The extent of the strong New Zealand dollar's impact on listed technology exporter Rakon took the market by surprise yesterday.
Shares initially plunged more than 10 per cent after the Mt Wellington firm - which manufactures crystal oscillators used in telecommunications infrastructure, smartphones and GPS devices - announced it would lose about $20 million in cash earnings during its current financial year because of the dollar's ongoing strength against the British and United States currencies.
"The market was expecting the company to be hit by currency, but the magnitude of that hit was a surprise," said Craigs Investment Partners analyst Dennis Lee.
Rakon managing director Brent Robinson said that if the New Zealand dollar remained at current levels, earnings before interest, tax, depreciation and amortisation (ebitda) for the year to March 2012 would be in the range of $14 million to $18 million.
That would be a reduction of up to 43 per cent on last year's $24.8 million ebitda.
Shares closed down 8 per cent, or 7c, at 79c - a long way off the more than $5 they were worth before the global financial crisis.
Lee said that where Rakon's share price went in the near term would depend on whether investors viewed the currency impact in isolation from the company's underlying performance.
"Our underlying demand in the year to date has been very good with all our business units experiencing volume growth compared to the same period last year," Robinson said.
He said the company had foreign exchange protection in place to mitigate further impact if the New Zealand dollar continued to rise, and a number of other cost-saving measures were being implemented across the business
The kiwi, which hit a post-float record of US88.42c last month, was trading at US85.38c against the greenback and 52.34p against the British pound last night. Currency experts have suggested the New Zealand dollar could reach parity with the greenback over the next two years.
Rakon's strategy of expanding globally - particularly into China, where the firm opened a plant in July - would eventually help hedge the impact of currency movements, Robinson said.
New Zealand Manufacturers and Exporters Association chief executive John Walley said a 1 per cent appreciation in the trade-weighted index knocked about $200 million off the export sector's revenue over a year.
Over the last 18 months the New Zealand dollar has risen by more than 20 per cent against the pound and 25 per cent against the greenback.
"Right now Rakon will manage," said Walley. "It just gives them an incentive to do more in China and less in New Zealand, which is bad for New Zealand."
He said there were a number of tools available to control the exchange rate - like requiring banks to source more of their funding in New Zealand or placing a tax on foreign exchange transactions.
But he did not believe the Government would introduce any such measures before the "wheels fall off" the economy.
Rakon said a more detailed update on the business would be given at its annual shareholders meeting in Auckland on September 9.