REL: 1216 HRS Rakon Limited
GENERAL: RAK: Rakon Announcement on Strategic Partnership with ECEC
5 July 2013
STRATEGIC PARTNERSHIP FOR MANUFACTURING OPERATIONS IN CHENGDU, CHINA
Rakon Limited (NZX:RAK) and ZheJiang East Crystal Electronic Co. Ltd. (ECEC),
a specialized electronic components manufacturer listed on the Shenzhen Stock
Exchange, are to establish a strategic partnership targeting the smart
wireless device (SWD) market.
ECEC will acquire from Rakon 80% of the shares in Rakon Crystal (Chengdu) Co.
Limited (RCC), the owner of the manufacturing facility in Chengdu, China for
US$18.8 million. The acquisition will result in a new joint venture of RCC
with Rakon holding 5% and existing joint venture partners continuing to own
A Cooperation Framework Agreement signed by the two companies will see Rakon
and ECEC working together in the areas of technology, capital, management and
markets for SWD by sharing resources and capabilities.
"The Chengdu plant enables our joint venture to be at the centre of
manufacturing for consumer electronics, supplying components to the world's
leading manufacturers and suppliers to the smart-phone market. It's a
purpose-built plant with considerable capacity to be expanded from its
current 20% utilisation. ECEC will further fund the expansion of the Chengdu
plant and will enable the joint venture to achieve greater scale. We will
provide R&D, technology and marketing capability to the partnership. We have
a joint venture in India with Centum that works well and can see similar
benefits being achieved through a partnership with ECEC." said Brent
Robinson, Rakon's Managing Director.
Our view is that competition in this segment will remain very strong and it
is likely that industry consolidation will occur over the next two to three
years. We are contributing to that consolidation with the introduction of
ECEC to RCC. Bringing ECEC into the joint venture will enable us to benefit
from having low cost high volume manufacturing expertise and access to
Chinese capital markets. The partnership will allow the new joint venture to
grow the supply of our leading edge SWD products to manufacturers who are
significant household names, both in China and worldwide."
"This change will enable Rakon to enhance its focus on the high margin
markets where we currently see growth and profit opportunities that can be
driven by our significant technical strengths and differentiation" said Mr
Rakon's core business is in the design, manufacturing and supply of crystal
and oscillator components to other more profitable market segments:
o Network infrastructure supporting voice and data in the telecommunications
o High reliability and precision products used in the avionics, space and
military industries; and
o Specialised location-based devices sold by global navigation and mapping
"Rakon has an established and highly regarded reputation with the customers
it supplies to in these industries. This plan aligns our resources and our
balance sheet into areas where we have high market share and higher margins
while benefitting from a small investment in a partnership led by an
established manufacturer to the consumer electronics industry."
In the 12 months to 31 March 2013 Rakon's core business (which excludes SWD)
accounted for 70% of the company's $176.3 million sales revenue.
Rakon estimates to make a $32m million impairment of assets associated with
the partial sale of the Chengdu facility. The final result will be based on
results of RCC up to settlement that will be reflected in the accounts for
the six months to September 2013.
The reduction of working capital and proceeds from the sale of the shares in
RCC will be used to retire debt. Directors had previously announced plans to
reduce debt to less than $15 million by the end of the 2014 financial year.
Upon settlement of this agreement, debt can be reduced both earlier and below
the target of plans previously announced. A full update will be provided with
the interim result which will be announced in mid-November.
Upon signing the Cooperation Framework Agreement with Rakon, ECEC has
expressed an intention to purchase a stake of up to 5% of Rakon's shares
Both parties will move forward from the Cooperation Framework Agreement to
establish a final Sale & Purchase Agreement by 10 September 2013. Settlement
is expected to take place on 30 September 2013 following the granting of any
required regulatory approvals.
For further information:
(09) 571 9323
Rakon is a global high technology company that designs and manufactures world
leading frequency control solutions. Rakon's products enable fast and
reliable connectivity in the transfer of data. Customers are manufacturers in
the avionics, space, military and telecommunications industries.
ZHEJIANG EAST CRYSTAL ELECTRONIC CO., LTD. is primarily engaged in the
research, development, design, manufacture and distribution of electronic
components. The Company primarily provides surface mount device (SMD) quartz
crystal resonators, oscillators and ceramic tubular capacitors, among others.
The Company's products are mainly used in communication field, information
field, home appliance field, automobile electronic product field and other
fields. The Company distributes its products in domestic and overseas
End CA:00238269 For:RAK Type:GENERAL Time:2013-07-05 12:17:00