Rakon Limited Analysis

Overview

Rakon is a global high technology company which was founded in 1967 by Warren Robinson. Rakon designs and manufactures advanced frequency control and timing solutions. The company has four manufacturing plants, including two joint ventures plants, located in New Zealand, France, India and China and five research and development (R&D) centres. Customer support centres are located in ten offices worldwide.

The company's focus is on enabling next generation technologies in the telecommunications, global positioning and space & defence markets.

Rakon designs and manufactures advanced frequency control and timing solutions for telecommunications, global positioning and space and defence applications. Rakon products are found at the forefront of communications where speed and/or reliability are paramount. The company's products provide extremely accurate clocking signals, which are then used to generate precise electrical, radio or optical signals in networks and systems around the globe. Additionally Rakon offers a broad product portfolio to meet its customers timing and frequency control requirements.

Whether it be within wired, wireless and fibre telecommunications networks, navigation devices, or satellites in space. Rakon products enable connectivity.

In May 2006, the company listed on the NZX, raising $66m in a 41.25m offering at $1.60 per share. Since listing, Rakon has achieved a number of key merger and acquisition milestones:

• In 2007 Rakon acquired the frequency control products division of Britain's C-MAC MicroTechnology.
• In 2008 Rakon entered into a joint venture relationship with Indian owned and based Centum Electronics, together establishing Centum Rakon India.
• In 2008 Rakon entered into a joint venture agreement with China based Timemaker Crystal Technology.
• In 2010 Rakon acquired the assets of French based competitor Temex.
• In 2013 Rakon sold its majority stake in Rakon Crystal Chengdu (RCC) to ECEC, as a result of a strategic exit from smart wireless device (SWD) business.
• In December 2015 Rakon announced its investment in Thinxtra, an Internet of Things (IoT) company. Thinxtra became the exclusive Sigfox network operator for Australia and New Zealand and began deploying the network in Australasia in the second quarter of 2016 and announced its expansion into Hong Kong in December 2016.
• In December 2016, Rakon announced that Taiwanese company Siward Crystal Technology Company Limited would invest in Rakon, taking a 16.6 percent share in the company. The investment completed on 15 February 2017.

Performance

The following information was extracted from Rakon Limited's full year results, released on 29 May 2024:

Financial Highlights

• Revenue of $128.0 million (FY23: $180.3 million) reflects the completion of one-off chip shortage contracts in the prior year as well as the slower than anticipated normalisation of i

inventory levels – impacting both the Telecommunications and Positioning segments.

• Rakon continues to be impacted by the cyclical slowdown of 5G deployment by mobile operators.
• Space and Defence revenue was up by more than 27% reflecting Rakon’s continued success in growing this segment and diversifying its revenue.
• Gross margin of 45% (FY23: 49%) reflects one-off costs associated with workforce restructuring and inefficiencies of lower production levels.
• Reflecting the success of cost control and efficiency initiatives, operating expenses (excluding the costs related to the acquisition proposal and retention incentives) fell by $1.5 million

to $57.3 million despite inflationary pressures and continued investment in the growth plan.

• Underlying EBITDA(1) of $13.5 million (FY23: $42.2million) and Net Profit after tax of $4.5million (FY23: $23.2million).
• Capital expenditure of $17.0 million was spent on strategic investments as Rakon continues to deliver its growth plan.
• Given the FY24 financial performance and unanticipated costs related to the acquisition proposal, the Board has not declared a dividend in relation to FY24. A return to dividends will

be considered at the next annual results.