AUTOV CORPORATION BERHAD (FORMERLY KNOWN AS AV VENTURES CORPORATION BERHAD) ( AUTOV OR THE COMPANY )

Transcription

1 AUTOV CORPORATION BERHAD (FORMERLY KNOWN AS AV VENTURES CORPORATION BERHAD) ( AUTOV OR THE COMPANY ) PROPOSED ACQUISITION PROPOSED IASC PROPOSED AMENDMENTS (COLLECTIVELY, THE PROPOSALS ) 1. INTRODUCTION On behalf of the Board of Directors ( Board ) of AutoV, M&A Securities Sdn Bhd ( M&A Securities ) wishes to announce the following: (i) The Company had on 1 June 2011 entered into a sale and purchase agreement ( SPA ) with Yong Nam Yun, Chu Yoon Kong, Sim Mou Hooi, Lim Teck Ling, Lim Ted Huat and Kua Siah Heng (collectively, the Vendors ) for the proposed acquisition of 1,831,000 ordinary shares of RM1.00 each in Proreka (M) Sdn Bhd ( Proreka ) ( Proreka Shares or Sale Shares ) representing the entire equity interest of Proreka for the purchase consideration of RM27,880,000 ( Purchase Consideration ) to be satisfied via the following: (a) (b) (c) Cash payment of RM2,788,000 ( Cash Consideration ); The issuance of 6,525,000 new ordinary shares of RM1.00 each in AutoV ( AutoV Shares ) at an issue price of RM1.44 each ( Share Consideration ); and The issuance of 10,900,000 redeemable convertible preference shares of RM0.01 each in AutoV ( RCPS ) at an issue price of RM1.44 each ( RCPS Consideration ), under terms and conditions of the SPA ( Proposed Acquisition ); (ii) (iii) Proposed increase in the authorised share capital of the Company from RM100,000,000 comprising 100,000,000 AutoV Shares to RM200,000,000 comprising 199,000,000 AutoV Shares and 100,000,000 RCPS ( Proposed IASC ); and Proposed amendments to the Articles of Association of the Company to facilitate the Proposed IASC and the issuance of the RCPS under the Proposed Acquisition ( Proposed Amendments ). 2. THE PROPOSALS 2.1 Proposed Acquisition Details of the Proposed Acquisition Pursuant to the SPA, the Vendors jointly and severally agree to sell and AutoV agrees to purchase, the Sale Shares free from all encumbrances whatsoever but with all rights and advantages attaching thereto or accruing together with all dividend and distribution which declared, paid or made after the date of the SPA, upon the terms and subject to the conditions set out in the SPA. The purchase consideration for the Proposed Acquisition of RM27,880,000 ( Purchase Consideration ) shall be satisfied via the following: 1

2 (a) (b) (c) Cash payment of RM2,788,000; The issuance of 6,525,000 new AutoV Shares at an issue price of RM1.44 each; and The issuance of 10,900,000 RCPS at an issue price of RM1.44 each, The Cash Consideration shall be funded through AutoV s internal funds. Upon completion of the Proposed Acquisition, Proreka will be a wholly-owned subsidiary of AutoV. The new AutoV Shares and RCPS to be issued to the Vendors as well as the cash component to be paid are as follows: Shareholders of Proreka Cash payment RM No. of new AutoV Shares to be issued No. of RCPS to be issued Yong Nam Yun 1,620, ,792,330 6,335,080 Chu Yoon Kong 120, , ,790 Sim Mou Hooi 120, , ,790 Lim Teck Ling 540, ,265,197 2,113,510 Lim Ted Huat 120, , ,790 Kua Siah Heng 266, ,790 1,042,040 Total 2,788, ,525,000 10,900,000 The salient terms of the SPA are set out in Section of this announcement. The Purchase Consideration is subject to adjustments pursuant to the terms and conditions of the SPA as described in Section below Details of Proreka Proreka was incorporated in Malaysia as a private limited company under Companies Act, 1965 on 25 April On 3 January 2011, Proreka completed an reorganisation exercise involving the acquisition of 4 companies resulting in the formation of the Proreka group of companies ( Proreka Group ). Prior to the said reorganisation exercise, each of these Proreka s subsidiaries (excluding minority interest) were owned by the respective Vendors. Details of the Proreka s subsidiaries are as follows:- Name Issued and paid-up share capital/country of incorporation Equity interest (%) Principal activities Proreka Tech Sdn Bhd RM3,000,000 / Malaysia Manufacturing and trading in automotive parts and accessories Proreka Automotive Parts Sdn Bhd RM2 / Malaysia Trading in automotive parts and accessories Proreka Plastic Sdn RM350,000 / Malaysia Dormant Bhd Senko Sekei Sdn Bhd RM50,000 / Malaysia Dormant 2

