Rakon Half Year 2010 Results

Rakon Limited (NZX: RAK) has reported revenue of NZ$72.2 million for the first half of the 2010 financial year. This is up 20% on the second half of last financial year, but down 9% on the same period last year. Profit was up slightly from guidance given in September, with EBITDA a NZ$2.9 million loss, compared to previous guidance of a NZ$3 to NZ$4 million loss. The company recorded a net loss after tax of NZ$6.2 million, which included equity accounted profits from Rakon's investments in China and India. A continued strong focus on working capital delivered a positive operation cash flow of NZ$3.7 million.

Demand for the NZ business, which has a significant focus on consumer GPS, has recovered quite strongly and steadily throughout the first half of the year. Revenue from the first half was up 30% sequentially when compared with the second half of last year, although still down 20% on the same period last year it is a good sign momentum is building.

Brent Robinson, Rakon Managing Director said the global downturn impacted the NZ business in particular.

"As demand returned in the GPS sector, competition intensified and drove sales prices down faster than expected. This coupled with material supply constraints had a significant negative impact on the New Zealand business," he said.

Mr Robinson commented that results from its UK operations continue to be strong, "As we noted at our recent capital raising our UK operations continue to perform very well. Revenue is up 17% compared with the same period last year and 10% sequentially when compared to the second half of the prior year. Sales of our Pluto TCXOs into a broad range of applications have continued to grow over the past 6 months."

Sales in the first half for Rakon's OCXO business out of France and India were initially lower than forecast but demand increased steadily throughout the first half of the year driving revenue above the same period in the prior year and equal to the second half of the prior year.

The rapid appreciation in the NZ$ against the US$ and GBP also had a material impact in the first half of 2010. This movement caused an FX loss on foreign currency denominated receivables. This was partially offset by hedge gains from forward exchange contracts. The net outcome was for the first half of the current year Rakon incurred a FX loss of NZ$4.2 million against a gain of NZ$4.2 million for the first half of the prior year.

Despite the first half loss Rakon advised there was no change in its financial outlook for the current year of the forecast full year EBITDA of NZ$4 to $8 million. A continuation of the recovery in Rakon's tradition GPS market plus new GPS smartphone business and growth from the telecommunications segment, including femtocells, underpins the expected improvement. Mr Robinson noted Rakon anticipates providing a further update to the market on its revenue growth and earnings projections for the full year early in 2010.

Rakon's recent equity raising of NZ$66 million has been successfully completed, enabling Rakon to proceed with its planned new facility in China. Mr Robinson noted that Rakon was moving ahead with its plans to locate this in Chengdu and that the company had entered into arrangements with the Chengdu High Tech Zone, which he expected, would enable Rakon to obtain land use consent in December and proceed with beginning to construct a facility in early 2010.

"We have recently returned from a further visit to Chengdu to meet with our partners, officials and potential employees and are extremely pleased with progress and the opportunity in front of us" said Mr Robinson.

Mr Robinson said that like many companies Rakon has endured an extremely tough period, but that despite the results for the first half of the year Rakon has grown and enhanced its reputation and position as a leader in the supply of frequency control solutions.

"As in any downturn the effort across the business to establish a strong position for the future actually intensifies. Our strategies and tactics to develop new opportunities in both consumer and infrastructure markets are progressing well. We are confident this will begin to translate into improved financial results in the second half of FY 2010 and beyond."

ENDS

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