Rakon Limited — Annual Report 2021

May 27, 2021

Agenda

Highlights and achievements Brent Robinson (CEO, Managing Director) Operating performance and market update Brent Robinson Financial overview Anand Rambhai (CFO) Summary and outlook Brent Robinson

Closing comments

Brent Robinson

Q&A

==> picture [140 x 30] intentionally omitted <==

==> picture [166 x 160] intentionally omitted <==

Brent Robinson

==> picture [171 x 154] intentionally omitted <==

Anand Rambhai

==> picture [32 x 32] intentionally omitted <==

1

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 375] intentionally omitted <==

----- Start of picture text -----

FY2021 – Key highlights and achievements
----- End of picture text -----

==> picture [32 x 31] intentionally omitted <==

2

Financial results – highlights

==> picture [140 x 30] intentionally omitted <==

==> picture [10 x 11] intentionally omitted <==

==> picture [10 x 11] intentionally omitted <==

==> picture [10 x 11] intentionally omitted <==

==> picture [10 x 11] intentionally omitted <==

==> picture [10 x 11] intentionally omitted <==

Revenue

• ❑ 8% higher to $128m (2020: $119m)

Underlying EBITDA[1]

• ❑ 59% higher to $23.5m (2020: $14.8m)

Net profit after tax

• ❑ 142% higher to $9.6m (2020: $4.0m)

Operating cash flow

• ❑ 113% higher to $20.1m (2020: $9.4m)

Net cash/net debt[2]

• ❑ Improved by $12.9m

==> picture [397 x 308] intentionally omitted <==

----- Start of picture text -----

$m Revenue by Market
140.0
120.0
100.0
80.0
60.0
40.0
20.0
-
2017 2018 2019 2020 2021
Telecommunications Global Positioning Space and Defence Other
----- End of picture text -----

Notes:

==> picture [32 x 32] intentionally omitted <==

All figures are presented in New Zealand dollars unless otherwise indicated

1 Refer to note 5 of the FY2021 audited consolidated financial statements for an explanation of how ‘Non-GAAP Financial Information’ is used, including a definition of ‘Underlying EBITDA’ and reconciliation to NPAT 2 excluding NZ IFRS 16

3

FY2021 achievements reflect our strengths

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 430] intentionally omitted <==

----- Start of picture text -----

Covid-19 has highlighted our agility and responsiveness
Increased demand for our industry-leading products and
platforms
Improved market share and strengthened partnerships, with
key contract wins
Rapid deployment of new product designs to capture market
opportunities
Ongoing adaption and upscaling of worldwide operations
through disruptions
Well-managed supply chain to ensure delivery
4
----- End of picture text -----

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 382] intentionally omitted <==

----- Start of picture text -----

Operating performance and market update
----- End of picture text -----

==> picture [32 x 31] intentionally omitted <==

5

Covid-19

==> picture [140 x 30] intentionally omitted <==

Safety of our people prioritised while continually adapting our operations

==> picture [10 x 11] intentionally omitted <==

Employee safety paramount

• ❑ Stringent protection measures in place across all sites

==> picture [10 x 11] intentionally omitted <==

Rapid organisational response

• ❑ Emergency response plans deployed for all levels of the pandemic

• ❑ Operations adapted to the lockdown conditions of each country – enabling delivery of essential products and services while protecting staff

==> picture [10 x 11] intentionally omitted <==

Covid government assistance

• ❑ Ensured continued employment of staff until production levels resumed

• ❑ Mitigated impacts of lost orders and reduced production over first quarter

• ❑ Received in NZ, UK, France

==> picture [32 x 32] intentionally omitted <==

6

Covid-19 (cont.)

==> picture [140 x 30] intentionally omitted <==

Safety of our people prioritised while continually adapting our operations

==> picture [10 x 10] intentionally omitted <==

India update

• ❑ Recent outbreak has impacted Rakon India operations

• ❑ Strict measures in place to minimise transmission risk and enhance safety:

• Limiting staff numbers on site, physical distancing, daily temperature testing and deep clean of premises, registered nurse on site & bi-weekly doctor visits, higher risk staff vaccinated

• ❑ The majority of Rakon India’s 500-strong workforce have remained Covid free to date:

