
Notes to the Financial Statements (continued)
15
Fees to the auditors
Audit and review of financial statements
PwC 577 596
BDO Limited (Hong Kong)
1
11 16
T S Tay Public Accounting Corporation ( Singapore)
1
9 9
Morison (Mauritius)
1
4 5
MHA MacIntyre Hundson (UK)
1
35 -
Total audit and review fees 636 626
Assurance and audit related services
Performed by PwC France
Certification of expenditure for the purposes of the European Union subsidy for community projects 8 -
Certification of expenditure on R&D activities - 5
Total assurance and audit related services 8 5
Other services
Performed by PwC New Zealand
Other services
2
14 26
Performed by PwC India
Research and development expenses review - 2
Total other services fees 14 28
Total fees paid to auditors 658 659
1
The fee relates to the annual audit of the local territory financial statements.
2
Other assurance services comprised provision of treasury related financial markets risk analysis and commentary, and market data relating to
executive remuneration. The treasury related service was terminated effective 31 December 2020.
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. Where 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 contributions
are recognised as an employee benefit expense when they are due.
Redundancy
Part of the Group’s strategic plan involves a realignment of global resources and resulted in redundancies in some business units and the creation
of new positions in others. Once the strategy is fully implemented, the net change in staff is not expected to be significant.
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.
Grants and tax credits from governments are recognised at their fair value. The research and development grants and tax credits are recognised in
trade and other receivables (note 12), and in the Statement of Comprehensive Income. Government grants are offset against the related expenses
over the periods in which those costs are recognised.
Notes to the Financial Statements (continued)
16
Other operating income
1
Eligible New Zealand wage subsidy, the UK Government funded furlough, and French Government assistance.
Other (losses)/gains – net
1
Includes realised and unrealised (losses)/gains arising from accounts receivable and accounts payable.
Net finance (costs)/income
Interest income and costs are recognised in the Statement of Comprehensive Income as it accrues, using the effective interest rate applicable.
Overdraft interest rate
The average interest rate was as follows. Additional information on borrowings is presented in note 19.
• ASB facility in New Zealand 5.33% (2020: 6. 53%)
• State Bank of India facility 9. 15% (2020: 10.55%)
• Crédit Agricole Provence Côte D’Azur facility in France 0.25% (2020: nil)
20212020
$000s$000s
Other income26028
Covid-19 government assistance
1
2,344-
Total other operating income2,60428
2021
2020
$000s
$000s
(Loss)/gain on disposal of property, plant and equipment, and intangible assets(24)33
Foreign exchange (losses)/gains – net
Forward foreign exchange contracts
Financial asset at fair value through profit or loss
304(29)
Revaluation of foreign denominated monetary assets and liabilities
1
(1,461)(442)
Total foreign exchange (losses) – net(1,157)(471)
Total other (losses) – net(1,181)(438)
20212020
$000s$000s
Finance income
Interest income298
Finance costs
Interest expense on bank borrowings(534)(899)
Interest on deferred consideration on acquisition – Rakon India
-(53)
Unwinding of lease make good provision(17)(16)
Interest on lease liabilities (note 16) (1,077)(95)
Total financ e c osts(1,628)(1,063)
Net finance costs(1,599)(1,055)
Notes to the Financial Statements (continued)
17
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.
Trade and other receivables
Trade and other receivables are recognised initially at the amount of consideration that is unconditional and subsequently measured at amortised
cost using the effective interest method, less provision for impairment.
Trade and other receivables balances
1
Other receivables includes research and development related tax credits and government grants. In 2020, this also included the Covid-19
government wage subsidies ($2.0m) with a corresponding deferred income also recorded. The wage subsidy was received in the current year and
recorded in the Statement of Comprehensive Income, refer note 8.
Trade receivables are customers which are considered of 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.
During the year an advance of US$2.0m was received from a customer for future supply of products. A corresponding deferred income was
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 $8,700,000 (2020: $6, 700,000) representing 28.0% (2020: 19.7%) 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.
A llowance 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 the 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.
20212020
$000s$000s
Cash at bank and on hand15,0735,086
Cash, cash equivalents and bank overdrafts include the following for the purposes of the Statement of Cash
Flows
Cash and cash equivalents15,0735,086
Bank overdrafts (note 19)(3,599)(12,848)
11,474(7,762)
2021
2020
$000s
$000s
Trade receivables31,37835,083
Less: allowance for expected credit loss(690)(763)
Net trade receivables30,68834,320
Prepayments953987
GST/VAT re ce i va bl e1,0851,406
Receivables from related parties (note 29)
266201
Other receivables
1
9,7578,167
Total trade and other receivables42,74945,081
Less non-current other receivables
1
3,8432,702
Current trade and other receivables38,90642,379
Notes to the Financial Statements (continued)
18
The loss allowance was determined as follows.
The reconciliation of the loss allowance is as follows.
Trade receivables are written-off where all reasonable effort to collect the overdue have been exhausted. Indicators that there is no expectation of
recovery include failure of an overdue debtor to engage in an agreed repayment plan.
Inventories
Inventories are stated at the lower of cost (weighted average cost for raw materials, and standard costs for finished goods) or net realisable value.
Standard 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 $7,970,000 (2020: $8, 713,000) is included in the inventory balances above. The carrying value of inventory
items were reviewed in detail with adjustments to provisions made on an item-by-item basis.
Significant judgements made in determining the provision include:
• Forecast revenue and likely 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 $2,466,000 (2020: $1,437,000) was scrapped.
Current
Le ss 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 2021
Gross carrying amount of trade receivables 25,9473,4281,50050331,378
Expected loss rate 1.0%2.3%16.9%20.0%
Allowance for the expected credit loss25779253101690
As at 31 March 2020
Gross carrying amount of trade receivables 29,2724,3381,13433935,083
Expected loss rate 1.3%2.6%16.9%20.0%
Allowance for the expected credit loss39011319268763
20212020
$000s$000s
Opening balance763
816
Increase in allowance recognised in profit or loss during the year2204
Receivables written off during the year(247)-
Unused amount reversed-(77)
Foreign exchange difference(46)20
Allowance for expected credit loss as at 31 March 2021690763
20212020
$000s$000s
Raw materials12,48713,042
Work in progress17,96019,016
Finished goods7,2525,566
Total inventories37,69937,624
Notes to the Financial Statements (continued)
19
Property, plant and equipment
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.
