AGM 2020

Oct 14, 2020

Slides

Good morning. I'm David Kroll, the chair of Audinate Group. I'm speaking to you from my home in California where we're currently experiencing an Internet outage. As a result, I'm addressing you via phone instead of video conference. Nevertheless, I'm still delighted to welcome you to the Annual General Meeting of Shareholders of Audinate. The time is now 09:30 a. M. In Sydney. And as we have a quorum of members present, I declare the annual general meeting open. Joining me today is our CEO, Ian Williams, and our nonexecutive directors, Tim Finlayson, Allison Ledger, Roger Price, and John Dyson. We also have our CFO and company secretary, Rob Goss. Helen Hamilton James, representing the company's external auditor, Deloitte Tush Tumazu, is also in attendance. Today, we are very pleased to welcome those of you participating online through our first virtual meeting platform provided by our share registrar, LINK Market Services Limited. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. Due to the current COVID nineteen pandemic, we thought it is prudent to take steps to discourage a physical public gathering and encourage attendance online. We hope that holding a virtual meeting will assist to further curb the spread of the COVID nineteen virus and encourage greater participation and engagement amongst our shareholders going forward. If we experience any technical issues today, a short recess or an adjournment may be required depending on the number of shareholders being affected. If this occurs, I shall advise you accordingly. Before we proceed to the formal business of the meeting, I will give a short address, and I will then ask Aiden Williams, our CEO, to address you. Voting on the resolutions will be conducted by way of poll. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. You will be able to vote directly anytime between the start of the meeting at 09:30AM Sydney time and the closure of voting as announced at the end of the meeting. Once you have registered, your voting card will appear with all the resolutions to be voted on by shareholders at the meeting as set out in the notice of meeting. To cast your vote, simply select one of the options. I now declare voting open on all items of business. Please submit your votes at any time. I will give you a warning before I move to close voting at the conclusion of all items of business. After Aiden's presentation, we will formally step through each of the voting resolutions. Following the voting, general business questions will be taken. Shareholders participating online through the virtual meeting website can submit their questions online. Please click on the ask question button, type your question, and click submit. I encourage shareholders attending online and who have questions to send their questions through as soon as possible. Questions can be submitted at any time. Please note that while you can submit questions from now on, we will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all your questions. Shareholder questions received prior to the meeting will be addressed during the general business questions. Before our CEO, Aiden Williams, addresses us, I would like to welcome our directors that have joined us here virtually today and would like to make a few comments. There is little doubt that the COVID nineteen crisis has made financial year 2020 a particularly tumultuous period for even the most seasoned CEOs. However, even with all the operational and day to day challenges that have arisen from this once in a generation event, Aiden has done a fantastic job continuing to progress Audinate's growth strategy. The Board have all been impressed by the mature and calm manner in which Aiden has balanced the immediate tactical demands of the business with an ongoing focus on strategic imperatives. We are also fortunate to have a level of depth, experience and expertise within our executive leadership team that have made an invaluable contribution in supporting Audinate's growth. On behalf of the board, I would like to recognize and thank Aiden, the executive leadership team and the entire staff of Audinate for their persistence, dedication and teamwork in the extremely challenging and demanding environment that we have experienced this year. I would also like to thank all our shareholders for their continued commitment and support. After year end, Audinate completed a $40,000,000 equity raise, which has provided growth capital and de risked the business from ongoing uncertainties and impacts of COVID-nineteen. This capital injection also enhances our ability to consider strategic acquisitions. The placement raised $28,000,000 at a 5.1% discount to the five day VWAP and a further $12,000,000 was raised via an SPP at a 2% discount for the VWAP, both representing low levels of dilution for shareholders and strongly oversubscribed. During the year, the business has continued to make good progress in achieving its medium term objectives despite the challenging environment in the second half. The uptake of our new Dante products has been particularly encouraging with the number of design wins across Dante Video, Dante Embedded Platform, Dante Application Library, and IP Core representing a strong market endorsement of these products. Notably, the Dante Embedded Platform introduces the capability for an end user to add Dante to an existing AV product in the field. This is a significant step in the evolution of our business model and something we expect will aid the proliferation of our technology. Product development requires new business infrastructure Accordingly, it's pleasing to see the progress Audinate has made this year in terms of code protection and infield licensing and enablement. The fulfillment of these capabilities is an essential strategic objective for the year ahead. The establishment of a manufacturing line in Malaysia was initiated to address the imposition of U. S. Tariffs on Chinese imports. Following the emergence of the COVID-nineteen crisis, this provided critical business continuity and allowed us to maintain supply as many others experienced disruption. The opening of our office in The Philippines amid COVID-nineteen was another important step in building out the business platform to support growth and