Rakon 2007 Annual Report by Rakon Limited

VITY EVERYWHERE

ANNUAL REPORT 2007

CONTENTS

Notice of Meeting

Financial Highlights

Chairmanâ&#x20AC;&#x2122;s Report

Tribute to Founder

Managing Directorâ&#x20AC;&#x2122;s Report

Rakon at a Glance

Board of Directors

Corporate Governance

Management Profiles

Directors Report

Statements of Financial Performance

Statements of Movements in Equity

Statements of Financial Position

Statements of Cash Flows

Statement of Accounting Policies

Notes to the Financial Statements

Auditors Report

Shareholder Information

Glossary of Terms

Directory

NOTICE OF MEETING

RAKON LIMITED Notice of Annual Shareholders Meeting Friday, 10 August 2007, commencing at 2pm in The Waitemata Ballroom, Langham Hotel, 83 Symonds Street, Auckland. AGENDA 1. To receive the Annual Report for the period ended 31 March 2007, including the financial statements and auditors report. 2. In accordance with the constitution of the Company Charles Peter Maire retires by rotation and, being eligible, offers himself for re-election. 3. In accordance with the constitution of the Company Bruce Robertson Irvine retires by rotation and, being eligible, offers himself for re-election. 4. That effective 1 April 2007, the aggregate maximum amount of fees which can be paid to the Directors, in their capacity as Directors, be increased from $240,000 to $300,000 in respect of each financial year, where such amount (or lesser amount determined by the Directors for a financial year) will be divided among the Directors in such proportion and in such manner as they may agree. 5. To record the reappointment of PricewaterhouseCoopers as the Company’s Auditor and to authorise the Directors to fix the Auditor’s remuneration. BY ORDER OF THE BOARD

Bryan Mogridge Chairman 15 June 2007 Notes: 1. A shareholder may attend the Annual Meeting of Shareholders and vote or may appoint a proxy to attend the Annual Meeting of Shareholders and vote in place of the shareholder. A proxy form is enclosed. 2. A shareholder wishing to appoint a proxy should complete the enclosed proxy form and produce the proxy form to the office of Rakon’s share registrar, Computershare Investor Services Limited, either by fax to +64 9 488 8787, by delivery to Level 2, 159 Hurstmere Road, Takapuna, North Shore City, Auckland, New Zealand or by mail to Private Bag 92 119, Auckland 1142, New Zealand so as to be received no later than 2pm on 8 August 2007, being 48 hours before the start of the Annual Meeting of Shareholders. 3. All resolutions will be considered as ordinary resolutions and, in particular, each resolution to re-elect a Director is to be considered as a separate ordinary resolution. To be passed, each resolution requires the approval of a simple majority of the votes cast by the holders of ordinary shares. 4. Shareholder approval is sought for Directors remuneration of an aggregate amount of $300,000 per annum with effect from 1 April 2007. The proposed increase is to reflect the additional commitments and responsibilities of the Directors of the company as it expands its operations and continues to grow both in scale and complexity. The proposed increase also reflects the company’s need to retain Directors with an appropriate range of skills and experience and is at a level that reflects market practice and is appropriate for Rakon. Neither Brent Robinson nor Darren Robinson receives Director’s fees. In accordance with Listing Rule 9.3.1, no Director intending to receive any fees, nor any of their Associated Persons, may vote on the resolution. 5. No business may be transacted at the Annual Meeting of Shareholders if a quorum is not present. A quorum will be present if shareholders or their proxies or their representatives are present who between them are able to exercise a majority of the votes cast on the business to be transacted by the Annual Meeting of Shareholders.

FINANCIAL

HIGHLIGHTS Group 2007

2006

($000s)

Operating revenue

106,239

74,371

EBITDA

20,321

11,876

EBIT

16,541

8,918

Net surplus after tax

10,647

4,802

EPS

9.9cps

5.5cps

Total assets

141,070

49,200

Total equity

100,900

24,045

12.8% 19.5% 19.5%

9.9% 35.8% 21.8%

Return on total assets Return on equity Return on adjusted equity Notes

1. The return on total assets and return on equity are calculated using a 3 point average (ie. opening, half year and end of year positions). 2. The return on adjusted equity is also calculated using a 3 point average. For 2006 a shareholder loan capitalised in October 2005 was treated as equity for the entire period.

Revenue (m)

USD 2002-07 CAGR 37%

60 40 20 0

2002

NZD USD

100

NZD 2002-07 CAGR 25% EBITDA (m)

100

2003

2004

2005

2006

2007

NZD 2002-07 CAGR 33% USD 2002-07 CAGR 45%

60 40 20 0 2002

2003

2004

2005

2006

2007

CHAIRMAN’S REPORT

Welcome to this the second Annual Report for Rakon Limited. We are pleased to announce this year’s result with a net surplus after tax of $10.6 million up 47% on our prospectus forecast and 122% on the last financial year. This has been a very busy year for the business, achieving significant growth in our key markets, acquiring the Frequency Control Products (FCP) business of C-MAC MicroTechnology and laying a positive platform for our expansion in Asia. Our overall business revenue grew by more than 40% with significant amounts of this growth attributed to the Personal Navigation Device market (PND). Particularly Bryan Mogridge pleasing was the strong demand that followed the Christmas period with customer reordering showing that stock produced by our customers had sold well through retail. This growth is predicted to continue into our next financial year. Mobile phones with integrated GPS are also beginning to get market traction and we are predicting good early stage growth during fiscal 2008. With Rakon’s purchase of the FCP business from C-MAC MicroTechnology in March of this year, we acquired a significant global presence that will assist us to further develop Rakon as a global business. This acquisition provides a more balanced geographic footprint for our company, a broader product offering, an enhanced research and development team and a significant increase in our global sales force coverage. We have recently announced our intentions to seek opportunities to manufacture some products in Asia, in particular mainland China. We are pursuing this strategy for three reasons. The first is to form a manufacturing base that can take advantage of China’s lower labour and establishment costs, as well as give us access to enhanced skills in key areas important to Rakon’s ongoing volume production strategies. The second is to give us a strategic position within what is quickly becoming the fastest growing centre for manufacturing of high tech consumer and infrastructure products globally. The third is to ensure we are positioned as close as possible to China’s and the rest of Asia’s fast growing market places. The Directors have reviewed the forecast for the next financial year’s results and remain comfortable with the guidance given to the market at the time of Rakon’s annual announcement on 15 May 2007. Sales revenue is predicted to increase to between $200 to $220 million dollars and EBITDA to between $32 to $38 million dollars. These forecasts are based upon the US$/NZ$ remaining at an average of around 70 cents for the full 12 month period. The results for our business would not have been achieved without the dedication of our world wide team at Rakon. Some have only been with us a very short time and others many years. Together their dedication, knowledge and pure hard work have delivered this year’s results which the Board considers a job very well done. On behalf of the Board our thanks to everyone at Rakon. To our shareholders, a very important part of our team, our thanks for joining with us on what we anticipate will be a very exciting journey as we continue our strategy of building a market leading, global business from our base here in New Zealand.

B W Mogridge Chairman

2007 MARKS THE 40TH ANNIVERSARY OF RAKON’S FOUNDING. TO HIGHLIGHT T H I S M I L E S TO N E W E PAY T R I B U T E TO WARREN ROBINSON - THE FOUNDER OF RAKON.

Rakon - The Past Warren’s early days were spent out in the country in Pukekohe. An only child, Warren’s father was Postmaster at the local post office. From an early age Warren was interested in the sciences and technology. He was very ‘hands on’ in electrical engineering. His fascination began in electronics at secondary school, building a radio at the age of 15. He was one of the youngest in New Zealand (with two others) to receive an amateur radio license at 15 years old. After Auckland Grammar, Warren became a Technical Trainee at the New Zealand Broadcasting Service, where he had extensive training

in electronics. To extend his knowledge he completed Auckland University papers in Maths, Physics and Chemistry. After the broadcasting service, Warren went to work for Electronic Navigation as a Technician in marine electronics for two years. At 20 years of age and with a mere ‘50 quid’ Warren formed his own company ‘Marlin Electronics’ in partnership with Henri Klok. It was during the Marlin days that Warren developed his marketing skills, driven originally from his technical experience and background. He extended his knowledge of the market at the time, by reading profusely. Warren retained copies of publications on frequency control

TRIBUTE TO FOUNDER

from symposium proceedings held internationally, and from as early as 1945 he attended symposiums in the U.S. In 1955 Marlin manufactured radio telephone equipment including ‘type approved’ radio telephones for class 3 and 4 marine vessels and depth sounders. Warren and Henri ran Marlin from 1955 until 1965 before deciding to sell out to Autocrat Radio (interestingly Peter Maire later bought the marine navigation business off Autocrat). Warren acted as Consultant and Chief Engineer for Autocrat and after 2 years the contract finished. But during this time, Warren had been getting itchy feet. Throughout his time at Marlin he had experienced the frustration of crystals taking up to 3 or 4 months to be delivered. He had seen the ongoing demand for radio telephones and servicing the radio industry where the demand for radios in boats, taxis, VHF, and trucks was on the rise. The large gap in the market for locally made crystals was too big to ignore, so at his garage in Bleakhouse Road in Howick, Warren decided to make his own. His initial developments were pressure mounted crystals. He then opened up a small factory on the corner of Balm and Nuffield St in Newmarket (the original building still stands there today). But Warren wanted to manufacture hermetically sealed crystals which required vacuum equipment. He had faced problems getting a license to import the machinery. The Government at the time ironically viewed his projects as nothing more than a ‘pipe dream’ and were unwilling to grant the license. It took persistence, but the industry obliged in the end and Rakon Industries (then a staff of twelve) was able to move forward with manufacturing the solder sealed UM-1 crystals. Demand was heavy so in 1971 the George St premise in Mt Eden was opened and 30-40 staff employed. In 1972 Warren established a further manufacturing plant in Singapore. He had been exporting to South East Asia using Singapore as the trading center. Warren had seen the potential market for communication crystals with a market base of 300 million stemming from Thailand, Malaysia, the Philippines and Taiwan. Back in New Zealand, Rakon Industries was able to supply the market with lead times of as little as 2 or 3 days, whereas previously the lead time offshore had been 3 or 4 months. Customers were prepared to pay a premium for the shorter delivery time. The market was even more appealing as in the 70’s there was a custom duty protection of about 30% protecting local New Zealand business so that any competitors

had to pay the duty- making the locally made crystals the preferred choice. In 1976-1977 Warren opened the Melbourne plant to service the Australian market. From radio communications the commodity consumer market evolved. Computers required at least 2 or 3 crystals each. In the U.S, Citizen band radios (in essence the forerunner to cell phones) were manufactured, which didn’t require a license to make, so demand for these crystals flooded into Singapore. In the mid seventies, with the invention of colour TV came demand for television crystals. It was not until the 90’s that new markets evolved (GPS, telecommunications infrastructure, satellite communications etc). The naming of Rakon Originally Warren developed the name because he didn’t want it to mean anything in particular so that it could be used as a trademark worldwide. There were a few similar sounding name choices but it was “Rakon” that was chosen by the registrars at the time and approved as a registered trademark. Rakon - The Present Since the 60’s and 70’s Warren has seen the technology advance at a phenomenal pace, but he believes the culture of Rakon has remained. Back then there was the challenge to try something different to learn an entirely new industry and through perseverance, dedication and commitment to push the envelope and boundaries. Warren says this strive for excellence continues at Rakon today, with quality staff and staff relations being keys to success. Rakon – The Future Progressing forward, Warren believes that as a high tech company there is potential for tremendous growth world wide, particularly in China and South East Asia where there is huge opportunity to meet demand in the local markets. Rakon - The Founder Warren is extremely modest and it takes some convincing for him to see why people may just be interested to read about the story behind how Rakon began - and the story behind one of New Zealand’s most successful businessmen. Today as a member of the Board, Warren still has an active involvement with Rakon. He is still continuing to push the envelope- developing an olive grove and vineyard on his estate in Waiheke Island, with the intention of making his own wine.

MANAGING DIRECTORâ&#x20AC;&#x2122;S

REPORT significantly increase productive capacity, quality and efficiency across all phases of our manufacturing process. We have added further high resolution test capacity to our high volume Integrated TCXO (IT) line. This has enabled us to increase output by an additional 1.75 million units per month. In 2008 we are planning on significant expansion of this line with volumes predicted to hit 8 million units per month before the end of the calendar year.