Land and
buildings
Leasehold
improvements
Plant and
equipment
Computer
hardware
Othe r
Asse ts unde r
constructionTotal
$000s$000s$000s
$000s
$000s$000s
$000s
At 31 March 2019
Cost
4,8838,479
86,6015,7512,5964,270112,580
Accumulated depreciation &
impairment
(4,358)(6,204)(75,595)(4,926)(2,077)(26)(93,186)
Net book value
5252,27511,006825
519
4,24419,394
Year ended 31 March 2020
Opening net book value 525
2,275
11,006825519
4,24419,394
Foreign exchange differences
141
139288
343722661
Additions101371,985
321
31
1,3043,788
Disposals-
-(82)
(146)(10)
(49)
(287)
Depreciation charge(57)
(463)(2,992)(346)
(67)-
(3,925)
Depreciation reversal on disposals--711461-218
Transfers811
43617
29
-
(1,500)-
Transfers to intangible assets-
-
---(925)(925)
Closing net book amounts
1,4302,13110,893
8635113,09618,924
At 31 March 2020
Cost 5,845
8,79889,409
5,9892,6543,122115,817
Accumulated depreciation &
impairment
(4,415)(6,667)
(78,516)(5,126)
(2,143)(26)(96,893)
Net book value1,430
2,13110,8938635113,096
18,924
Year ended 31 March 2021
Opening net book value 1,4302,13110,893
8635113,096
18,924
Foreign exchange differences
(126)(145)(497)(30)(38)
(31)(867)
Additions7322,768570
417764,194
Disposals--(123)
(600)(12)-(735)
Depreciation charge(68)(386)
(3,012)(429)(57)-
(3,952)
Depreciation reversal on disposals--12259812-
732
Transfers-
-2,08928-(2,117)-
Closing net book amounts1,243
1,63212,2401,000457
1,72418,296
At 31 March 2021
Cost 5,7268,685
93,646
5,957
2,6451,750118,409
Accumulated depreciation &
impairment
(4,483)(7,053)(81,406)(4,957)(2,188)(26)(100,113)
Net book value1,2431,63212,2401,0004571,724
18,296
Notes to the Financial Statements (continued)
20
D epreciation 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.
The assets’ residual values and useful lives are reviewed, and adjusted if applicable 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.
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.
C ost
Identifiable intangible assets that are acquired or developed 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.
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
GoodwillPatentsSoftware
Product
development
Asse ts
under
construction
Total
At 31 March 2019
$000s$000s$000s$000s$000s$000s
Cost
3,1402,9448,76913,83260029,285
Accumulated amortisation & impairment(1,846)(2,442)(8,478)(7,370)-(20,136)
Net book value
1,2945022916,4626009,149
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 3,1402,9779,47014,81592631,328
Accumulated amortisation & impairment(1,846)(2,442)(8,868)(9,169)-(22,325)
Net book value1,2945356025,6469269,003
Notes to the Financial Statements (continued)
21
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 based on significant judgement 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 when incurred.
Total capitalised development costs are $5. 0m (2020: $6. 1m) at balance date, 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. 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 significant 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.
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 and represents the excess of the acquisition cost over the fair value
of the acquired net assets. Goodwill is allocated to cash-generating units (CGU) and is, tested annually for impairment, or more frequently if there
is an impairment indicator. The business units are determined to be the CGUs of the Group.
The current balance of goodwill was generated on 2 May 2018, when the Group acquired the remaining 51% of the issued shares it did not own in
Centum Rakon India Private Limited, a previously held joint venture. Subsequent to acquisition, the name of the investment was changed to Rakon
India Private Limited.
Impairment tests for CGUs within the Group
The carrying amounts of the 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 (VIU). 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.
GoodwillPatentsSoftware
Product
development
Asse ts
under
construction
Total
$000s$000s$000s$000s$000s$000s
Year ended 31 March 2021
Opening net book value 1,2945356025,6469269,003
Foreign exchange differences-(25)(27)(175)-(227)
Additions – acquired separately--371246265882
Disposals--(54)-(12)(66)
Amortisation charge--(462)(1,602)-(2,064)
Amortisation reversal on disposals--56--56
Transfers--33117(150)-
Closing net book amounts1,2945105194,2321,0297,584
At 31 March 2021
Cost 3,1402,9529,79315,0031,02931,917
Accumulated amortisation & impairment(1,846)(2,442)(9,274)(10,771)-(24,333)
Net book value1,2945105194,2321,0297,584
Goodwill
Nil
Patents
20 years
Softwa re
2 –10 years
Product development
5 –10 years
Assets under construction
Nil
Notes to the Financial Statements (continued)
22
As at 31 March 2021, the Group concluded that there were no indicators of impairment relating to the New Zealand, France, India and China CGU.
In the prior year, the Group concluded 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).
Goodwill
The Directors have undertaken an impairment review and have concluded that the goodwill is not impaired based on the current and future
expected trading performance of Rakon India. The recoverable amount for Rakon India is estimated to be $21.0m (2020: $21.0m) calculated on a
VIU basis which exceeds the carrying amount of the CGU at balance date by $5.0m (2020: $2.1m). The calculation uses cash flow forecasts approved
by the Board of Directors covering a five-year period. Cash flows beyond the five year period are extrapolated using estimated terminal growth rate
which is consistent with the long term average growth rate observed by the Group. Based on the assumptions below no impairment of goodwill
has been recognised in the Statement of Comprehensive Income.
The forecasts used in impairment testing require assumptions and judgements about the future which are inherently uncertain. Key assumptions
are those to which the model is most sensitive to. No reasonable adverse changes in the key assumptions would result in the carrying amount to
exceed the recoverable value.
Key assumptions used in the VIU calculation
CGU Assumption Range 5 Year CAGR
India Annual sales growth rate
1
5% to 13% 19.3%
Gross margin %
2
27% to 31% n/a
1
Sales growth – the management has 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 India operates, future product innovation and estimations of its own share of the
market reflective of the quality of its product range and technology advantages.
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.
Growth Rate and Discount Rate
The pre-tax discount rate used of 22.6% (2020: 22.7%). The terminal value within the VIU assessment has been calculated using a terminal growth
rate assumption of 2.5% (2020: 3.5%).
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 leases do not impose any covenants, and leased assets are not used as security for borrowings. The Group adopted NZ
IFRS 16 Leases from 1 April 2019, using the modified retrospective transition method, with no restatement of prior periods. This new standard
recognises on-balance sheet accounting for leases. Right-of-use assets are recognised representing the Group’s right to use the underlying assets,
with lease liabilities representing the obligation for lease payments.
