Rakon Never Felt In A Better Position

Rakon Never Felt In A Better Position

Rakon Limited (NZX: RAK) has reported a full year revenue of NZ$178m and a look through EBITDA (including associates) of NZ$13.1m.

This compares with an EBITDA of $24.8m for the previous year, reflecting the impact of the continuing strength of the NZ$. The company's underlying revenue is predominantly recorded in US$ and in US$ terms revenue increased by 4% on the previous year. Brent Robinson, Rakon Managing Director, said underlying product margins were generally improved on the prior year reflecting a strong continuing focus on cost reduction across the business.

The company's operating cash flow of NZ$7.9 million reflected improvement in working capital in the second half of FY12 through reduced inventory levels and improved terms of trade, an area the company signalled would be monitored continually to improve efficiencies and costs.

Commenting on the year under review Mr Robinson said this was a year of significant investment for Rakon, especially in China where Rakon's recently commissioned JV plant in Chengdu is meeting expectations for the fast growing Smart Wireless Device market.

Mr Robinson said the company is now very well positioned to take advantage of this high-growth market, expanding and acquiring new business with the premier tier one and two manufacturers, particularly in China. He went on to say "we have never felt better about the business' overall position, the market opportunity and our customers."

Rakon products are designed into all new technology for mobile data, a market experiencing explosive growth. He explained, "we are in the devices, and the connections from handset to network, satellite and undersea cables. Network infrastructure growth is and will continue to be driven by smart devices."

Revenues from the former Temex business (now Rakon France) are in line with expectations, with the French company highly regarded as the European leader for High Precision and High Reliability Frequency Solutions for Space and Defence Applications.

This year, the telecommunications sector provided lower revenue than expected, due to continued deferred spending by telecommunications operators. However, Mr Robinson said Rakon was seeing recent improvement after a quiet period. He expected this improvement to continue as telcos resumed investment in infrastructure needed to meet global growth in data traffic, especially that created by smart wireless devices

Revenues for the past year were impacted by global financial instability particularly in Europe, along with some impact from the earthquake in Japan, which saw manufacturers quickly adopt a cautious approach initially, before relaxing and returning to a business as usual approach.

"We have been accurate in our long term market predictions and have put a lot of emphasis and continuing R&D into those markets where we had foreseen good growth," he said. "Early on we identified the underlying markets that we needed to be in and have worked consistently over the years to meet their needs and that has contributed to our feeling that Rakon is now 'in the right place at the right time'.

"That strategy is proving to be a good formula for Rakon, as we see the results from our expansion into China, and the growth of Smart Wireless Devices, as well as massive increases in data traffic needs all contributing to Rakon's strong positions in those markets."

Mr Robinson said that growth had been slower in arriving than first predicted, reflecting the volatility of new markets. "But when you are involved in high growth markets, there is always going to be some variability but eventually they do come to fruition; GPS and the internet itself are good examples."

"Rakon is well positioned for the expected growth surge in smart wireless devices and associated network infrastructure globally. Our product range is world leading and targeted at the lucrative new generation products and networks. This is backed by our investment in an extremely competitive manufacturing base which will enable Rakon to continue to capture increased market share."

Mr. Robinson said Rakon's Chengdu JV had been consistently increasing production since its commissioning in December, and is now operating 24/7, with almost 200 employees.

"As part of Rakon's strategic growth plan, the Chengdu plant provides significant additional capacity, at a lower cost base, for our high volume consumer products. So now we are focusing on optimising the existing capacity and also have begun planning further capacity expansion. We are also investing in expanding capacity and developing new technology in India, Europe and NZ to meet future demand in telecommunications."

Operating costs were impacted by Rakon's Chinese joint venture in Chengdu and the full year impact of the former Temex business, but Rakon expects these two facilities to continue to provide outstanding long-term benefits to the company's growth strategy.

Mr. Robinson confirmed the company's commitment to continuing innovation, as well as investment into a strong product range and manufacturing presence in two of the world's fastest-growing markets would continue to position Rakon as a global leader in frequency control systems.

ends

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