Rakon Reports Full Year Results

22 May 2008, Auckland, New Zealand

Rakon Reports Full Year Results

Rakon Limited (NZX: RAK) reports a solid year, with its financial results for the year ended 31 March 2008 showing an overall revenue of NZD 174.3 million, up 65% or NZD 68.4 million on the prior year.

Earnings before interest, tax, depreciation and amortization (EBITDA) was NZD 25.4 million or NZD 23.4 million excluding a one-off gain which was in line with guidance of NZD 23 to NZD 24 million given by the company in February and up 25% or NZD 5.2 million on the prior year.

Higher depreciation and IFRS related amortisation charges resulted in a net surplus of NZD 10.9 million up 4% on the prior year.

Brent Robinson, Rakon Managing Director, commented that the New Zealand business had performed strongly despite the impact of the weak US dollar and attributed the revenue increase largely to the full year contribution of the European business which Rakon acquired a year ago.

"We are very pleased that the New Zealand business continues to grow strongly with volume growth of 46%," added Mr. Robinson.

He said the New Zealand facility continued to increase its efficiency and the manufacturing team hit multiple record production months during the 2008 year, keeping Rakon in a strong position in the global market.

In line with other large scale exporters, the strong NZD had impacted the company.

"The 26% growth from the NZ business we had in USD revenue converted to 9% in NZD terms but we continue to focus on increasing our efficiency in those areas that we can control. We have made considerable investment in our Auckland premises during the year which will stand us in good stead moving forward," said Mr. Robinson.

"Also higher sales volumes, new product designs, material costs savings, and labour efficiencies more than offset the impact of the strong NZD and reduced sales prices."

The additional increase in revenue and EBITDA was mainly due to the contribution from the European acquisition for the full year, which was completed in early March 2007.

It also included a one off NZD 2 million gain from the sale of equipment by Rakon into a joint venture with Indian owned Centum Electronics.

"Our operations in the UK are performing very well, in particular our Lincoln factory which is a solid contributor," said Mr. Robinson. "We have dealt promptly with the challenges France presented last year and expect to realise the benefit of the changes made by the end of this calendar year."

"With the movement of some of the French business into India, as well as an increased focus on the parts of their business at which they excel, we are confident of improving returns."

Rakon's joint venture with Centum Electronics, announced in February 2008, has been completed and the first three transfers of equipment have been shipped from France to India.

"We are excited about the opportunities for the high performance OCXO product range and believe our JV in India will give us a unique position in the market with high performance, low cost, products," said Mr. Robinson.

"Rakon is becoming a significant player in the telecommunications area. We have several exciting challenges in a number of new opportunities in front of us, such as Femtocells, 4G networks and other next generation technologies coming through."

In addition Mr. Robinson said the company's highly regarded core GPS business remains solid and growing in line with expectations.

"New applications for GPS such as cameras and other consumer goods, as well as the obvious cellular phone applications, mean we have plenty of opportunities ahead to keep GPS top of mind for consumers and manufacturers."

Capitalised investment in new equipment and intangible assets totalled NZD 13.9 million for the year, largely related to further capacity expansion in NZ, increased automation in NZ and Europe and investment in new products in NZ & Europe. Research and development activities, charged to earnings, amounted to NZD 8 million.

Rakon previously announced on 16 May 2008 that it plans to sell the assets of its commodity business based in Crewkerne, UK. This transaction is expected to conclude in late May 2008. This business is largely involved in the sourcing and supply of mass market components, not manufactured by Rakon, to the European market.

The sale is a logical step in Rakon's growth plans, with the commodity business quite different to Rakon's design and manufacturing operations.

Mr Robinson said Rakon was better to focus its full resources on the substantial opportunities ahead by growing its design and manufacturing business.

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