The Group’s lease agreements are for 12 months to 12 years and may have extension options exercisable by the Group. Management applied
judgement to determine the lease term for contracts that include renewal options. The lease term assessment may significantly affect the amounts
recognised for lease liabilities and right-of-use assets. The Group has considered all facts and circumstances in their decisions relating to lease
extension options and have included all extension options for the manufacturing facilities and offices in the calculations. The costs and business
disruption was considered significant factors in this decision.
The lease term is reassessed if an option is exercised or terminated. No changes to lease options were recorded in the current year (2020: nil).
Assets and liabilities arising from a lease are initially measured at present value by discounting the future lease payments using the interest rate
implicit to the lease. Where it is difficult to determine the implicit interest rate, the incremental borrowing rate is used. The incremental borrowing
rate is determined by using where possible, a recent third-party financing received as a starting point and adjusted for any changes since finance
was received. If not, a build-up approach is used where the risk-free interest rate is adjusted for credit risk for leases and specific to the lease terms.
The lease assets and liabilities do not include potential future increases in variable lease payments based on an index. The lease liability is reassessed
when these increases occur and are adjusted against the right-of-use asset.
Lease payments are allocated between the principal and finance cost. Right-of-use assets are depreciated over the shorter of the asset’s useful life
and the lease term on a straight-line basis.
The total cash outflow for leases was $2, 962,000 (2020: $3,078,000).
Notes to the Financial Statements (continued)
23
Right- of- use assets
L ease liabilities
Current and non-current lease liabilities:
PropertiesEquipment
Motor
vehicle
Total
$000s$000s$000s$000s
As at 31 March 2020
Cost 11,0111,09539512,501
Accumulated depreciation(2,168)(426)(177)(2,771)
Net book value8,8436692189,730
Year ended 31 March 2021
Opening net book value
8,8436692189,730
Foreign exchange differences
(253)
(97)(40)(390)
Additions
509-22531
Disposals
-
(78)(116)(194)
Depreciation charge
(2,128)(419)(129)(2,676)
Depreciation reversal on disposals
-78116194
Closing net book amounts
6,971153717,195
As at 31 March 2021
Cost
11,26792026112,448
Accumulated depreciation
(4,296)(767)(190)(5,253)
Net book value
6,971153717,195
$000s
As at 1 April 20209,445
Movements during the year
Additions
531
Accretion of interest
1,077
Payments
(2,962)
Foreign exchange differences
(401)
Closing amounts
7,690
20212020
$000s$000s
Current
2,2722,741
Non-current
5,4186,704
7,6909,445
Notes to the Financial Statements (continued)
24
Maturity analysis of future undiscounted lease liability payments:
Under the Covid-19 Related Rent Concessions – Amendment to the NZ IFRS 16 Leases, the Group has recorded rent concessions of $83,000 in other
operating income, refer note 8.
Interest in associate
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. The Group’s associates are 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
associates in the Statement of Comprehensive Income. Dividends received or receivable from associates are recognised as a reduction in the
carrying amount of the investment. Unrealised gains on transactions between the Group and its associates 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.
Set out below is the significant associate of the Group. The entities listed below have share capital consisting solely of ordinary shares, which are
held directly by the Group. The proportion of ownership interest is the same as the proportion of voting rights held.
Timemaker G roup
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
associate 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.
$000s
Not longer than 1 year
2,660
Longer than 1 year and not longer than 5 years
6,088
Longer than 5 years
210
Total undiscounted lease liabilities
8,958
Nature of
Measurement
2021202020212020
20212020relationshipmethod
$000s$000s$000s$000s
Chengdu Timemaker
Crystal Technology Co.
Ltd
China40%40%Associate
Equity
method
11,90211,259
Shenzhen Taixiang
Wa fe r Co. Ltd
China40%40%Associate
Equity
method
431455
Total Timemaker Group
12,33311,7141,446797
Name of entity
Country of
incorporation
% of ownership
interest
Net investment
Equity accounted profit
202120202021202020212020
$000s$000s$000s$000s$000s$000s
Summarised Statement of Comprehensive Income
Revenue37,71527,509--37,71527,509
Depreciation and amortisation(2,943)(2,661)--(2,943)(2,661)
Interest expenses(1,034)(491)--(1,034)(491)
Profit for the period3,6151,988--3,6151,988
Total Timemaker Group
Chengdu Timemaker
Crystal Technology Co.
Ltd
Shenzhen Taixiang Wafer
Co. Ltd
Notes to the Financial Statements (continued)
25
Financial asset at fair value through other comprehensive income – Thinxtra
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 (FVOCI).
The FVOCI are strategic investments which are not held for trading, and which the Group has irrevocably elected the classification at initial
recognition, considering this to be more relevant. For assets measured at FVOCI, gains and losses on revaluation are recorded in OCI reserve. On
disposal of these equity investments, any related balance within the OCI reserve is reclassified to retained earnings.
Thinxtra
Thinxtra Pty Limited (Thinxtra) is an 'Internet of Things' (IoT) business that started in 2016. Thinxtra's focus is on establishing an IoT network in
Australia, New Zealand and Hong Kong and providing products, services and solutions enabling connectivity of devices to the network. Thinxtra’s
business model is based on subscription for access to the network, platform solutions and the sale of IoT products. Further information is available
at www.thinxtra.com.
Rakon was one of the founding members of Thinxtra in 2016, and has a 6.9% ownership interest at 31 March 2021 (March 2020: 7.1%). This is
calculated on a fully diluted basis including the exercise of any existing options. Rakon had decided not to participate in additional capital raisings
which resulted in Rakon’s ownership interest diluting.
The Directors have reviewed the information and observations available and concluded that the valuation of A$2.8m or A$3.57 per share as at 31
March 2021 is still appropriate (31 March 2020: A$2.9m).
2021
20202021202020212020
$000s
$000s$000s$000s$000s$000s
Summarised Balance Sheet
Curre nt asse ts
Cash & cash equivalents
2,3263,567932,3353,570
Other current assets
33,96726,8901,0671,21235,03428,102
Total current assets36,29330,4571,0761,21537,36931,672
Non-current assets
27,14026,178--27,14026,178
Current liabilities
Financial liabilities (excluding trade payables)16,34913,456--16,34913,456
Other current liabilities
15,61713,119-7815,61713,197
Total current liabilities31,96626,575-7831,96626,653
Non-current liabilities
Other non-current liabilities
1,7121,912--1,7121,912
Total non-current liabilities1,7121,912--1,7121,912
Ne t asse ts
29,75528,1481,0761,13730,83129,285
Chengdu Timemaker
Crystal Technology Co.