Brent Robinson

Our first full year as a public company has been a successful and exciting one for the team at Rakon. We have seen excellent growth in our core GPS business; in particular sales to customers requiring frequency control products for Personal Navigation Devices (PND) have been very strong. Our focus on continuing to develop and improve our products to serve these customers has been well rewarded and we remain committed to delivering them a superior product today and in the future. The acquisition of the Frequency Control Products (FCP) division of C-MAC MicroTechnology at the end of the fiscal year has also opened up a lot of new opportunities for Rakon. These European based operations give us a much enhanced global footprint, access to new technologies and penetration into high value telecom markets which we have been looking at for some time. Revenue and earnings Operating revenue grew by 43% over last year to $106.2m, this was a significant achievement for Rakon and breaking the $100m barrier is a milestone we have been working towards for some time. Revenue has grown at an average compound rate of 25% since 2002. Eliminating for the impact of currency movements increases the underlying average growth rate to 37% over this period. Earnings before interest and tax (EBIT) was $16.5m, up 85% on last year and net surplus after tax was $10.6m, up 122% on last year. In addition to top line revenue growth, earnings were further boosted by new lower cost product designs, lower material costs and business efficiencies achieved not only by production volume growth but from continued investment and improvement in equipment performance and automation. Since 2002 EBIT has grown at a compound average rate of 69%. Manufacturing Investment in manufacturing technology and expansion of existing capacity has been key to Rakonâ&#x20AC;&#x2122;s success. Overall Rakon made capital investments of more than NZ$11 million this year to

In January 2007, the clean room expansion was completed resulting in an increase of 50% in volume output for quartz crystals. The clean room is a tightly controlled environment where critical parts of the crystal manufacturing process take place. The expansion was completed in a way that has allowed for further expansion, and we plan to proceed with this in the 2008 financial year. This will add another 30% to the crystal production capacity. This expansion has enabled Rakon to better balance the mix of manufactured and purchased crystals used in our TCXO manufacturing, as well as enable us to develop the next generation 2.5 x 2.0 mm crystal package. The acquisition of the FCP business has also brought with it some new technologies and challenges. Our Oven Controlled Crystal Oscillator (OCXO) production in France has been struggling to keep up with demand being driven by the deployment of 3G cellular networks in Asia. In order to increase output we will be adding additional capabilities to our Auckland plant which will complement what we are doing in France. This is an important stage for Rakon in developing a truly global manufacturing base. Customers and Products Investment in research and development is continuous at Rakon with many new product developments in the pipeline. The GPS market remains a very strong focus for us with growth expected to continue through the coming year. In 2007 sales of our 0.5 ppm TCXO, which is largely used in high sensitivity GPS applications, grew in volume by 120%. As previously mentioned the PND market in particular has been very strong in 2007. Sales of PNDs in North America and Europe grew to 13 million units in the calendar year 2006, up from 5 million units the year before. Most analysts predict volumes will continue to ramp strongly again through 2008. Rakon remains the leading supplier to this market and is therefore well positioned to capture a significant part of this growth. We continue to work closely with our customers and business partners to ensure we are remaining at the forefront of technology and have the products to enable the next generation of devices. As part of this, Rakon continues to develop further

miniaturisation. Our high stability IT range has evolved from the larger 7.0 x 5.0 mm, through to 5.0 x 3.2 mm and 3.2 x 2.5 mm footprints. In 2008 we will begin shipping volume orders for an ultra miniature 2.5 x 2.0 mm package. The smaller package offers the same high stability (<0.5ppm) over demanding temperature ranges and very low frequency slope (ppb/°C) at highly competitive costs. Cellular GPS has finally started to show some signs of ramping up into real volumes. With the likes of Nokia and Research In Motion now adding GPS to their flagship phones, it is only a relatively short period of time before more applications are readily available to take advantage of this feature and consumer volumes begin to accelerate. Although we have not banked on these volumes to be significant to us in 2008, it has a lot of potential to be a very exciting market in the future.

increased by only 4% between March 2006 and March 2007, which highlights the improved efficiency of our operation in delivering the revenue growth. A similar increase in staff numbers is planned for our New Zealand operations in 2008. With 130 skilled engineers worldwide and specialists in the areas of crystal, oscillator and equipment design, Rakon has an impressive combined pool of technical skills and capabilities. Recruiting and developing skilled engineering talent remains a critical factor in our continued growth. Rakon has a dedicated sales support team of 60 staff worldwide. Sales staff are heavily engineering focused offering critical technical advice and expert consultation from initial product ideas, through to the development of a customised solution.

Significant interest has been shown in our GPS RF-front-end Module (GRM) and we are working closely with a number of GPS equipment manufacturers who wish to launch products based around our solution this year. Rakon currently has 3 different versions of the GRM and is working with partners on new releases in the coming months to support different platforms.

Outlook Demand for GPS grade TCXOs is strong particularly for the PND market. The team at Rakon continue to work relentlessly to maintain our leadership position by demonstrating the superior features of our product and innovating its design, performance and manufacturing to ensure we deliver real value to our customers.

Our desire to push the boundaries of what is possible with existing technology has allowed us to release new products in this last year which will enable some of the new evolving technologies. Our Pluto and Barracuda TCXOs are up to 25 times more stable than conventional TCXOs and are designed to meet the requirements being demanded by the emerging femtocell market. Femtocells are small 3G cellular base stations which can be installed in consumers homes and provide a variety of services including home phone line, broadband and other media services. ABI Research forecasts that by 2011 there will be 102 million users of femtocell products on 32 million access points worldwide.

The telecommunications infrastructure sector is also strong with the roll out of 3G technology happening quickly in many regions. New technologies such as femtocells also offer great potential.

New requirements for emergency beacons are coming into effect in the near future. These beacons require a very stable frequency reference, typically an OCXO. Our Pluto ASIC technology offers performance in a much lower cost TCXO product and is suitable for use in these beacons. With this technology and our expertise, we have the opportunity to be able to command a very strong position in this market. Older emergency beacons (121.5 and 243 MHz) will be phased out by early 2009. With over 800,000 beacons in use worldwide, this new requirement is a lucrative market for the Pluto. People The last year has seen significant changes for Rakon. With growth to near 750 staff, and with 30% of that team based internationally, we truly are a global organisation. In New Zealand, staff numbers

Rakon is investigating opportunities to expand its operations into China. Our customer and supplier base is concentrated around Asia so expansion by way of a new manufacturing facility to complement our NZ operations is a sound strategic move for Rakon that we are focussed on progressing, to further enhance our competitive position. The strength of our customers, the markets we sell into and the commitment and quality of the team at Rakon mean we forecast revenue for the 2008 year to be in the region of NZ$200 – 220 million and EBITDA of NZ$32 – 38 million. These projections assume the US$/NZ$ averages around 70 cents for the full year. Rakon continues to have the support of an excellent Board who provide great leadership to our committed and talented team striving to deliver solutions for our customers and success for Rakon’s shareholders. We are confident that this platform, strategic focus and market position of Rakon place the company well, not only for 2008 but for the years ahead.

Brent Robinson Managing Director

L E A D I N G T H E WAY

ENABLING CONNECTIVITY EVERYWHERE

R A KO N AT A

GLANCE Rakon is a world leader in the development of frequency control solutions for a wide range of applications. Rakon has leading market positions in the supply of crystal oscillators to the GPS, telecommunications network timing/ synchronisation, and aerospace markets.

A global sales presence Rakon has extensive customer support world-wide, with offices in New Zealand, the U.S.A, the U.K, France, China, Taiwan and Japan. Rakon also maintains a network of over 40 manufacturing representatives and distributors worldwide.

Founded in New Zealand in 1967 by Warren Robinson, Rakon became the leading supplier of GPS TCXOs to the world market in 1991. Since then the GPS market has evolved from low volume niche applications to a high volume consumer based market. Rakon has maintained market dominance, and has excelled in taking high precision, niche technology and transforming this into high volume cost effective solutions, while still maintaining the highest performance and quality. This leadership has been achieved through unique proprietary processes, continual innovation, expert consultation and constant technology advancement.

World-wide manufacturing and distribution Rakon has a global manufacturing model with plants located in New Zealand, Europe and Asia.

Rakon became a publicly listed company on the New Zealand Stock Exchange in May 2006. In March 2007 Rakon acquired the Frequency Control Products (FCP) division of C-MAC MicroTechnology, and established itself as a leader in frequency control for the expanding timing and synchronisation, wireless and base station markets. The European based FCP division of C-MAC has an impressive history dating back to 1937. Today Rakon has a diverse product portfolio ranging from low stability XO, VCXO and crystal products, through to high volume precision TCXOs and all the way to precision OCXO and Rubidium equivalent frequency standards. A large multinational, Rakon has operations in New Zealand, the UK, France, China, Taiwan, Japan and the U.S.A. Core Competencies Superior customer solutions With frequency control solution design centres in the UK, France and New Zealand, Rakon provides solutions for the world’s frequency requirements. Rakon is well aware that customer designs require individual solutions. Continuous expert consultation is available from initial concept and prototype through to the finished product, and is ongoing throughout the product’s life cycle. Rakon has strong relationships with its customers - some dating back over 30 years. Through acute technical understanding Rakon enables partners concepts to become a reality, working from the initial idea through to development of a customised solution.

Performance and precision in the extreme Rakon’s products meet the industry’s intensifying need for high levels of accuracy and stability in extreme and dynamic conditions. Rakon pioneered the development of oscillators capable of maintaining high levels of accuracy and unique lock on stability under extreme environmental conditions. Rakon is synonymous with reliability Rakon has world leading quality assurance practices. Corrective action processes have been compared with the NASA equivalent. Rakon’s reputation for quality has been established from Rakon’s long history of delivering the most reliable products in the industry. World leading technology Rakon has developed unique advanced testing and compensation technology. Stabilities achieved in its 3G test system units are up to 5 times better than competitive technologies. Rakon is the only crystal and oscillator manufacturer that has the technology to provide 100 percent high temperature resolution screening of high volume production to ensure that all non-performing crystals and oscillators are eliminated. Innovative products Rakon products are continuously evolving. The culture at Rakon is innovative, fast paced and vibrant as new challenges open up new avenues for improvement and creativity. Rakon continues to lead the way with the development of new generation oscillators for optimising customer performance. Rakon - leading the way, enabling connectivity everywhere.

OPE

G LOB A L PRES E NCE

Crewkerne, UK European sales and support, as well as Durham, NC, USA

logistics management for

Customer support office for North America.

commodity products. Lincoln/Harlow, UK

Osaka, Japan Consultancy office for

Design and manufacturing

Japanese business.

of Pluto based TCXOs and Advanced Technology Products.

Shenzhen, China Customer and technical support for mainland China.

Argenteuil, France Sales, support, design and Chicago, IL, USA Primary customer and

manufacturing of SC Crystal and OCXOs.

technical support office for Taipei, Taiwan

North America.

Customer and technical support for Taiwan, Korea and SE Asia.

India Subcontracted manufacturing for legacy products formally manufactured in Harlow, UK.

Auckland, New Zealand Head office, sales, technical manufacturing of high precision crystals & TCXOs.

750

Staff

Manufacturing plants

Sales offices

Rep offices

Distributors

support, design and

R A KO N AT A

GLANCE Quartz crystals are found in nearly all electronic devices, from high-tech aerospace applications through to TVs and wrist watches. Quartz crystals are used in electronic devices to act as a timing or frequency reference device to ensure the functionality of electronic equipment dependent upon accurate timing or frequency control. An oscillator is an electronic circuit that is used for the purpose of generating a repetitive electronic signal. A crystal oscillator is an electronic circuit that uses the mechanical resonance of a vibrating crystal of piezoelectric material to create an electrical signal with a very precise frequency. This frequency is commonly used to keep track of time (such as in quartz wristwatches). The simplest crystal oscillators require an amplifier and feedback in the circuit along with the crystal. OVEN CONTROLLED CRYSTAL OSCILLATORS (OCXOs) OCXOs eliminate the effect of temperature on frequency by maintaining the oscillator at a constant temperature above ambient. The crystal is enclosed in a small insulated container along with a heating element and a temperature sensor. This arrangement keeps the crystal at a constant temperature regardless of the temperature of the environment outside the OCXO.

OCXOs offer very high performance and accuracies and are typically used in mission critical applications. Because of the larger size and power requirements of OCXOs they are typically only used in fixed applications such as cell towers, telecommunication switches and satellites. Through years of development and optimisation of electronic circuitry and crystal design, Rakon offers a world leading range of OCXO products with unparalleled performance. Rakon has a complete range of precision solutions from OCXOs capable of replacing expensive Rubidium clocks in SDH/SONET Stratum 2 applications through to low profile oven oscillator products. Rakonâ&#x20AC;&#x2122;s self calibrating OCXOs can maintain stabilities of better than 16ppb (1.6 x 10-8) over the productâ&#x20AC;&#x2122;s entire life time and can achieve stabilities of less than 0.05ppb (5 x 10-11) over temperature. Other OCXO products include high precision, low phase noise and low profile ovens. Rakon specialises in delivering customised solutions to suit a wide variety of applications including network timing & synchronisation, base stations, telecoms infrastructure and even space qualified requirements.

TEMPERATURE COMPENSATED CRYSTAL OSCILLATORS (TCXOs) TCXOs provide another way of creating stability in a quartz crystal’s oscillating frequency over a temperature range, by applying a correction voltage to the circuit to stabilise its frequency output as temperature changes. This voltage is based on an output signal received from a temperature sensor, placed near the crystal. TCXOs can be used in a myriad of applications including telecommunications, microwave and GPS, where high levels of accuracy can be achieved in applications where small size is critical. ULTRA STABLE TEMPERATURE COMPENSATED CRYSTAL OSCILLATORS Rakon’s ultra stable TCXO products offer the highest frequency stability performance achievable from a

TCXO. These TCXOs address markets that require near OCXO performance, but without the high cost or power consumption. The Triton™ product family combines proprietary ASIC compensation technology with simplified oven control to create a hybrid product capable of stabilities down to 25ppb (2.5 x 10-8) over temperature, in small DIP14 packages. The Pluto™ and Barracuda™ TCXO product families fulfil the requirements of demanding communications and precision GPS markets. With stabilities as tight as 100ppb (1 x 10-7) over temperature and a variety of output options, these products are ideal for wireless home base stations, rescue beacons and other high volume, stability demanding applications. The Pluto family are the only products in the world to address the often ignored problem of voltage control tilt in VCTCXO devices.

