Rakon plunges deeper into the red on writedowns; shares tumble 8 percent

Thursday 23rd May 2013

Rakon, which makes crystal oscillators used in smart phones and navigation systems, plunged deeper into the red after writing down the value of its Chinese and New Zealand units, and posting underlying earnings at the bottom of its twice-downgraded guidance.

The Auckland-based company made a loss of $32.8 million, or 17.1 cents per share, in the 12 months ended March 31, from a loss of $420,000, or 0.2 cents, a year earlier, it said in a statement. Earnings before interest, tax, depreciation and amortisation sank 61 percent to $5.1 million, the bottom end of the $5 million to $7 million range forecast in February. Sales slipped 1 percent to $176.3 million.

"During the year under review Rakon's board has been reviewing various plans to ensure that the firm's balance sheet is property aligned to market opportunities and solid profit growth," it said. "The final plan will be available and released to the market in July."

The shares dropped 8 percent to 23 cents yesterday, having plunged 32 percent this year, valuing Rakon at just $47.8 million. The stock is rated an average 'hold' based on four analyst recommendations compiled by Reuters, with a median target price of 25 cents.

Last year Rakon announced plans to cut up to 60 jobs by shipping manufacturing to China in a bid to strip out $10 million in annual costs, while keeping research and development in New Zealand.

It booked a $10.1 million impairment charge on the China-Timemaker investment and wrote down its New Zealand unit by $7.2 million as market pricing in smart wireless devices no longer supported the previous valuations.

That changed in the second half of the financial year, with Rakon's board deciding there was no case for impairment in its first-half results.

As at March 31, Rakon's intangible assets were valued at $24.6 million compared to $31.5 million a year earlier, and its investment in subsidiaries was $8.2 million, down from $19.2 million.

Managing director Brent Robinson, whose father founded the company and the family interests hold a third of the manufacturer, said Rakon will continue to operate in a competitive environment in 2014, though expects to grab market share as new generation telecommunications technology is rolled out around the world.

As at March 31, Rakon had $29.1 million in current borrowings due in the next 12 months, and a further $13.7 million in non-current debt. Its finance costs rose to $2.1 million in the 2013 financial year from $1.8 million a year earlier.

"The board has a plan to reduce debt and restructured its banking facilities accordingly," according to notes in the financial statements. That will see debt fall $10 million to $30 million by the end of September, with a further drop to $26.5 million by the end of the year. Rakon expects to have $13.5 million in borrowings by the end of March 2014.

Rakon ate into its cash buffer, with a net operating outflow of $2.7 million, leaving it with $3.3 million in cash and equivalents as at March 31, down from $12.4 million after investing and financing activities.

The company struggled across most of its segments, with the New Zealand unit reporting an EBTDA loss of $928,000 on external sales of $96.6 million, compared to EBITDA profit of $1.5 million on sales of $87.1 million a year earlier.

The UK unit reported a 39 percent fall in EBITDA to $7.8 million, with revenue down 20 percent to $28.7 million, while the French unit's EBITDA loss was slightly smaller at $3.3 million on a 6 percent decline in sales to $50.7 million.

Its Chinese business made an EBITDA loss of $2.8 million with no external sales, compared to an EBITDA loss of $959,000 with $1.1 million in sales a year earlier, and China-Timemaker EBITDA halved to $551,000.

The Indian joint venture reported an 89 percent gain in EBITDA to $3.6 million.

BusinessDesk.co.nz

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