Ltd
Shenzhen Taixiang Wafer
Co. Ltd
Total Timemaker Group
202120202021202020212020
$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 associate's net assets11,90211,25943145512,33311,714
Carrying amount
11,90211,25943145512,33311,714
Movement in carrying amount
Opening net assets 1 April
11,71410,399
Equity accounted profit1,446797
Foreign exchange movement
(827)518
Carrying amount12,33311,714
Chengdu Timemaker
Crystal Technology Co.
Ltd
Shenzhen Taixiang Wafer
Co. Ltd
Total Timemaker Group
Notes to the Financial Statements (continued)
26
Valuation of the investment in Thinxtra at 31 March 2021
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 recognise there is a high
risk of the valuation will change significantly over time and have chosen to adopt this consistent overall methodology for the valuations reported
at 31 March 2019, 31 March 2020 and now 31 March 2021.
In forming the Directors’ judgement, the Directors have taken into consideration whether there is an active market in Thinxtra as indicated by the
last capital raise in February 2020 for A$9m, which concluded in August 2020 with an additional subscription of A$1m. The Directors concluded that
there is not. 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 the available information to date including Thinxtra’s audited financial statements for the year ended 30 June 2020 and
other shareholder communications. Whilst the impact of Covid-19 meant the short-term deferment of forecast revenue and a delay to the original
IPO timeline, this was not expected to materially change the future realisation of Rakon’s investment and therefore the carrying value of the
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, unchanged from prior period:
The valuation was based on Rakon having a 6.9% shareholding which assumed any existing share options were exercised and all shares were issued
under the capital raise offer that was open. No weighting was assigned to the additional A$1m raised as an extension of the February 2020 capital
raise.
The resultant valuation of A$3.57 per share is adopted in the 31 March 2021 financial statements (2020: A$3.64).
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:
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.
Borrowings
The borrowings are initially recognised at fair value and subsequently measured at amortised cost. Fees paid are recognised in the Statement of
Comprehensive Income when the draw down occurs. Borrowings are removed from the balance sheet when the obligation specified in the contract
is discharged, cancelled or expired. 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.
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.
Valuation Technique
Weighting Assigned
A: Discounted cash flow (discount rate 15%)
30%
B: February 2020 capital raise of A$9m at A$2.29 per share70%
Notes to the Financial Statements (continued)
27
Line of credits
The Group maintains following line of credits.
ASB
At 31 March 2021 a $6.7m (2020: $15.2m) combined trade facility and a $3.3m (2020: $3.3m) overdraft was in place.
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 the applicable line fee.
During the year the Company operated within its facility limits and was in compliance with all required financial covenants.
State Bank of India
Rakon India has an existing facility with the State Bank of India including ₹150m (NZ$3.2m) which can be used for cash based working capital
requirements, unchanged from prior year.
Crédit Agricole Provence Côte D’A zur
As part of the French government’s Covid-19 assistance program, a €3.5m loan was made available to Rakon France for an initial term of 12 months
from 15 June 2020 with 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. 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.
Borrowings balance
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 10.
Net debt reconciliation
20212020
$000s$000s
Current
French Government loan5,894
-
Other borrowings539145
Current borrowings
6,433145
Bank overdrafts3,59912,848
Total current borrowings
10,03212,993
20212020
$000s$000s
6 months or less10,03212,848
Total bank borrowings including overdraft10,03212,848
Othe r asse t
Cash/ bank
overdraftBorrowingsLeasesTotal
$000s$000s$000s$000s
Balanc e as at 1 A pril 2 0 1 9(6,782)(886)
-
(7,668)
Cash flows to (increase)/decrease liabilities(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 liabilities--(95)(95)
Balanc e as at 3 1 M arc h 2 0 2 0(7,762)(145)(9,445)(17,352)
Liabilities from financing activities
Notes to the Financial Statements (continued)
28
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. The carrying amounts are considered to be the same as fair values,
due to their short-term nature.
If the payments are due after 12 months, the trade and other payables are presented as non-current liabilities. The non-current liabilities are initially
recognised at the fair value and subsequently measured at amortised cost using the effective interest method.
Provisions
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, which can be reliably estimated, will be required to settle the obligation. The carrying value is the best estimate of the
management. 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.
Othe r asse t
Cash/ bank
overdraftBorrowings
LeasesTotal
$000s$000s$000s$000s
Balanc e as at 1 A pril 2 0 2 0(7,762)(145)(9,445)(17,352)
Cash flows to (increase)/decrease liabilities18,471-2,96221,433
Acquisitions-(6,450)(531)(6,981)
Foreign exchange changes7651624011,328
Interest on lease liabilities--(1,077)(1,077)
Balanc e as at 3 1 M arc h 2 0 2 111,474(6,433)(7,690)(2,649)
Liabilities from financing activities
20212020
$000s
$000s
Trade payables11,2078,882
Amounts due to related parties (note 29)890628
Employee entitlements10,7379,330
Accrued expenses3,1923,412
Total trade and other payables26,02622,252
Retirement
provision
Long
service
Lease
make good
Total
$000s$000s$000s$000s
At 31 March 20192,3314636673,461
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 exchange
265--265
At 31 March 20202,4315186833,632
Charged to the Statement of Comprehensive Income
Additional provisions recognised200150-350
Unwinding of discount--1616
Unused amount reversed-(12)-(12)
Used during the year(132)(168)-(300)
Foreign exchange(222)--(222)
At 31 March 20212,2774886993,464
Current portion228102-330
Non-current portion2,0493866993,134
Total provisions2,2774886993,464
Notes to the Financial Statements (continued)
29
Retirement provision
The Group’s net obligation in respect of the French retirement indemnity plan is the amount of future benefit that employees have earned in return
for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present
value and the fair value of any related assets is deducted. The French retirement indemnity plan entitles permanent French employees to a lump
sum on retirement. The payment is dependent on an employee’s final salary and the number of years of service rendered.
French employees are entitled to a retirement pay-out once they have met specific criteria. This is a one-off payment based on service time at
retirement date. A provision has been created to recognise this cost taking in consideration the time served, probability of attainment and discount
rates. An actuarial valuation was performed at 31 March 2021.
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.
Taxation
The Group is subject to income taxes in numerous jurisdictions. 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.
