Influencing New Zealand’s future with Tech The New Zealand technology sector and listing with NZX. All you need to know. www.nzx.com/products/insights NZX Tech Report 2020 $7.3 billion in tech exports 9% of total NZ exports are tech 104% 21,870 tech enterprises in growth in tech 2019, with 555 being exports compared new in the last with 2015 12 months 110,000 New Zealanders employed in tech 2 Foreword When you look across the S&P/NZX 50 there’s no escaping the importance of technology – from healthcare, nutrition and telecommunications to transport, infrastructure, energy and retirement living. While retaining the very essence of what Technology has never been more important we’ve always celebrated in New Zealand – to our country, as the fastest growing individuality and a quiet determination to earn export sector in 2019 and particularly as the success – Kiwi companies have shed the Government considers how the evolving old “No.8 Wire” mentality to become a global global situation with COVID-19 might impact showcase for technology benchmarks. some industries that have long been at the core of New Zealand’s economic success. We are defining our place, rather than looking to the rest of the world for validation. This is There is a tremendous opportunity in applying an important evolution among the standout innovation and technology to what we already examples – tapping into global trends and do very well, so that we build on traditional growth opportunities, with New Zealanders strengths to ensure we have the long-term backing them along the way, and turning local resilience we need in our economy, which revenues into the foreign earnings that drive delivers high-value jobs and contributes to our economy. the wellbeing of all New Zealanders. In this report we put the spotlight on At NZX, we’re passionate about our role technology, some of the key trends, and in capital formation in New Zealand, and feature on two of our listed companies who working with you to support your growth and are global leaders, Rakon (NZX: “RAK”) and ambitions – helping shape a brighter future, Pushpay (NZX: “PPH”), taking that Kiwi and create what’s next. can-do and hard graft to be the very best in the world at what they do. Mark Peterson Chief Executive NZX 3 NZX Tech Report 2020 Kiwi ingenuity is a phrase we often hear to describe our collective ability to roll up our sleeves and solve a problem, despite the challenges in front of us. It is a character trait that is interwoven into the fabric of New Zealand, which has helped us to build, innovate, disrupt and challenge, for decades. 4 Introduction The Kiwi tech sector is this ingenuity in-action. Thousands of lightbulb moments take place each and every day, with any one of them turning into the next big idea and potentially the launchpad for a new global business. At NZX, we are recalibrating our focus to become part of the tech ecosystem, helping provide our brightest minds with an environment in which ideas can be nourished and cultivated. Access to sufficient funding is the cornerstone to this objective. It is important for the gatekeepers of capital at all stages to ensure both current and future tech leaders are properly informed of these levers of scale. This includes early stage venture capital, private equity, bank funding, as well as both public and private markets. This report seeks to provide a snapshot of the tech sector in New Zealand and demystify the listed market. We truly believe that the public markets can provide a long- term and viable avenue for profile, investability and scale, whilst providing stakeholders with access to a liquid secondary market. Sarah Minhinnick Head of Issuer Relationships NZX 5 Thinking global, benefiting local The tech sector was Figure 1: Exports Revenue Generated from the Tech Sector New Zealand’s fastest growing export sector in 2019. 11,000 The impacts of COVID-19 10,000 to date have significantly 9,000 accelerated the importance 8,000 of this sector’s contribution 7,000 to rebuilding New Zealand’s 6,000 economic future. 5,000 4,000 Exports Value ($m) 3,000 Figure 1 shows the tech sector’s 2,000 share of exports has increased 1,000 over the past five years. The ICT 0 industry has demonstrated some 2015 2016 2017 2018 2019 2020 2021 2022 2023 rapid growth and is expected to be a key driver for future growth, ICT (Actual) Manufacturing (Actual) Total Tech Sector (Actual) compared to dairy and tourism, ICT (Projection) Manufacturing (Projection) Total Tech Sector (Projection) two of New Zealand’s historically strong export performers. Figure 2: Exports Growth Rate in Tech, Dairy and Tourism Figure 2 shows that the tech sector’s forecast growth rate has 30% the potential to align with dairy exports rate of growth in 2020. This will be part of the solution to 20% plugging the export revenue hole felt in tourism. To stimulate or 10% even maintain the rate of growth in the tech sector, we need to 0% ensure that there is designated focus and strategic investment in -10% innovation that creates scalable and globally relevant solutions. 