3 As at the date of this announcement, Proreka s issued and paid-up share capital stands at RM1,831,000 comprising 1,831,000 Proreka Shares. Proreka has no associated companies. The Proreka Group is principally engaged in the manufacturing and sourcing of parts for the automotive industry. Its operations are located in Malaysia. Further details of its products/services are set out below: (i) (ii) Automotive parts design, prototyping and customised modification services; Manufacture and assembly of OEM (original equipment manufacturer) automotive parts and components for the automotive industry, including floor console modules, gear shifters, radiator grilles, centre panels, engine covers, automotive lamps, rear spoilers, side protection moulding, scuff plates, cabin control units and other interior automotive parts using the following manufacturing methodologies: Injection moulding Blow moulding Metal stamping (iii) (iv) (iv) Provision of licensed cubic printing services for the surface finishing of automotive components; Design and manufacture of external car body kits using injection moulding, fibre reinforced process, polyurethane moulding and vacuum forming; and Design and manufacture of non-automotive lamp kits, including LED (light emitting diode) lamp kits for factory plants, showrooms and convention centres. The Directors of Proreka are Tunku Mahmud Bin Tunku Besar Burhanuddin, Chu Fooi Mee, Chu Yoon Kong, Sim Mou Hooi and Lim Teck Ling. The shareholders of Proreka and their respective shareholdings are set out below: Shareholders of Proreka No. of Proreka Shares % Yong Nam Yun 1,064, Chu Yoon Kong 79, Sim Mou Hooi 79, Lim Teck Ling 355, Lim Ted Huat 79, Kua Siah Heng 175, Total 1,831, The proforma financial information of the Proreka Group based on their respective audited financial statements for the financial year ended ( FYE ) 31 December 2008 and 2009 and unaudited financial statements for the FYE 31 December 2010 furnished by the management of Proreka are set out below: 3

4 < FYE 31 December > 2008* 2009* 2010* RM 000 RM 000 RM 000 Revenue 48,188 46,729 60,409 Profit before taxation ,910 ( PBT ) Taxation (253) (508) (1,290) Profit after taxation ( PAT ) Shareholders funds/net assets ( NA ) ,445 6,433 6,810 11,256 Borrowings 6,362 7,579 8,021 Note: * the Proreka Group was formed in January The financial information for FYE 31 December 2008 to FYE 31 December 2010 were prepared on a proforma basis on the assumption that the Proreka Group has been in existence during that period. Commentary: FYE 31 December 2008 For the FYE 31 December 2008 ( FYE 2008 ), the Proreka Group recorded revenue of RM48.2 million. The three main revenue contributors were from Proton, Hyundai and Toyota, which contributed approximately 92% of the total revenue. The Proreka Group s PAT was recorded at RM0.5 million for the FYE FYE 31 December 2009 The Proreka Group s revenue for the FYE 31 December 2009 ( FYE 2009 ) decreased to RM46.7 millon from RM48.2 million, representing a 3% decrease as compared to FYE This was mainly due to the decline in Hyundai Accent, Elantra and Corazon body kits sales. In FYE 2009, the PAT of Proreka Group stood at RM0.4 million, a slight decrease as compared to FYE The decrease was mainly attributed by the drop in revenue but mitigated by its localisation program. FYE 31 December 2010 As compared to FYE 2009, the Proreka Group achieved a revenue growth of 29% for FYE 31 December 2010 ( FYE 2010 ), which was mainly contributed by the increased body kits sales of Proton Exora, Proton Neo CPS and Hyundai Starex. In FYE 2010, the PAT of Proreka Group rose significantly by RM4.0 million as compared to FYE The significant increase in PAT was mainly attributable to the high growth of revenue and the continued localisation activities. 4

