Rakon sees flat earnings in 2016 as global telco market slows

Rakon [NZX: RAK], the high-tech components maker that returned to profit in 2015, expects 2016 earnings to be flat as a slowdown around the world crimps infrastructure investment, particularly in the firm's telecommunications market.

Managing director Brent Robinson told shareholders at today's annual meeting in Auckland that underlying earnings before interest, tax , depreciation and amortisation and net profit for the year ending March 31, 2016, will be in line with 2015's $15.4 million and $3.2 million respectively.

"This situation is not unique to Rakon, it is market-wide. However, as the overall demand for upgraded services has not subsided, it will pick up again and our preferred supplier arrangements will keep us in good staid," Robinson said in speech notes published on the NZX. "Even with the slowdown, our expectation is to be consistent with last year, and maintain a modest net profit after tax."

Rakon returned to profit in the 2015 year after overhauling its global operations, and exiting the smart wireless device market, which didn't deliver big enough margins, to focus on the burgeoning telecommunications sector. It has shifted manufacturing from the UK and France to New Zealand and India as part of restructuring to slash its operating costs.

Robinson today said the move away from the mobile phone market has been a success, lifting gross margins to 32 percent in 2015 from 19 percent a year earlier, "and we expect them to further jump in FY2016."

The company now derives 54 percent of revenue from the telecommunications infrastructure market, up from 41 percent a year earlier. Robinson expects it will continue as Rakon focuses on growing its footprint in emerging markets, and seeks to benefit from growing data usage.

"We continue to place a high focus on the telecommunications infrastructure market," Robinson said. "There is an insatiable appetite for fast, reliable networks from consumers, and Rakon's precision products enable that."

Rakon expects an effective exchange rate of 70 US cents, and has returned hedging back to policy levels, he said. The benefits of a lower spot rate aren't expected to be recognised until the 2017 financial year.

The shares fell 1.5 percent to 33 cents, and have slipped 1.5 percent this year.

(BusinessDesk)