Rakon backs strategy to boost depressed share price
By Paul McBeth
May. 22 (BusinessDesk) - Rakon, whose shares have shed 86 percent of their value over the past five years, says its new strategy should deliver a boost to the company's depressed share price, and anticipates positive earnings in the 2015 financial year.
The shares were unchanged at 22 cents, a discount to the net tangible asset of 36 cents per share, valuing Rakon at $42 million. The Auckland-based company said its 2014 annual loss more than doubled to $83.8 million as it took a $33 million loss on the sale of its Chinese investment, wrote down the value of its UK business, recognised faster depreciation costs and faced $7.2 million in restructuring costs.
Rakon is in the process of exiting the smart wireless device market, which didn't deliver big enough margins, and anticipates strong growth in the telecommunications sector as 4G mobile networks are developed around the world. The company forecasts underlying earnings before interest, tax, depreciation and amortisation of between $10 million and $15 million in 2015 as a result of those changes, compared to an underlying Ebitda-loss of $7.5 million in the 12 months ended March 31.
"We need to put some results on the board that will bring confidence back to the market," chief financial officer Simon Bosley told a conference call. "I can understand some segments of the market need time to be sure of this plan."
Rakon is shifting manufacturing from the UK and France to New Zealand and India as part of a wider restructuring effort that will reduce the company's global workforce by 45 percent.
Managing director Brent Robinson told analysts the company is focused on growing shareholder value and aims to achieve a return on equity of more than 12 percent going out to the 2018 financial year.
In September, chairman Bryan Mogridge said Rakon intends to start paying dividends of up to 50 percent of net profit from the end of the 2015 financial year, having previously steered clear of a cash return to shareholders, arguing it was creating more value by retaining earnings to let it capitalise on growth opportunities.
Rakon generated more cash than it spent from operations in 2014, with an inflow of $12.5 million compared to an outflow of $2.7 million in 2013. As at March 31, it held cash and equivalents of $4.8 million.
The company held bank debt of $10.9 million at the end of the financial year, down from $36.1 million a year earlier, and will lift its total facility to $22 million to help fund its restructuring.