• However 18 staff infected and in good health

• Sadly one death of a long-serving staff member

• ❑ Cautious optimism as total cases in India have been declining

==> picture [32 x 32] intentionally omitted <==

7

Operating highlights

==> picture [140 x 30] intentionally omitted <==

Strong result reflects the capability and strong ‘can do’ culture of our team

==> picture [960 x 430] intentionally omitted <==

----- Start of picture text -----

Our People
❑ Commitment and resilience of our global team enabled operations to get back
up and running quickly
❑ Effectively operating through restrictions
New products and technologies
❑ Rapid deployment of new product designs to capture opportunities stemming
from worldwide chip shortages
❑ XMEMS® wins – designed into strategic customers’ applications
❑ XMEMS® registered as a trademark in key regions
Manufacturing
❑ Increased capability to scale quickly
❑ New equipment built and software enhanced to deliver new products
Supply chain
❑ Disruptions in supply chain managed through strong networks and relationships
allowing the fulfilment of growing demand
8
----- End of picture text -----

Telecommunications

==> picture [140 x 30] intentionally omitted <==

Increased 5G demand driving revenue growth

Overview

==> picture [8 x 10] intentionally omitted <==

• ❑ Revenue $77 million, up 18% on FY2020

• ❑ Increased 5G demand as operators deploy new networks and enhance existing infrastructure

Achievements

==> picture [8 x 10] intentionally omitted <==

• ❑ Substantial contribution from new 5G products (Mercury+™)

• ❑ Strong datacentre growth – driven by precise timing requirements for many applications, including distributed processing, security and financial transactions

• ❑ Major new cloud computing customer secured

• ❑ Design-in wins for new products delivering 5G millimetre wave[1] capability, enabling wireless 5G high-speed broadband

• ❑ Increased design wins for proprietary chip (Pluto®) products amidst global chip shortages

Outlook

==> picture [8 x 10] intentionally omitted <==

• ❑ 5G deployments expected to accelerate

• ❑ Design-in opportunities progressing – Edge computing, datacentres, open radio access networks (O-RAN)[2]

• ❑ 5G millimetre wave technology starting to deploy

==> picture [32 x 33] intentionally omitted <==

• 1 Next generation frequencies that enable new applications

• 2 Mobile networks that are more intelligent, open, virtualised and fully interoperable

Percentage of revenue

==> picture [322 x 49] intentionally omitted <==

==> picture [322 x 376] intentionally omitted <==

----- Start of picture text -----

9
----- End of picture text -----

Space & Defence

==> picture [140 x 30] intentionally omitted <==

Percentage of revenue

Momentum building in NewSpace[1]

==> picture [323 x 48] intentionally omitted <==

Overview

==> picture [8 x 10] intentionally omitted <==

• ❑ Revenue $30m, up 7% on FY2020

==> picture [322 x 376] intentionally omitted <==

----- Start of picture text -----

10
----- End of picture text -----

• ❑ Driven primarily by French and Indian space business

• ❑ Defence segment growth from previous year consolidated

Achievements

==> picture [8 x 10] intentionally omitted <==

• ❑ Rakon designed/manufactured products on board NASA’s Mars Perseverance Rover

• ❑ Initial deliveries into a major NewSpace LEO[2] satellite constellation

• ❑ Growth in local Indian space business including: India’s 3[rd] moon mission; India’s first solar mission

Outlook

==> picture [8 x 10] intentionally omitted <==

• ❑ Strong order book for Space expected to deliver continued growth

• ❑ Further NewSpace LEO orders expected

• ❑ Defence business remains robust

• Design-in opportunities leveraging Rakon’s XMEMS® technology

==> picture [32 x 32] intentionally omitted <==

• 1 Refers to a globally emerging private spaceflight industry. Includes aerospace companies and ventures working to develop faster, better and cheaper access to space and space technologies 2 Low Earth Orbit

Positioning

==> picture [140 x 30] intentionally omitted <==

Mixed segment performance but strong FY2022 outlook

Overview

==> picture [9 x 11] intentionally omitted <==

• ❑ Revenue $14 million, down $4.9m on FY2020

Percentage of revenue

==> picture [322 x 48] intentionally omitted <==

• ❑ Anticipated revenue decline in low-margin business but improved Gross Margin %

• ❑ Growth in higher-margin precision industrial applications (agriculture/mining)

• ❑ Covid-19 negatively impacted aeronautical and emergency beacon markets

==> picture [9 x 11] intentionally omitted <==

Achievements

• ❑ Significant orders captured as result of global TCXO shortages –multi-year contracts delivering from FY2022

• ❑ Growing share of agriculture/mining segments as automation becomes standard

==> picture [9 x 11] intentionally omitted <==

Outlook

• ❑ Global TCXO shortage will boost FY2022 revenue ▪ Longer term supply expected to stabilise

• Significant business expected to be maintained as customers diversify their supplier base

• ❑ Growing automation in industrial applications, such as factories (Industry 4.0), agriculture, mining

• ❑ Consolidating position in the emerging autonomous vehicle market

• ❑ Aeronautical and beacon segments expected to recover as local/global travel returns

==> picture [32 x 32] intentionally omitted <==

11

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 380] intentionally omitted <==

