Revenue up 30.2% but Rakon stays loss-making with trade debtors surging 52.9%

The company remains loss-making — PBT of -NZ$4.0m and NPAT of -NZ$3.0m — but the PBT loss narrowed by 73.6% from -NZ$15.1m in HY25, driven by both volume recovery and a gross margin expansion of 11 percentage points to 48.8%.

Operating cash flow fell 23.7% to NZ$6.4m despite the earnings improvement, and pre-lease free cash flow was -NZ$1.5m. The headline driver is a NZ$18.8m increase in trade debtors (up 52.9% to NZ$54.4m), which pushed operating working capital up NZ$24.0m to NZ$111.1m. Borrowings more than doubled to NZ$11.6m, partially funding this working capital build.

All three reported segments grew: Telecommunications (NZ$25.0m, +48.8% YoY) became the largest segment; Aerospace & Defence reached NZ$20.1m (+19.6%) with a disclosed gross margin of 64%; and Positioning contributed NZ$6.3m.

Trade debtors at NZ$54.4m now equal one full period's revenue, and debtor days extended to 182.7 from 155.6 in HY25. This is the primary reason operating cash flow fell even as earnings improved. Whether this reflects longer payment terms granted to win Telecommunications volume, timing of large end-of-period shipments, or a structural change in customer mix is not explained in the release, and it materially affects the read on earnings quality.

Gross margin expansion is real but mix-dependent. The 11ppt improvement to 48.8% reflects both volume recovery (scale absorption) and the growth of Aerospace & Defence, where disclosed gross margin of 64% is well above Telecommunications at 42%. Telecommunications is now the largest segment at 46% of revenue; if that mix persists, the structural ceiling on blended margin is lower than the current result suggests.

Leverage has moved quickly. Net debt shifted from approximately -NZ$10.2m (net cash) to -NZ$0.8m (near-neutral) in one half-year, primarily because cash fell to NZ$12.4m and borrowings doubled to NZ$11.6m. The business is not yet in a leveraged position, but the direction of travel — funding a working capital build with debt while remaining NPAT-negative — is a balance-sheet dynamic worth monitoring.

The FY25 full-year shape shows Rakon is historically second-half weighted: in FY25, the first half contributed only 40.2% of full-year revenue, and the implied second half generated NZ$62.0m. If HY26 annualises to approximately NZ$108.5m, the current half is running ahead of the FY25 run-rate, which is consistent with the company's largest-ever Aerospace & Defence backlog exceeding NZ$75m and the Telecommunications recovery. However, the absence of formal guidance means investors must rely on that backlog disclosure and segment commentary rather than a stated financial target.

The pattern of second-half profitability is important: in FY25 the implied second half produced positive NPAT of NZ$4.5m, rescuing a first-half loss of NZ$10.4m. With HY26's first-half loss already narrowed to -NZ$3.0m, a repeat of the second-half improvement pattern would deliver the company's first full-year profitable result in recent periods — but cash conversion would need to improve significantly for that to translate into meaningful free cash flow.

In that sense, the loss-narrowing is durable at the operating level. However, the company remains NPAT-negative and pre-lease FCF-negative at -NZ$1.5m, and the tax benefit reducing the effective rate to 25.6% — below the company's historical range of 28.5%-213.8% — has modestly flattered NPAT relative to PBT (the growth gap is 2.1 percentage points).

The more important quality concern is the receivables position. NZ$54.4m in trade debtors against NZ$6.4m of operating cash flow means reported earnings are substantially uncollected. Capex at 14.5% of revenue (NZ$7.9m) is elevated relative to operating cash generation, and the combination leaves the balance sheet more stretched than the P&L improvement implies. Until receivables conversion accelerates, the earnings improvement should be treated as partially deferred from a cash perspective.

This briefing cannot assess the collectability timeline for the outstanding receivables balance or the contract-by-contract terms underpinning the Telecommunications revenue recovery.