20% 2015/16 2016/17 2017/18 2018/19 2019/20 Dairy Tourism Tech 6 Sources: Fig. 1 Stats NZ and NZ Tech, Fig. 2 Stats NZ and NZ Tech Rethinking NZ’s future, stimulating 2019 R&D funding investment in tech $570 million, indicating that the potential opportunities for further growth in the tech sector are significant. R&D investments and export Figure 3: R&D Expenditure in the Tech Sector as a Percentage of Exports performance both influence the competitiveness of an industry. 15% Although independent of each other, the limited amount of investment in R&D within NZ could drive start-up 10% innovation offshore. There have been a number of examples where NZ tech companies have sought R&D support 5% offshore and these companies are often sold early to overseas 0% companies, removing the future 2015 2016 2017 2018 2019 export revenue streams from NZ. While NZ’s R&D investment in tech has Figure 4: Number of Individual Investors in the Tech Sector been reasonable [Figure 3], strategic Sellers positioning for R&D investment 4000 Buyers in globally relevant solutions will help fuel further growth. Continual 3000 innovation improvement is important for NZ to gain and maintain a global 2000 competitive advantage in the sector. 1000 Investment behaviour in NZX-listed Investors Individual tech companies sharply increased 0 from early 2020, and was sustained Jan 17 Jan 18 Jan 19 Jan 20 throughout the COVID-19 lockdown period [Figure 4]. The significant jump in the number of buyers over sellers Figure 5: IT Sector Index Returns Compared to S&P/NZX 50 Returns illustrates new investors prefer to buy IT 75% and hold. This supports the possibility S&P/NZX 50 of a broadening tech investor base and 50% opportunity for increased liquidity and new investors over time. As shown 25% in , S&P/NZX 50 listed tech Figure 5 0% companies collectively outperformed the S&P/NZX 50 over the past three -25% years. While falling more substantially -50% during NZ’s COVID-19 lockdown, Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 they also recovered faster and continue to outperform. Sources: Fig. 6 Fonterra Annual Financial Results and Stats NZ, Fig. 9 NZX Data, Fig. 10 S&P Global 7 Case Study Feature thinking big in an extra- ordinary space For a Kiwi company founded in a garage Rakon is a world leader in the rarefied domain of high-precision frequency in Auckland two years before the control products (FCP), a supplier to the world’s largest telcos, space Apollo 11 moon landing in 1969, it’s a agencies, aircraft manufacturers, and innovators in autonomous vehicles. pretty big achievement to have your “Each has its own challenges,” says tech on the Rosetta space probe mission CEO, Brent Robinson – someone who thrives on the constant pace to Jupiter – a mission that resulted in of the technology cycles and loves nothing better than winning the the first-ever landing on a comet. global race to find a solution. 8 Advancement in 5G will open a “ The small pieces world of opportunity in fields such as robotic surgeries, evolution of extremely of IoT (Internet of Things) and gaming. Sitting at the pinnacle of precise, tailored telecommunications, Rakon is one of the key FCP suppliers to this sector technology from globally with their components embedded in these expanding this New Zealand networks. Network latency has been reduced 90% over the past ten years to two milliseconds – but Brent and company are his team are already focussed on the finding their next benchmark in performance. With each of the four Rakon The European Space Agency way into an components for the Rosetta space lander module that touched down mission requiring 2,500 hours of on the comet 67P/Churyumov– increasing range testing – and accompanied by Gerasimenko (67P) on 12 November hundreds of pages of technical 2014 is a measure of the credentials of applications.” documentation – this was an of the Rakon team, who are important milestone to celebrate. deeply connected with the needs Then, once the cheering’s done, this of their customers. When the RAK ticker went live in team of just 950 is back to “being May 2006 the opportunities were the first”. This could be solving how Brent attests to the absolute in global positioning systems (GPS), to provide the precise timing to importance of understanding your and that heritage is still inherent to enable satellites and spacecraft to niche, including your customers’ this ingenuity success story that’s operate perfectly in the extreme ecosystems and technology setting itself apart by designing conditions of space, or adding its standards – in many cases involved solutions to problems even their advanced processes to tonnes of in shaping evolving frameworks.