I must advise that this presentation is being recorded today, Wednesday, the 28th of May, 2025. I would now like to hand over to Rakon's Investment Relations Manager, Nick Laurent. Thank you, and please go ahead.
Thank you and good morning, and welcome to Rakon's full year 2025 financial results and business update. Joining us today are Rakon Chief Executive Sinan Altug and Chief Financial Officer Mark Dunwoodie. In a moment, I will hand over to Sinan and Mark to present the update, but first, a short reminder that during this presentation, we will make forward-looking statements about Rakon Limited and the environment in which the company operates. Because these statements are forward-looking, Rakon Limited's actual results could differ materially. I encourage you to read the disclaimer on the important notice slide of the presentation for more detail. Lastly, we ask that anyone recording today's webcast does so for note-taking purposes only and not for publication or broadcast of the webcast content. I will now hand over to Rakon Chief Executive Sinan Altug.
Good morning, and thank you for joining us. For anyone new to Rakon, we are a global leader in frequency control and timing technology, the heartbeat inside the world's most demanding systems. Our technology synchronizes 5G mobile networks, stabilizes timing on satellite constellations, underpins precision GNSS, and is now designed into next-generation AI data center hardware. Today, I will first headline our FY 2025 performance, then walk through key strategic milestones, market-by-market results, and the FY 2026 outlook. Mark will unpack the detailed financials. We'll close with Q&A. Let's begin. At the half-year, we updated you that the FY 2025 was already one of the most challenging years in Rakon's history, with especially tough conditions in our core, telecommunications, and positioning markets. We responded with a disciplined focus on reducing our cost base while relentlessly executing our strategic growth plan, positioning the business for a return to growth as markets recover.
Thanks to these efforts, we preserved our earnings in line with our guidance, delivering an underlying EBITDA of 9.5 million—I'm sorry, NZD 9.5 million, right around the midpoint. Key to this achievement, in a low revenue year, was a significant reduction in our cost base. Operating expenses, excluding significant one-off items, were down approximately 10% year-on-year, in addition to an NZD 8.5 million reduction in inventory. Our aerospace and defense core markets once again delivered record revenue with double-digit year-on-year growth, continuing a positive trend for the last three years. We also saw a strong pickup in telecommunications order volumes in the second half of the year, validating the positive market signals we noted at the half-year. In fact, two-thirds of the telco revenue was booked and delivered in the second half of the year, reflecting stabilizing market conditions and selective global 5G investments, particularly in North America.
Across all core markets, 60% of FY 2025 group revenue was delivered in the second half, accompanied by a NZD 16.8 million improvement in underlying EBITDA compared to the first half. This second-half surge has given Rakon a significant lift entering FY 2026. Next, let's take a closer look at our results at a glance. Looking at our full-year performance, there was a sharp contrast between the two halves of the year. FY 2025 revenue was NZD 104 million, down 19% year-on-year, but momentum flipped in the second half, and revenue jumped 49% versus the first half as orders rebounded. Underlying EBITDA was NZD 9.5 million, right around the midpoint of our guidance range after the second-half turnaround I mentioned. We posted a net profit after tax of NZD 5.8 million, which includes NZD 3.6 million one-off restructuring and transaction costs.
We drew an additional NZD 5.8 million on debt facilities to keep investing in new aerospace and AI R&D and manufacturing capacity. Operating expenses, excluding significant one-off items, were down 10% year-on-year, and inventory was reduced 15% year-on-year, releasing an additional NZD 8.5 million in cash. Mark will talk about our financials in more detail. Now, let's review how we executed our strategy and delivered on key growth initiatives in FY 2025, which was the final year of our three-year plan. As we conclude our three-year growth plan spanning FY 2023 to FY 2025, I'm pleased to say that not only have we consistently delivered the targeted milestones for each year, but we are also seeing the desired growth outcomes from these initiatives. FY 2025 was no exception.
We made great strides in pushing into new subsegments and focusing our growth and revenue diversification on the high-growth areas of aerospace and defense and AI and cloud computing infrastructure. In aerospace, we continue to build on Rakon's top supplier status for our timing and subsystem products. We released next-generation versions of our subsystems. These are products critical to communication, synchronization, and navigation of satellites and space vehicles, and they deliver the highest performance with unparalleled reliability. Alongside our ultra-stable oscillator components, these new subsystems were key drivers of the record FY 2025 revenue and strong forward orders in our aerospace and defense segment. In addition to several large contracts last year, we had also talked about a satellite subsystem contract, the details of which were confidential before.
