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Shares in Rakon tumbled yesterday after a profit downgrade, despite the GPS technology company unveiling profit-boosting plans to manufacture in India.
Managing director Brent Robinson said trading profit (earnings before interest, tax, depreciation and amortisation) for the year ending March 31 would be between $23 million and $24 million, exclusive of a $1 million one-off gain from the joint venture transaction, down from the previous guidance of between $27 million and $32 million.
Rakon provided the guidance yesterday as it announced plans for a joint venture with Indian company Centum Electronics to manufacture products in Bangalore. Rakon would transfer manufacturing now done in France to the joint venture, which would include Centum's existing design and manufacturing capability for frequency control products.
"Moving some of our manufacturing capacity to India is consistent with the constant evolution of our international manufacturing model and our objective of having a highly competitive, world leading, cost base," Robinson said.
The new company was expected to boost Rakon's annual trading profit by more than $3 million when fully operational late this year, through improved cost structure and contribution from the former Centum business.
The venture, which was expected to generate revenue of $25 million, would also provide Rakon with a one-off gain of about $1 million after transaction costs.
The market reacted sharply to the news, with shares dropping 33c at one point before closing down 22c at $2.90.
"The major differences between this forecast and the one given at the annual meeting of $27 [million] to $32 million can be largely put down to the continued strength of the NZ dollar, higher than warranted expenses from our European operations and extra expenditure on our global marketing and sales capability to capitalise on last year's FCP acquisition," Robinson said.
The company's core GPS business would have volume growth of 50 per cent, underpinning global revenue growth of more than 65 per cent for the full year.
Revenue for the full year was expected to be $175 million.
First NZ Capital analyst Jason Familton said the financial guidance was a little bit disappointing.
"A stock which trades on a relatively high [price to earnings ratio] like Rakon does can't really afford to miss earnings guidance and I guess normally gets punished as a result."