Rakon supplies a broad range of frequency control components from low microcontroller

ACCURACY

10-11 10-10 10-9 10-8 10-7 10-6 10-5 10-4

references through to atomic

Rakon product offering

time standards

R A KO N AT A

GLANCE HIGH STABILITY TEMPERATURE COMPENSATED CRYSTAL OSCILLATORS Rakon has developed a range of high stability TCXO products for mass volume consumer applications. These products have become the default standard for consumer GPS and other performance critical volume applications. These products come in a variety of form factors, from the larger 7.0 x 5.0 mm footprint through to miniature 2.5 x 2.0 mm packages. All offer high stability (<0.5ppm) over demanding temperature ranges and very low frequency slope (ppb/°C) at highly competitive costs. PRECISION QUARTZ CRYSTALS Rakon has over 40 years experience in crystal design and today manufactures a range of AT, Y and SC cut crystals in a variety of industry standard and ultra miniature SMD package sizes. Rakon’s patented HiG™ crystals can withstand shocks of greater than 20,000G and are extremely resistant to frequency noise induced by vibration. SPECIALTY PRODUCTS Rakon manufactures a range of application specific products and is able to design unique frequency control based solutions for our customers. These products include high frequency VCXOs and low jitter XOs as well as advanced specialty modules, such as the GPS RF Front End Radio.

The GPS RF Front End Radio Module is the world’s smallest GPS Radio. As a more complete RF solution, test time and design time are virtually eliminated. Designed to interface with software processing solutions it is a cost neutral, fast turn around solution for GPS hardware designers. Rakon’s temperature sensing crystal oscillators also offer system designers the ability to achieve extremely stable frequency solutions from miniature, power efficient products. COMMODITY PRODUCTS As a complete frequency control solutions provider, Rakon has a range of frequency control products to address the commodity market. These products are Rakon quality assured and manufactured by approved subcontractors and partners. Typically XOs are low cost, low performance oscillators where lower accuracies are required such as wristwatches, TVs and microprocessor clocks. By intelligent management and understanding of the frequency control supply chain, Rakon offers cost effective solutions for low end XO, VCXO and quartz crystal requirements.

AV I AT I O N The aviation community is using GPS extensively. With its accurate, continuous all-weather coverage, satellite navigation offers a navigation service that satisfies many of the requirements of users worldwide.

WIMAX

Technology is continually advancing, with

WiMax aims to provide high speed wireless

the development of automatic landing and

data over long distances, in a variety of

take off systems being a reality in the future.

different ways, from point to point links to full mobile cellular type access. For individual services 3G and Wimax can compete with each other.

3G 3G is the next generation of mobile phone technology. It offers users a wide range of high speed mobile services, including voice telephony and broadband wireless data. Sales of 3G phones may hit 392 million units this year and show an approximately 40 percent compounded annual growth rate from 2007 through 2010.

P E R S O N A L N AV I G AT I O N DEVICES (PND) A PND is a portable electronic product which combines a positioning capability (such as GPS) and navigation functions. The term has come into widespread use with the growing popularity of after market navigation devices for automobiles. Sales of PNDs in North America and Europe grew to 13 million units in 2006, up from 5 million units the year before. Most analysts predict volumes will continue to ramp strongly again through 2008.

EXAMPLES OF

U S E R A P P L I C AT I O N S

EMERGENCY BEACONS Beacons allow people in distress to be located by emergency services. Since 1982, 20 300 people have been rescued worldwide.

FEMTOCELLS Femtocells are very small 3G cellular base stations designed for use in people’s home or office. Femtocells provide a variety of services including home phone line, broadband and other media services. “the market for femtocells is predicted to rise to at least $2bn by 2011.” (source: Stuart Carslaw, ABI Research, April 07).

B A S E S TAT I O N S Fixed antennas used for wireless telecommunications. A base station consists of one or more radio transmitters and receivers that communicate with individual mobile phones in the area.

L E A D I N G T H E WAY ENABLING CONNECTIVITY EVERYWHERE

Over 800,000 emergency beacons are currently in use. New requirements for emergency beacons are coming into effect.

BOARD OF

DIRECTORS Bryan Mogridge Bsc ONZM Independent Chairman Bryan Mogridge was appointed Chairman in November 2005. Bryan has been a public company Director since 1984. He is currently Chairman of Enterprise Waitakere, Waitakere City Holdings Limited, Guardian Healthcare Group Limited, Momentum Energy Limited and The Starship Foundation. Additionally, Bryan sits on the Board of Mainfreight Limited and Pyne Gould Corporation Limited. Bryan has also chaired the New Zealand Wine Institute, the New Zealand Food and Beverage Exporters Council, and the Tourism Board. Bryan was appointed Vice Chairman of UBS New Zealand Limited in April 2007.

Bruce is currently the Chairman of Jade Stadium Limited, Christchurch City Facilities Limited and is a Director of Pyne Gould Corporation Limited, Marac Limited, Godfrey Hirst Limited, Market Gardeners Co-operative Limited, House of Travel Limited, Christchurch City Holdings Limited, Skope Limited and Canterprise Limited. In a voluntary capacity, he serves as a trustee of the Christchurch Symphony Trust and the Christchurch Art Gallery Trust. Peter Maire Non-executive Director Peter Maire was appointed as a Director of Rakon in November 2005.

Bruce Irvine Independent Non-executive Director Bruce Irvine was appointed as a Director of Rakon in November 2005.

Peter is the co-founder and former President of Navman NZ Limited. He sold his shareholding to Brunswick Corporation in 2004 and resigned from his position as Chairman at the end of 2005.

Bruce is the managing partner of Deloitteâ&#x20AC;&#x2122;s Christchurch office and is also a member of the Deloitte National Board.

Peter is a member of the Governmentâ&#x20AC;&#x2122;s Growth and Innovation Advisory Board, New Zealand Trade and Enterprise, the Hi

Bryan Mogridge

Bruce Irvine

Peter Maire

Growth Advisory Board and is an Honorary Fellow of the Institution of Professional Engineers New Zealand. Peter has made significant investment into NZ technology companies. He is Chairman of Cadmus Technology NZ Limited and Director of Orion Systems Limited and Fusion Electronics Limited. Brent Robinson Executive Director Brent Robinson was first appointed Managing Director at Rakon Industries Limited in 1986 and continues in that role at Rakon. Brent has over 25 years experience in the design and manufacture of crystals and oscillators. Since his appointment Brent has led and driven the development of Rakonâ&#x20AC;&#x2122;s core TCXO business, which is the basis of the companyâ&#x20AC;&#x2122;s success today, supplying over 50% of the world GPS market for TCXOs. Since assuming leadership in 1986, Rakon has grown from sales of approximately $1.7m to $106.2 million FY2007.

Brent Robinson

Darren Robinson

Darren Robinson Executive Director Darren has over 25 years sales and marketing experience and was appointed Sales and Marketing Director for Rakon in 1990. Darren has driven sales for Rakon through exploring new markets, applications and building and maintaining relationships with many top Fortune 500 companies. Since his appointment sales revenue has grown on average by 25% per annum. Warren Robinson Non-executive Director Warren Robinson founded the Rakon business in the basement of his Howick home in 1967. He successfully grew and operated the business until 1986 when Brent Robinson became the Managing Director. In subsequent years, Warren has continued to maintain an active role within Rakon and was Chairman until November 2005. Warren received a First Class Certificate in Radio Technology and is a member of the Institute of Electrical and Electronics Engineers, a senior member of the New Zealand Electronics Institute and is a member of The Royal Society of New Zealand.

Warren Robinson

CO R P O R AT E

GOVERNANCE The Role of the Board The Board has ultimate responsibility for the strategic direction of Rakon and oversight of the management of Rakon for the benefit of Shareholders. Specifically, the responsibilities of the Board include: • • • • • •

working with management to establish the strategic direction of Rakon; monitoring management and financial performance; monitoring compliance and risk management; establishing and monitoring the health and safety policies of Rakon; establishing and ensuring implementation of succession plans for senior management; and ensuring effective disclosure policies and procedures.

In discharging their duties, Directors have direct access to and may rely upon Rakon’s senior management and external advisers. Directors have the right, with the approval of the Chairman or by resolution of the Board, to seek independent legal or financial advice at the expense of Rakon for the proper performance of their duties.

Bryan Mogridge Brent Robinson Darren Robinson Warren Robinson Peter Maire Bruce Irvine

Meetings Held

Meetings Attended

17 17 17 17 17 17

17 17 16 16 10 17

Board Committees The Board has three formally constituted committees of Directors. Committees established by the Board review and analyse policies and strategies, usually developed by management, which are within their terms of reference. They examine proposals and, where appropriate, make recommendations to the full Board. Committees do not take action or make decisions on behalf of the Board unless specifically mandated by prior Board authority to do so. The Committees are as follows:

The Board comprises six Directors: a non-executive Chairman, two executive Directors and three non-executive Directors. Under the Constitution, the Independent Chairman holds a casting vote at Board meetings. Board members have an appropriate range of proficiencies, experience and skills to ensure that all governance responsibilities are fulfilled and to achieve the best possible management of resources.

Audit and Risk Management Committee The Audit and Risk Management Committee is responsible for overseeing the risk management (including treasury and financing policies), treasury, insurance, accounting and audit activities of Rakon, and reviewing the adequacy and effectiveness of internal controls, meeting with and reviewing the performance of external auditors, reviewing the consolidated financial statements, and making recommendations on financial and accounting policies.

In accordance with the Constitution the Board have resolved that the Managing Director will not be required to retire by rotation.

The members of the Audit and Risk Management Committee are Bruce Irvine (Chairman), Bryan Mogridge and Warren Robinson.

Directors Meetings The Board plan to meet not less than nine times during any financial year including sessions to consider the strategic direction of Rakon and Rakon’s forward-looking business plans. Video and/or phone conferences are also used as required. For the year ended 31 March 2007 there were eleven Board and Strategic Planning Meetings held and an additional six board meetings associated with the approval of full year and half year financial statements and pertaining to the acquisition of the Frequency Control Products Division of C-MAC MicroTechnology.

Director

Bruce Irvine Bryan Mogridge Warren Robinson

Meetings Held

Meetings Attended

2 2 2

Remuneration Committee The Remuneration Committee is responsible for overseeing management succession planning, establishing employee incentive schemes, reviewing and approving the compensation arrangements for the executive Directors

and senior management, and recommending to the full Board the compensation of Directors.

effective induction and training programmes are in place for new and existing Directors.

The members of the Remuneration Committee are Bryan Mogridge (Chairman), Peter Maire and Warren Robinson.

The members of the Nomination Committee are Bryan Mogridge (Chairman), Peter Maire and Warren Robinson.

Director

Bryan Mogridge Peter Maire Warren Robinson

Meetings Held

Meetings Attended

1 1 1

Director

Bruce Irvine Bryan Mogridge Warren Robinson

Meetings Held

Meetings Attended

1 1 1

Nomination Committee The Nomination Committee is responsible for ensuring the Board is composed of Directors who contribute to the successful management of the company, ensuring formal review of the performance of the Board, individual Directors and the Boardâ&#x20AC;&#x2122;s committees and ensuring

MANAGEMENT

PROFILES Rakon has a strong management team and expert staff across all functions. Three of these individuals are profiled below. Dr Philip Davies Operations Manager, Rakon UK Limited Philip has 17 years experience in the quartz industry. In 1991 he started his career as an Engineering Manager for a small crystal company in the North West of the UK. This transferred to Lincoln in 1993 where he was appointed Programme Manager, and in 1995 the business was acquired by C-MAC. Philip has held various positions within the company since this time including production management, engineering management, general operations, setting up an operation in India, and most recently he has been Operations Manager for the Harlow and Lincoln sites, overseeing manufacturing, quality assurance, human resources and engineering. In March 2007 he was appointed Operations Manager for Rakon UK Limited. “Over the years the Lincoln facility has developed into a highly efficient, cost-conscious manufacturing operation selling our leading edge products into some of the world’s largest OEMs and CEMs - our major market is the growth market of non-GPS telecommunications. The Harlow Engineering Team has been responsible for some brilliant new technologies which are genuinely best in their class. For example our Pluto TCXO ASIC produces phenomenal frequency versus temperature performances, beyond anything anyone else can achieve”. Philip holds a BSc and PhD in Physics. Every May Philip removes the dust cover from his Suzuki Bandit 600 and enjoys riding around the Lincolnshire countryside in the sunshine. Tom Davidson Product Manager, Rakon Limited (New Zealand) Tom has 25 years experience in the technology field in the US and Canada, including several years in the semiconductor business. He has spent the last 12 years in the frequency control industry, including Motorola and CTS. Tom and his wife immigrated to New Zealand from the United States in 2006 and Tom joined Rakon in Auckland as Product Manager for Custom Products in July of the same year. Product Managers at Rakon have overall responsibility for the entire product lifecycle

and must ensure that their products meet or exceed customer expectations for price, performance, quality and availability, and meet Rakon’s business objectives. Prior to joining Rakon, Tom was Director of Marketing at Pericom Semiconductor Corporation in San Jose, California. “Rakon has developed a culture of innovation that encourages thinking outside-the-box, enabling the company to offer high performance solutions to customers long before its competitors. This not only gives the company a much more stimulating working environment, it also earns customer loyalty and higher margins. The acquisition of the Frequency Control Products division of C-MAC MicroTechnology, itself a proven innovative technology leader, complements the Rakon strategy and culture well, expanding its global presence.” Tom holds a Master of Science degree in Electrical Engineering, and a Master of Business Administration (MBA) degree. His graduate business education was completed through a joint program in Chicago and Brussels. Tom enjoys travel and is an enthusiastic distance runner. Claude Trialoup OCXO Marketing Manager, Rakon France SAS Claude has over 15 years experience in the crystal industry. Claude has worked in the areas of design, experimentation and quality management for Matra-Ericsson and Magneti Marelli, before joining the Argenteuil facility in 1991. Since then he has held positions as Quality Manager, Oscillators Technical Manager and Applications and Marketing Manager. In 2007 he was appointed OCXO Marketing Manager for Rakon France SAS. “Working for Rakon is something rather new, but already promising for all of us in Europe and really exciting on my own side; we now have a combined pool of outstanding resources; technical skills and capabilities, industrial competencies, process engineering and automisation and we can reach more markets & applications. Based on the new configuration, we can develop and lever new opportunities.” Claude holds a Bachelor of Science degree (in Physics & Measurement Technics), and a Master of Science degree (in Acoustics) and he speaks French, Italian and English. In his spare time Claude enjoys art and culture.