I can now reveal that this contract is also with MDA Space to add next-generation satellites to the existing Globalstar low Earth orbit constellation. Globalstar provides the backbone for Apple's satellite service, and Apple has invested over $1.5 billion and has taken an equity stake in Globalstar. Such means position us strongly for similar large-scale LEO opportunities. You have heard us say that AI and cloud will become a core market for Rakon. We expect FY 2026 will mark the start of significant revenue. We are well immersed into some leading next-generation AI data center architecture, and we are already expanding production capacity. Our timing and synchronization solutions position us for strong, sustained growth as the AI hardware infrastructure market scales. FY 2025 was also a year of operational milestones. We have accelerated the transfer of select product lines to our India manufacturing center of excellence, unlocking cost and scale advantages.
In parallel, we reorganized the business units and realigned our leadership team to sharpen execution and customer focus. To reinforce our technology leadership, we have released multiple next-generation semiconductor chips, including Vulkan, which we will start sampling to AI and telco customers in the first quarter. These innovations ensure we stay ahead of performance demands, whether in AI data centers, 5G networks, or the new space economy. Together, these milestones give us operating leverage and innovation pipeline to fuel sustainable growth and long-term value. I'll share more about how these feed into our next three-year strategy at the annual shareholders meeting in August. Let's now quickly review how each of our core markets performed in FY 2025. We'll start with aerospace and defense.
We continue to see record revenue and double-digit year-on-year growth in the segment for the third year in a row, with total FY 2025 revenue of NZD 42 million, up 15% from the same period last year, and generating NZD 27 million of gross margin at a rate of 66%, which is our highest percentage margin of any segment by far. High demand for space subsystem products is a key growth driver, alongside our ultra-stable oscillators and next-generation Mercury R chip-based radiation-hardened products. Now, Telco. Telco faced headwinds but showed significant improvement later in the year. The FY 2025 revenue was down to NZD 45 million. That is down 33% year-on-year and at a gross margin rate of 26%.
The key drivers behind these numbers were the continued demand weakness in the telecom market, as well as the inventory overhang at our customers, and the inefficiencies in our manufacturing cost allocation from the lower order volumes also impacted our margin. Another factor was our phased exit from a major Chinese telco customer, incidentally the largest in the world, to mitigate geopolitical risks. However, there was a notable turning point in the second half, with two-thirds of the total telco revenue delivered in the second half of the year. These orders were driven by stabilizing conditions, as I mentioned, and selective global 5G investment as subscriptions and data usage grows. Rakon held its market share at all tier-one customers and maintained a high design win rate as before. We are once again well positioned as the market continues to stabilize and return to growth.
Next, a brief look at our positioning segment. Positioning revenue was NZD 11 million, down 21% from the prior year, at a gross margin percentage of 46%. Like in telco, continued market weakness was responsible for lower order volumes. We continue to be a strong player in the precise positioning part of this market, including emergency beacons, survey equipment, unmanned aerial vehicles, critical timing, autonomous industrial equipment, but overall, the segments remained flat, given the offsetting factors of increased competition driving down price. There still remains longer-term upside as some new applications scale. That concludes the core market performance review. I will now hand over to Mark to talk about our financial results in more detail.
Thank you, Sinan. Good morning, everyone. As Sinan has said, the FY 2025 year was one of the most challenging Rakon has seen in the delivery year of two very different halves.
Our interim results presented a November week or week, and this was followed by a turnaround in the second half. The turnaround was due to our focus on revenue generation, cost management, and operational efficiencies. We also benefited, as Sinan has said, from some market improvement in the telecommunication market. Second-half revenue surged by 49% versus the first half, signaling demand recovery and a strong launch pad for FY 2026. Underlying EBITDA recovered from a negative NZD 7.3 million to reach positive earnings of NZD 9.5 million by year-end, in line with our guidance midpoint. Including one-off restructuring and transaction-related costs of NZD 3.6 million, the company reported a net loss after tax of NZD 5.8 million compared to an FY 2024 profit of NZD 4.5 million. Rakon retains a strong balance sheet with net assets of NZD 155 million.
