Rakon steady at HY and reaffirms FY guidance

Rakon steady at HY and reaffirms FY guidance

Rakon Limited (NZX: RAK) has reported revenue of NZ$94.6 million and EBITDA of NZ$6.2 million for the first half of FY12. Brent Robinson, Rakon Managing Director, noted significant underlying business growth had been hurt by the strength of the NZ$. Revenue was in line but EBITDA down 55% on results reported in the comparative period of the prior year.

"Rakon achieved USD revenue growth of 14% as a result of increased sales for smart wireless devices such as smart phones and tablet PCs and increased sales into high reliability applications for space and defence industries. Unfortunately the gains have been undermined by currency impacts, in particular the strength of the NZ$ which at a first half average of 81 cents was 10 cents higher than in the same period of the previous year. The prolonged strength of the NZ$ is a problem, not only for Rakon, but for all NZ exporters and manufacturers."

Robinson said the economic environment was challenging but reaffirmed previous earnings guidance for the full year.

"Our projected EBITDA for the full year remains in the NZ$14 to NZ$18 million range. The global economic environment is seeing our telecommunications customers in particular reduce recent and current demand below prior rates and forecasts, as they reduce inventory levels. We have and will continue, to tune our business to respond. We have recently reduced indirect costs in a number of areas in a manner that we do not consider will impact our ability to achieve our long term goals."

Smart Wireless Devices

"The growth in demand for smart wireless devices is forecast to continue. During the first half we have expanded our customer base and product range. Importantly we also completed the construction of our new facility in Chengdu which expands our capacity significantly and improves our product margins. Our Chengdu facility is now moving into commercial production as planned and our team is in place to ramp this up to full capacity in the second half year, resulting in improved returns for Rakon."

Telecommunications

Demand in the first half was below expectations due to the impact on the overall supply chain of the Japan earthquake and the European economic uncertainty. This impacted negatively on earnings. However Robinson is confident in Rakon's position and prospects.

"As noted previously the proliferation of smart wireless devices is putting substantial pressure on telecommunications network capacity and new generation 4G networks will require even greater capacity than those of today. We continue to invest in new products and production capacity to capitalise on the opportunities in this market. Our product range is very well suited and this is reflected in the steady success we have achieved with existing and new customers, continuing to sample and design in our products."

High Reliability

The contribution from sales into high reliability applications including space and defence grew in the first half of the year as a consequence of the Temex business which was acquired in August 2010.

"This is a sector where we expect to continue to realise steady, sustainable and profitable growth. The Temex acquisition was targeted to give us a broader product range and provide a core for our French business going forward. We are pleased with progress. Our aggregate French business reached break even for the first time in the first half. Whilst customer design cycles are long in this sector, the capabilities we have across our business will enable us to be very competitive in this market and already we are realising new opportunities. We will continue to increase our resource and investment in this market."

Overall

Robinson acknowledged the challenges of the economic environment and the impact of the ongoing strength of the NZ$.

Robinson said Rakon was focused on capitalising on its market position and diverse geographical design and manufacturing base.

"We have a very clear strategy of growing revenue in all of our key markets. We have a strong brand and an excellent product range and remain focused on continuing to develop innovative products quickly to capture the market. We have deliberately established a strong presence in the world's largest two markets of China and India. We believe our investment in products, design and manufacturing capability in the right places, is the best hedge against economic and foreign exchange risks."

ENDS

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