“…the Lincoln facility has developed into a highly efficient, cost-conscious manufacturing operation selling our leading edge products into some of the world’s largest OEMs and CEMs…” “…the Harlow Engineering Team has been responsible for some brilliant new technologies which are genuinely best in their class”. Dr Philip Davies Operations Manager, Rakon UK Limited

“Rakon has developed a culture of innovation that encourages thinking outside-the-box, enabling the company to offer high performance solutions to customers long before its competitors”. Tom Davidson Product Manager, Rakon Limited (New Zealand)

“We now have a combined pool of outstanding resources; technical skills and capabilities, industrial competencies, process engineering and automisation. Based on the new configuration, we can develop and lever new opportunities”. Claude Trialoup OCXO Marketing Manager, Rakon France SAS

DIRECTORS

REPORT was due to strong sales growth into GPS applications particularly personal navigation products. The acquisition of the Frequency Control Products Division from C-MAC MicroTechnology in March 2007 also added $5.5 million of revenue for the year.

Bryan Mogridge

Brent Robinson

The Directors are responsible for ensuring that the financial statements give a true and fair view of the financial position of the Company and the Group as at 31 March 2007 and their financial performance and cash flows for the period ended on that date. The Directors consider that the financial statements of the Company and the Group have been prepared using appropriate accounting policies, consistently applied and supported by reasonable judgments 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 Reporting Act 1993. 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 note there has not been any material change in the nature of the business undertaken by the Company and the Group in the past year.

Net surplus was $10.6 million up $5.8 million or 122% on the prior year. In addition to top line revenue growth, earnings were further boosted by new lower cost product designs, lower material costs and business efficiencies achieved not only by production volume growth but from continued investment and improvement in equipment performance and automation. Rakon improved its financial position with shareholders equity of $100.9 million, funding 71.5% of total assets as at 31 March 2007. Net cash flow from operations at $10.8 million was up from the $9.7 million recorded in the prior year. Increased working capital requirements resulting from business growth partially offset the improved operating surplus. The Board have determined that no dividend will be paid and that consistent with the Companyâ&#x20AC;&#x2122;s policy cash will be retained in order to capitalise on immediate and future growth opportunities. Audit Fees Amounts paid to PricewaterhouseCoopers for audit services and for other services are shown in note 3 of the Financial Statements. Other Statutory Information Additional information required by the Companies Act 1993 is set out in Shareholder Information. Retirement of Directors Mr Peter Maire and Mr Bruce Irvine retire by rotation, and being eligible offer themselves for re-election.

The Directors have pleasure in presenting the financial statements set out in pages 26-51, of Rakon Limited and subsidiaries for the period 1 April 2006 to 31 March 2007. The Board of Directors of Rakon Limited authorised these financial statements for issue on 15 May 2007.

On behalf of the Directors

Financial Results Sales revenue for the year was $106.2 million, up $31.9 million or 43% on the prior year. The increase in revenue

B W Mogridge Chairman

B J Robinson Managing Director

L E A D I N G T H E WAY

ENABLING CONNECTIVITY EVERYWHERE

FINANCIALS S TAT E M E N T S O F F I N A N C I A L P E R F O R M A N C E For the year ended 31 March 2007

Group

Parent

2007

2006

2007

2006

Note

($000s)

2 3

106,239 (90,059)

74,371 (67,124)

100,731 (84,646)

74,370 (67,228)

16,180 (5,533)

7,247 (2,445)

16,085 (5,411)

7,142 (2,434)

Net surplus attributable to parent Shareholders

10,647

4,802

10,674

4,708

Operating surplus comprises: Operating surplus from continuing activities

10,647

4,802

10,674

4,708

9.9 9.7

5.5 5.5

Operating revenue Operating expenses Operating surplus before income tax Income tax

Basic Earnings per Share (in cents) Diluted Earnings per Share (in cents)

S TAT E M E N T S O F M O V E M E N T S I N E Q U I T Y For the year ended 31 March 2007

Group Note

Equity at beginning of the year Recognised revenues and expenses Net surplus after tax Foreign currency translation reserve Total recognised revenues and expenses Other movements Contribution from owners Distributions to owners Share issuance costs

Equity at end of the year

5 6

4 7 4

Parent

2007

2006

2007

2006

($000s)

24,045

7,957

23,916

7,922

10,647 (1,544)

4,802 -

10,674 -

4,708 -

9,103

4,802

10,674

4,708

70,055 (2,303)

12,886 (1,600) -

70,055 (2,303)

12,866 (1,600) -

67,752

11,286

67,752

11,286

100,900

24,045

102,342

23,916

The accompanying notes form an integral part of these financial statements.

S TAT E M E N T S O F F I N A N C I A L P O S I T I O N As at 31 March 2007

Group 2006

2007

2006

Note

($000s)

17 16

2,157 34,722 34,798

853 13,614 19,735

1,128 17,148 23,394

803 13,585 19,735

71,677

34,202

41,670

34,123

32,370 37,023 -

14,880 118

22,790 58,040 -

14,879 118

Total non-current assets

69,393

14,998

80,830

14,997

Total assets

141,070

49,200

122,500

49,120

30 853 31,250

6,901 1,314 8,940

30 11,653

6,901 1,314 8,989

32,133

17,155

11,683

17,204

8,000 37

8,000 -

8,000 475

8,000 -

8,037 40,170 100,900

8,000 25,155 24,045

8,475 20,158 102,342

8,000 25,204 23,916

Assets Current assets Cash and bank Accounts receivable Inventories Total current assets Non-current assets Property, plant and equipment Investments in subsidiaries Intangible assets Deferred tax

Liabilities Current liabilities Bank overdraft Borrowings Payables and accruals

14 15 18 11

9 9 10

Total current liabilities Non-current liabilities Borrowings Deferred tax

9 11

Total non-current liabilities Total liabilities Net assets Equity Share capital

80,888

13,136

80,888

13,136

Foreign currency translation reserve

(1,544)

Retained earnings

21,556

10,909

21,454

10,780

100,900

24,045

102,342

23,916

Total equity

The accompanying notes form an integral part of these financial statements.

Parent

2007

FINANCIALS S TAT E M E N T S O F C A S H F LO W S For the year ended 31 March 2007

Group

Parent

2007

2006

2007

2006

($000s)

101,248 324 2

75,639 62 -

96,274 325 2

75,829 61 -

101,574

75,701

96,601

75,890

(62,344) (22,450) (635) (5,368)

(42,469) (18,739) (203) (1,444) (3,121)

(59,766) (20,384) (620) (5,368)

(43,071) (18,304) (203) (1,444) (3,111)

(90,797)

(65,976)

(86,138)

(66,133)

Net cash flow from operating activities

10,777

9,725

10,463

9,757

Investing activities Cash was applied to Purchase of property, plant and equipment Purchase of subsidiaries

(11,623) (58,232)

(5,395) -

(11,387) (58,040)

(5,391) -

(69,855)

(5,395)

(69,427)

(5,391)

853 70,055

11,264 -

70,055

11,387 -

70,908

11,264

70,055

11,387

(1,314) (1,811) -

(15,621) (915) (492) (1,600) -

(1,314) (1,811) (1,020)

(15,620) (915) (492) (1,600) -

(3,125)

(18,628)

(4,145)

(18,627)

67,783

(7,364)

65,910

(7,240)

8,705

(3,034)

6,946

(2,874)

Operating activities Cash was provided from Receipts from customers Interest received Dividends received

Cash was applied to Payments to suppliers and others Payments to employees Finance lease charges Interest paid Income tax paid

Net cash flow from investing activities Financing activities Cash was provided from Proceeds from borrowings Issue of ordinary shares

Cash was applied to Repayment of principal on borrowings Finance lease principal payments Share issuance costs Dividends paid to Shareholders Intercompany loans

Net cash flow from financing activities Net increase/ (decrease) in cash held

The accompanying notes form an integral part of these financial statements.

S TAT E M E N T S O F C A S H F LO W S For the year ended 31 March 2007

Group

Parent

2007

2006

2007

2006

($000s)

(530) (6,048)

(278) (2,736)

250 (6,098)

(363) (2,861)

Cash at the end of the year

2,127

(6,048)

1,098

(6,098)

Composition of cash Cash and bank balances Bank overdraft

2,157 (30)

853 (6,901)

1,128 (30)

803 (6,901)

2,127

(6,048)

1,098

(6,098)

10,647

4,802

10,674

4,708

3,546 233 135 (653) 577 (2)

2,958 158 489 (283) 74

3,479 132 (965) 593 (2)

2,953 158 574 (283) 74

3,836

3,396

3,237

3,476

(3,919) (3,936) (232) 5,242 (454) (407)

468 1,381 (141) 188 37 (406)

(3,016) (3,660) (67) 4,287 (438) (554)

658 1,381 (140) 41 37 (404)

(3,706)

1,527

(3,448)

1,573

10,777

9,725

10,463

9,757

Foreign currency translation adjustment Cash at the beginning of the year

Reconciliation of operating surplus to net cash flows from operating activities Reported surplus after tax Items not involving cash flow Depreciation expense Amortisation expense Increase in estimated doubtful debts Movement in foreign currency Deferred tax (Gain)/loss on disposal of property, plant and equipment

Impact of changes in working capital items Accounts receivables Inventory Prepayments Trade creditors and accruals GST receivable Tax provisions

Net cash flow from operating activities

The accompanying notes form an integral part of these financial statements.

FINANCIALS S TAT E M E N T O F A CCO U N T I N G P O L I C I E S Reporting entity The financial statements are for the economic entity comprising Rakon Limited and its subsidiaries. Rakon Limited is a company registered under the Companies Act 1993. Basis of preparation The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993. The reporting currency used in the preparation of these financial statements is New Zealand dollars. The financial statements have been prepared on the historical cost basis. The following specific accounting policies have been applied. Accounting policies The financial statements are prepared in accordance with New Zealand Generally Accepted Accounting Practice. Basis of Consolidation The Group financial statements consolidate the financial statements of subsidiaries using the purchase method. All material intercompany transactions between Group companies have been eliminated. The accounting policies for the subsidiaries are consistent with the policies adopted by the Parent company. Subsidiaries are listed in note 15. The results of subsidiaries acquired during the year are included in the consolidated statement of financial performance from the date of acquisition. Subsidiaries Subsidiaries are companies that are controlled, either directly or indirectly by the Parent. Revenue Goods and services Sales revenue comprises the amounts received and receivable for goods and services supplied to customers in the ordinary course of business. Sales are made on ex-works basis and recognised on dispatch with the exception of consignment stock sales that are recognised on a drawdown basis.

is declared. Interest and rental income are accounted for as earned. Foreign currency translation Transactions Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rates in effect at the date of the transaction. Where short term forward currency contracts have been taken out, the contract is valued on a mark to market basis and the corresponding asset or liability recognised in the statement of financial position. Gains and losses on the valuation of forward currency contracts are recognised in the statement of financial performance. Monetary assets and liabilities arising from trading transactions are translated at closing rates. Gains and losses due to currency fluctuations on these items are included in the statement of financial performance. Foreign operations Integrated overseas subsidiaries are translated to New Zealand dollars in the same manner as if all transactions of the foreign operation had been entered into by the Parent and Group itself. Revenue and expenses of independent foreign operations are translated to New Zealand dollars at the exchange rate in effect at the date of the transaction, or rates approximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date. Exchange differences arising from the translation of independent foreign operations are recognised in the foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary liabilities that are identified as hedged against these operations. Goods and Services Tax (GST) All items in the statement of financial performance are net of GST with the exception of receivables and payables, which include GST.

Investment income Dividend income is recognised in the period the dividend

Inventories Finished goods, raw materials, stores and work in progress are stated at the lower of cost and net realisable value. Costs have been assigned to inventory quantities on hand at balance date using the first in first out basis. Costs comprise direct materials and direct labour together with an appropriate portion of fixed and variable production overheads. Accounts receivable Accounts receivable are carried at estimated realisable value after providing against debts where collection is doubtful. Rakon France SAS has a trade receivable financing facility with Société Générale. The trade receivables continue to be recognised in the statement of financial position at their estimated realisable value as the credit risk is retained by Rakon France SAS. Property, plant and equipment Property, plant and equipment are recorded at historical cost, being the value of the consideration given to acquire the assets. Assets under construction are recorded as capital work in progress. Depreciation is applied once these assets are complete and transferred to the appropriate asset category. Depreciation is calculated on a straight line basis using the rates detailed below.