----- Start of picture text -----

Financial overview
----- End of picture text -----

==> picture [32 x 31] intentionally omitted <==

12

Financial performance

Strong earnings and cash flow

==> picture [504 x 23] intentionally omitted <==

----- Start of picture text -----

Performance for the 12 months to March
FY2021 FY2020 variance % change
----- End of picture text -----

Revenue	128.3	119.0	+9.3	+8%
Gross profit	58.9	52.0	+6.9	+13%
Gross margin %	45.9%	43.7%	+2.2 ppts
Operating expenses	49.0	48.1	+0.9	+2%
Other operating income	2.6	0.0	+2.6	n/a
Net profit after tax	9.6	4.0	+5.7	+142%
Underlying EBITDA1	23.5	14.8	+8.7	+59%
Earnings (cents per share)	4.2	1.8	+2.4	+133%
Net cash / (net debt)2as at 31 March	5.0	(7.9)	+12.9	+164%
Capital expenditure for the 12 months	5.1	4.6	+0.5	+10%

Notes

==> picture [32 x 32] intentionally omitted <==

==> picture [140 x 30] intentionally omitted <==

==> picture [304 x 402] intentionally omitted <==

----- Start of picture text -----

$m Revenue
150
100
50
-
2017 2018 2019 2020 2021
Underlying EBITDA
30
20
10
-
2017 2018 2019 2020 2021
NPAT
15
5
(5) 2017 2018 2019 2020 2021
(15)
----- End of picture text -----

1 Refer to Note 5 of the FY2021 audited consolidated financial statements for an explanation of how ‘Non-GAAP Financial Information’ is used, including a definition of ‘Underlying EBITDA’ and reconciliation to net profit after tax 2 excluding NZ IFRS 16

13

Summary movement in net profit after tax

Year-on-year revenue & margin growth drives earnings

==> picture [140 x 30] intentionally omitted <==

Year-on-year increase in net profit explained

==> picture [17 x 12] intentionally omitted <==

----- Start of picture text -----

$m
----- End of picture text -----

==> picture [9 x 11] intentionally omitted <==

==> picture [9 x 11] intentionally omitted <==

==> picture [9 x 11] intentionally omitted <==

==> picture [9 x 10] intentionally omitted <==

==> picture [9 x 11] intentionally omitted <==

Flow through of higher revenue drives margin growth

Lower inventory obsolescence provided for improves year-on-year margin

Timemaker benefits from global consumer electronics demand

Operating costs include one-off redundancy costs & higher R&D spend (including XMEMS® and chip development)

16% higher year on year NZD/USD closing rate drives FX loss

==> picture [105 x 10] intentionally omitted <==

----- Start of picture text -----

Change in gross margin
----- End of picture text -----

==> picture [32 x 32] intentionally omitted <==

14

Financial position

==> picture [140 x 30] intentionally omitted <==

Strengthened balance sheet provides some buffer, and capacity to support revenue growth

Financial position as at 31 March	FY2021	FY2020	change
Total assets	154.4	150.2	+4.1
Total liabilities	50.4	58.4	-7.9
Net assets/equity	103.9	91.9	+12.1
Equity to total assets	67%	61%	+6.2%
Net cash / (net debt)1	5.0	(7.9)	+12.9
Derivatives	3.2	(7.9)	+11.0
Inventory	37.7	37.6	+0.1

==> picture [361 x 204] intentionally omitted <==

----- Start of picture text -----

$m Increase in net assets over last 5 years
120
100
80
60
40
20
-
2017 2018 2019 2020 2021
----- End of picture text -----

Notes

1 excluding NZ IFRS 16

==> picture [32 x 32] intentionally omitted <==

15

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 377] intentionally omitted <==

----- Start of picture text -----

Summary and outlook
----- End of picture text -----

==> picture [32 x 31] intentionally omitted <==

16

Summary

A strong FY2021 result

==> picture [9 x 11] intentionally omitted <==

==> picture [140 x 30] intentionally omitted <==

• ❑ Built on the progress made in recent years

• ❑ Playing to our strengths

• ❑ A world-wide Rakon team effort

==> picture [9 x 11] intentionally omitted <==

Covid has highlighted our agility

• ❑ Extremely testing first quarter and continued challenges

• ❑ But new opportunities have emerged and technological change has accelerated

==> picture [9 x 10] intentionally omitted <==

Solid foundations

• ❑ Global platform of R&D, manufacturing and sales

• ❑ Agility to scale up/down to meet market demand and profitably capture opportunities