Debt facilities include significant capacity for investment and capital initiatives and growth opportunities, including expansion of production to meet current and future AI and cloud computing infrastructure and aerospace orders. Inventory was reduced by a further NZD 8.5 million to NZD 46.4 million as we continue to carefully manage working capital while maintaining the capacity to meet anticipated demand as our core markets recover. Now, talking about revenue, the strong second-half performance provided more than 60% of this year's revenue, helping to turn around that very weak first-half result. As you can see on the chart, our second-half revenue recovered strongly to be only about 9% below last year's result. Core markets of telecom positioning were the most affected in terms of lower orders and revenue, leading to a lower operating leverage overall.
One thing to note is the early revenue from AI and cloud computing is currently imputed in the telecommunications sector reporting that we're showing in our slides. As it becomes more material, we'll start to split that out and show it as a standalone core market. A large proportion of—sorry, moving to gross margin. A large proportion of Rakon's costs are fixed with lower orders. We lose our economies of scale. This was reflected in this year's lower gross profit of NZD 45 million and margin percentage of 43.1%, which is mainly due to loss of efficiencies from low production levels. We're focused on making our business more efficient, which will support an improvement in our operating leverage and gross margin when volumes return. In particular, the transfer of the selected product lines to our India manufacturing facility, while generating short-term transition costs, will deliver increased efficiencies from FY 2026 onwards.
On the operating expenses, the concerted focus on cost and efficiency is now delivering sustainable savings, with expenses excluding significant one-off items down almost 10% year-on-year. Over the long term, efficiency gains will further expand our operating leverage as volumes grow. This result reflects the positive outcomes of cost management and efficiency initiatives, offset by the overlap of expenses during the manufacturing transition. We've balanced cost reductions carefully with continuing to protect our growth pathway. This includes R&D investment to extend our technology leadership, retaining the capability and resources to deliver on growing demand. We also have an accelerated schedule for selected product transfers to India, and we're ramping up production capacity to meet existing and future demand in aerospace, AI, and cloud computing products. Expenses excluding significant one-off items do not include the NZD 3.6 million in restructuring transaction costs, as shown here. We switched to R&D.
Our investment in R&D remains steady year-on-year at NZD 22 million as we ensured we retain necessary resources and capabilities to protect our growth pathway and extend our technology leadership. Financial statements show R&D OpEx in our P&L of NZD 11.7 million. This does not include the NZD 9.8 million of products that were capitalized during the year as they met the NZIAS 38 criteria. Thank you for listening to that. Back to you, Sinan.
Thank you, Mark. Now, turning to our outlook across our core markets, starting with aerospace and defense. In aerospace and defense, we have a strong order book that already stretches beyond FY 2026. Customer demand for our subsystems and ultra-stable oscillators in space remains exceptionally high. Our growth is limited by our own speed of capacity expansion, which we have invested heavily into in FY 2025. Execution will be a key driver for our growth.
Telco hit the bottom of the cycle mid-year. We believe orders stabilized in the second half of FY 2025, and there is now an upward trend. Drivers are the growing 5G subscriptions, network densification, and the fixed wireless access. We held share through the dip, and as carriers resume CapEx, we are ready to capture the rebound. AI and cloud computing infrastructure, this is the new frontier. We have already invested in R&D, invested in capacity, and are securing these elements. We expect FY 2026 marking the start of a significant revenue trajectory, making AI a core segment for Rakon in the coming years. Our new chips, including our Vulkan OCXO, give us a strong technical edge in this. And positioning, p ositioning revenue is expected to be flat near-term. Price pressure offsets the volumes and the growth in some areas.
We are defending our high-precision subsegment, where margins and customer stickiness remain attractive. Overall, each of our segments has its own dynamics. Space and AI are high-growth drivers. Telco is stabilizing and set to recover, and positioning, we are sustaining with an eye on future optics. Now, to wrap up our outlook, let's discuss how these pieces contribute to Rakon's trajectory in FY 2026. Let me close by pulling in the key strands together as to why FY 2026 is expected to be a year with tailwinds for Rakon. The significant revenue surge in the second half of FY 2025 created real momentum. We enter FY 2026 with a growth trajectory already in motion, underpinned by positive sector trends across space, AI, and telco. We have a strong order book and targeting year-on-year growth in aerospace and defense, the start of substantial revenue from AI and cloud, and stabilizing and now improving telco orders.
