Rakon reports solid result

Rakon reports solid result

Rakon Limited (NZX: RAK) is reporting a solid result for the year with strong results from its international operations in a difficult economic climate.

Announcing its financial results for the year ending 31 March 2009, Rakon reported revenue of NZ$139.5 million and EBITDA of NZ$18.5 million for the period, down 20% and 27% respectively on the prior year. Net profit after tax was NZ$4.5 million after accounting for higher depreciation and a higher effective tax rate (due to composition of Group earnings).

A strong focus on working capital delivered strong operating cash flow of NZ$16.6 million, up from NZ$1.4 million in the prior year which has enabled Rakon to maintain its investment in product development for future revenue growth and maintain a healthy balance sheet with substantial unused debt facilities.

Brent Robinson, Rakon Managing Director said, "We are pleased with what we have achieved in a very challenging economic environment. Our decision to diversify into non-consumer markets has helped insulate us from the slowdown in certain retail sectors and puts us in a strong position as consumer confidence returns."

Over the past two years Rakon has taken significant steps to position itself as a global business with a competitive manufacturing platform that enables it to sustain and expand market share in high growth markets.

"Rakon's business now comprises wholly owned manufacturing operations and engineering design centres in New Zealand, the UK and France, as well as joint venture manufacturing operations and engineering design centres in India and China.

"We have seen strong demand coming from communications infrastructure customers. We continue to improve our market share, as new technologies and networks are deployed which our innovative products are specifically targeted towards and are well suited to."

Mr Robinson said the growth in capturing market share was driven by the significant technology advantage Rakon has on its competition, through products specifically designed for those markets.

The European business performed strongly in 2009 with its products having a stronger focus on industrial and infrastructural markets. It was therefore less impacted by the sharp decline in consumer spending.

Adjusting for the sale of the trading business in May 2009, European revenue was up 10% on the prior year as an increase in sales of our high specification Pluto TCXO offset reduced revenue from other older product categories. The improvement in product mix plus lower manufacturing costs (automation, materials and sub contracting) improved the earnings over the prior year. The transfer of volume manufacturing capability from France to Rakon's Indian joint venture is now essentially complete and the Joint Venture recorded a small profit in the final quarter of the 2009 year.

"The strong result from our UK operations is particularly pleasing. March sales of this year were an all time record for the UK; a tremendous result given the environment," said Mr. Robinson.

Revenue from the NZ business which is largely focussed on sales into consumer GPS products was significantly impacted by the global economic climate in the second half of the year. As a result revenue for the full year was down 27% to NZ$80 million. Selling prices for high volume products reduced 20% over the year with half of this concentrated in the final quarter. Total sales volume was also down 25%. As in previous periods material cost reductions and productivity improvements partially mitigated the impact of softer revenues.

As an early response to the extraordinary reduction in market demand in October 2008, Rakon reduced its NZ workforce by 10% in November in the areas of production labour and support staff. As a further step Rakon reduced its manufacturing capacity by shifting from a 5 day to 4 day week (24 hour shift) for an eight week period between February and April 2009. Rakon returned to a 5 day week after Easter to match capacity with increasing demand.

"The actions we took at these times were necessary to ensure our business was appropriately resourced without jeopardising key projects under development. The attitude of both those who stayed, and those we had to let go, has been outstanding and makes me confident of Rakon's ongoing success," said Mr. Robinson.

Rakon is seeing some demand returning in consumer markets, but Mr Robinson pointed out the company remains cautious in the current economic climate.

"Sales of consumer GPS were soft in the second half of the financial year, but we are now seeing some demand returning. We also continue to grow our presence strongly in the GPS enabled phone handset market."

"This is a highly competitive market and we expect prices and margins to continue to be under pressure. However, with over half of all cell phones expected to have GPS functionality by 2014, increased volumes will more than offset this."

Rakon remains optimistic but cautious about the 2010 financial year and believes it is well positioned to take advantage of any upturn in the market.

"We have a diverse product portfolio and an excellent market position. This enables us to capitalise on the growth in emerging wireless technologies, such as femtocells, as well as the significant growing demand for GPS. We see GPS enabled phones and other new applications such as netbooks, as being very significant for us in the future."

"We are also continuing to investigate further investment in China, to build upon our 40% stake in Timemaker acquired in June 2008. We consider offshore manufacturing in China and India as being one of the keys to Rakon's success in the coming years."

ENDS

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