achieve operational efficiencies. We have made important progress in the video market this year, delivering our Dante AV product design suite to customers in April, securing several design wins, facilitating a demo of the first Dante video camera by Bolen, and launching the authorized implementer program to enable the production of white labeled Dante video products. The launch of the first Dante video products by our customers will be another milestone we expect to achieve in the year ahead. The milestones Audinate achieves in the near term will position the company and our stakeholders to benefit from the economic recovery to come. We retain a strong conviction in our business and strategy to enable a transformation of the AEB industry. Again, would like to express my gratitude to the Audinate team and all of our shareholders for their continued commitment and support throughout this challenging year. I'd now like to welcome Aidan Williams, our Chief Executive Officer, to address you. Thank you, David. If you have not yet pressed the play button on the the video box, you may want to do that if you would like to see my face talking. So, hopefully, you should see the slides on the screen, but you will also have a live video box as well, and you may want to press the play button as well. So if we move to slide what is that? Slide five, the next slide. So good morning, everyone. Thank you for joining our AGM today. And for Ordinate, this is the first live AGM for us. So this is a new experience for all of us. So thank you for for joining us. I think probably many of you would be familiar with with Ordinate as a company and our background, but I just wanna touch briefly on what we do in case there's some new people on the call. So Ordinate is a technology company. Our technology distributes audio and video signals across computer networks. The market that we play in is audio visual systems. So these are usually AV systems that get input put into buildings in some sense. So we supply audio and video networking technology to manufacturers of AV equipment, and our technology ends up being used in buildings like the one you can see on the screen there. I also wanted to emphasize that this financial year has well, FY 'nineteen has been a big year for Ordinate with the launch of our first video product. So pretty much all our products to date have been audio products and audio networking products. So it's definitely a major milestone for Ordinate in the last financial year for us to have launched our first video product. So if we can go to the next slide, which is slide six. Again, this is a slide that's probably familiar to many people, so I just want to touch on this briefly. I think the key thing I think to understand is there's really two big trends going on in the AV industry. One is that first bullet there, that networked digital connectivity is replacing point to point wiring for the installation and delivery of AV systems. And the guts of those AV systems are becoming software rather than hardware. So instead of there being a physical box or a hardware product that's delivered and installed into a building, more and more of those systems are becoming software oriented. So those two broad trends of networking replacing analogue cabling and software replacing hardware AV systems are really driving a next wave of industry transformation. And as a technology company that provides networking to manufacturers, we are kind of uniquely positioned to be able to capitalise on that that sort of fundamental transformation in the AV industry. As we've talked about on a number of occasions, we see our addressable market in kind of three chunks. One is the digital audio networking piece where the majority of our products are. Video networking is obviously a next step for us in expanding our addressable market. And again, a key milestone this year was developing and offering a video solution to the market and particularly having design wins for that video solution. Finally, the last thing I want to touch on on this slide is really point towards the software and services segment that's on this addressable market. And this is really just to remind you of the long term strategy for Ordinate, which is really around capitalising on those software based AV systems to be able to provide platform, products, and services that you could think of as really appifying AV. So converting AV installations and applications into a kind of an app in some form that you can deliver in a software form. So that's the long term value for Ordinator is really around those platform products and services. So if we move to the next slide, slide number seven. So there's a number of financial highlights on here, and I'm going to zap through these pretty quickly given that we've already talked to these on a couple of previous occasions. So in terms of revenue, our revenue in Australian dollars was up 7.1% over FY 'nineteen, but this was largely related to exchange rate benefits that we saw. So ordinary buyers and sellers in U. S. Dollars. Our U. S. Dollar revenue was essentially flat, and that really reflects the impact of things like coronavirus on our videos sorry, on our revenue. So I think it was probably for us, I think it was a good result to be flat with respect to the general uncertainty of what was going on in the market. And I'm to talk a little bit more about the trading conditions we've seen a bit later in the presentation. We also saw an improvement in gross profit margin, and that was to do really with increased software sales, royalties, things like Dante Domain Manager and retail software. And again, just to remind you of our long term strategy to provide more in the way of software based Dante solutions, we expect that gross margin will further increase in the years to come as we continue to deliver software based Dante solutions. We also undertook another capital raise. So the combination of the two capital raises from last year and this year puts us in a very strong position from a balance sheet point of view, allowing us to both ride out any uncertainty on the whole coronavirus side with respect to revenue, but also to invest in our long term strategy and to continue to grow the business over the longer term. So broadly speaking, financial