Our focus on sustainable cost reduction continues, and we are still investing heavily in R&D to extend our technology lead. That balance safeguards our growth trajectory. Our organizational transformation means better execution for the company. As volumes speak up, our operating leverage improves and added capacity drops faster to the bottom line. We have a realigned, experienced global leadership team and a refreshed board with deep international and tech expertise ready to execute. We are watching tariffs and macro conditions closely, but we do not see a material FY 2026 impact. Our diversified global manufacturing footprint actually gives some level of protection. In short, we are well positioned for growth with strong fundamentals, proven demand, cost discipline, innovation investment, and a leadership team built to deliver. FY 2026 is our springboard year, and we are ready to turn momentum into sustained long-term value for shareholders.
I want to thank the entire Rakon team for their hard work and adaptability. This has been the driving force behind our ability to navigate adversity this past year and still advance our strategy substantially. Thanks to them, Rakon is ready to capitalize on the clear growth opportunities in front of us. We will continue with our focused investments in innovation and the ongoing operational transformation to unlock Rakon's full potential in the coming years. Thank you all for your attention and support. That concludes the formal part of our presentation. I'll now hand back to Nick to begin the Q&A.
Thank you, Sinan. We will now start the Q&A portion of the presentation. A reminder that if you would like to ask a question related to the four-year results and presentation, please submit your question in the Q&A box on your screen.
We will attempt to answer up to two questions from each person first before answering any additional questions in the time remaining. One moment while we pull up the first question. We have some questions. They have come through from Will Twist of Force Akbar. The first question relates to working capital. He asks, "Can you talk to the level of working capital and if this new level is sustainable?"
Thank you, Will. Yes, we believe it is. Obviously, as the business grows, we will see receivables increase, payables come up as we take orders in. Our key focus at the moment is on inventory and controlling that. We actually have initiatives this year to review our inventory policies and our inventory at our various sites. That will be our main target in maintaining this level of working capital.
Thank you, Mark. Another question here from Will.
It's regarding net cash this time. With net cash at the end of the year around $3 million, where would you expect this to be over FY 2026?
Thank you, Nick. We're working very hard to return to positive operating cash flow. We're forecasting and driving towards an improved cash position at the end of 2026.
Thank you. One moment while we pull up the next question. We do have some further questions from Will, and I'm not seeing any others at this point. I will continue on with Will's next question, this time looking at R&D. He asks, "On R&D, a large proportion of second-half spend was capitalized. Can you explain more on this and what will happen to this mix in FY 2026?"
Sorry, our technology teams are constantly working on the next chip or the next motherboard.
We will see similar capitalization progress as we reach the NZIAS 38 criteria during 2026 as well. 2025 was high, but we've been forecasting out, and with our approach and with our roadmap, we would expect similar levels going forward over the next couple of years.
Maybe I can add, Will, this is based on our strategy of ensuring that we tie our technology and R&D spend to the return on investment. If you look back at our last five years, you will see a consistent increase in the capitalization of R&D, which effectively means that we are turning our spend and R&D into assets for the company. We do have a number of new projects in different areas, be it semiconductors, like Mark said, in space subsystems, and in some other areas that will add to this moving forward as well.
While the trend will be up and down, perhaps, it is a deliberate—it's an outcome of a deliberate strategy that we have had over the course of the last years.
Thank you both. We now have a question from R&Z, Jeffrey Haley at R&Z. He's just asked for the profit and loss guidance for FY 2026.
Yes, we will provide that at our annual shareholder meeting in August. That has been traditionally when we provide our guidance.
Great. Thank you. Now, we have a question from Kevin Ascot.
Kevin, if I can just interpret your question, you've asked about the current capacity of India and the path to get capacity to 100%. Perhaps we can look at what is the path to the transferred products and the capacity to get those up to 100%, and also generally what the capacity is at our India facility.
Yeah, Kevin, there is still substantial capacity in India, actually. You will remember, as we invested into that factory, we had some level of scrutiny as to why we were going big. I think that that's going to pay off from this year onward because we will be able to—let me put it this way—in our transfer plans for at least the coming three years, the Indian capacity is not going to be a bottleneck. The path to get the capacity to 100%, that's the second part of your question, that is going to be spread across these coming three years.
Great. Thank you. We now have a question from David Oxley.
David asks, "Can you comment on the level of R&D likely to be expensed in FY 2026, please?"
We're anticipating probably not quite the NZD 9.8 million of last year, but something probably in the vicinity of NZD 5-6 million in the next year, as there is to it. Depends a bit on how we go with the products that we have in the pipeline. It could be similar. That's what we've budgeted on. We exceeded budget last year, and the teams delivered in excess of what we were expecting.