5 2.1.3 Information on the Vendors The details of the Vendors together with their number of Sale Shares held are set out below: Names of Vendors Nationality Position held in Proreka Group No. Sale Shares held % of equity in Proreka Yong Nam Yun Malaysian Chief Executive Officer 1,064, Chu Yoon Kong Malaysian Manager - Business Development Sim Mou Hooi Malaysian Senior Manager - Research and Development 79, , Lim Teck Ling Malaysian Executive Director 355, Lim Ted Huat Malaysian Senior Manager - 79, Manufacturing Kua Siah Heng Malaysian Shareholder 175, Total 1,831, Basis and justification of the purchase consideration The Purchase Consideration was agreed upon between AutoV and the Vendors on a willing buyer-willing seller basis after taking into consideration of the following: (i) (ii) (iii) (iv) the NA of Proreka based on its unaudited consolidated financial statements for FYE 31 December 2010 of RM11.3 million; the PAT of Proreka based on its unaudited consolidated financial statements for FYE 31 December 2010 of RM4.4 million, which represents a price-earnings ratio of approximately 6.3 times; the Aggregate Guaranteed Sum (as defined and elaborated below); and the future earnings prospects of Proreka Group. The issue price of the AutoV Shares pursuant to the Share Consideration and the RCPS pursuant to the RCPS Consideration of RM1.44 was arrived at based on the 5-day volume weighted average market price of AutoV Shares up to 31 May 2011 of RM1.46 per share. The issue price represents a slight discount of 1.4% to the 5-day volume weighted average market price of AutoV Shares up to 31 May The Board is of the opinion that the issue price of the AutoV Shares and RCPS is fair and not to the detriment of shareholders of AutoV. Profit Guarantee The Vendors unconditionally, irrevocably, jointly and severally agree with and guarantee that the Proreka Group shall attain the PAT for the FYEs 31 December 2011 and 2012 in the amount of not less than the sum stated below: 5

6 FYE Guaranteed Sum (RM) 31 December ,500, December ,500,000 Aggregate Guaranteed Sum 9,000,000 In the event of a shortfall in the Guaranteed Sum which has not been made good by the Vendors, all RCPS shall be disqualified from conversion until such shortfall is paid. In the event the audited PAT of the Proreka Group falls below the Guaranteed Sum for the respective financial years, the Vendors jointly and severally agree and undertake to make good to AutoV any shortfall within 30 days from receipt of AutoV s notice in writing. The aggregate of guaranteed profits for the FYE 31 December 2011 and 2012 shall hereinafter be referred to as the Aggregate Guaranteed Sum and shall each be referred to as the Guaranteed Sum. Conversion of RCPS The RCPS is convertible at the option of the RCPS holder during the specified conversion period subject to the following: (i) The Proreka Group shall attain PAT for the FYE 31 December 2011 and FYE 31 December 2012, respectively; (ii) (iii) (iv) The Vendors shall have paid all shortfall (if any) in the Guaranteed Sum for the respective financial years in accordance with the terms and conditions of the SPA; In the event the Proreka Group attains PAT exceeding the Guaranteed Sum for the FYE 31 December 2011 such excess shall be carried forward and may be utilised to make good any subsequent shortfall for the FYE 31 December 2012; and Notwithstanding anything to the contrary, the Vendors shall be entitled to convert all the RCPS within the specified conversion period in the event the Aggregate Guaranteed Sum is attained. (collectively, the Performance Targets ) Detailed terms of the RCPS are as follows: Issuer Type of Securities Subscriber Par Value Issue price Issue Amount Total value Transferability Dividend rate AutoV Redeemable Convertible Preference Shares Yong Nam Yun, Chu Yoon Kong, Sim Mou Hooi, Lim Teck Ling, Lim Ted Huat and Kua Siah Heng RM0.01 RM1.44 each 10,900,000 RCPS. RM15,800,000 Not transferable without the consent of the Issuer The holder of RCPS will not be entitled to any dividends. 6

