Rakon expects 2014 loss of $54M after Chinese writedown and trading losses; shares drop

Rakon, which makes crystal oscillators used in smart phones and navigation systems, expects a net loss of $54 million in 2014 after taking a $37 million one-time charge to write down the value of its Chinese investment and other assets and posting a trading loss of $17 million.

Shares in Rakon slumped 8.7 percent to 21 cents. The Auckland-based company said the trading loss would include $7 million of one-time costs for operational adjustments. Excluding one-time items, the $10 million net loss compares with a $12 million net loss last year, the company said.

Rakon expanded into China in 2009 and has a factory in Chengdu but the venture reported a loss of $2.8 million in 2013 compared to the $6.3 million profit forecast by management as adverse currency rates eroded margins. The company plans to sell 80 percent of its Chinese factory for US$18.8 million, using the proceeds to reduce debt.

“The structural and operational changes being undertaken, while significant, allows Rakon to ensure its efforts are focused upon those parts of the business where we have excellent market shares, growth opportunities and stronger profit margins,” managing director Brent Robinson said in the statement. “The Rakon board has initiated these changes with the direct intention to return to profit during FY15.”

In the year ending March 31, 2015, Rakon expects to post earnings before interest, tax, depreciation and amortisation of $10 million to $15 million, the company said.

That compares with an expected EBITDA loss of $3 million to break even in 2014, the company said. Excluding one-time costs related to restructuring, the company expects 2014 EBITDA of $4 million to $7 million.

Rakon expects its debt to fall below $10 million by the end of its 2014 financial year. The company anticipated completing the sale of its Chinese investment by the end of the month, however its bankers have agreed to shift its debt reduction covenant to Oct. 31 from Sept. 30 to ensure it meets the deadline.

Shareholders are voting on whether to approve the sale at a special meeting today. Rakon is also holding its annual meeting today.


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