Building Land Leasehold improvements Computer hardware Computer software Plant and equipment Motor vehicles Furniture and fittings Capital work in progress

10% Nil 3.6 - 16.9% 36% 36% 5 - 10% 20 - 25% 6 - 48% Nil

Asset lives are reviewed annually. All major spare parts held for specific machinery are capitalised and depreciated on the same basis as the specific machinery for which they are held. Impairment Annually, the Directors assess the carrying value of each

asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statement of financial performance. Distinction between capital and revenue expenditure Capital expenditure is defined as all expenditure on the creation of a new asset and any expenditure which increases the economic benefits over the total life of an existing asset. Revenue expenditure is defined as expenditure which restores an asset to its original condition and all expenditure incurred in maintaining and operating Rakon’s activities. Intangible assets Patents, trademarks and licences The cost of patents acquired is determined based on the estimated cash flows over the estimated useful lives of the patents. The cost of trademarks and licences are based on the agreed fair value of the asset acquired. Amortisation of patents, trademarks and licenses is calculated on a straight line basis over their anticipated useful lives which range between seven and ten years. Order and production backlogs Order and production backlogs are amortised over the anticipated useful lives which range between 13 and 18 months. Goodwill The excess of cost over the fair value of the net assets of the subsidiaries is recognised as goodwill and is amortised to the statement of financial performance on a straight line basis over the shorter of its estimated useful life or twenty years. Statement of cash flows The following are the definitions of the terms used in the statement of cash flows: a) Operating activities include all transactions and other events that are not investing or financing activities. b) Investing activities are those that are related to holding and disposal of assets and investments. c) Financing activities are those that result in changes in the size and composition of the capital structure. This includes both debt and equity not falling within the definition of cash. d) Cash is considered to be cash on hand and current accounts in bank, net of bank overdraft.

FINANCIALS Leased assets Finance leases Assets under finance leases are recognised as non-current assets in the statement of financial position. Leased assets are recognised initially at the lower of the present value of the minimum lease payments or their fair value. A corresponding liability is established and each lease payment allocated between the liability and interest expense. Leased assets are depreciated on the same basis as equivalent property, plant and equipment. Operating leases Leases that are not finance leases are classified as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable. Income tax Income tax expense recognised for the year is based on the accounting surplus, adjusted for permanent differences between accounting and tax rules. The impact of timing difference between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred tax under the liability method. A deferred tax asset or the effect of the losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is a virtual certainty that the benefit of the timing differences, or losses, will be utilised. Research and development All research costs are recognised as an expense when incurred. When a project reaches the stage where it is reasonably certain that future expenditure can be recovered through the process or products produced, development expenditure is recognised as a development asset. The asset is amortised from the commencement of commercial production or use of the product to which it relates on a straight line basis over the period of expected benefit. Employee entitlements Employee entitlements to salaries and wages, annual leave, long service leave and other benefits are recognised when they accrue to employees. The liability for employee entitlements is carried at the present value of the estimated future cash outflows.

Financial instruments Recognised Financial instruments carried on the statement of financial position include bank balances, trade receivables, trade creditors and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Financial instruments that are designated as hedges of specific items are recognised on the same basis as the underlying hedged items. Where short term forward currency contracts have been taken out, the contract is valued on a mark to market basis and the corresponding asset or liability recognised in the statement of financial position. Gains and losses on the valuation of forward currency contracts are recognised in the statement of financial performance. Unrecognised The net differential paid or received on interest rate swaps are recognised as a component of interest expense or revenue over the period of the agreement. Adoption of International Financial Reporting Standards In December 2002 the New Zealand Accounting Standards Review Board announced that reporting entities would be required to comply with New Zealand equivalents of International Financial Reporting Standards (NZ IFRS) for financial statements covering annual reporting periods starting on or after 1 January 2007, with earlier adoption for periods starting on or after 1 January 2005 permitted. In the case of Rakon Limited and subsidiaries (Rakon), the first financial year for which fully compliant financial statements must be produced will be for the year commencing on 1 April 2007 (and ending 31 March 2008) at which time the comparative figures for the previous year will also be restated to comply with NZ IFRS. Although early implementation is an option, the Board of Directors has determined that Rakon will adopt NZ IFRS for the first time in its reports to shareholders for the year ending 31 March 2008. An assessment has been performed to determine the differences between the current key accounting policies of Rakon and current NZ IFRS with the material differences set out below. It should not be regarded as a complete list of changes in accounting policies resulting from the transition

to NZ IFRS, as NZ IFRS and related interpretations may change between the issue date of these financial statements and the Group’s first balance date reported under NZ IFRS being 31 March 2008. The purpose of the following disclosure is to highlight major impacts the Group expects as a result of transitioning to NZ IFRS. The expected material adjustments arising from differences between the current key accounting policies of Rakon and NZ IFRS identified to date are outlined in the appropriate paragraphs. Where a reliable estimate of the impact is possible it has been quantified. All adjustments noted below will be recognised through an adjustment to opening retained earnings or another component of equity as appropriate. Functional currency NZ IAS 21: The Effects of Changes in Foreign Exchange Rates, requires the functional currency of the group and parent to be determined. The currency of Rakon’s primary economic environment is the functional currency and this drives how foreign exchange gains and losses are determined. The Board has considered the impact of NZ IFRS as regards the appropriate functional currency for Rakon and determined that Rakon should continue to report using NZ dollars as its functional currency when it adopts NZ IFRS. Financial Instruments and hedge accounting NZ IAS 39: Financial Instruments: Recognition and Measurement, (“NZ IAS 39”) requires all derivative instruments to be recorded at fair value in the statement of financial position with the related changes in fair value being recognised in income unless the instruments qualify for hedge accounting and the NZ IAS 39 hedging criteria are met. Rakon currently uses both foreign exchange contracts (options and forwards) to hedge forecast foreign cash flows and interest rate swaps to hedge borrowings. Rakon intends to adopt hedge accounting for these instruments wherever practicable from 1 April 2007 onwards. Where such instruments qualify as cash flow hedges the effective portion of changes in fair value of those instruments will be recorded directly in equity until the hedged transaction occurs. Where such instruments qualify as fair value hedges, changes in the fair value of the instruments along with changes in the fair value of the debit will be recorded in the statement of financial performance. If the instruments do not qualify for hedge accounting, the entire change in the fair value of the instruments will

be recorded in the statement of financial performance. Rakon currently recognises the fair value of forward foreign exchange contracts in the statement of financial position with fair value movements being recorded in the statement of financial performance. The impact of the initial adoption of NZ IAS 39 will not have a material impact on the financial statements. Income tax NZ IAS 12: Income taxes, requires an entity to calculate deferred tax using a balance sheet approach by comparing the tax bases of assets and liabilities to their carrying values in the statement of financial position. Differences between the two values are temporary differences on which deferred tax must be recognised (with some limited exceptions). This is different to current New Zealand accounting standards and is expected to result in a deferred tax liability larger than that currently recorded in the statement of financial position of the Group. Business combinations NZ IFRS 3: Business Combinations is required to be followed for all business combinations entered into from the date of the opening balance sheet at 1 April 2006. Under this standard all business combinations must be recognised using purchase accounting and goodwill will no longer be amortised (instead goodwill will be subject to an annual impairment test within the constraints of NZ IAS 36: Impairment of Assets). Share based payments NZ IFRS 2: Share Based Payments requires an entity to determine the fair value of all share based remuneration and amortise the expense over the relevant vesting period. The Group has issued share options to selected employees as a form of equity based compensation under the Rakon Share Growth Plan. The Group has not recognised an expense in respect of these shares. On adoption of NZ IFRS the Group will be required to determine the fair value of all share based remuneration, and this will result in an expense being recognised as an adjustment to the comparative period. Comparatives Certain prior year comparative figures have been reclassified to conform to the current year’s presentation. Accounting policies There have been no changes in accounting policies during the year.

FINANCIALS N OT E S TO T H E F I N A N C I A L S TAT E M E N T S For the year ended 31 March 2007 1. Segment information The Group operates in one industry, namely the development and manufacture of electronic components for timing reference and frequency control. For the first 11 months of the year the Group operated from one geographic segment being New Zealand. Subsequent to the acquisition of the Frequency Controls Products Division from C-Mac MicroTechnology, the Group now operates in New Zealand and Europe. For sales by geographic regions refer to note 2.

2007

2006

Europe

Others*

Group

Europe

Others*

Group

($000s)

External customers Intersegment sales

100,731 -

5,508 -

106,239 -

74,371 -

Segment revenue

100,731

5,508

106,239

74,371

Segment result (EBIT)

16,585

(44)

16,541

8,918

Segment assets

67,451

74,119

(500)

141,070

49,200

*Other, unallocated and eliminations

2. Operating revenue Trading revenue by region

Asia North America Europe Others

Group

Parent

2007

2006

2007

2006

($000s)

64,594 26,786 11,684 2,838

40,217 23,270 8,038 2,784

62,740 25,403 9,512 2,738

40,217 23,270 8,038 2,784

105,902

74,309

100,393

74,309

2007

2006

2007

2006

($000s)

105,902

74,309

100,393

74,309

2 330

2 331

Group

Operating revenue

Continuing activities Trading revenue Investment revenue Dividends Interest

Parent

Group

Operating revenue

2007

2006

2007

2006

($000s)

Total revenue from continuing activities

106,239

74,371

100,731

74,370

Total operating revenue

106,239

74,371

100,731

74,370

Other revenue Other Income

3. Operating expenses

Parent

Group

Parent

2007

2006

2007

2006

($000s)

Operating expenses Include : Continuing activities Depreciation of property, plant and equipment Building Leasehold improvements Plant and equipment Motor vehicles Furniture and fittings Computer hardware Computer software

17 197 2,344 6 64 333 585

1 193 1,954 4 50 320 436

3 195 2,305 6 57 328 585

1 192 1,954 4 49 317 436

Total depreciation

3,546

2,958

3,479

2,953

Loss/(gain) on disposal of property, plant and equipment Amortisation of goodwill Amortisation of other intangibles Rental costs Research and development expense* Net foreign currency loss/(gain) Directorsâ&#x20AC;&#x2122; fees Donations

(2) 111 122 1,074 2,908 374 207 1

74 1,114 129 (20) 67 1

(2) 919 2,764 406 207 1

74 917 129 64 67 1

Costs of offering credit Bad debts written off Increase/(decrease) in estimated doubtful debts

135

62 158

132

62 158

Cost of borrowings Interest Financing charge related to finance leases Interest and break fee charge on change of bank

691 -

1,386 203 144

676 -

1,386 203 144

Auditorâ&#x20AC;&#x2122;s fees+ Auditors fee paid to principal auditors Audit fee paid to other auditors

203 5

79 4

128 -

79 -

FINANCIALS * The 2007 research and development expense includes cost of material, cost of internal labour and other directly attributable overhead research and development costs. The 2006 research and development expense only includes cost of material. In 2007, $312,950 labour costs were capitalised to development projects (2006: $171,723). + In addition to the audit fees noted above, fees paid to the companyâ&#x20AC;&#x2122;s auditors for due diligence activity amounted to $307,000 in the prior year (see Note 4, included within share issuance costs) and $302,000 in the current year (see Note 15, included within goodwill as directly attributable acquisition costs).

4. Share capital

Group

Parent

2007

2006

2007

2006

($000s)

Issued and paid up capital Ordinary shares Balance at beginning of year Shares issued during the year

13,136 70,000

250 12,886

13,136 70,000

250 12,886

Balance at end of year

83,136

13,136

83,136

13,136

Redeemable ordinary shares Balance at beginning of year Shares issued during the year

Balance at end of year

Share issuance costs Balance at beginning of year Cost incurred for IPO Cost incurred for placement

(1,103) (1,200)

Balance at end of year

(2,303)

Total Share Capital

80,888

13,136

80,888

13,136

At 31 March 2007 there were 120,205,675 fully paid ordinary shares on issue (31 March 2006: 318,377), 859,137 unpaid ordinary shares on issue to the trustee of the Rakon Share Plan (31 March 2006: 2,759) and 1,100,000 partly paid redeemable ordinary shares on issue to the trustee of the Rakon Share Growth Plan (31 March 2006: nil). All ordinary shares rank equally with one vote attached to each fully paid ordinary share. On 16 February 2007, 14,814,815 ordinary shares were issued at $4.05 per share. On 16 May 2006, Rakon listed on the NZX and 6,250,000 new ordinary shares were issued at $1.60 per share. On 13 April 2006, Rakon undertook a share split of 311.394549 to 1. This resulted in the number of shares on issue increasing to 100 million shares. On 17 March 2006, 2,759 ordinary shares were issued under the Rakon Share Plan at $188.46 per share. On 19 October 2005, shareholder loans were capitalised and 68,377 ordinary shares were issued at $188.46 per share.

Rakon Share Plan Rakon Limited has 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 on 17 March 2006. Following the share split on 13 April 2006, the resulting number of shares under this plan is 859,137. All shares issued to Rakon ESOP Trustee Limited have been allocated. The shares rank equally in all respects with all other ordinary shares issued by the Company. No amounts have been paid up on the Shares. A loan facility provided by Rakon Limited to participating employees in respect of these shares totals $520,000 (2006: nil). Loans will be provided on an interest free basis and the employee may repay all or part of the loan at any time. No repayments were due at 31 March 2007 (31 March 2006: $Nil). The Trust Deed makes provision for the Company to require repayment of the loans in certain circumstances. Shares issued under the Share Plan are held on trust by Rakon ESOP Trustee Limited. The shares cannot be sold or otherwise dealt with by the participating managers for a period of 18 months from the date of issue. At any time after the end of this period the participating manager may request the Trustee to transfer the relevant shares to him or her. The Trustee will not transfer the Shares to a participating manager until the loan to that manager has been repaid in full. The Company may remove and appoint trustees at any time. The directors and shareholders of Rakon ESOP Trustee Limited are Bryan Mogridge and Bruce Irvine. Shares held by the Share Plan represent approximately 0.70% of the Company’s total shares on issue as at balance date (2006: 0.86%). Rakon Share Growth Plan Rakon Limited has established a Share Growth Plan to enable selected senior executives of Rakon Limited to acquire Shares in the Company through the Plan Trustee, Rakon PPS Trustee Limited. On 5 May 2006 Rakon issued 1.1 million Plan Shares; the shares had an issue price of $1.60, with $0.05 per share being received from participating executives on issuance. While the Plan Shares remain held by the Trustees, an annual payment of $0.05 per share is required. The Plan rules provide for the transfer of these shares over a three year period provided they are paid in full and the share price equals or exceeds a benchmark price at the time of transfer. The benchmark price requires that Rakon’s share price increases by a compound rate of 14% per annum for the date of issue of the shares. An executive will cease to be entitled to require the Trustee to transfer any relevant shares to the executive if the request is not made before the 4th anniversary of the issue date or if they cease to be an employee of the company other than by reason of death or total and permanent disablement. In either of these instances the Trustee will redeem the shares. The Plan shares do not carry any voting rights until such time as the holder elects for the relevant shares to carry voting rights to the extent of the proportion of the issue price paid up on the shares. No such elections have been made. The Company may remove and appoint trustees at any time. The directors and shareholders of Rakon PPS Trustee Limited are Bryan Mogridge and Bruce Irvine. Rakon Employee Share Option Scheme In May 2006 Rakon established an employee share option scheme. During the year 2,034,000 options were issued to selected employees. Each option granted will convert to one ordinary share on exercise. A participant may exercise a third of his or her options any time after the first anniversary, second and third anniversaries subject to the weighted average share price on the 10 days preceding the date of exercise exceeding a benchmark price. The benchmark price requires that Rakon’s share price increases by a compound rate of 14% per annum for the date of issue of the option. Options lapse on their fourth anniversary. Participants also have the option to cancel options whereby they will be issued shares to the value of the gain that would have been received had the options been exercised.