7 Ranking Voting rights In the event of liquidation, dissolution or winding up, the RCPS shall rank in priority to any other unsecured securities or shares of the Issuer. The RCPS shall carry no right to vote at any general meeting of the ordinary shareholders except with regards to any proposal to reduce the capital, to dispose of the whole of the Issuer s property, business and undertaking, to wind-up and during the winding-up of the Issuer. The RCPS holders shall be entitled to vote at any class meeting of the holders of the RCPS in relation to any proposal by the Issuer to vary or abrogate the rights of the RCPS as stated in the Articles of Association. Conversion Rights Conversion Period Ranking of new AutoV Shares Redeemability Redemption price Governing law Every holder of the RCPS who is present in person at such class meeting will have one vote on a show of hands and/or on a poll; and every holder of RCPS who is present in person or by proxy will have one vote for every RCPS of which he is the holder. Each RCPS shall be entitled to be converted into one (1) ordinary AutoV share. Subject to the Proreka Group meeting the Performance Targets, the RCPS is convertible at the option of the RCPS holder within the following prescribed Conversion Period: No. of RCPS Value based Conversion Period on issue price (RM) 5,450,000 7,900,000 1 April 2012 to 31 December ,450,000 7,900,000 1 April 2013 to 31 December 2013 The new AutoV Shares to be issued pursuant to the conversion of the RCPS shall, upon allotment and issue, rank pari passu in all respects with the then existing shares of the Issuer, save and except that they will not be entitled to any dividends or distribution made prior to the conversion date of the RCPS. Any unconverted RCPS shall be automatically redeemed upon the expiry of the Conversion Period. Equivalent to the par value of RM0.01 per RCPS Malaysia Ranking and Listing of the new AutoV Shares All the new AutoV Shares to be issued pursuant to the Proposed Acquisition and pursuant to the exercise of the RCPS shall, upon issue and allotment, rank pari passu in all respects with the existing AutoV Shares except that they will not be entitled to any dividend, rights, other forms of distributions for which the relevant entitlement date precedes the date of allotment of the new AutoV Shares. Barring unforeseen circumstances, the application to Bursa Securities for the listing of and quotation of the new AutoV Shares on the Main Market of Bursa Securities is expected to be made within two (2) months from the date of this announcement. 7

8 2.1.6 Source of funding The Cash Consideration will be funded via internally generated funds Liabilities to be assumed and estimated financial commitments pursuant to the Proposed Acquisition AutoV will not assume any additional liabilities (including contingent liabilities and guarantees (if any)) under the Proposed Acquisition. The existing liabilities of the Proreka Group will be settled in the normal course of business. There are no additional financial commitments required from AutoV in respect of the Proposed Acquisition Salient Terms Of The SPA The salient terms and conditions of the SPA are as follows: The Vendors agree to sell and AutoV agrees to acquire 1,831,000 Sale Shares free from all claims, charges, liens, encumbrances and equities together with all rights attached thereto and all dividends, rights and distributions declared paid or made in respect thereof from the date of the SPA at the aggregate purchase price of RM27,880, upon the execution of the SPA AutoV shall settle the Purchase Consideration for the Sale Shares in the following manner: upon the execution of the SPA, AutoV shall pay in cash the sum of RM2,788, to the stakeholders for the Vendors as deposit and part payment towards the Purchase Consideration; AutoV shall issue 6,525,000 AutoV Shares at an issue price of RM1.44 each, 10,900,000 RCPS at an issue price of RM1.44 each. The Purchase Consideration is an indicative consideration which was arrived at based on the Proreka Group s unaudited shareholders fund of RM11.3 million and 6.3 times multiple of its PAT for the FYE 31 December In the event that the results of Company s financial review reveals adjustment to the financial position of the Proreka Group, the Purchase Consideration shall be adjusted accordingly ( Adjusted Purchase Consideration ) in the following manner:- (i) (ii) in the event the Adjusted Purchase Consideration shall be higher than the Purchase Consideration, then the Shares Consideration shall be increased accordingly to make good the shortfall; or in the event the Adjusted Purchase Consideration shall be lower than the Purchase Consideration, then the Cash Consideration shall be lowered accordingly to take into account the excess The SPA shall be conditional upon the following being obtained, procured and/or fulfilled within three (3) months from the date of the SPA (or other extended period) by either AutoV or the Vendors:- 8