The current and deferred tax is recognised in the Statement of Comprehensive Income, except to the extent that it relates to items recognised in
Statement of Other Comprehensive Income (OCI), or directly in equity. In this case, the tax is recognised in the OCI or equity, respectively.
Income tax expense
Income tax expense is calculated on applicable income tax rate for each jurisdiction, and adjusted by the changes in deferred tax assets and liabilities
attributable to temporary differences, unused tax losses and adjustments relating to the prior period.
The weighted average applicable tax rate was 14% (2020: 21%).
Deferred tax
Deferred tax is recognised using the liability method on the temporary differences between the tax bases of assets and liabilities and their carrying
amounts. Deferred tax assets are recognised only if management is certain that the future benefits of the taxable amount will be utilised. Judgement
is required when deferred tax assets are reviewed at each reporting date. The management uses future forecasts to ascertain future benefits of
deferred tax assets.
20212020
$000s$000s
Current tax(1,594)(223)
Deferred tax expense67919
Income tax (expense)/ credit(1,527)696
20212020
Reconciliation of income tax expense $000s$000s
Profit before tax 11,1653,284
Tax calculated at domestic tax rates applicable to profits in the respective countries(2,312)(580)
Non-deductibles26277
Prior year adjustment(253)109
Associate result reported net of tax238126
Recognition and utilisation of previously unrecognised tax losses2,8002,210
Tax losses for which no deferred income tax asset was recognised(2,026)(1,446)
Income tax (expense)/ credit(1,527)696
The tax on the Group's result before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to
the results of the consolidated entities.
Notes to the Financial Statements (continued)
30
1
Includes deferred tax arising from financial instruments (cash flow hedges) and inventory provisioning.
The Company recorded the remaining balance of unrecognised tax losses amounting to $10,896,000 (2020: $7,895,000) in deferred income tax
asset. The carried forward balance of tax losses is $8,975,000 (2020: $19,171,000). There are no expiry dates on these tax losses. 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.
Imputation balances
Imputation credit account with Inland Revenue.
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 2021 the total number of ordinary shares that were authorised and issued, including treasury shares, is 229,055,272 shares (2020:
229,055,272) made up as follows.
• 226,961,983 are fully paid shares (2020: 226,961,983)
• 321,972 unpaid ordinary shares were on issue and held in trust on behalf of participants in the Rakon Share Plan (2020: 321,972)
• 1,771,317 unpaid ordinary shares were held by Rakon ESOP Trustee Limited for future allocation to participants (2020: 1,771,317)
At 31 March 2021, the share capital remained unchanged at $181,024,000.
20212020
$000s$000s
Deferred tax assets
6,3989,246
Deferred tax liabilities
(132)(186)
Net deferred tax asset6,2669,060
20212020
$000s$000s
Imputation credit available for use in subsequent periods11,2051
1,204
Notes to the Financial Statements (continued)
31
Earnings per share
Basic
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 2021, the Group did not have any dilutive options or potential dilutive ordinary shares that could be converted into ordinary shares
(2020: nil). The diluted earnings per share and basic earnings per share were the same.
Other reserves
Foreign currency translation reserve
Recognises exchange differences arising on translation of the foreign controlled entities, as described in note 4. The cumulative amount is
reclassified to the Statement of Comprehensive Income when the investment is disposed.
2021
2020
Weighted average number of ordinary shares on issue (000s) (note 23)
226,962226,962
Continuing operations
Earnings attributable to equity holders of the Group ($000s)9,6383,980
Basic earnings per share (cents per share)
4.21.8
Foreign
currency
translation
reserve
Hedging
reserve
Share
option
reserve
OCI
1
re valuation
Total
$000s$000s$000s$000s$000s
At 31 March 2019(23,383)(380)3,064(454)(21,153)
Cash flow hedges
Fair value 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
680680
Subsidiaries3,967---3,967
Associate – Timemaker Group173---173
At 31 March 2020(19,243)(5,028)3,064(2,086)(23,293)
Cash flow hedges
Fair value gains in year
-9,461--9,461
Cost of hedge-(105)--(105)
Changes in fair value of equity investments at fair value through
other comprehensive income – Thinxtra
---203203
Tax on fair value gains-(2,620)--(2,620)
Transfers to revenue-445--445
Income tax on transfers to revenue-(125)--(125)
Subsidiaries(3,999)---(3,999)
Associate – Timemaker Group(827)---(827)
At 31 March 2021(24,069)2,0283,064(1,883)(20,860)
1
OCI – Thinxtra revaluation through other comprehensive income.
Notes to the Financial Statements (continued)
32
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments and the cost of hedging
used in cash flow hedges. The cost of hedging is subsequently recognised 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.
Financial asset at fair value through other comprehensive income (FVOCI)
The Group has elected to recognise the change in fair value of investment in Thinxtra in other comprehensive income, refer note 18. These changes
are accumulated within the FVOCI reserve, and transferred to retained earnings when investment is derecognised.
Financial risk and capital 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.
The 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.
Derivatives
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 foreign currency forward exchange contracts and foreign currency collar options. These instruments are held for risk and asset management
purposes only and not for the purpose of speculation.
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. 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.
Derivatives and hedge accounting
The Group designates certain derivatives to be part of a hedging relationship. These are classified as cash flow hedges. 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 performs a qualitative
assessment of effectiveness and maintains hedging documentation which describes the economic relationship, objective and strategy for the hedge
transactions. The effectiveness of the hedged relationships are assessed on an ongoing basis.
The fair value changes to the effective portion of the cash flow hedges are recognised (including related tax impacts) through OCI in the cash flow
hedge reserve in equity, refer note 25. 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, is sold, terminated, or when a hedge no longer meets the criteria for hedge accounting.
RiskExposure arising fromMeasurementM anage me nt
Aging analysis
Credit limits and terms
Credit ratings
Liquidity riskBorrowings and other liabilitiesRolling cash flow forecasts
Market risk - foreign exchange
Ca s h fl ow fore ca s ti ng
Foreign currency forwards and
Sensitivity analysis foreign currency options
Market risk - interest rateBank overdraft at variable rates
Sensitivity analysisInterest rate swaps
Availability of committed credit
lines and borrowing facilities
Recognised financial assets and
liabilities not denominated in Group
currency units
Cash and cash equivalents, trade
receivables, derivative financial
instruments
Financ ial risk manage me nt
and c apital manage me nt
Notes to the Financial Statements (continued)
33
If the maturity of the hedged item is less than 12 months, the full fair value of a hedging derivative is classified as a current asset or liability,
otherwise non-current asset or liability. Derivatives that do not meet the hedge accounting criteria are classified as held for trading for accounting
purposes and are accounted for at fair value through profit and loss.