FINANCIALS 31 March 2007

Granted Exercised Cancelled Lapsed

31 March 2006

Option

Number of

Option

Number of

Price*

Options

Price*

Options

1.66

Balance outstanding

2,034,000 -

2,034,000

*weighted average

5. Retained earnings

Group

Parent

2007

2006

2007

2006

($000s)

Analysis Balance at beginning of year Net surplus for the year Dividends paid

10,909 10,647 -

7,707 4,802 (1,600)

10,780 10,674 -

7,672 4,708 (1,600)

Balance at end of year

21,556

10,909

21,454

10,780

2007

2006

2007

2006

($000s)

Balance at the beginning of the year Net exchange difference on the translation of foreign subsidiaries

(1,544)

Balance at end of year

(1,544)

6. Foreign currency translation reserve

Group

7. Dividends

Parent

Group

Parent

2007

2006

2007

2006

($000s)

Ordinary dividends Declared final On ordinary shares: Cash

1,600

Total dividends

1,600

The dividends were fully imputed.

8. Imputation balances

Group

Parent

2007

2006

2007

2006

($000s)

5,382

3,051

5,382

3,051

(5,382)

Tax payments, net of refunds Imputation credits attached to dividends paid

5,368 -

3,119 (788)

5,368 -

3,119 (788)

Balance at end of year

5,368

5,382

5,368

5,382

Imputation credit account Balance at beginning of year Lost of imputation credits due to shareholding change

9. Borrowings and bank overdraft

Group

Parent

2007

2006

2007

2006

($000s)

853 -

1,314

853

1,314

8,000

6,901

Borrowings due within 12 months Trade finance facility Capitalised lease obligations (note 13)

Non-current borrowings Borrowings – 5 year interest only term loan*

Bank overdraft due within 12 months

*Term expires in 2010.

Security Bank overdraft The bank overdraft is secured by first mortgage over all the undertakings of Rakon Limited and any other wholly owned present and future subsidiaries. Trade finance facility Rakon has provided a guarantee over the trade finance facility to Société Générale. Société Générale provides a discounted receivables credit line up to €760,000 to Rakon France SAS. Interest is charged at the Euro OverNight Index Average (eonia) +1%. The credit risk remains with Rakon France SAS. Capitalised lease obligation Capitalised lease obligations are secured over the property under lease.

FINANCIALS Interest rates

Weighted average effective interest rates on borrowings Borrowings and bank overdraft Owing to related parties

Group 2006

2007

2006

8.25% -

10. Payables and accruals

Trade creditors Employee entitlements Accrued expenses Payable to related parties Income tax payable

Asset/(liability) at end of year

8.29% 9.69%

8.25% -

Group

8.29% 9.69%

Parent

2007

2006

2007

2006

($000s)

16,320 6,673 5,205 3,052

4,069 1,511 2,953 407

6,084 2,145 3,022 402 -

4,069 1,511 2,896 117 396

31,250

8,940

11,653

8,989

11. Deferred tax

Asset/(liability) at beginning of year On surplus for the year Impact of purchase of subsidiaries Foreign exchange adjustment

Parent

2007

Group

Parent

2007

2006

2007

2006

($000s)

118 (577) 434 (12)

(165) 283 -

118 (593) -

(165) 283 -

(37)

118

(475)

118

12. Income tax

Group

Parent

2007

2006

2007

2006

($000s)

16,180

7,247

16,085

7,142

323 74

244 -

95 -

234 -

Surplus subject to tax Tax at 33% Foreign tax credit Reduced tax on foreign income due to different tax rate Prior period tax adjustment

16,577 5,470 (9) 72

7,491 2,472 (27) -

16,180 5,339 72

7,376 2,434 -

Income tax recognised in statement of financial performance

5,533

2,445

5,411

2,434

Attributable to continuing activities

5,533

2,445

5,411

2,434

Total tax expense recognised for the year

5,533

2,445

5,411

2,434

Comprising: Estimated current year tax assessment Deferred tax charge/(credit)

4,956 577

2,728 (283)

4,818 593

2,717 (283)

5,533

2,445

5,411

2.434

Operating surplus before tax Permanent differences Non-deductible expenses Tax losses not recognised

Group Tax Losses

2007

2006

($000s)

48,682 16,552

597 129

625 135

Unrecognised tax losses available for set off against future assessable income for: Rakon France Holdings SAS: Tax losses Tax benefit Rakon Singapore Pte Limited: Tax losses Tax benefit

FINANCIALS 13. Commitments

Group

The following amounts have been committed by the Group or Parent, but not recognised in the financial statements: Operating leases Non-cancellable operating lease commitments: Within one year Later than one, not later than two years Later than two, not later than five years More than five years

Parent

2007

2006

2007

2006

($000s)

1,468 1,048 2,360 3,011

637 688 1,845 2,560

984 797 1,745 1,841

621 686 1,845 2,560

7,887

5,730

5,367

5,712

The Group leases premises, and plant and equipment. Operating leases held over properties give Rakon Limited the right to renew the lease subject to a redetermination of the lease rental by the lessor. There are no renewal options or options to purchase in respect of premises, plant and equipment held under operating and finance leases. Group 2006

2007

2006

($000s)

1,314

720

117

286

117

Finance leases Non-cancellable finance lease commitments: Within one year

Capital expenditure Amounts committed to capital expenditure

14. Property, plant and equipment

Parent

2007

2006

Cost ($000s)

Accumulated Depreciation ($000s)

Book Value ($000s)

Cost ($000s)

Accumulated Depreciation ($000s)

Book Value ($000s)

Group Plant and equipment Capital finance lease assets

40,716 -

20,752 -

19,964 -

27,676 2,229

18,298 154

9,378 2,075

Total Plant and equipment

40,716

20,752

19,964

29,905

18,452

11,453

Leasehold improvements Land Building Motor vehicles Furniture and fittings Computer hardware Computer software Capital work in progress

3,720 2,667 2,331 44 938 3,234 3,642 3,077

1,957 18 32 645 2,032 2,563 -

1,763 2,667 2,313 12 293 1,202 1,079 3,077

2,755 28 32 800 2,140 2,614 1,120

1,761 1 26 585 1,711 1,978 -

994 27 6 215 429 636 1,120

60,369

27,999

32,370

39,394

24,514

14,880

2007

2006

Cost ($000s)

Accumulated Depreciation ($000s)

Book Value ($000s)

Cost ($000s)

Accumulated Depreciation ($000s)

Book Value ($000s)

Parent Plant and equipment Capital finance lease assets

37,303 -

20,713 -

16,590 -

27,676 2,229

18,298 154

9,378 2,075

Total Plant and equipment

37,303

20,713

16,590

29,905

18,452

11,453

Leasehold improvements Building Motor vehicles Furniture and fittings Computer hardware Computer software Capital work in progress

3,291 28 44 857 2,721 3,642 2,808

1,954 3 32 641 1,998 2,563 -

1,337 25 12 216 723 1,079 2,808

2,751 28 32 797 2,109 2,614 1,120

1,758 1 26 584 1,678 1,978 -

993 27 6 213 431 636 1,120

50,694

27,904

22,790

39,356

24,477

14,879

The latest independent valuation of land and buildings at 44 Glacière Avenue, Argenteuil, prepared by a registered independent valuer, in December 2006 records a value of €810,000. Government valuations are not performed in France. The latest government valuation of land and buildings at Sadler Road, Lincoln, issued in 2005, records a value of £91,500.

15. Investment in subsidiaries Significant subsidiaries comprise: Naming of entity

Rakon America LLC Rakon Singapore (Pte) Limited Rakon Financial Services Limited Rakon ESOP Trustee Limited Rakon PPS Trustee Limited Rakon International Limited Rakon UK Holdings Limited Rakon UK Limited Rakon Europe Limited Rakon France Holdings SAS Rakon France SAS Argenteuil SAS

Interest held by Group %

Principal

Country of

Balance

activities

incorporation

date

($000s)

Marketing support Marketing support Financing Share trustee Share trustee Marketing support Holding company Manufacturing and sales Sales Holding company Manufacturing and sales Property holding

USA Singapore New Zealand New Zealand New Zealand New Zealand United Kingdom United Kingdom United Kingdom France France France

31-Mar 31-Mar 31-Mar 31-Mar 31-Mar 31-Mar 31-Mar 31-Mar 31-Mar 31-Aug 31-Aug 31-Aug

100 100 100 100 100 100 100 100 100 100 100 100

100 100 100 100 -

On 6 April 2006 Rakon International Limited was incorporated in New Zealand, with a United Kingdom branch established on 5 June 2006. On 30 November 2006 Rakon UK Holdings Limited was incorporated in the United Kingdom. On 27 February 2007 Rakon Financial Services Limited was incorporated in New Zealand.

FINANCIALS Acquisition of subsidiaries On 2 March 2007 Rakon UK Holdings Limited purchased 100% of the shares of: C-MAC Frequency Products Limited (renamed Rakon Europe Limited) C-MAC Quartz Products Limited (renamed Rakon UK Limited) C-MAC Holdings SAS (renamed Rakon France Holdings Limited) for cash consideration of $58 million (including $4 million directly attributable acquisition costs). From 2 March 2007 the operating results of Rakon UK Holdings Limited Group, consisting of an operating deficit after taxation of $237,068, have been included in the Group statement of financial performance.

Summary of the effect of acquisition of subsidiaries

Group 2007

2006

($000s)

Net assets acquired (classification subject to finalisation of completion process): Bank balances Net current assets Property, plant and equipment Separately identifiable intangible assets

(182) 10,324 9,685 6,639

Goodwill on acquisition (to be amortised over 20 years)

26,466 31,584

Consideration paid Bank balances acquired

58,050 182

Net cash impact on acquisition

58,232

16. Inventories

Inventories comprise: Raw materials and stores Work in progress Finished goods

Group 2006

2007

2006

($000s)

17,402 10,149 7,247

10,217 7,449 2,069

13,979 6,488 2,927

10,217 7,449 2,069

34,798

19,735

23,394

19,735

2007

2006

2007

2006

($000s)

30,834 (827) 781 3,934 -

12,446 (158) 327 999 -

14,325 (290) 765 1,305 890 153

12,446 (158) 327 970 -

34,722

13,614

17,148

13,585

17. Accounts receivable

Current Trade receivables Provision for doubtful debts GST receivable Receivable from related parties Prepayments and other assets Income tax receivable

Parent

2007

Group

Parent

18. Intangibles

Parent 2006

2007

2006

($000s)

Unamortised balance at beginning of year Acquisitions Foreign exchange rate changes Current year amortisation

4,630 (132) (37)

Unamortised balance at end of year

4,461

Unamortised balance at beginning of year Acquisitions Foreign exchange rate changes Current year amortisation

731 (21) (8)

Unamortised balance at end of year

702

Unamortised balance at beginning of year Acquisitions Foreign exchange rate changes Current year amortisation

1,278 (36) (73)

Unamortised balance at end of year

1,169

Unamortised balance at beginning of year Goodwill arising on acquisition of subsidiary Foreign exchange rate changes Current year amortisation

31,584 (782) (111)

Unamortised balance at end of year

30,691

Total intangible assets

37,023

Separable intangible assets Patents Gross opening balance Accumulated amortisation at beginning of year

Trademarks Gross opening balance Accumulated amortisation at beginning of year

Order backlog Gross opening balance Accumulated amortisation at beginning of year

Inseparable intangible assets Goodwill Gross opening balance Accumulated amortisation at beginning of year

Group 2007

FINANCIALS 19. Financial instruments The Group is subject to a number of financial risks which arise as a result of its activities. To manage and limit the effects of those financial risks, the Board of Directors has approved policy guidelines and authorised the use of various financial instruments. The policies approved, and financial instruments being utilised at balance date, are outlined below. Currency risk Policies During the normal course of the business the Group exports products, and imports raw material and inventory. As a result of these transactions exposures to fluctuations in foreign currency exchange rates arise. The currencies in which the Group primarily deals are the United States Dollar, Euro, Great Britain Pound and Japanese Yen. It is the Groupâ&#x20AC;&#x2122;s policy to enter into foreign currency forward contracts to manage the exposure to fluctuations in currency rates. Unrecognised balances The notional or principal contract amounts of foreign exchange instruments outstanding at balance date are:

Group and Parent

Forward foreign exchange contracts

2007

2006

($000s)

22,057

24,008

The cash settlement requirement of the forward exchange contracts approximates the notional amounts shown above.

