Christopher Adams

The Business Herald’s markets and banking reporter.

Rakon shares dive after earnings warning

Delays in the roll- out of European military contracts were the main reason for Rakon downgrade. Photo / Paul Estcourt
Delays in the roll- out of European military contracts were the main reason for Rakon downgrade. Photo / Paul Estcourt

Shares in high-tech electronic components maker Rakon plunged to an all-time low yesterday after the company issued a pre-Christmas earnings downgrade, prompted by delayed sales programmes and declining margins.

The Mt Wellington-based firm's stock initially slumped by more than 12 per cent to 36c after the announcement, before regaining ground to close down 4c, or 9.76 per cent, at 37c.

Rakon said earnings before interest, tax, depreciation and amortisation (ebitda) for the year to March 31 next year were expected to be in the range of $8 million to $12 million, down from the $14 million to $16 million it had previously flagged to the market.

The company was expecting to report a net loss for its current full financial year, said chief executive Brent Robinson.

"It's certainly very disappointing."

Rakon reported a net loss of $400,000 in its last financial year.

Robinson said delays in the roll-out of "radar related" European military contracts, which Rakon was due to supply componentry for, were the main reason for the downgrade.

"It's not a loss of business - it's just a delay," he said. "It's probably something to do with the austerity measures [in Europe]."

Robinson said around $2 million worth of military-related business had been delayed for two quarters.

Rakon was also having trouble securing materials for its smart wireless segment - where it supplies components for consumer products such as smartphones and tablet computers - and had been forced to delay delivery of orders to a number of customers, he said.

"They're just normal supply chain issues."

Robinson said margins for some consumer-related products were being affected by the strong New Zealand dollar, which hit a nine-month high of US84.41c against the greenback last week, as well as "competitive pressure".

Rakon is responding to the challenges it faces by shifting manufacturing from this country to lower-cost facilities in China and India.

The company said those actions would save $10 million a year and 70 per cent of the changes would be in place by April 1 next year.

Robinson said he was surprised by how far Rakon's share price had fallen yesterday.

"It's dropped a lot more than I expected it to."

- NZ Herald

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