KEY POINTS:
The exchange rate and problems with French operations have taken a bite out of profits at GPS technology company Rakon, sending the share price tumbling and knocking $83 million off the firm's market value.
Net profit for the six months ending September 30 was $5.7 million, up from
$5.5 million the previous year, while revenue was $89.9 million, up from $50.5 million.
Managing director Brent Robinson said US dollars accounted for more than 80 per cent of revenue.
The movement in the US dollar cross rate compared with the previous year had cut $7.7 million dollars off revenue and $4.6 million off trading profit (earnings before interest, tax, depreciation and amortisation).
Shares closed down 65c yesterday at $4.50 _ a drop of 12.6 per cent which wiped $83.1 million off the company's market capitalisation.
First NZ Capital analyst Jason Familton said the result was below market expectation.
It was a good revenue result but the currency had affected the flow through to operating earnings, Familton said.
"Rakon is priced highly based on expected earnings growth and I guess it hasn't delivered this half," Familton said.
Rakon said operations in Britain had performed to expectation but in France a build-up of supply materials had to be scrapped after a design change by Chinese customers. Some materials were also rejected.
"We have had to provide for $700,000 for scrap inventory but have plans in place to prevent reccurrence," Robinson said.
The subcontracting of some labour-intensive assembly work from France to Morocco, which had been planned before Rakon acquired the business in February, would now be undertaken by an Indian subcontractor used by Rakon for about six years.
"We believe this will add to the efficiencies," Robinson said.
Chief financial officer Graham Leaming said the company anticipated delivering a full-year ebitda (earnings before interest, tax, depreciation and amortisation) result within previous guidance of between $27 million and $32 million.
"However, should external conditions change, such as further weakening of the US dollar or unexpectedly slow retail sales of GPS units over Christmas, it will be a challenge for us to achieve a result in that range," Leaming said.
Robinson said demand was strong across all products and the company was well positioned for emerging opportunities in GPS and telecommunication markets.
RAKON
Six months ending September 30
Revenue
2007 - $89.9m
2006 - $50.5m
Gross profit
2007 - $34.1m
2006 - $20.6m
Ebitda
2007 - $12.4m
2006 - $10.2m
Net profit
2007 - $5.7m
2006 - $5.5m