result, flat, not quite our usual well, was it flat associated with the impacts of coronavirus? But on the other hand, our operational metrics for FY 2019 were excellent. And so you can see there that we've achieved a total of 2,800 Dante enabled products on the market. So this is up from about, I think it's 2,100 products we had on the market last year. So we're tracking very well with that. And keep in mind that those products are leading indicators that generate repeat revenue for us going forward as people buy those products. We also had a very busy season with respect to training. So you can see there were 57,000 professionals trained on some form of Dante during FY twenty. And so we consciously tried to take advantage of the fact that a number of AV professionals have been at home. And so that has been an opportunity for us to really ramp up our training and get them engaged in that. Also, think it was very pleasing to see that we had a 21% increase in the number of OEMs shipping Dante product. So you might have thought that if perhaps we were not having trade shows and there might have been reduced investment, that sort of stuff, I think it was very pleasing for us that a number of our OEMs launched something like 700 products over that financial year, and a very large number of those were launched in effectively the last two quarters of the year. So this is after coronavirus basically came into play. So a couple of our major trade shows were in and around when coronavirus had an impact, and we still saw large numbers of products being launched, which was great. And the final operational metric I just want to again emphasize is that key milestone of launching of our first video product and also getting a number of design wins. So having manufacturing customers actually decide that they want to use that technology in their products. So if we can move to the next slide. This is definitely a slide that's, I guess, a favorite. So this is slide eight. And you can see on this slide, it's a chart of the number of Dante products over time and its comparison with a number of different competitive offerings in the market, which are often compared to Dante. So I think the key there's two key things that I want to talk to on this. One is that it's continuing to grow, growing up into the right, which is obviously great. You can think of this as the size of the product catalog that an integrator can buy from. So there are 2,800 products of every type, shape, and variety so that people building AV systems based on our networking technology have all of the brands that they like, all of the different kinds of products they like. Another thing that the the final thing I want to talk about on this slide really is is just to remind you again of the network effect, the economic network effect that's associated with the interoperability of this ecosystem. So all these Dante products are interoperable, and so that represents a substantial barrier to entry for these competitive technologies that you see along the bottom. And that network effect continues to grow as we continue to increase the number of Dante products that are available on the market. If we can go to the next slide, slide nine. On this slide, there's a there's a fairly large grab bag of of operational metrics associated with the business in terms of marketing. I don't want to go through all of them. Again, I just want to touch on a few people. We touch on a few things on this slide. We talked about training of people with Dante. So you can see there was a large increase in the number of people trained using Dante. The key thing about that is that we found that if we provide education to integrators and we get them to actually use the Dante technology, then they're much more likely to buy Dante products and specify those Dante products in AV systems in the future. So there is a connection between training, things like webinars, the online training that we do, and increased usage of Dante. So that's obviously a major emphasis for us. One of the big things that we did in the year was to expand the number of languages. So we're now offering training in nine languages, and we now have eight ordinate trainers, so eight staff based in five countries around the world responsible for delivering this type of training going forward. And also we're updating our training content to include Dante video as well. Okay. So if we move to the next slide, which is slide 10. Slide 10 is really talking to we engaged consultant called FutureSource to provide us with some market information around the size and growth of the networked audio market over time. So you can see a chart there which represents future sources view on how many networked audio units there would be with respect to time and what the future projections there are with that. And you can see that in 2020, there's a bit of a dip down, which is or it's fairly substantial dip down, which is really related again to the impact of coronavirus. So before you sort of look at that dip down and then immediately jump to the conclusion that that was the direct impact to Ordinates business, I'd just encourage you to just hold on for a second because we are going to talk about impacts to Ordinates trading in the next slide. So don't don't read this as being a direct one for one map to what has happened to Ordinates. So the key thing about this data really is it's it's allowing us to look ahead a bit more and to get an independent view on where the audio networking market is going to go over time. And so you can see if you look at that twenty twenty to twenty four kind of growth trend, that's something like a tripling in volume over that period. So we would expect to get a pretty large chunk of that, given that we're one of the major providers of networking technology to the AV industry. A couple of other points to make on this. The research doesn't really factor in what would happen with technology innovation. So Ordinate is a technology company. These consulting guys are really looking at the market as is with all of the products. So I would anticipate that as Ordinate continues to push into software based implementations of Dante and really executes on our strategy to reduce the marginal cost of adding Dante to a bunch of products, then