The following table sets out the Group’s derivative financial instruments in the Balance Sheet.
Forward foreign exchange contracts
In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally
estimated, or if there are changes in the credit risk of the derivative counterparty. The hedged highly probable forecast transactions denominated
in foreign currency are expected to occur at various dates during the next 24 months.
Where option contracts are used as the hedging instrument, the Group designates only the intrinsic value. 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.
When forward contracts are used to hedge, the Group designates full change in fair value of the forward contract as the hedging instrument.
The following table summarises the Group’s current hedging instruments.
Credit risk
The Group is exposed to credit risk arising from trade customers, financial instruments (note 18, 26a), and cash and cash equivalents (note 11). The
maximum exposure to credit risk at the end of the period is represented by the carrying value of for these financial assets.
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 12. 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.
The Group only deals with institutions with high credit quality for banking and derivative counterparty.
2021202120202020
Asse tsLiabilitiesAsse tsLiabilities
$000s$000s$000s$000s
Interest rate swaps — cash flow hedge---24
Forward foreign exchange contracts — cash flow hedges2,7113926,178
Forward foreign exchange collar option — cash flow hedges39725025649
Total derivative financial instruments3,108289276,851
Less: non-current forward foreign exchange — cash flow hedges587260-2,840
Current derivative financial instruments2,52129274,011
Financial assets/ liabilities at fair value through profit or loss333-21,029
Total derivative financial instruments2,85429295,040
Foreign
currency
options
Foreign
currency
forwards
Interest
rate
swaps
Foreign
currency
options
Foreign
currency
forwards
Interest
rate
swaps
Notional amount ($'000s)
18,08747,569-23,42036,3143,000
Maturity date
Nov-21 to
J a n-2 3
Apr-2 1 to
Oct-2 2
-
Apr-2 0 to
Ma y-2 1
Apr-2 0 to
Fe b-2 2
Jun-20
Hedge ratio
1:11:11:11:11:1
Change in intrinsic value of outstanding hedging
instruments
148(879)
Weighted average strike rate on outstanding options
GBP/USD1.32-
NZD/USD
0.680.66
Weighted average contract rate on forwards
NZD/USD
0.650.66
GBP/USD
1.281.29
EUR/USD
-1.14
USD/INR
74.3273.78
JPY/USD
108.86-
20212020
Notes to the Financial Statements (continued)
34
Liquidity risk
The Group maintains committed credit facilities to ensure adequate cash is available to meet obligations when due. Management monitors rolling
forecasts of the Group’s liquidity position on the basis of expected cash flow. Forecasts indicate that the Group operate within its credit facilities.
The following table shows the contractual undiscounted cash flow maturities of financial liabilities, including interest payments and excluding the
impact of netting agreements.
Information on bank overdraft interest rate is in note 19.
Market risk – foreign exchange
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.
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 Pounds (GBP), Euros (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. The table below summarises the foreign exchange
exposure on the net monetary assets of the Group against its respective functional currency, expressed in NZD.
The following significant exchange rates applied during the year.
31 March 2021
Carrying
amount
6 months
or less
6 – 12
months
1 – 2 years
2 – 5 years5 – 10 years
$000s
$000s
$000s$000s$000s$000s
Financial liabilities
Secured bank loans (note 19)5,894(5,900)---
-
Derivatives (note 26)289(21)
(7 )
(261)-
-
Trade and other payables (note 20)26,026(26,026)
--
-
-
Other borrowings (note 19)539(179)
(49)(98)
(213)-
Bank overdraft (note 19)3,599(3,695)
----
Lease liabilities (note 16)7,690(1,346)(1,314)(2,092)(3,996)(210)
Total financial liabilities44,037(37,167)(1,370)(2,451)
(4,209)
(210)
31 March 2020
Carrying
amount
6 months
or less
6 – 12
months
1 – 2 years2 – 5 years5 – 10 years
$000s$000s$000s$000s$000s$000s
Financial liabilities
Derivatives (note 26)
7,880(2,734)(2,320)(1,946)(880)-
Trade and other payables (note 20)
22,252(22,252)----
Bank overdraft (note 19)12,848(13,305)----
Lease liabilities (note 16)9,445(1,396)(1,345)(2,236)(3,550)(918)
Total financial liabilities52,425(39,687)(3,665)(4,182)(4,430)(918)
USDEURGBPJPY
$000s$000s$000s$000s
31 March 202127,9522,149(72)(2,053)
31 March 2020
15,749
3,603(1,297)(1,164)
2021202020212020
NZD/USD0.66950.64540.69940.6023
NZD/EUR
0.5739
0.58160.59390.5404
NZD/GBP0.51120.50860.50720.4833
NZD/INR49.453647.479050.874646.9870
NZD/JPY70.857770.239276.700064.9600
A ve rage rateReporting date rate
Notes to the Financial Statements (continued)
35
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 2020.
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 2020.
Market risk – interest rate
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.
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 hedged item is identified as a proportion of the outstanding loans up to the notional amount of the swaps.
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.
At balance date, the Group did not have any interest rate swaps. In 2020, there was one outstanding interest rate swap contract valued at $3m of
borrowings fixed at 4.17%. During the year $24,000 (2020: $3,000) net was charged to the Statement of Comprehensive Income.
Equity
Profit or
loss
Equity
Profit or
loss
$000s
$000s$000s$000s
USD
3,1063,1061,7501,750
EUR
239
239400400
GBP
(8 )
(8 )(144)(144)
JPY
(228)
(228)(129)(129)
20212020
Fair value Equity Profit or lossFair value Equity Profit or loss
$000s$000s$000s$000s$000s$000s
Forward foreign exchange contracts - Cash flow hedge
Net buy NZD s ell USD
5,172(5,172)-8,013(8,013)-
Net buy GBP s ell USD
187(187)----
Net buy JPY s ell USD
72(72)----
Forward foreign exchange contracts - held for trading
Net buy EUR s ell USD
---(47)(63)(63)
Net buy GBP s ell USD
42(60)(60)(70)(96)(96)
Net buy NZD s ell USD
283(278)(278)(862)(1,761)(1,761)
Net buy INR s ell USD
8(80)(80)895454
20212020
Notes to the Financial Statements (continued)
36
Profile
At 31 March the interest rate profile of the Group’s interest bearing financial instruments.
