Rakon's profit history repeats itself

CLAIRE ROGERS
Last updated 09:48 21/12/2012

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Rakon’s warning that it will again fall short of earnings forecasts is becoming an all-too-familiar story for the NZX-listed hi-tech manufacturer.

The company said yesterday it expected its full-year earnings before interest, tax, depreciation and amortisation (ebitda) would now fall between $8 million and $12m. That is a significant decrease from the guidance of $14m to $16m it gave in August and reaffirmed in its half-year update last month.

Shares fell almost 10 per cent to 37c on the news.

Rakon managing director Brent Robinson said in a statement to the NZX that the fall in projected earnings was due to a delay in the sales programme for its high reliability and smart wireless device markets, as well as expected lower margins on some consumer products.

Craigs Investment Partner analyst Dennis Lee said it appeared the expected recovery in demand in Rakon's markets had not materialised.

"Lower margins are a reflection of the price pressure. It's a highly competitive market, especially in the consumer area. Price decay is steeper than they expected. This has hit the company quite hard, the downgrade is quite substantial."

Lee said Rakon was "at the bottom" of the list for its track record in meeting guidance, in terms of the companies he covered. The company had a pattern of giving a bullish outlook at results updates, followed by guidance downgrades.

"It's an issue, they are continuously over-promising and under-delivering."

Rakon probably had unrealistic expectations. "You can't really say they are hard done by, they are in the business and they should know the market," Lee said.

Robinson said the company had plans for reducing its cost base, which had been previously signalled to the market, including cutting 60 New Zealand jobs and shifting more manufacturing offshore. These would save $10m per year and he said the company remained on track for around 70 per cent of those changes to be in place by April next year.

Last month the company stuck to its full-year earnings guidance after reporting bigger than expected losses in the six months ending September. First-half ebitda fall 24 per cent year on year to $4.7m.

The company booked a $3.96m loss for the period - after reporting a $259,000 loss for the same period last year. Revenues fell 5 per cent to $89.4m. Robinson then attributed the result to continued weak demand in telco infrastructure and ongoing costs of moving manufacturing to cheaper sites in China and India.

The company, which makes crystal oscillators for improving the precision of wireless signals, said then it was positive about its second-half prospects.

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Robinson did not return calls for further comment.

- BusinessDay.co.nz

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