I would expect that our penetration into a broader range of products will grow. And so set of unit numbers is really reflecting the status quo as at, you know, kind of 2020. But I would expect that as time goes on and we innovate more, particularly in the software space and making smaller, lower cost implementations of Dante, then we will be able to get into a much wider range of products. And so the final thing I wanted to point out from this is really that the installed commercial vertical market segment, which is the one that Future Sources pointed out as the fastest growing vertical, that is a market in which Ordinade is quite strong, and so that augurs very well for our long term future as well. So if we move to the next slide, slide 11. So this is really providing more commentary on our q one performance and what's been happening particularly in the light of coronavirus. Certainly, this is versus us providing a forecast broadly, you know, for the end of the financial year, which is subject to potentially substantial uncertainty. So when we talk to our FY twenty one results, we didn't provide a kind of full FY twenty forecast. We basically committed that we would continue to communicate over time and provide information quarter by quarter on what's been happening for us in the business. So where we are is you can see there's a chart on the right hand side, which is really revenue in US dollars month by month from the beginning of this calendar year. So it's encouraging that revenue has returned since May. And I think, really, this is due to combination of good momentum in corporate conferencing and higher education, and just generally, that initial peak impact from things like lockdown has kind of gone away. And I think broadly, many countries are managing coronavirus better. So we see good momentum from June and on. We are, however, experiencing we continue to experiencing challenging conditions in live sound and large events. So as you can imagine, things like stadiums, sporting events, conferencing, stuff like that, it's still the case that many of those activities are restricted. And so any equipment that's sold into those live sound theatre or conferencing markets is currently pretty depressed, And that tends to impact on us through things like the sales of Brooklyn modules, which are relatively high revenue, you know, high dollar amount modules for us. On the other hand, various we we have a fairly broad markets sorry. We have a fairly broad product mix. And so not only we are we exposed to live sounds, but we're obviously exposed to corporate conferencing and higher education, which have been going really well. And so we've seen strong growth in adapter products, Ultimo, Broadway, and retail software sales. And a lot of that is being driven by things like corporate conferencing, higher education, and just, I think, an increased interest in doing things in the home, particularly retail software. So Brooklyn revenue, as I mentioned, is down on the prior comparable period, really reflecting exposure to live sound, but that's offset against the increasing growth in all those other products that were listed there. So where that kind of nets out is that our unaudited revenue for the 2021 was 5,200,000.0 US dollars. So, you know, I think that's that's a reasonable result for us so far through the year, but I think it's too early to tell whether that trajectory will continue for the rest of the financial year. So I think we've provided this information to give you a view on how things are tracking. And I think, you know, it remains to be seen what the remainders of the quarter of this year. I'd like to hope that the worst is behind us, but, you know, every day the news seems to bring different sorts of things, and I think there's some fundamental uncertainty ahead of us. So what are we up to this year, and what are we looking at from the next quarters on? So I think it's time for us to be thinking once again about prudent return to investing for growth. And this really reflects the confidence that we have in our longer term strategy and the fact that we've now executed a capital raise, and we've got plenty of balance sheet strength and cash in the bank. So we are intending to return to prudent growth here, but with keeping an eye on cash burn as well. So our expectation is that we'll be adding around 10 roles globally around, you know, over the remainder of FY twenty one. There will likely be further incremental OpEx associated with mainly a combination of bonus provisions. In the previous financial year, we did not pay bonuses to employees given the revenue decline that we had. However, with the return to revenue, if that continues on through the year, as we are expecting the revenue performance to probably not return to the worst of May 2020 again. So we are budgeting actually to be paying bonuses in some form over FY 2020. And there's also some expenditure there in structuring the business for growth, so investing in things like business systems in order to enable us to scale. As we go forward through FY '21, we will be providing further updates as the year unfolds. So if we come to the final slide, that's slide 12. Really, this is a summary which is has been consistent for some time. So the it's really fitting with our long term strategy that we've had for some time. So in terms of medium term priorities, I really just want to call out two of those there. So one is that investing to double ordinates engineering and R and D functions over two years. So we've been engaged since the first capital raise we had from July 2019. We've been engaged in investing in things like video and our software platform capabilities. And so this has required us to be thinking about doubling our engineering and R and D capacity. And so coronavirus certainly put a bit of a break on that as we were concerned to make sure that we were met we were controlling things like cash burn. So given that we now have cash in the bank, I think it's it's time for us to be thinking about investing again. Obviously, it's going to be prudent for us to continue to watch cash burn as well. Likewise, I think putting in place business infrastructure to support long term growth, there will be some additional spend on that as well. And that's really