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Rakon coming back home, but at a cost

Rakon, fresh from receiving a government grant, has revealed plans to close its Lincoln, UK plant and shift the manufacturing of products made there to its New Zealand plant.

The move will carry some cost provisions and is likely to result in a larger loss for the 2014 financial year, although the company remains confident of its targeted $10-15 million earnings guidance for the 2015 financial year.

The decision follows a review by Rakon’s board of directors finding duplicate overheads and manufacturing capability between the Lincoln and New Zealand operations.

The listed electronics components maker says its UK employees have been told of the proposal but said there is no fixed timeline for the closure.

Rakon [NZX: RAK], whose shares have shed more than three quarters of their value in the past three years, says should the proposal be confirmed in the current financial year, there is expected to be further restructure provisions reported.

That would result in a change to previous earnings guidance for the 2014 financial year with earnings before interest, tax, depreciation and amortisation (ebitda) expected to trade in the range of negative $8 to negative $5 million, compared to previous guidance of negative $3 million to zero.

A net loss after tax of $59-55 million is expected compared to previous guidance of a $54 million loss.

The proposal does not impact on Rakon’s target to reduce bank borrowings to below $12 million, by March 31, 2014.

Rakon’s target of returning to an ebitda profitability range of $10 million to $15 million in 2015 remains intact, the company says.

 

Earlier this week Rakon was named as one of 31 tech companies awarded R&D growth grants from Callaghan Innovation, the government's high-tech development body set up in 2012.

The grants provide a 20% contribution to a firm's annual R&D spend, capped at $5 million a year.

More by Duncan Bridgeman

Comments and questions
11

Is there anyone left out there with confidence in this company?

Yep, Govt funding agencies that continue to throw our tax dollars at it for further R&D!

They just received R&D funding.

Anon, you bring up a good point, and the answer is NO. The family sitting on Board and in Exec positions receiving above average salaries for well below average performance are the only people with faith. It's probably a bit like the fiat money system, it all relies on faith that someone will bail out the system. You see in the article the commentary is all about Rakon, but it is not Rakon, it is the Robinson family that you need confidence in, and they are clearly not serving other shareholders well when compared to virtually every other NZX listed company.

No surprises here ... RAKON is always good for downgrading earnings and upping losses. Sad however that our politicians still choose to use our taxpayers money to subsidize a bunch of self serving board members and managers.
Any chance to elect this year a government which would stop the attempts of refilling this bottom loss barrel?

Agree it is hard to understand the logic of government agencies continuing to back teams that have failed to deliver, and also funding groups that can and do fund their own R&D - Fisher & Paykel, where the margin value of the last $ of R&D is probably not signifcant.

Odd to close the only profit making part of the company. UK site has consistantly returned a profit since being purchaced by Rakon

What a bunch of con artists! After buying out lemon companies, marketing them to shareholders, and then let the profit margins get eroded by their incompetence, they are still going to get the taxpayers dollars just for future debt payments?! Really?! The government is no different to the company it subsides no clear vision! No clear cut mission! Another Holden in the making.

How will the costs of this closure not impact on Rakon's target to reduce bank borrowings - sounds like something for nothing

Rakon missed the boat big time, they had a niche product and where technically ahead of the game... seriously dropped the ball though and they dont have the stand out product because everyone else has caught up. Probably would have done better without so much influence from one family.

Nepotism destroys