Interest rate risk Policies To manage interest expense appropriately, the Group engages fixed and variable loan facilities. Rakon Limited uses interest rate swaps to manage its interest rate risk. These are entered into for periods up to five years, with the level and maturity of core debt determining the proportion of fixed cover required to be maintained. The interest rate on borrowings is either converted from floating to fixed or vice-versa through entering into an interest rate swap. Unrecognised balances The notional principal or contract amounts of interest rate contracts outstanding at balance date is: Group

Interest rate swaps

Parent

2007

2006

2007

2006

($000s)

5,000

The cash settlement requirement for interest rate swaps as at 31 March 2007 net interest is $6,349 (31 March 2006: nil). The maturity date of the interest rate swap is 16 May 2008.

Repricing analysis Trade receivables, trade creditors, sundry receivables and sundry payables have not been included in the following repricing analysis as they are not interest rate sensitive. Group - 2007 Effective interest rates

Current ($000s)

Asset Bank

7.27%

2,157

Liabilities Bank overdraft

8.25%

(30)

Current borrowings

4.90%

(853)

Term borrowings

8.20%

(8,000)

Unrecognised Interest rate swap

5.84%

5,000

6,274

(8,000)

(1,726)

Repricing gap

1-2 years ($000s)

2-5 years ($000s)

>5 years ($000s)

Total ($000s)

Group - 2006 Effective interest rates

Current ($000s)

1-2 years ($000s)

2-5 years ($000s)

>5 years ($000s)

Total ($000s)

Asset Bank

3.38%

853

Liabilities Bank overdraft

8.29%

(6,901)

Term borrowings

8.30%

(8,000)

Unrecognised Interest rate swap

6.54%

5,000

(1,048)

(8,000)

(9,048)

Repricing gap

Parent - 2007 Effective interest rates

Current ($000s)

Asset Bank

7.27%

1,128

Liabilities Bank overdraft

8.25%

(30)

Term borrowings

8.20%

(8,000)

Unrecognised Interest rate swap

5.84%

5,000

6,098

(8,000)

(1,902)

Repricing gap

1-2 years ($000s)

2-5 years ($000s)

>5 years ($000s)

Total ($000s)

FINANCIALS Parent - 2006 Effective interest rates

Current ($000s)

1-2 years ($000s)

2-5 years ($000s)

>5 years ($000s)

Total ($000s)

Asset Bank

3.38%

803

Liabilities Bank overdraft Term borrowing

8.29% 8.30%

(6,901) -

(8,000)

(6,901) (8,000)

Unrecognised Interest rate swap

6.54%

5,000

(1,098)

(8,000)

(9,098)

Repricing gap

Credit risk Rakon Limited incurs credit risk from transactions with trade receivables in the normal course of its business. Rakon Limited has a credit policy which restricts exposure to individual trade receivables and the Board of Directors reviews exposure to trade receivables on a regular basis. The Group does not have any significant concentrations of credit risk. Amounts owed by trade receivables are unsecured. The maximum credit risk is represented by the carrying value of each financial asset recorded in the statement of financial position. Fair values Method and assumptions The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash at bank, bank overdraft, term deposits, loans issued, receivables and trade creditors. The carrying value of these items is equivalent to their fair value. As such, they have been excluded from the table below. Borrowings Fair values of borrowings are estimated, based on current market interest rates available to the Group for debt of similar maturity at balance date. Interest rates swap and foreign currency forward exchange contracts The fair values of the derivatives are based on valuations provided by the Groupâ&#x20AC;&#x2122;s bankers at balance date.

Fair value summary

Liabilities Current borrowings Non-current borrowings Foreign exchange contracts Unrecognised Interest rate swaps

2007

2006

Carrying value

Fair value

Carrying value

Fair value

($000s)

(853) (8,000) 521

(1,314) (8,000) (1,079)

133

186

20. Currency

Group and Parent

The following currency conversion rates have been applied at balance date:

NZ$1.00 = USD JPY AUD GBP SGD EUR

2007

2006

($000s)

0.7143 84.2600 0.8856 0.3641 1.0840 0.5358

0.6121 71.8200 0.8563 0.3503 0.9905 0.5035

Unhedged foreign currency monetary assets and liabilities At balance date, the company had the following unhedged foreign currency monetary assets and liabilities:

Group

The following currency conversion rates have been applied at balance date:

Parent

2007

2006

2007

2006

($000s)

Asset Euro British Pounds Australian Dollars US Dollars

4,283 29 4,738

15 23 2 -

45 29 -

15 23 2 -

Liabilities Japanese Yen British Pounds Singapore Dollars Swiss Francs

2,298 943 2 4

1,688 361 2 -

21. Contingent liabilities During 2007, Rakon received some enquiries regarding the validity of items of intellectual property. Based on the current information available management do not believe these enquiries will result in any material changes to the financial results; (2006: no contingent liabilities).

22. Related party information Rakon Limited leases premises from Trident Investments Limited, a Robinson family company. Normal commercial lease agreements are in place for the premises. The lease costs charged by Trident Investments Limited to Rakon Limited for the year is $581,817 (31 March 2006: $557,000). Rakon Limited provides accounting and administrative services to Rakon America LLC, Rakon Singapore (Pte) Limited, Sigma Electronics Limited, Trident Investments Limited and Ahuareka Trust free of charge. No amounts owed by related parties have been written or forgiven during the year.

FINANCIALS There were no advances outstanding from Directors at 31 March 2007 (31 March 2006: $Nil). During the 2006 year certain advances to and from Directors attracted interest at 90 day bank bill rate plus an additional 2.25%. Net interest charges for the year ended 31 March 2006 were: BJ Robinson $3,339 paid and DP Robinson $1,499 received. There were no advances outstanding from Ahuareka Trust or a wholly owed subsidiary at 31 March 2007 (31 March 2006: $Nil). During the 2006 year Ahuareka Trust advanced monies to Rakon Limited on an interest free basis. In October 2005, shareholdersâ&#x20AC;&#x2122; loans amounting to $12,886,009 were capitalised and an additional 68,377 ordinary shares were issued to Ahuareka Trust. Rakon Holdings Limited, the former major shareholder, was liquidated in November 2005 and the shares in Rakon Limited were transferred to the Ahuareka Trust. Ahuareka Trust later sold 63,675 shares to Tahia Investments (53,062 shares) and Zeus Zeta Limited (10,613 shares).

23. Comparison against listing profile forecast The following is a comparison of the actual financial performance for the Group compared to the forecast as per the Companyâ&#x20AC;&#x2122;s prospectus registered 13 April 2006 for the year ended 31 March 2007 and the financial position as at that date.

Group Actual

Group Forecast

Group Actual

2007

2006

($000s)

106,239

90,590

74,371

73,291

Operating surplus before income tax Income tax

16,180 (5,533)

10,836 (3,614)

7,247 (2,445)

6,685 (2,290)

Net surplus

10,647

7,222

4,802

4,395

Summary statement of financial performance Operating revenue

Group Forecast

Operating revenue is ahead of forecast due to stronger demand for frequency products from customers for use in personal navigation devices and the business acquisition of 2 March 2007. 2006 was slightly ahead of forecast results due to substantial weakening in the NZ$/US$ exchange rate during March and higher than forecast sales of consignment stock. Operating surplus before income tax and net surplus have increased directly as a result of the increase in operating revenue.

Summary statement of financial position Total equity Total non-current liabilities Total current liabilities Total equity and liabilities Total non-current assets Total current assets Total assets

Group Actual

Group Forecast

Group Actual

Group Forecast

2007

2006

($000s)

100,900 8,037 32,133

40,384 8,672 14,302

24,045 8,000 17,155

24,162 8,502 16,845

141,070

63,358

49,200

49,509

69,393 71,677

22,879 40,479

14,998 34,202

16,131 33,378

141,070

63,358

49,200

49,509

Total equity is significantly higher than forecast due to issuance of shares under the institutional placement of 16 February 2007 to fund the acquisition of the Frequency Control Products division of C-Mac MicroTechnology. In 2006 total equity was in line with forecast, higher earnings were offset by the impact of accounting for shares issued under the Management Share Ownership Plan. In 2006 total non-current liabilities are below forecast due to the deferred tax balance being in debit rather than credit balance at year end. Total current assets are higher due to the impact of business acquisition. In 2006 the total current liabilities were fractionally higher than forecast due to the timing of creditor payments. Total non-current assets are significantly higher than forecast due to the business acquisition. In 2006 total non-current assets were below forecast due to the timing of capital expenditure and the impact of accounting for shares issued under the Management Share Ownership Plan. Total current assets are higher than forecast due to the business acquisition. In 2006 total current assets were above forecast due to higher than forecast closing cash position.

Group Actual

Cash flow summary Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities Net increase/(decrease) in cash

Group Forecast

Group Actual

Group Forecast

2007

2006

($000s)

10,777 (69,855) 67,783

4,240 (10,433) 9,500

9,725 (5,395) (7,364)

8,758 (6,065) (8,674)

8,705

3,307

(3,034)

(5,981)

Net cash flow from operating activities is higher than forecast due to higher customer demand for products and consequently higher customer receipts in both 2007 and 2006. Net cash flow from investing activities is significantly higher than forecast due to the business acquisition. In 2006 net cash flow applied to investing activities is lower than forecast due to the timing of capital expenditure. Net cash flow from financing activities is significantly higher than forecast due to the issuance of shares in February 2007. In 2006 net cash flow applied to financing activities is lower than forecast due to classification of a finance lease arrangement.

24. Subsequent events On 10 April 2007, Rakon issued 5,456,006 ordinary shares under the Rakon Share Purchase Plan. Eligible shareholders were able to purchase shares up to a value of $5,000 at a share price of $4.05 per share. On 10 April 2007, Rakon issued 830,000 share options to key managers associated with the recent acquisition of the Frequency Control Products division from C-Mac MicroTechnology. The share options were awarded under the Rakon Limited Share Growth Plan established in April 2006.

FINANCIALS

PricewaterhouseCoopers 188 Quay Street Private Bag 92162 Auckland, New Zealand DX CP24073 www.pwc.com/nz Telephone +64 9 355 8000 Facsimile +64 9 355 8001

Auditors’ Report to the shareholders of Rakon Limited We have audited the financial statements on pages 26 to 51. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 31 March 2007 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 30 to 33. Directors’ Responsibilities The Company’s Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 31 March 2007 and their financial performance and cash flows for the year ended on that date. Auditors’ Responsibilities We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and ad equately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as auditors and transaction services advisers. Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and (b) the financial statements on pages 26 to 51: (i) comply with generally accepted accounting practice in New Zealand; and (ii) give a true and fair view of the financial position of the Company and Group as at 31 March 2007 and their financial performance and cash flows for the year ended on that date. Our audit was completed on 15 May 2007 and our unqualified opinion is expressed as at that date.

Chartered Accountants Auckland

SHAREHOLDER

I N F O R M AT I O N Directors Non-executive directors receive fees determined by the Board on the recommendation of the Remuneration Committee plus reasonable travelling, accommodation and other expenses incurred in the course of performing duties or exercising powers as Directors. Shareholders approved a total pool of $240,000 for the remuneration of non-executive directors in December 2005. Annual Directors’ fees were set at $80,000 for the Chairman and $40,000 for each non-executive director with effect from 1 December 2005. Brent Robinson and Darren Robinson are employed by Rakon as Managing Director and Marketing Director respectively and receive salary and other remuneration and benefits in respect of their employment. The following people held office as a Director during the year and received the following remuneration including benefits during the year. Name

Catergory

Remuneration

Bryan Mogridge Brent Robinson Darren Robinson Warren Robinson Peter Maire Bruce Irvine

Independent Chairman Executive Executive Non-executive Non-executive Independent

$80,000 $552,757 $481,151 $40,000 $40,000 $40,000

Directors Interests In association with Rakon ‘s initial public offering of shares, Ahuareka Trustee Limited (as trustee for the Ahuareka Trust), Tahia Investments Limited, Brent Robinson and Darren Robinson (the Shareholders) entered into a Shareholder Restriction Deed (the Deed) with Rakon Limited and UBS New Zealand Limited. Each of the Shareholders agreed that shares held by each of them would not be transferred (except in limited circumstances) until 30 days after the date Rakon made its preliminary announcement to NZSX for the financial year ending 31 March 2007 (i.e. 14 June 2007). In August 2006, in accordance with the Deed, Rakon and UBS consented to the transfer of shares by Ahuareka Trustee Limited to Warren John Robinson and Trusts Limited reflecting a change only in the trustee of Ahuareka Trust. In May 2007, in accordance with the Deed, Rakon Limited and UBS consented to the sale of 1.6 million shares by Tahia Investments Limited.

