REL: 0954 HRS Rakon Limited
GENERAL: RAK: Rakon Limited: China Expansion
Rakon to expand in China
Rakon Limited (NZX:RAK) today announces it will begin the construction of a
new Chinese manufacturing facility in conjunction with its existing Chinese
joint venture partner, Timemaker. This new facility will build upon the
existing Chinese joint venture operations and enhance the capability of the
New Zealand manufacturing facility.
"Significant growth opportunities are in front of us and we need to make sure
we build on our technology leadership with a scale of operations and cost
base that will enable us to secure business and maximise returns," said Brent
Robinson, Rakon's Managing Director.
"Combining our technology with access to scale in China and India provides us
with a significant edge over our competitors as we seek to grow market share
in the telecommunications market and fast growing mobile location sector.
China has become the centre of manufacturing for consumer electronics, and
expanding our presence there gives us a much stronger position in what is the
world's largest market."
Rakon is undertaking a NZ$65 million equity raising to provide funds for the
expansion of its Chinese manufacturing operations. Construction of the first
stage is expected to cost NZ$30 million through to the end of FY11.
Additional funds will be used for working capital, repayment of all debt and
the settlement of outstanding deferred consideration for Timemaker of NZ$6.3
"We put our Chinese expansion on hold last year while the world was in
recession. However, the scale of the earnings growth opportunities in front
of us, and the speed at which they are developing, gives us confidence that
now is the right time to proceed," said Mr. Robinson.
"During the past 12 months we have been able to re-evaluate both the location
and type of facility we will build to ensure we will get the greatest return
on our investment."
Rakon's plans are to build a crystal manufacturing plant in Chengdu, one of
China's largest cities. Rakon expects to commence building the new facility
this year and for operations to commence early 2011.
"Chengdu is an excellent location for us," Mr. Robinson explained. "It is a
large city with a skilled labour force, the infrastructure is superior to the
eastern seaboard, there is already a high-tech zone with over 700 foreign
invested enterprises and it is a development base for many of our Chinese
customers. Expansion in China also aids in reducing our exposure to the
highly volatile New Zealand dollar which can greatly affect the cost
sensitive, high volume products we will manufacture there."
The NZ$65 million equity raising comprises a NZ$45 million underwritten
institutional placement, as well as a NZ$20 million underwritten Share
Purchase Plan (SPP) for eligible shareholders. The placement price is
underwritten at NZ$1.10.
The institutional placement comprises two tranches, the first being an
unconditional tranche raising of approximately $25 million. The second
tranche of approximately $20 million will be conditional on approval by
shareholders by way of a shareholder vote. This vote is scheduled to be held
on 12 October.
Rakon's founder and Non-Executive Director, Warren Robinson will also
participate by being issued NZ$1 million worth of shares immediately prior to
the placement, at the same price as the shares issued under the placement.
"I recognise that in order to make the most of these opportunities, Rakon
needs to raise the required capital to fund the expansion of its
manufacturing capability in China, and I'm personally willing to support the
equity raising by subscribing for shares prior to the placement," said Warren
Sir Peter Maire, director and substantial share holder of Rakon also
expressed his full support for the initiative.
"This is a great company with an exciting future and I'm proud to be part of
it," said Sir Peter.
"Expanding in China is an important step forward for Rakon because it really
sets the company up as a world leader in all aspects of its business. It also
gives Rakon a real edge in these high volume, fast growing markets. I've got
great belief in where Rakon is going and I'm disappointed that due to the
timing I'll be unable to participate in the equity raising. But Tahia
Investments is in for the long haul and I have no intention of selling in the
next 12 months."
Bryan Mogridge, Chairman of Rakon commented that he was very pleased Warren
Robinson was participating in the placement and also pleased that Sir Peter
Maire had reaffirmed his commitment as a long term shareholder.
"I believe Rakon is on the verge of substantial earnings growth given the
opportunities presented by GPS being increasingly sought after as a feature
in mobile phones, and growth of wireless infrastructure applications
including femtocells. Warren and Peter share this view and having their
support as directors and substantial shareholders is good for Rakon," said
Rakon has been granted a trading halt to undertake this placement. Normal
trading in Rakon shares is expected to resume immediately following the
placement, which is expected to be on the 23rd of September.
Rakon will also offer eligible New Zealand shareholders a Share Purchase Plan
(SPP). The price of these shares will be the lower of either the
institutional placement price, or 2.5% below the average end of day market
price of Rakon shares traded on the NZX over the period of five business days
immediately prior to the closing date of the SPP. Each holder will be
eligible to apply for up to NZ$ 15,000 worth of shares, with applications
being scaled if subscriptions exceed NZ$ 20 million. Any scaling of the SPP
will be done relative to each shareholder's existing shareholding and the
total number of new shares they apply for. Full details will be sent to
eligible shareholders as part of the SPP documentation.
Rakon has been advised by the Securities Commission that the existing SPP
class exemption is about to be changed to enable eligible shareholders to
subscribe for NZ$15,000 worth of shares in the SPP, and NZX has provided a
waiver on that basis. Further details will be provided in the SPP booklet
when it is sent to shareholders
Rakon is also issuing approximately NZ$6.3 million of Rakon shares at the
same price as the shares issued under the institutional placement to its
existing Chinese joint venture partners as part settlement of existing
deferred consideration in respect of the establish of its original Chinese
joint venture, Timemaker.
Update on business
"Our UK operations have continued to perform very well, with demand for the
Pluto TCXO in communications applications being stronger than we initially
expected. Demand is increasing in our OCXO business out of France and India
after being slower than anticipated in the first half of the year," said Mr.
"The downturn in the global economy has meant we have seen increased
competition in the GPS sector during the first part of this year, which has
driven sales prices down faster than we had expected. This coupled with a
weakening USD and material supply constraints have had a negative impact on
our New Zealand operations."
Rakon expects the second half of the year to improve significantly with 2010
EBITDA to be between NZ$4 and 8 million dollars, inclusive of a first half
loss of between NZ$3 to 4 million dollars.
Mr. Robinson went on to say, "We have been able to maintain positive
operating cash flow and are seeing a significant upturn in volume demand for
the second half of the year. In particular, we anticipate strong growth from
major smart phone manufacturers, as well as increasing volumes for Rakon's
higher margin femtocell products."
Rakon said it expects sales volumes in the second half of the year to be
approximately 150% higher than those of the same period last year, when sales
dropped off dramatically due to the global financial crisis.
"This volume increase is important as it gets us back to where our operations
are much more efficient," explained Mr. Robinson.
The 2011 financial year is expected to generate significant earnings growth
for Rakon, underpinned by growth in smart phones, femtocell roll outs and
overall telecoms growth. Rakon estimates 2011 EBITDA will be between NZ$30
and 35 million dollars.
"We have great potential with GPS in mobile phones and a great deal of
investment going into the networks that make up the backbone of the
communications networks," said Mr. Robinson.
"We are expecting a lot of this potential demand to be realised over the
coming 18 months, with sales volumes in our 2011 financial year forecast to
grow by 70% over 2010 levels."
A conference call will be held at 11:30am today, details will be posted to
the NZX shortly and also be available on the company website.
This announcement has been prepared for publication in New Zealand and may
not be released or distributed in the United States. This announcement does
not constitute an offer of securities for sale in the United States or any
other jurisdiction. Any securities described in this announcement may not be
offered or sold in the United States absent registration under the US
Securities Act of 1933 or an exemption from registration.
End CA:00185217 For:RAK Type:GENERAL Time:2009-09-22:09:54:17