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 2021 was performed
on the same basis as 2020.
A decrease of 100 basis points in interest rates at 31 March would have the opposite impact to what is shown above.
Capital risk management
The Group’s objective when managing capital is to maintain its ability to continue as a going concern, meet its debt obligations, maintain an
appropriate capital structure and manage capital costs. The Group’s capital comprises of all components of equity. The Group also maintains credit
facilities with major banks, refer note 19 for details.
Commitments
Capital commitments
Capital expenditure contracted for at the balance date but not incurred is $721,000 (2020: $336,000).
20212020
Variable rate instruments
$000s$000s
Financial assets (note 11)15,0735,086
Financial liabilities (note 11)(3,599)(12,848)
Net variable rate instruments11,474(7,762)
Fixed rate instruments
Financial liabilities
(539)(164)
Net fixed rate instruments(539)(164)
Equity
Profit or lossEquityProfit or loss
$000s$000s$000s$000s
Variable rate instruments115115(78)(78)
Fixed rate instruments(1 )(1 )(2 )(2 )
20202021
Notes to the Financial Statements (continued)
37
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. The acquisition method of accounting is used to account for business
combinations by the Group. They are deconsolidated from the date that control ceases.
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.
The list of subsidiaries is as follows.
Rakon ESOP Trustee Limited and Rakon PPS Trustee Limited are classified as in-substance subsidiaries and are consolidated into the Group financial
statements.
Related party transactions
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 balance.
2021
2020
Rakon America LLCMarketing support
USA31-Mar100100
Rakon Singapore (Pte) LimitedMarketing supportSingapore31-Mar100100
Rakon Financial Services LimitedFinancing
New Zealand31-Mar100100
Rakon International Limited
Marketing supportNew Zealand31-Mar100100
Rakon UK Holdings Limited
Holding companyUnited Kingdom31-Mar100100
Rakon UK Limited
Research and developmentUnited Kingdom31-Mar100100
Ra kon Fra nce SAS
R&D, manufacturing and sales Fra nce31-Mar100100
Rakon (Mauritius) Limited
Holding companyMauritius31-Mar100100
Rakon Investment HK Limited Holding companyHong Kong31-Mar100100
Rakon Crystal Electronic International Limited
Marketing supportChina
31-Mar100100
Rakon India Pvt Limited
Manufacturing, R&D and sales
India31-Mar100100
Rakon ESOP Trustee LimitedShare trustee
New Zealand31-Mar--
Rakon PPS Trustee LimitedShare trusteeNew Zealand31-Mar
--
% interest held by group
Name of entityPrincipal activities
Country of
incorporation
Balanc e date
20212020
$000s$000s
Salaries and other short-term employee benefits
3,4914,045
Directors' fee318360
Total key management compensation3,8094,405
20212020
$000s$000s
Transac tions with assoc iate s
Sales to associate, Chengdu Shen-Timemaker Crystal Technology Co. Limited42-
Purchases from associate, Chengdu Shen-Timemaker Crystal Technology Co. Limited(1,625)(940)
Net transactions(1,583)(940)
Payables to Chengdu Shen-Timemaker Crystal Technology Co. Limited25556
Receivables from Rakon HK Limited160163
Transactions with Siward Crystal Technologies Co. Limited
Sa les683502
Purchases(2,003)(2,218)
Net transactions(1,320)(1,716)
Payables to Siward Crystal Technologies Co. Limited635572
Receivables from Siward Crystal Technologies Co. Limited
10638
Net transactions741610
Notes to the Financial Statements (continued)
38
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.
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. As at 31 March 2021, balance of shares held was 321,972 (31 March 2020: 321,972). All shares have
been allocated and rank equally in all respects with all other ordinary shares issued by the Company. The outstanding loan balance, provided on an
interest free basis by Rakon Limited to participating employees in respect of these shares, totals $195,000 (2020: $195,000). A participant may
repay all or part of the loan at any time, and may request share transfer upon full repayment. No repayments were due at 31 March 2021 (2020:
nil). The Trust Deed makes provision for the Company to require repayment of the loans in certain circumstances. 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 (2020: 0.14%).
Contingencies
Prior to acquisition, Rakon India 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. 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 $1.4m (tax value $900,000)
•2013/14 – no increase in taxable income (tax value $520,000)
Indirect taxes
•December 2010/August 2012 – excess input credit availed (tax value $390,000). Penalty applicable at 100% of tax value.
Subsequent events
Debt f unding
On 30 April 2021, a $20m NZD debt facility was agreed with Tanarra Credit Partners. An initial $10m was drawn down immediately and used to
repay the existing ASB Bank working capital facility which was reduced to nil. The debt facility is repayable at the end of five years and is secured
by a general security deed over all the present and after-acquired property of the guaranteeing group comprising Rakon Limited, Rakon Financial
Services Limited and Rakon International Limited.
Rakon has agreed to certain conditions in relation to other indebtedness, financial accommodation and distributions. The financial covenants
include debt to total tangible assets, net debt to Underlying EBITDA and cash available for debt servicing to interest. The interest rate is based on
the New Zealand bank bill reference rate, margin and line fees as applicable.
Crédit Agricole Provence Côte D’Azur
In May 2021, the Company exercised its option to extend this loan for a further five years. Repayment of the loan is spread equally over the final
four years to June 2026, refer note 19.
Covid- 19 – India
During April 2021 there was a significant increase in the number of Covid-19 cases in India. This has led to government-imposed lock-down measures
which has impacted the Indian manufacturing facility. The operation in India is able to continue manufacturing at a lower capacity due to the
availability of labour; additional social distancing and other safety measures have been put in place; and restrictions around the geographical
movement of people. Management is closely monitoring the situation and at this stage does not expect the overall Group to be impacted materially.
T
he Directors are not aware of any material events subsequent other than disclosed above to the balance date 31 March 2021.
PricewaterhouseCoopers, PwC Tower, 15 Customs Street West, Private Bag 92162, Auckland 1142 New Zealand
T: +64 9 355 8000, www.pwc.co.nz
Independent auditor’s report
To the Shareholders of Rakon Limited
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 2021, 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).
What we have audited
The Group's financial statements comprise:
●the balance sheet as at 31 March 2021;
●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 and other
explanatory information.
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.