Trident Investments Limited, a company associated with Warren Robinson, Brent Robinson and Darren Robinson have leased premises to Rakon on arms-length, commercial terms under Deeds of Lease dated 23 August 2005 between Rakon and Trident Investments Limited and receive rental payments from Rakon. As permitted by the Companies Act 1993, the Company has granted certain indemnities to the Directors and specified employees of the Company or any related company in respect of liability and legal costs incurred by those Directors and specified employees in their capacity as Directors and/or employees of the Company or any related company. As permitted by the Companies Act 1993, the Company has arranged a policy of Directors’ and Officers’ Liability Insurance which insures those persons indemnified for certain liabilities and costs. In accordance with Section 140(2) of the Companies Act 1993 and Section 19(U) of the Securities Markets Act 1988, the Directors named below have made a general disclosure of interest during the period 1 April 2006 to 31 March 2007, by a general notice disclosed to the Board and entered in the Company’s interests register: Bryan William Mogridge Shareholder in: • Beneficial interest in 400,000 ordinary shares in Rakon Limited held by Bryan Mogridge. • Non-beneficial interest in 859,137 ordinary shares in Rakon Limited, as director of trustee company Rakon ESOP Trustee Limited. • Non-beneficial interest in 1,100,000 redeemable ordinary shares in Rakon Limited, as director of trustee company Rakon PPS Trustee Limited. • Shareholder in Crime Risk Limited a company that has provided advisory services to Rakon Limited during the period. Brent John Robinson Shareholder in: • Beneficial interest in 9,914,180 ordinary shares in Rakon Limited (following share split of 31,838 ordinary shares at a ratio of 311.394549). • Beneficial interest in 24,060,024 ordinary shares in Rakon Limited (initially held by Ahuareka Trustee Limited as the registered holder and later following a change in trustee by Warren John Robinson and Trusts Limited as the registered holder).

•

Beneficial interest in 270,449 redeemable ordinary shares in Rakon Limited (Rakon PPS Trustee Limited as registered holder).

Darren Paul Robinson Shareholder in: • Beneficial interest in 9,914,180 ordinary shares in Rakon Limited (following share split of 31,838 ordinary shares at a ratio of 311.394549). • Beneficial interest in 24,060,024 ordinary shares in Rakon Limited (initially held by Ahuareka Trustee Limited as the registered holder and later following a change in trustee by Warren John Robinson and Trusts Limited as the registered holder). • Beneficial interest in 234,043 redeemable ordinary shares in Rakon Limited (Rakon PPS Trustee Limited as registered holder). Warren John Robinson Shareholder in: • Beneficial interest in 21,292,225 ordinary shares in Rakon Limited held by Simon Palmer as nominee for the Ahuareka Trust (following a share split of 68,377 ordinary shares at a ratio of 311.394549). • Beneficial and non-beneficial interest in 37,767,799 ordinary shares in Rakon Limited held by Ahuareka Trustee Limited as trustee for the Ahuareka Trust (following a share split of 121,286 ordinary shares at a ratio of 311.394549). • Beneficial and non-beneficial interest in 24,060,024 ordinary shares in Rakon Limited held by Ahuareka Trustee Limited as trustee for Ahuareka Trust following transfer of 35,000,000 ordinary shares to new investors. • Beneficial and non-beneficial interest in 24,060,024 ordinary shares in Rakon Limited held by Warren John Robinson and Trusts Limited following a change in the trustee of Ahuareka Trust. Charles Peter Maire Director of: • Non-beneficial interest as director of Tahia Investments Limited which holds 16,523,218 ordinary shares in Rakon Limited (following share split of 53,062 ordinary shares at a ratio of 311.394549). Shareholder in: • Non-beneficial interest in 16,523,218 ordinary shares in Rakon Limited held by Tahia Investments Limited

(following share split of 53,062 ordinary shares at a ratio of 311.394549). Other: • Consultant to Navman NZ Limited, a customer of Rakon. Bruce Robertson Irvine Director of: • Resigned as a director of Kathmandu Limited Shareholder in: • Beneficial interest in 40,000 ordinary shares in Rakon Limited held by Bruce Irvine. • Non-beneficial interest in 859,137 ordinary shares in Rakon Limited, as director of trustee company Rakon ESOP Trustee Limited. • Non-beneficial interest in 1,100,000 redeemable ordinary shares in Rakon Limited, as director of trustee company Rakon PPS Trustee Limited.

Directors Shareholdings Directors’ shareholdings are shown as at balance date. Name

31 March 2007

Bryan Mogridge shares held with beneficial interest shares held with non-beneficial interest 1 shares held with non-beneficial interest 2

400,000 859,137 1,100,000

Brent Robinson shares held with beneficial interest shares held with beneficial interest 3 held by associated persons held by associated persons 3

33,974,204 270,449 10,363,611 234,043

Darren Robinson shares held with beneficial interest shares held with beneficial interest 3 held by associated persons held by associated persons 3

33,974,204 234,043 10,342,361 270,449

Warren Robinson shares held with beneficial interest held by associated persons held by associated persons 3

24,060,024 20,252,791 504,492

Name

31 March 2007

Peter Maire shares held with beneficial interest 4

16,523,218

Bruce Irvine shares held with beneficial interest shares held with non-beneficial interest 1 shares held with non-beneficial interest 2

40,000 859,137 1,100,000

Substantial Security Holders The following information is given pursuant to Section 26 of the Securities Markets Act 1988. The following are recorded by the Company as at 15 May 2007 as Substantial Security Holders in the Company, and have declared the following relevant interest in voting securities under the Securities Markets Act 1988: Name

Bryan Mogridge and Bruce Irvine jointly hold the same parcel of 859,137 ordinary shares as trustees of the Rakon ESOP Trustee Limited.

Shareholding

Trusts Limited - Non-Beneficial Relevant Interest

24,061,258

Warren John Robinson - Beneficial Relevant Interest

24,061,258

Tahia Investments Limited - Beneficial Relevant Interest

16,523,218

Charles Peter Maire - Non-Beneficial Relevant Interest

16,523,218

Brent John Robinson - Direct Beneficial Relevant Interest - Direct Beneficial Relevant Interest 1 - Beneficial Relevant Interest

9,915,414 270,449 24,061,258

Darren Paul Robinson - Direct Beneficial Relevant Interest - Direct Beneficial Relevant Interest 1 - Beneficial Relevant Interest

9,914,180 234,043 24,061,258

Fisher Funds Management Limited - Non-Beneficial Relevant Interest

12,266,911

Bryan Mogridge and Bruce Irvine jointly hold the same parcel of 1,100,000 partly paid redeemable ordinary shares as trustees of the Rakon PPS Trustee Limited. As at 31 March 2007 5 cents of the $1.60 issue price was paid up on each of these securities.

Partly paid redeemable ordinary shares currently held by the Rakon PPS Trustee Limited. As at 31 March 2007 5 cents of the $1.60 issue price was paid up on each of these securities.

On 21 May 2007, Tahia Investments Limited divested 1,600,000 shares reducing their holding to 14,923,218 shares.

Employees Remuneration During the year the number of employees or former employees not being Directors of Rakon Limited received remuneration including the value of other benefits in excess of $100,000 in the following bands: Remuneration $100,000 - $110,000 $110,001 - $120,000 $120,001 - $130,000 $130,001 - $140,000 $140,001 - $150,000 $150,001 - $160,000 $160,001 - $170,000 $180,001 - $190,000 $190,001 - $200,000 $250,001 - $260,000 $270,001 - $280,000 $280,001 - $290,000

Number of Employees 5 2 1 2 2 1 1 1 4 1 2 1

Partly Paid Redeemable Ordinary Shares: 1,100,000 partially paid securities were on issue as at 15 May 2007. These partly paid securities entitle the holder (Rakon PPS Trustee Limited) to proportionate voting rights to the extent of the issue price paid where the employee member elects for the shares to carry voting rights. As at 15 May 2007 $0.10 of the $1.60 issue price was paid up on each of these securities and no election for the shares to carry voting rights had been made.

Spread of Security Holders as at 15 May 2007 Size of Shareholding

Number of Holders

Total Number Held

1 - 999 1,000 - 4,999 5,000 - 9,999 10,000 - 49,999 50,000 - 99,999 100,000 - 999,999 1,000,000 - PLUS

309 2,836 674 430 38 27 8

7.15 65.62 15.59 9.95 0.88 0.62 0.19

143,864 7,402,389 4,410,733 7,357,797 2,353,773 7,313,739 97,591,692

0.11 5.85 3.48 5.81 1.86 5.78 77.11

TOTAL

4,322

100.00

126,573,987

100.00

Largest Security Holders as at 15 May 2007 Name New Zealand Central Securities Depository Limited Warren John Robinson & Trusts Limited Tahia Investments Limited Brent John Robinson Darren Paul Robinson Zeus Zeta Limited Custodial Services Limited First NZ Capital Custodians Limited Rakon ESOP Trustee Limited Custodial Services Limited Hubbard Churcher Trust Management Limited Peter Hanbury Masfen & Joanna Alison Masfen UBS New Zealand Limited Marjorie Susan Robinson Bryan Mogridge & Philip Wells Macquarie Equities Custodians Limited Custodial Services Limited Michele Susan Robinson & Simon Middleton Palmer Custodial Services Limited Anthony Wayne Banks & Janet Raewyn Banks & Peter Allen Lewis

Shareholding

30,462,405 24,061,258 16,523,218 9,915,414 9,914,180 3,556,064 2,100,946 1,058,207 859,137 662,057 595,000 502,468 437,521 425,665 401,234 341,234 304,751 263,234 239,771 226,234

24.07% 19.01% 13.05% 7.83% 7.83% 2.81% 1.66% 0.84% 0.68% 0.52% 0.47% 0.40% 0.35% 0.34% 0.32% 0.27% 0.24% 0.21% 0.19% 0.18%

In addition 1,100,000 partially paid securities were on issue as at 15 May 2007. These partly paid securities entitle the holder (Rakon PPS Trustee Limited) to proportionate voting rights to the extent of the issue price paid where the employee member elects for the shares to carry voting rights. As at 15 May 2007 $0.10 of the $1.60 issue price was paid up on each of these securities and no election for the shares to carry voting rights had been made. New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to member. As at 15 May 2007, the ten largest shareholdings in the company held through the NZCSD were: Name TEA Custodians Limited NZ Superannuation Fund Nominees Limited National Nominees New Zealand Limited HSBC Nominees (New Zealand) Limited Accident Compensation Corporation Premier Nominees Limited - ING Wholesale Equity Select AMP Investments Strategic Equity Growth Fund Citibank Nominees (New Zealand) Limited TEA Custodians Limited ANZ Nominees Limited

Shareholding 7,950,106 5,596,482 3,825,267 2,379,357 1,366,439 1,296,025 1,131,499 1,036,119 788,928 643,800

NZX Waiver NZX granted a waiver from the requirements of NZSX Listing Rule 8.1.5 in relation to the non-voting partly paid shares held by Brent Robinson and Darren Robinson under the Employee Share Growth Plan. NZSX Listing Rule 8.1.5 provides for partly paid shares to have voting rights in proportion to the amount paid up and the waiver provides that Brent & Darren Robinsonâ&#x20AC;&#x2122;s shares can remain non-voting so as to avoid triggering Takeovers Code obligations.

25 May 2006 31 March 2006

FY 2006 results announced. NPAT 65%

16 May 2006

1 September 2006

Listed on NZX

First annual meeting as a public company

06 13 April 2006 Issued IPO prospectus to public

31 July 2006

31 October 2006

First time exceeded 3,000,000 units shipped in calendar month

First time exceeded $10, 000, 000 revenue in calendar month

31 March 2007

12 February 2007

Raised $60,000,000 in institution share placement

8 November 2006

7 March 2007

10 April 2007

15 May 2007

FY 2007 half year results announced. NPAT 226%

Included in NZX50 Index

Raised $22,000,000 under share purchase plan

FY 2007 results annnounced. NPAT 122%

7 January 2007 Expansion of Clean Room facility completed

25 November 2006 Surpassed prior year total shipment volume

2 March 2007 Acquired FCP division from C-MAC MicroTechnology

GLOSSARY OF

TERMS

CAGR

Cumulative Average Growth Rate

CDXO

Calibrated dual Crystal Oscillator

Crystal

A solid formed by the solidification of a chemical and having a highly regular atomic structure

E-911

Enhanced-911, an US Federal Communications Commissioned mandate

EBIT

Earnings before interest and tax

EBITDA

Earnings before interest, tax, depreciation and amortisation

EPS

Earnings per share

Form Factor

The physical size of a device as measured by outside dimensions

GPS

Global positioning system

Oscillator

An electronic circuit that generates a specific tone or frequency

OCXO

Oven controlled Crystal Oscillator

OEM

Original equipment manufacturer

PDA

Personal digital assistant

Piezoelectric Effect

A physical phenomenon exhibited by Quartz Crystals which change their dimensions when subjected to an electrical charge. Conversely, when subjected to mechanical stress it creates an electrical charge

Quartz Crystal

A hexagonal Crystal of silicon dioxide

RSX Crystal

An AT-cut Quartz Crystal encased in ceramic packaging

SMD

Surface mount device

TCXO

Temperature compensated Crystal Oscillator

Telematics

The integration of wireless communications, vehicle monitoring systems and location devices

VCXO

Voltage controlled Crystal Oscillator

UM Crystal

A high performance AT-cut Crystal that is packaged in metal, with formed legs for a surface mounting

DIRECTORY Registered Office Rakon Limited One Pacific Rise Mt Wellington AUCKLAND 1060 Telephone: 09 573 5554 Facsimile: 09 573 5559 Website: www.rakon.co.nz Mailing Address Rakon Limited Private Bag 99943 Newmarket AUCKLAND 1149 Directors Bryan Mogridge Brent Robinson Bruce Irvine Peter Maire Darren Robinson Warren Robinson Principal Lawyers Bell Gully PO Box 4199 AUCKLAND Auditors PricewaterhouseCoopers Private Bag 92162 AUCKLAND Share Registrar Computershare Investor Services Limited 159 Hurstmere Road North Shore Private Bag 92119 AUCKLAND 1142 Telephone: 09 488 8700 Facsimile: 09 488 8787 Website: www.computershare.co.nz Bankers ASB Bank PO Box 35 Auckland