Sluggish first half pushes Rakon to $3.96m loss

Smartphone equipment maker Rakon saw its loss for the six months to September 30 widen to $3.96 million as revenues fell and operating expenses rose during a period of sluggish growth in major markets.

The result is a blowout from the $259,000 loss reported for the same six months last year, with revenues of $89.4 million down $5 million on the same period a year earlier – albeit a $6 million improvement on sales in the second half of the last financial year, the company says in a statement to the NZX.

Shares fell 4.4% to 43 cents at the open of trading on the NZX. Over the last year, they have dropped 34.9%.

Rakon announced plans on November 6 to move manufacturing from New Zealand to China and other moves that will strip $10 million a year of costs out of the business.

It will concentrate manufacturing in its Chinese and Indian joint venture plants, while continuing research and development in New Zealand.

On an earnings before interest, tax, depreciation and amortisation basis, Rakon reported a surplus of $4.913 million, compared with $6.139 million for the same period last year.

The company operated with negative cashflow from operations of $2.2 million for the six months under review, compared to a $1.4 million cashflow shortfall in the comparable previous period.

Investment activity was lower in the six months, adding $7.1 million in negative cashflows, compared to $26.3 million in the first half of the previous year.

Non-cash depreciation rose significantly to $5.6 million, compared to $3.5 million in the same period last year.

The results reflect softer demand for telecommunications equipment than anticipated, combined with additional costs the company is carrying as it invests in its manufacturing capacity to meet anticipated growth, managing director Brent Robinson says.

"The economic situation in Europe and North America has impacted the telecommunications market for longer than had been expected," he says, although recent major announcements of plans to build new, so-called 4G networks heralded an expected increase in demand.

Rakon makes crystal-based parts for smartphones and mobile telecommunications networks.

"We are in a very strong position as a preferred supplier to the leading vendors of equipment," Says Mr Robinson, who left earnings guidance for the full year unchanged.

Notes to the accounts saythe board reviewed its assumptions for goodwill calculations, based on the weaker first-half sales, but concluded there was no case for impairment in the carrying value of goodwill.

For intangible assets, goodwill was calculated at $24.8 million, while the carrying value of its Chinese and Indian ventures totalled $13.1 million.

Earnings in its New Zealand unit bucked the trend, improving both revenue and earnings "due to the diverse mix of this business and was due to growth in sales of consumer wireless devices. This market has continued to grow in spite of the overall economic environment".

Ebitda for the New Zealand business was $2.8 million on revenue of $50.8 million, compared to an operating loss of $1.9 million in the first half of the previous year.

Its French and UK businesses under-performed against expectations for the six months, as did its Chinese manufacturing joint venture, "due to slightly lower than forecast demand for general consumer products".

The British and French units generated total revenues of $42.8 million in the half. While the UK unit, the smaller of the two, produced positive operating earnings of $3.9 million, the French operation showed an ebitda loss of $1.8 million.

"The outlook for this business is for continued growth driven by overall demand and improved margins due to improvement in manufacturing operations and yield," the notes to the accounts say.

Its Indian associate, Centum Rakon, were "slightly above expectations", thanks to improved margins and product mix, producing ebitda of $1.6 million, while its Chinese units had mixed fortunes, with an ebitda loss for the period of $1.5 million.

(BusinessDesk)