setting us up for the long term is the way I would see that. In terms of more near term objectives for things like FY '21, there's I think there's three that we really want I'd like to call out on this slide. And, again, we've talked to these previously as well. One key thing is to drive design wins. So this is to basically get design wins for all of our new software products for things like Dante Video, but also all of the old the the mature mature audio products that we have on the market as well. And so even if there aren't necessarily, you know, so many unit sales, the key thing for us internally to do is to prime the pump for economic recovery by getting manufacturers to design more products that have Dante in them. So when recovery occurs, people can buy those products, and that will generate repeat revenue for Ordinate. We also want to capitalize on our initial launch of Dante Video, so we need to broaden out our Dante Video product offerings. On the audio side of things, we have chips, we have modules, we have software implementations. Ultimately, we have a very large toolbox for audio. We need to build the right kind of toolbox on the video side of things. So we've launched our first Dante video product. Our priority for FY twenty one is then to build out a series of other relevant video products as well. And finally, just want to touch on M and A opportunities with the capital raise. Clearly, that puts us in a position to be able to look at M and A opportunities. So I think there are opportunities out there. We and we're basically looking at, you know, any opportunities that are coming our way, and we will provide updates, you know, as and when things happen with respect to that as needed throughout the financial year. So finally, I guess in summary, I think it's been, as David said, I think tumultuous is a good word. It has been a tumultuous year. I think we've had a good year in a number of ways. And so like David, I would very much like to thank Ordnate's executive staff. I think there's no way that we would have got through without the talent that we have and for the efforts that people put in. Ordinate staff more generally. I think it's been a year where we've really asked a lot of people and that people have been very flexible, very adaptable, and very diligent. So certainly as people have gone home, we've still managed to be productive. We've managed to deliver all sorts of things this year with a workforce that's been spread over a number of different locations, there's been quite a bit of disruption. So I definitely want to echo David's thanks to the broader ordinate staff as well as the executive team. So with that, that's all I have to say, and back to Rob. Thanks, Aidan. Ladies and gentlemen, we've now come to the formal part of the business matters requiring resolution, which are outlined in the notice of meeting. Meeting dated 09/11/2020 was circulated to members, I and will take the notice of meeting as being read. The resolutions for consideration today may only be voted on by shareholders, proxy holders, and shareholder company representatives. Shareholders online through the virtual meeting website have the opportunity to ask questions on each matter being put to the shareholders. Moving to the resolution, I would like to advise that the chairman, David Crawl, intends to vote all undirected proxies in favour of all resolutions. Each resolution set out in the notice of meeting is considered as an ordinary resolution, and as such must be approved by a simple majority of votes cast by shareholders entitled to vote and voting on the resolution. As each resolution is tabled, a slide will show the results with the proxy votes on the screen. I'll now pause and see if there are any questions relating to the procedures of the meeting. No questions. Very good. We'll now move to the business of the meeting. To receive and consider the financial report, the directors' report and the independent auditors' report of the company for the financial year ended thirty June twenty twenty. A copy of the annual report was made available on the company's website, the ASX platform, and was sent to those shareholders who requested it. I will take the reports as read. In advance of the meeting, we did receive some questions from one shareholder, which I will now address as follows. Question one, remuneration report, page 22 of the annual report. Could you clarify if the table is statutory pay, or is this actual pay? Share based payments, LTI. Is this actual received or cost to the company? In accordance with AASB two, the value of the share based payments included in the table is based on the fair value of the long term incentive at grant date, which is then expensed over the service period of the grant, lately three years. It does not represent the actual amount received by the KMP as this amount will differ based on the share price when the incentive vests at the end of the service period and is issued as shares. Question two, note four, operating segment on page 45 of the annual report. The top 10 companies represent approximately 43% of revenue. Largest company is 11%. Please explain if this is one contract, I. E. Per company, or multiple contracts. How comfortable does the company feel given the large percentage by 10 only? Is this a subscription type cloud based service or one off payments? And how well are debts collected? The concentration of revenue in part reflects the nature of the industry, with a small number of manufacturers generating the majority of sales of AV equipment. Over time, as there is more broad spread adoption of the technology and a larger number of Dante products available, we expect this concentration will decrease. We bill customers based on the receipt of their purchase orders. Larger repeat customers are on credit terms, but if significantly in arrears, we can withhold supply, which is an effective lever given our technology is a critical manufacturing input. Smaller or newer customers are required to prepay, and overall our debtor's day is around thirty days with very little experience of bad debts. At this point, Ordinate does not offer any cloud based services. Question three, key audit matters on page 71 of the annual report. Capitalised development costs are approximately $10,500,000 Are development costs ongoing? What sort of annual costs are predicted? Capitalised costs represent the internal and external costs associated with developing new ordinate products for our customers, which we then expense as amortisation over a three year period. As we continue to build out our product suite and services, we expect to continue to invest in these activities. Further information on how this amount has trended over time is set out on page 12 of the FY 'twenty investor presentation, which was lodged with the ASX on the August 20. I'll now just check whether there are any other questions received in respect to the financial report. Very good. We will now move to the resolutions for voting. The first resolution is to consider and if thought fit, pass the following as an ordinary resolution of the company, to re elect Mr David Crawl as Director. Further details about the resolution are also contained in the explanatory memorandum that accompanies the notice of meeting. The directors, with Mr Crawl abstaining, unanimously recommend shareholders vote in favour of this resolution. The resolution is set out on the screen. If there are any questions, please click on the ask question button, type your question, and click submit. Given that we have no questions on this resolution, I will now put to the meeting resolution one, and here are the proxies. Please now select either for, against, or abstain for Resolution one on the voting card. I will pause and give shareholders the opportunity to vote if they have not already done so earlier. The second resolution is to consider, and if thought fit, pass the following as an ordinary resolution of the company to re elect Mr Roger Price as a director. Further details about the resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. The directors, with Mr. Price abstaining, unanimously recommend shareholders vote in favour of this resolution. The resolution is set out on the screen. If there are any questions, please click on the ask question button, type your question, and click submit. No questions. Given we have no questions, and no further discussion, I will now put to the meeting resolution two, and here are the proxies. Please now select either for, against, or abstain for resolution two on the voting card as I once again briefly pause to give shareholders the opportunity to vote. The next resolution of the meeting is regarding the Ordnate Remuneration Report. Under the Corporations Act, listed companies are required to include the remuneration report within the directors' report. The 2020 remuneration report is available on the company's website and was posted to shareholders on request. I will take the remuneration report as read. Further details about the resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. This vote is advisory only and is not binding on the company. I would like to advise shareholders that Ordnate Group Limited will disregard any votes as stated in the voting exclusion statement related to resolution three as set out in the notice of meeting. In the interests of governance, the Board does not make a recommendation to shareholders in relation to this resolution. The resolution is set out on the screen. If there are any questions, click the ask question button, type your question, and No questions. As we have no questions, I will now put to the meeting Resolution three. And here are the proxies. Please now select either for, against or abstain for Resolution three on the voting card as I once again briefly pause. The fourth resolution is the approval to issue securities under the long term incentive plan. Approval of resolution four will mean that any issuer's securities under the long term incentive plan during the three year period after the AGM will not use up any of Ordnate's 15% capacity to issue equity securities without shareholder approval under ASX Listing Rule 7.1. However, notwithstanding this exception, an issue of equity securities under the plan to directors or their associates will require shareholder approval under Listing Rule 10.14, as such persons are deemed related parties of the company. If shareholders do not approve Resolution four, the issue of securities under the plan will be included in calculating Ordinance 15% capacity under ASX Listing Rule 7.1, effectively decreasing the number of equity securities the company can issue without shareholder approval over the twelve month period following the issuer's securities. Further details about the resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. I would like to advise shareholders that Ordnate Group Limited will disregard any votes as stated in the voting exclusion statement related to Resolution four as set out in the notice of meeting. The directors unanimously recommend shareholders vote in favour of this resolution. The resolution is set out on the screen. Are there any questions? No questions. In which case, I will now put to the meeting resolution four, and here are the proxies. Please now select either for, against, or abstain for resolution four on the voting card as I once again briefly pause. The next item of business is the approval of the issue of performance rights to the CEO, Mr. Aidan Williams. Details of Mr Williams' remuneration package as CEO and the basis upon which the remuneration was determined are set out in the remuneration report, which can be found in the company's annual report. The directors consider that the proposed issue of performance rights is an integral part of effectively rewarding and incentivising executive management in a manner that aligns the interests of management with shareholders, and is a key component of an appropriately structured remuneration package for Mr Williams. Further details about the resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. The directors, with Mr Williams abstaining, unanimously recommend shareholders vote in favour of this resolution. I would like to advise shareholders that Ordnate Group Limited will disregard any votes as stated in the voting exclusion statement related to Resolution 5A as set out in the notice of meeting. The resolution is once again set out on the screen. Are there any questions? No questions. In which case, will now put to the meeting resolution 5A, and