Rakon turns to profit but annual earnings likely to be flat

Rakon [NZX: RAK] turned to a first-half profit and reiterated that it expects to post flat full-year earnings.

The company posted a profit of $1.08 million, or 0.6c a share, in the six months ended September 30, from a loss of $3.34 million, or 1.7c, in the year earlier period.

Revenue slipped 5.5% to $58 million, while operating expenses declined 3.7% to $23.3 million following the closure of its Lincoln plant in the UK.

Rakon has restructured its business, closing manufacturing facilities in France and the UK and shifted its plants to New Zealand and India, reducing its global workforce and cutting operating costs.

The company turned its focus to the telecommunications sector and away from the lower margin smart wireless device market, however it says telecommunications had slowed in the latest period as network operators delayed investment decisions in next generation infrastructure, crimping earnings.

"While the improvement in half year profit is pleasing, a prolonged slowdown in telecommunications spend over the first half has resulted in profits growing slower than we were expecting," says chief executive Brent Robinson.

The reduced telecommunications spend hit Rakon's 49% owned Centum Rakon India Private unit, which contributed a net loss after tax of $243,000 in the first half, from a profit of $1.7 million in the year earlier period, the company says.

Still, the company's consolidated margin continued to improve, rising to 41% in the first half, from 35% in the second half of last year and 28% in the first half last year, as a result of a change in product mix, technology transition and a currency benefit.

"The strategy previously implemented to focus on better product and operating margins is evident in this result," Mr Robinson says.

Rakon expects higher profitability over the second half of its financial year, compared with the first half, with a slow return to growth expected in the telecommunications market and an increase in space and defence revenues from the delivery of key projects timed during the second half.

The company affirmed its previous forecast for annual earnings to be similar to last year's underlying earnings before interest, tax, depreciation and amortisation of $15.4 million and net profit of $3.2 million.

Its shares gained 1.9% to a two-week high of 26.5c.

Rakon turned to positive net cash flow of $5.3 million in the first half, compared with a negative $30,000 in the year earlier period, helping it reduce net debt to $9.7 million, from $13.4 million at the end of the 2015 financial year.

The company didn't declare a dividend.

(BusinessDesk)

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