Rakon blames high NZ dollar for first-half loss, shares hit low

Workers at Rakon's Auckland factory. Photo / Natalie Slade

Crystal timing devices manufacturer Rakon is blaming the high New Zealand dollar for its $3.5 million bottom line first-half loss.

The result compares with a $5.9 million profit for the same six months ended September 30 a year earlier. Rakon shares fell 8.96 per cent to 61 cents when trading opened on the NZX this morning, below their previous low of 62 cents.

Before taking currency translation differences and other hedging into account, the net loss was $259,000, down from a net profit of $5.6 million in the previous first half.

Managing director Brent Robinson said significant underlying business growth was hurt by the currency's strength. While revenue in US dollars rose 14 per cent, in New Zealand dollars it was flat at $94.6 million and earnings before interest, depreciation and tax (EBITDA) fell 55 per cent to $6.2 million.

The growth in US dollar sales reflected "increased sales for smart wireless devices such as smart phones and tablet PCs and increased sales into high reliability applications for space and defence industries," Robinson said.

But these gains were undermined by the New Zealand dollar averaging 81 US cents through the latest six months, 10 cents higher than in the previous first half.

"The prolonged strength of the New Zealand dollar is a problem not only for Rakon but for all New Zealand exporters and manufacturers," he said.

Robinson said the economic environment is challenging but he reaffirmed previous guidance that full-year EBITDA will be between $14 million and $18 million.

"The global economic environment is seeing our telecommunications customers, in particular, reduce recent and current demand below prior rates and forecasts as they reduce inventory levels," he said.

"We have and will continue to tune our business to respond. We have recently reduced indirect costs in a number of areas in a manner that we do not consider will impact on our ability to achieve our long-term goals."

Japan's earthquake's impact on the overall supply chain and the European economic uncertainty negatively impacted earnings. However, the proliferation of smart wireless devices, which is expected to grow, is putting substantial pressure on telecommunications network capacity which is expected to increase demand for Rakon's products.

The August 2010 acquisition of the Temex business led to increased sales to the space and defence industries. "This is a sector where we expect to continue to realise steady, sustainable and profitable growth," Robinson said.

The acquisition had been targeted to increase Rakon's French business's product range and the aggregate French business reached breakeven in the first half, he said.

Rakon shares reached their previous record low at 62 cents in the depths of the global financial crisis in March 2009. They have fallen from $1.29 in January.