here are the proxies. Please now select either for, against or abstain for Resolution 5A on the voting card as I once again briefly pause. The next resolution relates to the accelerated pro rata vesting of Mr Williams' 2020 LTI award in limited circumstances in the event that Mr Woolie ceases to be employed by the company as specified in the terms of the award. These circumstances include retirement, redundancy, death or permanent incapacity. Resolution 5B is conditional on shareholder approval of Resolution 5A being obtained. Further details about the resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. The directors, with Mr Williams abstaining, unanimously recommend shareholders vote in favour of this resolution. I would like to advise shareholders that Ordnate Group Limited will disregard any votes as stated in the voting exclusion statement related to Resolution 5B as set out in the notice of meeting. The resolution is set out on the screen. If there are any questions, please click on the Ask Question button, type your question, and click submit. No questions. In which case, I will now put to meeting resolution 5B, and here are the proxies. Please now select either for, against, or abstain for Resolution 5B on the voting card. Once again, there will be a brief pause. The final resolution for our meeting today relates to the ratification of the issue of shares on twenty eight July twenty twenty following the successful completion of a placement to sophisticated and professional investors as announced to the market on 07/22/2020. The rationale and background to this proposed approval was set out in the notice of meeting. The company has no plans at present to raise further capital and this approval gives the Board more flexibility should the need arise. Further details about the resolution are also contained in the explanatory memorandum that accompanied the notice of meeting. The directors unanimously recommend shareholders vote in favour of this resolution. I would like to advise shareholders that Ordnate Group Limited will disregard any votes as stated in the voting exclusion statement related to Resolution six as set out in the notice of meeting. The resolution is once again set out on the screen. Are there any questions? Yes. We have received a question. The question is, please explain why the company did not afford all shareholders an opportunity to participate in the issue of shares at a 5% discount to VWAP. This share issue resulted in dilution for all shareholders who were not invited to participate in the paper. At which point, I think it's appropriate to direct this question to the chair. Sorry. Sorry, Rob. I was on mute. Rob, did you feel like you could address that question? Yeah. Yeah. So, David, so, yeah, all shareholders were either afforded the opportunity to participate in the placement, and those that weren't able to participate in the placement were able to participate in the share purchase plan and buy up to $30,000 worth of shares actually on favourable pricing, which was less than what shareholders who participated in the placement received. So all shareholders were able to actually purchase shares on favourable terms. As it turns out, retail shareholders who participated in the shared purchase plan received them on a more favourable basis than people who participated in the original placement. We also have a comment. Thanks for the capital raise for retail, but pity about the scale back. There's no other questions in relation to this resolution. Thank you for that. I guess in a sense, would like to apologize for the scale back in another respect where we're grateful for the level of support and interest that we received. Indeed. If there are no further questions, I will now put to the meeting resolution six, and here are the proxies. Once again, now please select either for, against, or abstain for Resolution six on the voting card, and there will be a brief hold. Ladies and gentlemen, that concludes our discussion on the items of business. In a couple of minutes, the voting system will be closed. Please ensure that you have cast your vote on all resolutions. The voting card remains editable until voting is closed. Once voting has been closed, all voting cards will automatically be submitted and cannot be chained. Shareholders are reminded that they can submit their vote online until five minutes after the meeting closes, at which point, as we outlined at the beginning of the meeting, we will now take some time to respond to any other questions which have been raised through the platform. We have had a question. Any further knowledge of or comment on digital speakers? Digital speakers. I guess that's a a quite a potentially broad area. So I think maybe I could address it in the following way. Loudspeakers are are an integral part of AV systems. They're one of the most numerous components in AV systems, and they're also very cost sensitive. So I think there's there's been a number of innovations in that area that are driving individual loudspeakers to be more digital over time. And so I think they're riding a technology cost curve down. And from an ordinary perspective, that's one of those areas where if we can provide innovation and and in what we do, then we should be able to also ride that cost curve down with respect to implementing networking into a wider variety of cost effect. So it's area that we have R and D interest in, which is how do how do we we continue to reduce the marginal cost of adding Dante to a given set of products. Initially, that's things like amplifiers. But further you go out as speakers become more digital over time and have things like amplifiers built into them, that's natural to extend our technology into those digital speakers as well. We have another question. Please explain the derecognition of tax losses. I think I might refer that one to Bob. Thanks. Yeah. So certainly, so the FY twenty twenty result did include the pre recognition of tax losses that the business had generated over time. So in part, the structure of our activities means that we do receive a very large deduction for R and D incentives. And as a result, that means that as a group, we're not yet in the position of being tax payable. With the impacts of COVID-nineteen and the general