KEY POINTS:
GPS technology firm Rakon restated its commitment to New Zealand manufacturing yesterday as it goes ahead with a new factory in China.
The company also warned that if the New Zealand dollar stayed at its present levels, full-year trading profit would take a hit.
Managing director Brent Robinson said after yesterday's annual meeting Rakon was bidding to buy land for the Chinese factory.
"We've seen the quantities of GPS [temperature compensated crystal oscillators] virtually double year on year for the past few years," Robinson said.
Rakon makes high-performance crystals and oscillators used for frequency control and timing devices for sectors including global positioning systems.
"To take advantage of the growth we'll be looking to set up a similar sized operation to what we've got here initially."
Rakon employs about 750 people globally with about 500 employees at its Auckland head office, although wages in China are about 0.5 euros an hour compared to between 16 euros and 17 euros an hour in Europe.
But Robinson said he wanted to make it clear the company was not leaving New Zealand.
"The idea of what we're doing here is to develop the leading-edge products, develop the markets ... get them into a reasonable scale and then when they're starting to commoditise then we transfer them to the China operation."
The capital expenditure for the Chinese joint-venture factory would be in the tens of millions, with Rakon retaining a controlling stake.
"[Intellectual property] is one of the reasons but obviously we want to control what's going on there, the direction of the company, when to invest, why to invest."
In the year ending March net profit was up 122 per cent to $10.6 million, with the underlying performance so far this year in line with expectations, Robinson said.
However, the previous forecasted trading profit (ebitda) of between $32 million and $38 million for this year had been based on an average exchange rate of 70c to the US dollar.
A 1c movement in the exchange rate could impact full-year trading profit by about $1.5 million.
If the kiwi dollar remained at about 76c then trading profit would be between $27 million and $32 million.
More than half of Rakon's sales were in the GPS sector, with a further one third in communications and 5 per cent in military and aerospace fields.
Major personal navigation device makers were forecasting volume growth of more than 70 per cent this year, and meaningful adoption of GPS was starting in the mobile phone sector.
"I think over the next couple of years it [cellular phones] has the potential to match the [personal navigation device] volumes that we're doing," Robinson said.
Competition for Rakon came primarily from Japan, where firms had focused on the cellular phone market.
"GPS has really come up quite quickly and I think caught them a lot by surprise, which has given us quite an opportunity to stay ahead.
"They are starting to catch up, we're seeing them coming into our customer base with equivalent specifications but obviously we've been busy working away on what's next for Rakon and we're soon to release products that we think will put us another three years out," Robinson said.
Rakon's share price closed down 14c yesterday to $4.68, although significantly higher than last year's $1.60 issue price.
One shareholder asked if the company would review annually its decision not to pay out dividends.
Chairman Bryan Mogridge said when the firm listed it had not expected to pay dividends for the foreseeable future.
"However, we do regularly review that position."