Independence
We are independent of the Group in accordance with Professional and Ethical Standard 1
International Code of Ethics for Assurance Practitioners (including International Independence
Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards
Board and the International Code of Ethics for Professional Accountants (including International
Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carried out services in the area of providing market survey data relating to executive
remuneration levels, treasury related financial markets risk analysis and commentary, from which we
resigned in December 2020 and provided a Certificate of expenditure for the purpose of the European
Union subsidy for community projects 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 40
Description of the key audit matter How our audit addressed the key audit matter
Initial recognition and valuation of research
and development costs associated with the
development of new products
Note 15 of the financial statements provide
details of the costs incurred by the Group
with respect to developing new products
that were capitalised as at 31 March 2021.
This is included within the product
development and assets under construction
categories of the Note and amounts to $5.0
million at 31 March 2021.
Note 7 of the financial statements disclosed
the research and development expenditure
in the Statement of Comprehensive Income
during the year of $16.0 million.
There is judgement involved in assessing
whether the costs that are being capitalised
for development meet the criteria for
capitalisation as an intangible asset under
NZ IAS 38 Intangible Assets, or whether
they should be expensed.
There is also 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.
Our audit focused on this area due to the
value of the capitalised development costs
and the judgement involved in the
application of the accounting standards.
The Directors have assessed the future
income generating ability of capitalised
development expenditure by referring to
current demand for the new products in
production and to the business case for
future sales of products not yet in
production.
Our procedures included the the following:
●Updating our understanding of how the costs for
research and development are captured and,
where appropriate, are approved for
capitalisation and the controls over thes
e
pr
ocesses;
●Obtaining an understanding of the projects
which have been capitalised during the year;
●Assessing overall costs capitalised for
compliance with Group policies and the
requirements defined in the accounti
ng
s
tandards for capitalisation of product
development costs;
●Challenging the Director’s assessment of t
he
f
uture income expected from products i
n
pr
oduction, where costs were capitalised
and
ar
e now being amortised, by comparing t
he
es
timate with the level of sales currently bein
g
ac
hieved;
●Challenging the Director's assessment of the
future income expected from new
telecommunications infrastructure products not
yet in production, by comparing the estimate
with the level of sales of previous generations of
telecommunications infrastructure products and
with market forecast reports; and
●Assessing the adequacy of disclosures in t
he
f
inancial statements to ensure that this is
compliant with the requirements of t
he
ac
counting standards.
We have no matters to report as a result of our
procedures.
PwC 41
Valuation of the investment in Thinxtra
Limited
The carrying value of the Group’s
investment in Thinxtra Limited is $3.1
million as at 31 March 2021 and is
disclosed in Note 18 to the financial
statements. The investment is carried at fair
value with gains and losses accounted for
in other comprehensive income.
The Directors used a range of valuation
techniques with individual assigned
weightings. The techniques applied include
discounted cash flows and the share price
of the last successful capital raise.
Weightings were assigned to each
technique based on the Directors’ available
information and judgement. The valuation
techniques used and weightings assigned
to each technique is consistent with the
prior year.
The Directors also considered sensitivity of
the key inputs in the valuation by
determining other reasonably possible
scenarios and assessing its impact on the
valuation.
Based on the information available to the
Directors, Thinxtra Limited’s performance is
in line with the Information Memorandum
issued in the prior year.
The results of the Directors’ assessment
and sensitivity analysis is disclosed in Note
18.
We considered the valuation of the
investment in Thinxtra Limited a key audit
matter because of the uncertainty involved
in the estimation process and the significant
judgements the Directors made in
determining 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.
Our procedures in relation to the fair value
determination of the investment in Thinxtra Limited
included the following:
●Obtaining an understanding of the valuation
techniques used by the Directors and
the key
assumptions applied in determining the fair value
of the investment in Thinxtra Limited as at 31
March 2021;
●Testing the mathematical accuracy of the
discounted cash flow model and agreeing the
inputs to the Information Memorandum issued by
Thinxtra Limited;
●Considering the discounted cash flow model
approach
which formed part of the Director’s
basis of valuation. We determined the underlying
forecasts used in the model were consistent with
the
prior year, however are not
sufficiently
reliable due to Thinxtra Limited’s business being
at an early stage of development, the history of
not meeting budgeted results and the disclosures
made around the impact of Covid-19 on its
business. Accordingly, and in line with our
c
onclusion in the prior year, this required us to
take a different valuation approach based wholly
on using observable inputs from the recent
capital raise;
●Agreeing the capital raise inputs to the
information provided by Thinxtra Limited;
●Engaging our valuation expert to assist in the
valuation of the investment as at 31 March 2021.
Our expert concluded that the share price
achieved in the February 2020 capital raise,
which was concluded in August 2020, provided
the
best evidence of the fair value as at 31
March 2021. Using this price results in a lower
fair value than determined by the Directors. 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 is below our
ov
erall Group materiality; and
●Assessing the adequacy of disclosures in the
financial statements to ensure that this is
compliant with the requirements of the
accounting standards.
We
have no matters to report as a result of our
procedures.
PwC 42
Materiality
Group
Scoping
Key Audit
Matters
Our audit approach
Overview
Ov
erall group materiality: $1,200,000, which represents approximately
1% of total revenues.
In our judgement, revenue provides a more stable measure for
establishing our materiality benchmark and best reflects performance of
the Group.
Following our assessment of the risk of material misstatement, we:
●Performed full scope audits for the two principal businesses in New
Zealand and France based on their financial significance;
●Specified audit procedures and analytical review procedures over the
business in India;
●Specified audit procedures over the business in the UK; and
●Analytical review procedures over the investment in Timemaker.
As reported above, we have two key audit matters, being:
●Initial recognition and valuation of research and development costs
associated with the development of new products
●Valuation of the investment in Thinxtra Limited
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we considered where management made
subjective judgements; for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. 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.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
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.
PwC 43
How we tailored our group audit scope
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 have applied group materiality apportioned to the business units based on relative scale of the
business concerned. The group materiality applied determines the nature, timing and extent of audit
procedures performed.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the Annual report, but does not include the financial statements and our
auditor's report thereon. The Annual report is expected to be made available to us after the date of this
auditor's report.
Our opinion on the financial statements does not cover the other information and we will not express
any form of audit opinion or assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
When we read the other information not yet received, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the Directors and use our
professional judgement to determine the appropriate action to take.
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/assurance-standards/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
PwC 44
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 Indumin
Senaratne (Indy Sena).
For and on behalf of:
Chartered Accountants
27 May 2021
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.