UPDATED: Rakon shares climb to 21-month high as return to profitability loom

Shares of Rakon [NZX: RAK] rose to their highest in 21 months after the high-tech components manufacturer flagged a return to profitability is looming, though investors will have to wait and see if they get a dividend.

The Auckland-based company affirmed its annual guidance for underlying earnings before interest, tax, depreciation and amortisation of $10 million to $15 million in the 12 months ending March 31, 2015, with higher profitability expected in the second half to come from its telecommunications unit and more revenue from its space and defence segment. The shares rose 4.4 percent to 36 cents, the highest level since Feb. 8, 2013, and have climbed 77 percent this year.

Chief executive Brent Robinson told a conference call the manufacturer is well-positioned to return to profit after several years of losses as it restructured its businesses, taking impairment charges and closing manufacturing facilities in France and the UK.

"We're very pleased to be in a position where we're heading into a net profit position," he said.

The board didn't declare a dividend, and has previously dangled the prospect of cash returns to shareholders once the current financial year is over to repay their support after successive years of underperformance. Rakon traditionally steered clear of paying dividends, arguing it was creating more value by retaining earnings to drive growth opportunities.

Chief financial officer Simon Bosley said the firm's dividend policy was unchanged, so the board could potentially declare a payment of up to 50 percent of after-tax profits if it's considered fiscally appropriate.

"Obviously that's not a position we're in at the end of the first half," Bosley said. "That will obviously be considered by the board at the end of the full year financial 15, but I think a key point of that policy is 'considered fiscally appropriate', so it's a little bit of a wait and see."

Rakon narrowed its net loss to $3.4 million, or 1.7 cents per share, in the six month period from $45.7 million, or 22.3 cents, a year earlier. Revenue fell 24 percent to $61.4 million.

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 percent and slash its operating costs.

The company's New Zealand unit narrowed its underlying Ebitda loss to $920,000 in the half from $4.5 million a year earlier, while revenue shrank 40 percent to $23.2 million. The UK division reported a 38 percent drop in earnings to $1.6 million on a 24 percent decline in sales, while the French segment narrowed its Ebitda loss to $32,000 from $5.6 million on flat revenue of $28.2 million.

Rakon has been focused on reducing its bank borrowings as part of its restructure, and had net debt of $8.2 million as at Sept. 30, down from $27.1 million a year earlier. Its operations generated a cash outflow of $30,000 in the half, compared to an inflow of $7.8 million a year earlier, and it had cash and equivalents of $3.9 million at the balance date.

(BusinessDesk)