9 the approval of Ministry of International Trade and Industry ( MITI ) for the Proposed Acquisition (if applicable); the approval of the shareholders of AutoV in a general meeting for the Proposed Acquisition (including the Proposed IASC and Proposed Amendments); the approval of Bursa Securities for the listing and quotation of the Share Consideration and new AutoV Shares to be issued pursuant to the conversion of the RCPS; such other waivers, consents or approvals as may be required (or deemed necessary by the parties hereto) from any third party or governmental, regulatory body or competent authority having jurisdiction over any part of the Proposed Acquisition or the transactions contemplated under the SPA; and the results of the financial and legal due diligence are to the satisfaction of AutoV In the event of termination, the non-defaulting party may give written notice to the defaulting party specifying the default or breach of the defaulting party and requiring the remedy within fourteen (14) market days or such extended period as may be allowed by the non defaulting party. If the defaulting party fails to remedy the relevant default or breach within the specified period, to rectify such breach, the nondefaulting party may elect to terminate the SPA and claim for damages or specific performance of this SPA against the other party. For the purpose of specific performance, no remedy conferred by any of the provisions of the SPA is intended to be exclusive of any other remedy which is otherwise available at law, in equity, by statute and otherwise, and each and every other remedy shall be cumulative and shall be in addition to every other remedy given under the SPA The Vendors agree and covenant that for a period of three (3) years from the completion of the Proposed Acquisition, they will not and will cause and procure that their affiliated companies does not, directly or indirectly jointly with another person or on its own account or as a member, shareholder, consultant, agent, beneficiary, trustee or otherwise enter into any arrangement or transaction in Malaysia whereby they may become involved in similar business activities of the Proreka Group save and except with the written consent of the Company. However, this restriction shall not apply to the following affliated companies and/or enterprises of the Vendors already existingly having similar business activities with the Proreka Group:- (a) (b) (c) (d) (e) Kum Long Enterprise Sdn Bhd (Company No U); S.K.L. Marketing (M) Sdn Bhd (Company No H); KLPI Resources Sdn Bhd (Company No U); Autostyle Station (Puchong) Sdn Bhd (Company No D); and Tech Master Resources (Business Registration No U). 9

10 2.2 Proposed IASC The present authorised share capital of the Company is RM100,000,000 comprising 100,000,000 AutoV Shares, of which 58,359,747 AutoV Shares have been issued and fully paid up. In order to accommodate the issuance of the RCPS to be issued pursuant to the Proposed Acquisition, the Company is proposing to increase its authorised share capital to RM200,000,000 comprising 199,000,000 AutoV Shares and 100,000,000 RCPS Proposed Amendments The Company is proposing to amend its Articles of Association in order to effect the issuance of the RCPS to facilitate the Proposed Acquisition. 3. Rationale 3.1 Proposed Acquisition AutoV and its subsidiaries (the AutoV Group ) principal activities include the manufacturing and sale of automotive wiper arms and blades, car window regulators, electrical and electronic automotive components, rubber blades, plastic injection and moulding products, steering columns and other related products. Proreka is a Malaysian Tier-1 vendor and manufacturer of Original Equipment Manufacturer and Original Design Manufacturer automotive parts and components to various automotive brands across South East Asia. Proreka has achieved ISO/TS certification from Technischer Überwachungs-Verein Hessen for the design and manufacturing of plastic materials. The Company had in recent years entered into the following transactions involving agreements to expand its production capability: (i) the Company had on 14 April 2008 completed the acquisition of 100% equity interest in Brimal Holdings Sdn Bhd ( BHSB ) and Autovisor Plastics Sdn Bhd ( APSB ). The principal activities of BHSB and APSB are as follows: (a) BHSB BHSB is principally engaged in the assembly of car rear view mirrors and other automotive accessories, manufacturing and fabrication of tools, dies, moulds and high precision engineering plastics and moulding for the automotive, telecommunication and electronics industries. (b) APSB APSB is principally involved in the manufacturing of sun-visors and interior car-lamps for the automotive industry. (ii) the Company had on 16 December 2010 signed a Memorandum of Understanding ( MOU ) with Continental Automotive Systems (Shanghai) Co. Ltd. ( CAS ) and ArvinMeritor LVS Co. Ltd. ( AMLVS ) to be the strategic partners for the development and supply of automotive components. Under the MOU, CAS and AMLVS will provide technical support to develop the software/electronics and motor for the Company's anti-trap window regulator system for the Proton Persona-R model and will supply 10