• ❑ Prudent risk management and conservative financial management

==> picture [9 x 11] intentionally omitted <==

Well positionedto capture growth opportunities

==> picture [32 x 32] intentionally omitted <==

17

Looking ahead

Solid revenue growth expected

==> picture [7 x 9] intentionally omitted <==

==> picture [140 x 30] intentionally omitted <==

• ❑ Continued expansion in 5G, data centres and NewSpace

• ❑ Global TCXO shortage will boost FY2022 revenue

• ❑ Strong forward order flow

==> picture [7 x 9] intentionally omitted <==

Operational and R&D focus

• ❑ Cutting-edge pipeline of new chips and product platforms; Millimetre wave and O-RAN

• ❑ Increased manufacturing capability (in-house/contract partners) including further investment in XMEMS®

==> picture [7 x 9] intentionally omitted <==

Risk management

• ❑ Actively diversifying internal and external supply chains

• ❑ India’s Covid situation improving; not expected to materially impact FY22 guidance

==> picture [7 x 9] intentionally omitted <==

Strong financial position and funding lines in place

• ❑ Funding for future growth opportunities

• ❑ A buffer for adverse events/economic shocks

==> picture [7 x 10] intentionally omitted <==

Confirm FY2022 Underlying EBITDA guidance of $27 – $32m

==> picture [32 x 32] intentionally omitted <==

18

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 389] intentionally omitted <==

----- Start of picture text -----

Q&A
----- End of picture text -----

==> picture [32 x 31] intentionally omitted <==

19

==> picture [140 x 30] intentionally omitted <==

Appendices

==> picture [960 x 61] intentionally omitted <==

20

The XMEMS[®] Difference

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 430] intentionally omitted <==

----- Start of picture text -----

Rakon’s advanced resonator technology made with its
NanoQuartz™photolithography microfabrication process on
quartz wafers, delivering unprecedented resonator and
oscillator performance
❑
Delivering best-in-class stabilities, phase noise, smallest
platforms in the industry
❑
Creating new products not possible with conventional
mechanical processing methods
This technology coupled with Rakon’s innovative proprietary
semiconductor ASICs and IP, enabling
true 5G mmWave communication at maximum bandwidth
21
----- End of picture text -----

Glossary

• Cloud computing: Allows users to have on-demand availability of a remote computer system’s resources for improved computing power or data storage (usually located quite far from the user, such as in another country)

==> picture [7 x 7] intentionally omitted <==

• Datacentres: Usually a building that is used to hold a computer system and other components to backup data

==> picture [7 x 7] intentionally omitted <==

• Design-in: An opportunity that allows Rakon’s product to be used as the reference component for certain customer reference designs (a technical blueprint of a system intended to be used by customers)

==> picture [7 x 7] intentionally omitted <==

• Edge computing: Allows users to have on-demand availability of a remote computer system’s resources for improved computing power or data storage (usually located close to the user, such as within the same city)

==> picture [7 x 7] intentionally omitted <==

• 5G: 5[th] generation of the telecommunications standard, providing 10 to 1000 times better performance in many different applications

==> picture [7 x 7] intentionally omitted <==

• ❑ 5G millimetre wave (mmWave) technology : The equipment that enables higher frequency data transmission in 5G

• New space/ New space LEOs: Refers to the commercial space sector for mainly low earth orbit (LEO) satellites

==> picture [7 x 7] intentionally omitted <==

• Mercury™/ Mercury+™: Rakon’s proprietary integrated circuit used in OCXOs to achieve clock variations to less than 1 billionth of a second, enabling precision timing in 5G applications

==> picture [7 x 7] intentionally omitted <==

==> picture [6 x 7] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

==> picture [140 x 30] intentionally omitted <==

• NASA: National Aeronautics and Space Administration, U.S.A. (Government agency)

• OCXO: Oven Controlled Crystal Oscillator. A crystal oscillator that uses a miniaturised oven to keep its internal temperature constant

• O-RAN: Mobile networks that are more intelligent, open, virtualised and fully interoperable

• Pluto®: Rakon’s proprietary integrated circuit used in TCXOs to achieve clock variations to less than 100 millionth of a second, enabling higher data rates in 5G applications

• TCXO: Temperature Compensated Crystal Oscillator. A crystal oscillator with additional circuitry to remove frequency variations due to temperature change

• Tier-1 customers: recognised key players within their respective industries, that make up a significant market share

• XMEMS®: Crystal Micro-Electro-Mechanical System. Rakon’s advanced

• quartz-based resonator technology. It is made with Rakon’s NanoQuartz™ microfabrication process, delivering unprecedented resonator and oscillator performances

==> picture [32 x 32] intentionally omitted <==

22

==> picture [140 x 30] intentionally omitted <==

==> picture [960 x 352] intentionally omitted <==

==> picture [32 x 31] intentionally omitted <==

www.rakon.com