October 2016 Beginning or End - Where to In this Issue for Rakon? Beginning or End - Where to for Rakon? 1 “Now this is not the end. It is not even the beginning of the end. A new NZSA Award for the best business But it is, perhaps, the end of the beginning.” story of the year 3 NZSA AGM and Annual Conference 2016 4 rophetic words from Winston Churchill in November 1942 Time for a debate on the best practice of when, for the first time, the allies had won decisively in the independence on the board in battle for North Africa. And words that investors and directors New Zealand public companies 8 P should think about when considering the outcome of the recent Company Meetings Argosy Property 11 Trilogy International 27 vote for change at Rakon. Fisher and Paykel Healthcare 12 Smartpay Holdings 28 With 24% of the shares Z Energy 13 NXT-listed G3 Group raising funds through Have Z AGMs lost their relevance with Snowball Effect 29 held by Robinson family shareholders? 14 Caught on the Net 30 directors, the media and Ike GPS 15 Branch Reports others had written off the Green Cross Health 16 Auckland. 32 chances that NZSA could Arvida 17 Bay of Plenty. 34 Smith City Group 18 Waikato 35 force the removal of a Augusta Capital 19 Taranaki 36 director. In fact, we knew NPT 19 Wellington 36 days before the meeting Serko 20 Canterbury 36 Vector 21 that we almost certainly Members’ Issues Evolve Education 22 MHI – we got it wrong 37 had the numbers, and it Stride Property Group 22 Little by little 37 AFT Pharmaceuticals 23 was frustrating that for Chopping and changing: 38 strategic purposes we had Trustpower 24 NZSA subs are tax deductible 38 Pacific Edge 24 Auckland Education Courses 2016 39 to remain silent in the face Orion Health 25 Upcoming Events 39 of ill informed commentary Turners 26 Syft Technologies 27 to the contrary. ISSN 1179 -4275 This vote which we believe is a exactly what business strategy Chairman Bryan Mogridge. This first for New Zealand, was the should be pursued. That is for needs to be someone who can culmination of weeks of effort. the board and management. take a very hard line on driving We did of course engage with However, the Association does change and instituting strong the company via the Chair and have a valid right to question, governance. One of these three CEO to explain what we believed comment and make suggestions will be required to step up to the were necessary changes. We that directors would do well to Chair role within a few months. also spent much effort building very seriously consider as part The risk is that Rakon will be support across a wide range of of their deliberations. We expect too timid and the opportunity larger shareholders as well as that other large shareholders will be lost. It will be completely writing to every one of Rakon’s will also have a view, and are pointless to simply seek to retail investors. This is not a encouraged that Chairman replace Darren Robinson with a cheap exercise, but the outcome Mogridge has said such input will local “general purpose” director. justifies the expenditure. The be welcome. This will add no value. The search resulting demonstration that Having now captured Rakon’s must be far and wide and the shareholders do have real attention, the real work has to changes comprehensive. This power has resonated through get underway. In NZSA’s view, will not be palatable to some many boardrooms. Certainly the the board needs to find at least participants, but the alternative this action was simply a credibility of NZSA as a force “circuit breaker”, a way two, and probably three suitable is more of the same - something for change has gone up several new directors. Two will replace 86% of non aligned shareholders of forcing the Rakon more notches. board to confront a range Darren Robinson and his father voted as no longer acceptable. of issues that have not However, the reality is that this Warren- who should step down There is no doubt that Rakon is been addressed over an action was simply a “circuit as soon as a replacement is a challenging business. While extended period breaker”, a way of forcing the identified. They will require many perceive it as a hi-tech Rakon board to confront a range experience in building companies innovator, much of its business is of issues that have not been and/or international marketing actually component manufacture addressed over an extended in the hi-tech electronics compo- where it is a price taker rather period due, in our view, to nents business. These people than a price maker. Changing the dominant position of the will not be easy to find as there the board is not a panacea. Robinson directors. As we noted, are significant reputational risks But what it will enable is an in the early departure of two involved if they are unable to depth review of the culture and experienced and highly regarded lift Rakon’s performance. Never- processes within the business, independent directors was a sure the-less the advice we have had the level of spending across all sign of frustration on their part. from credible sources is that areas, the marketing approach, It should also be remembered they are out there, and some will and the appropriateness of senior that it is not the role of NZSA to welcome the challenge. A third management to their current run listed companies or dictate director will be needed to replace roles. This will also inform the The Scrip October 2016 2 more fundamental questions of accept if necessary. whether Rakon can survive as a All is not doom and gloom standalone business, where the however. A bottom line turna- A new NZSA Award for the greatest value is to be found round of $5-$8m would allow (for example by continuing Rakon to pay a 2c dividend existing manufacturing, devel- (10% yield) while retaining best business story of the year oping niche markets further, funds to continue devel- he New Zealand Shareholders’ Association is calling all media concentrating on research and oping the business. If seen as outlets to submit entries for its inaugural award – The Business licensing IP), moving further into sustainable, this would likely Story of the Year. other areas such as Thinxtra, double the current share price T We are looking for business or financial stories that are intensely or even whether a sale should and very significantly lift the researched and demonstrate best journalistic practice. In this age of be contemplated. Given the value of the company. That convergence, the story can come from multiple sources, be it radio, very strong message already alone would help to unlock television or print but it must have a text element as part of it. delivered by this vote, it would many other future possibilities. be contrary to the company and Entries will be accepted in printed form, in clipping form or as a Perhaps the final word of advice shareholder interests for the video format on DVD or USB. to Rakon should go again to current board to entertain any Winston Churchill. Your entry could be a single story or it could be a series of stories significant changes before new but we are looking for fact-based stories, which support any opinions “A pessimist sees the diffi- directors are appointed and this expressed or investigative outcomes reached. review is completed. culty in every opportunity; an optimist sees the opportunity in Stories must have been published between September 1st, 2015 All these processes will take every difficulty.” and August 31st, 2016. some time and most likely To complete your entry, we would like a 400-word covering expla- (based on past performance) John Hawkins nation of how the story was achieved and what happened, if anything, further disappointments are Chairman once it was published. likely in the interim. The company has already signalled The judging panel consisting of Convener and former broadcaster that the benefits from expense Janet Wilson, Tim Murphy, former Editor-in-Chief of “The New reductions that are underway Zealand Herald” NZSA Chairman John Hawkins and NZSA Director will not flow to the bottom line Martin Watson are seeking stories that are accurate, readable and this year and business remains tackle difficult or complex issues. They can be stories that start a subdued. There will also conversation or bring about change. be costs involved in making Entries for this award are now open until Friday, October 21st at whatever changes the new 5pm. board decides, including poten- The winner will be announced at the NZSA’s Annual Beacon Award tially the need to pay higher dinner at The Northern Club on Wednesday, November 30th. fees to attract quality talent - John Hawkins something shareholders should The Scrip October 2016 3 NZSA AGM and Annual Conference 2016 ewer than a quarter of our members poor and the Shamubeel was clear that we cannot apply now rely on Scrip reports when the provinces. models and rules of the past, because this Ffull conference address is so readily People who situation is new to the world economy. available on the NZSA members’ website. feel they are Questions from members ranged over the However a short summary involving one the losers in lack of cheap rental housing, unlike Germany participant’s reaction to each address, is a a world of where the rental market is closely regulated quick reminder of the content, a comparison international and supplied.