Rakon has provided an update for the three months ended 30 June 2024 (Q1 FY24) and FY24 outlook. Key points are:
Rakon’s Q1 FY24 performance across all three of its core markets has been slightly above its expectations at the time of the FY23 results announcement. Since releasing its FY24 guidance at the results announcement, market conditions have continued to evolve with Rakon’s tier-1 telecom infrastructure customers now indicating that a temporary slowdown in 5G network infrastructure deployments will extend further into FY24 than initially forecast.
This temporary slowdown is driven by a more conservative stance from the global mobile network operators for FY24. The reduced demand will lead to a slower drawdown of stockpiled inventory among Rakon’s telecom infrastructure customers, extending into H2 FY24. While the revenue impact from this remains uncertain it could represent a risk of up to $10 million to the FY24 EBITDA guidance of $26-34 million. With three quarters of FY24 remaining, Rakon will continue to work alongside its customers as they manage their inventory levels through the temporary slowdown, and the company will update its projections as it progresses further in FY24.
Rakon’s demand outlook in the space and defence sector remains strong, with higher than expected product orders in FY24 and a healthy order book extending out to FY25. The outlook in the positioning sector is in line with forecasts.
Rakon will continue to take necessary steps in adjusting its operations to align with near-term financial performance, while steadfastly protecting the path towards long-term growth. This involves various initiatives to enhance efficiency, including careful recalibration of its resources and cost structures globally, a move Rakon believes is crucial in this rapidly changing market environment.
Rakon’s medium to longer-term growth fundamentals and drivers are strong and the company remains confident of a return to normal customer inventory levels by the end of FY24. Rakon has validated with its telecom infrastructure customers that it has not lost market share, it has also added customers across the growth markets it operates in and continues to secure design opportunities within customer projects as strongly as before.
Despite the temporary slowing of the global 5G rollouts, the drivers behind the technology continue to be strong. In Ericsson’s Q2 results, released on Friday, the company confirmed its earlier forecast for global 5G subscriptions to reach 1.5 billion connections by the end of calendar 2023 and 4.6 billion by 2028. There are also significant market opportunities for Rakon with cloud and edge computing, autonomous machines and vehicles, aerospace and the entire NewSpace ecosystem.
Rakon remains on track with its strategic direction which provides a solid foundation for future expansion in both core and new markets. It is making good progress with its FY24 milestones, including accelerating the process for the transfer of select product lines from its France and New Zealand manufacturing sites into its new facility in India. This recently opened high-tech facility is expected to support improved product margins in FY25. The company also continues to actively seek growth opportunities, including acquisitions, where it sees future value creation and alignment with its growth strategy.
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Refer to note 4 of the FY2023 audited consolidated financial statements for an explanation of how ‘Non-GAAP Financial Information’ is used, including a definition of Underlying EBITDA’ and reconciliation to net profit after tax (NPAT).