Rakon chief executive Sinan Altug on the challenges of Covid, the CO2 crisis, and new markets. Video / Molly Floyd
Rakon is poised to pay its first-ever dividend since it listed on the NZX in 2006 - albeit at a modest 1.5 cents per share.
The Auckland-based firm, which turns quartz crystals into radio frequency control systems that help telecommunications gear, satellites, missile guidance systems and emergency beacons maintain thesame “heartbeat” as other electronics, reported a net profit that fell by a third to $23.2m.
Last year, as the company reported record earnings, the board was firm in its resolve that profit should be reinvested for growth.
In April this year, Mike Daniel - a longtime minority shareholder who currently holds a 5.2 per cent stake - wrote to Rakon chairwoman Lorraine Witten, urging a policy for up to 20 per cent of net profit to be paid out in dividends. The dividend announced yesterday equates to around 15 per cent of net profit.
Chief executive Sinan Altug told the Herald Rakon was not yielding to investor pressure. Rakon had invested for growth during the year, but the board also saw room for a dividend in the context of a three-year growth plan and various external risk variables that had now reduced. Although profit was down, revenue was up 5 per cent to $180.3m.
“It’s a milestone,” Altug said. “There’s been a lot of back-and-forth about the dividend. But our policy hasn’t changed. What’s changed is that we’ve reduced our operational risk.” While profit was down over last year’s record earnings, pandemic supply chain issues had now been put to bed, with inventories rebuilt.
Another “cash-intensive” risk - the construction of Rakon’s new plant in India - was also now behind the company. The new factory had, in the final event, come in under budget. It was due to open in three weeks.
NZ Shareholders Association chief executive Oliver Mander was unfazed by Rakon shifting its position on the profit payout.
“It’s always a board decision and judgment as to whether a dividend should be paid, and it should be a year-to-year assessment.”
“Last year, Rakon signalled it would not pay a dividend as it felt it could generate a higher return in capital by retaining the cash for capital investment. This year, the Rakon Board has clearly made a different decision; paying a dividend indicates that the company believes it is generating sufficient free cash flow to pay a dividend and support growth-focused investment.”
The record date for dividend eligibility is July 24, and the payment date is August 8. Altug said the extended schedule was to allow time for a dividend reinvestment plan to be put in place.
No dividend guidance has been given for FY2024.
Sinan Altug, who took over from the long-serving Brent Robinson as Rakon CEO in April last year, via an internal promotion. Robinson remains on the board. Photo / Dean Purcell
Altug said the dip in profit was partly down to one-off costs including the “normalising” of inventories, the new plant in India and upgrades to Rakon’s Auckland facility.
The CO2 shortage had been another one-off cost.
Inflation had also been a challenge as salary rises and incentives to retain staff chewed up $4m. “But we perceive it to have peaked,” Altug told the Herald.
But even allowing for the one-offs underlying ebitda fell 23 per cent to $42.2m in the year to March.
And the company guided to weaker operating earnings again. It forecast underlying ebitda of between $26m and $34m for FY2404.
For Altug, the key point was “growth in our core business”. The CEO pointed to telecommunications revenue that had grown 17 per cent to top $100m for the first time.
Space and defence was up 18 per cent to $28.9m and positioning up 21 per cent to $33.8m.
The boom in low-Earth orbiting satellites was opening up a new market for Rakon.
Rakon shares closed Tuesday at $1.03. The stock is down 32 per cent over the past 12 months. In midday trading, the stock was up 2.9 per cent to $1.06.