level of uncertainty about the next couple of years, we did derecognise those tax losses such that they are no longer an asset on the balance sheet, and that had the impact of a large expense in the income tax payable line of the income statement. It doesn't mean that we lose the benefit of those tax losses. So at the point at which there is additional certainty about our ability to use them in the medium term, be that sort of three to five years, we are able to re recognise them as an asset at which time there is a benefit which is recognised through the income statement. It is a relatively, I guess, conventional thing that businesses do around considering the recognition and derecognition of tax losses. And I think the final thing to conclude on in rounding out an answer is that neither the expense in derecognising them nor the benefit that we receive in re recognising them at some point in the future will impact on any of the the remuneration of the executive team or staff. The next question, is the number of products a reasonable proxy for market penetration? Yeah. So I think that's that's an interesting question. I think it is it is a proxy. It's not a perfect proxy in that some products are much more popular than others. So in terms of market penetration or the overall usage of networking technology, it it can be the case that prominent brands with, you know, popular products end up influencing the total adoption of our networking technology, perhaps disproportionately from the the total number of available products that are on the market. So I think it's useful as a proxy. I would call it more of a leading indicator, and, obviously, those products need to be on the market in order for there to be penetration. And they also need to be on the market in order for us to generate repeat revenue associated with them. So I think it's not a perfect proxy, but it is a good proxy and certainly one that we watch quite closely over time. We've received a comment. Please in future show percentages of the precast vote when you show them, for example, 80%, 10%, etcetera. Thank you. Yep. That's fine. We can take that on board. It's sort of, I guess, a new world for all of us, but happy to make that change for next And the final question, please explain the scale back. Yeah. I think that's the retail scale back. Right? Probably Yes. Yes. Yeah. I imagine it would be the retail scale back. So that's fine. I think once again, that's one for me. So then what Maybe touch on the logic of how we got to the cap and the reach of the scale back to what proportion of shareholders. Yeah. Sure. So a couple of things around sort of what we did with the the share purchase plan. So one of the things to bear in mind is that the proportion of the raise which was put through the SPP was a lot higher this time. So we did we did respond to very overwhelming interest that we received the first time. So retail shareholders should note that the proportion that we raised through the SPP was a lot higher proportion of the total raise than it was the first time. So that was, I guess, in recognition of the strong support that we received. In relation to the scale back, the way in which we did that differs to some other companies. So there are two conventions which were applied around the scale back. So one is as a percentage of the bid or, alternatively, as we did as a percentage of the individual shareholding. So effectively what we did is we looked at the level of overall support and the amount of what that was as a percentage of the money that we wanted to raise. And effectively, what that meant is that shareholders, a larger shareholding, received a higher proportion or a higher percentage of their bid. That is different to the way some other companies do it. Our view is that shareholders with shareholdings should be recognised and receive a benefit, And it is a more sort of equitable way of dealing with the scale back than simply scaling back someone who might own 100 shares and ask for $30,000 and end up giving them the same as someone who owns 100,000 shares, giving them the same proportion. Our view is that the approach taken is more equitable. Okay. And a further comment was received in relation to the scale back noting that the first scale back was significantly higher than second. Yes. That's you're saying. Yes. So I I think it it was certainly on our minds for the the latest capital rain that we we tried to and set out to provide a larger allocation to retail shareholders as a matter of it was a conscious choice to do that. K. Another question. Does the company intend to bring manufacturing onshore in light of the current economic situation in Australia? Yeah. So the the we have no plans to onshore electronic. The vast majority of our engineering takes place here in Sydney, Australia. So a lot of our employment and engineers are based here in Sydney. Contract manufacturing is in two locations. One is in Mainland China, and the other is in Malaysia. And this has enabled us to get some redundancy. So it enables us to have supply chain confidence in that we've got two locations that are manufacturing. And also, the Malaysian option has provided us with the ability to ship goods from Malaysia to The US and not be them subject to import tariffs from Mainland China. So we do have supply chain redundancy because of standing up that second manufacturing in Malaysia. We do not at this time have plans to provide contract manufacturing in Australia. I think, you know, if that was economic and we had somebody providing contract manufacturing services here in Australia, we would absolutely consider it. But we have no plans ourselves to be a contract manufacturer. Thank you, everyone, for all of the interest in Inordinate. But in the interest of time, I think we need to conclude question time at this point. And I would now like to hand back to our chair, David Kroll, to conclude the meeting. Thank you, Rob, and thanks, Rob and Dave, for responding to the questions from our shareholders. On behalf of the Board of Audent Aid, I'd like to thank all of our shareholders for your support. And I now declare the meeting closed. The results of the poll will be announced to the ASX later today. Thank you for your attendance and participation in our meeting today.