Rakon returns to profitability, while doubling debt, after restructure

See also: Market gives slight nod to Rakon's profit relief

Rakon [NZX: RAK], the high-tech components manufacturer, has returned to profitability while doubling its debt and turning to a negative cash outflow, after an overhaul of operations that saw it close its UK plant and shift production to India and New Zealand.

Net profit rose to $3.2 million in the year ended March 31, from a loss of $83.8 million a year earlier, the Auckland-based company said in a statement. Revenue dropped 12% to $131.4 million. Underlying earnings before interest, tax, depreciation and amortisation rose to $15.4 million, slightly ahead of its November guidance of between $10-15 million and up from a loss of $7.5 million in the previous year.

The company has been exiting the smart wireless device market, which didn't deliver big enough margins, to focus on the burgeoning telecommunications sector, and has shifted manufacturing from the UK and France to New Zealand and India as part of restructuring to reduce its global workforce by 45% and slash its operating costs.

"Our strategy to focus on higher margin products and markets has result in much improved operating margins for the year, supported by a strong second half performance," Rakon chief executive Brent Robinson said. "It is pleasing that the impact of our significant structural realignment programme during the 2014 and 2015 financial years has resulted in this improvement in our financial results."

That restructure saw its debt double to $13.4 million from $6.4 million a year earlier, while its operating cash outflow was $3.6 million, from an inflow of $12.5 million a year earlier.

In December, Rakon sold its Lincoln plant in the UK for £800,000 , which translated to a $1 million benefit for the company. Its joint venture, Centum Rakon India increased earnings to $3.3 million in the year, up from $2 million a year earlier.

The board didn't declare a dividend, and said it was "optimistic" for the coming year and expected to benefit from a falling kiwi dollar against the US currency.

Shares of Rakon jumped 16% to 40 cents but are well below their 2007 peak of $5.67.

(BusinessDesk)

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