Right. It is a function of how our R&D projects pass the threshold effectively in terms of us being able to capitalize. In terms of the total spend, I just wanted to mention that our intention is to continue on the path that we have had in the past years.
If you look at our presentation, you will see that our total spend has almost monotonically increased over the course of these years since FY 2021. It is a big premise of Rakon that we are a technology leader, and we do intend to keep it that way. That does require us investing in R&D. We will continue to invest in R&D.
Great. Thank you. One moment while we get the next question. We have a question from Richard Peccary. Richard asks, "Regarding your capital allocation priorities over the next year or two, with forecast increases in cash generation, do you expect to prioritize ditch production, dividends, share buybacks, or reinvest in growth?"
T hat is, of course, a question for the board at the end of the day, but I can categorically speak to the fact that we will continue to reinvest in growth.
Growth is going to continue to be a key word on our path. That part is definitive. For the rest, I would defer that question because we have not really just yet also with the board discussed an exact strategy as to how we allocate capital, when it comes to debt reduction, dividends, or share buybacks moving forward.
Great. Thank you. I'm seeing more questions from Will Twist. He has another question, this time regarding aerospace and defense category. Specifically, he said, "Well done on the continued growth within space. Can you talk to which products are resonating in this market?"
Yeah, sure. I think there are a big number of different products. The ones that are bringing the biggest bang for the buck at this point, the ones that actually allowed us to really fill the niche that we were seeing.
If you go back a few years past, we have talked about the space subsystems and how we have the aspiration to move up the food chain in the newly forming new space ecosystem. This would go back five years, perhaps. And how we have actually started investing into this field to become a higher value-add supplier. Subsystems, now, if you fast forward to now, by far are bringing to us the biggest opportunities, the biggest contracts that we are seeing are through subsystems. Having said that, our ultra-stable space hardened oscillators that we have a wide range of, I could perhaps even assert that we may be a world leader in this because we have products that go into low Earth orbit constellations or all the way to deep space, going to Mars, Jupiter.
Those products, the ultra-stable oscillators themselves, are also having quite a good run and demand. I would keep it there for now. I think there are other product concepts that we have that we have already created, our own A64, that we will release shortly, but it's sensitive information at this point. I will not go into that roadmap just yet.
Thank you. We have a question for Warren Head. Warren, I'm just reading a question here. You've asked about the space contract terms in terms of the pipeline that we've described for aerospace and defense. Maybe, Sinan, could you give us some detail about the space contracts in terms of how long they play out and how they relate to our pipeline?
Sure. In general, the space contracts that have been visible to us, for traditional space, they used to be quite long.
When I say quite long, five to 10 years, that no longer is the case. We are looking at space contracts, however, that are from three years onward. That would be the time frame, especially for the low Earth orbit constellations. For what we see in terms of contract terms, I would say it will be three years plus.
Great. Thank you. We have another question here from Kevin Ascot. He has asked us, with regard to audit fees, if there is any intention to have a tender for the audit fees this year or the audit terms.
It has been raised a couple of times, and audit and risk are considering it. This is all I can say at this stage. Kevin himself raised it for the last two years in a row as well.
thank you, Kevin. I am seeing a question from Will here.
We will move to his next question, which is—sorry, one moment, Will. I have just got to go through and find the questions of yours that we have not answered. On AI and cloud products, can you talk to how the timing and magnitude of orders are in comparison with your expectations? I will repeat that, sorry. On AI and cloud products, can you talk to how the timing and magnitude of orders are in comparison with your expectations?
If we were to go back to our expectations about a year ago, I would say that there has been some level of delay in the AI hardware markets. That is at the tails of one giant in that market that has delayed a new platform, relatively speaking. Now that is over, actually.
Moving forward, we have a good projection as to where the AI markets and the forecast is going. Right now, it's as per our expectations, let me put it that way. If you go back one year ago, we were expecting a faster ramp-up based on the customers' feedback that we received, but they had incurred some delays themselves.
Great. Thank you. Just one moment. Let's see if there's any new questions. I'm not seeing any new questions. That looks like the end of the Q&A portion. That's all the time, or that's all the questions we have today. Thank you, everybody. We appreciate you joining us. If you have a question that wasn't asked during the call, please feel free to email it through to us at investors@rakon.com. With that, please have a great day. You may now disconnect.