11 developed software/electronics and motor, respectively to the Company for assembly and integration to its window regulators. Development works under the MOU will commence immediately after the signing of the MOU and supply of automotive components is expected to commence in (iii) the Company had on 18 March 2011 completed the acquisition of JP Metal Sdn Bhd which is principally involved in the manufacturing and fabrication of tools, dies and metal stamped components for the electronics and automotive industries. Its products are used as components for the fabrication of electric transformers, seatbelt systems, vehicle horns, airbag systems, window regulators and air conditioning systems. As such, the Proposed Acquisition is in line with the Company s strategic plans to grow the AutoV Group into an enlarged and integrated producer of automotive parts with a more diversified range of products and clientele. The Proposed Acquisition is also expected to strengthen the competitiveness of the AutoV Group in order to capitalise on the Malaysian automotive sector. The Board is of the opinion that the part settlement of the purchase consideration via the issuance of new AutoV Shares and RCPS enables the AutoV Group to conserve its cash reserves for its operational requirements. Further, the AutoV Group does not need to incur additional bank borrowings to finance the Proposed Acquisition. The issuance of the new AutoV Shares and RCPS is also meant to encourage the continued involvement of the existing shareholders/management of Proreka in the enlarged AutoV Group. 3.2 Proposed IASC The Proposed IASC is to enable AutoV to increase its authorised share capital and to accommodate the RCPS to be issued pursuant to the Proposed Acquisition. 3.3 Proposed Amendments The Proposed Amendments is to facilitate the Proposed IASC and the issuance of the RCPS. 4. RISK FACTORS 4.1 Business Risk The Proposed Acquisition will not materially change the risks of the Company s business as the AutoV Group would still be exposed to the same business, operational, financial and investment risk inherent in the manufacturing and automotive sector. The AutoV Group is already exposed to such similar risks via its existing operations and will address such risks as part of the AutoV Group s ordinary course of business. 4.2 Transaction Risk The Proposed Acquisition is subject to the risk of non-completion of the SPA for whatsoever reason (other than due to any act or default of the Purchaser or the Vendors). The completion of the Proposed Acquisition is conditional upon the following conditions precedent in the SPA being satisfied and/or waived as the case maybe:- (a) AutoV obtaining the approval of its shareholders in a general meeting; 11

12 (b) (c) the conduct of a legal and financial due diligence by AutoV on Proreka, the results of which are determined by AutoV in its sole and absolute discretion to be satisfactory; and the approval(s) of such other authorities and/or person as AutoV shall deem necessary or proper. There can be no assurance that the Proposed Acquisition will not be exposed to risks such as the inability to obtain the approvals from the relevant parties and/or inability to comply with the conditions imposed by the relevant authorities, if any. However, AutoV will take and continue to take all reasonable steps to ensure satisfaction and/or waiver, as the case maybe, to ensure completion of the Proposed Acquisition. 4.3 Other risks As Proreka is operating within the manufacturing and automotive sectors, it is exposed to the following business risks: (i) dependency on certain key customers, namely Perusahaan Otomobil Nasional Sdn Bhd and UMW Toyota Motor Sdn Bhd. Although the Proreka Group is dependent on the abovementioned key customers, the Board of AutoV is confident that its position and reliance on these key customers are mitigated based on the long-standing relationship it has with them. In addition, with the completion of the Proposed Acquisition, the AutoV Group and the Proreka Group will be able to jointly market their products and share their clienteles. Hence, any potential losses in the existing key customers of the Proreka Group are not expected to affect the enlarged AutoV Group. (ii) The Proreka Group is exposed to certain risks inherent in the automotive/manufacturing industry including the possible increase in the operating and capital costs due to increase in labour requirement and the introduction of new and superior technology or products by competitors. Proreka seeks to minimise these risks through, inter-alia, increasing the efficiency of operations, diversifying and expanding its business through increasing its range of customers, diversifying its pool of suppliers and improving its technological competence through the development/acquisition of new technologies. No assurance can be given that any changes to these factors will not have a material adverse effect on its business. (iii) The nature of Proreka s business is such that it is dependent on the availability of skilled labour and labour costs. To mitigate the risk of possible disruptions to the operations due to a shortage of labour or labour costs, Proreka has adopted measures to ensure the retention of workers by providing training, competitive remuneration and a harmonious working environment. Nevertheless, no assurance can be given that any changes in immigration and labour policies by the Government in respect of foreign labour will not affect Proreka s operations. Further, with the Proposed Acquisition, Proreka and the AutoV Group will be able to share its labour resources. (iii) Proreka implements strict quality policies, controls, procedures and programmes for its manufacturing operations. It has not experienced any material manufacturing defects which has adversely affected its reputation in the manufacturing and automotive industry. 12

13 Nevertheless, in spite of its stringent quality policies, controls, procedures and programmes, there can be no assurance that it can guarantee the products manufactured will have no defects and impact its revenue and earnings. (iv) The Proreka Group is currently operating at 70% capacity on average. Any production interruptions caused by events such as power outages and machine downtime will cause production delays and affect delivery schedules. Proreka has implemented proper production planning procedures to ensure smooth operations. To mitigate machine downtime, the Proreka Group carries out scheduled maintenance on its machinery and equipment to ensure they are operating efficiently and effectively. The Proreka Group has a team of technical staff with the relevant skills to provide immediate repair in case there is any machine downtime. During the last 12 months, the Proreka Group have not experienced any significant machine break down which has resulted in a major production delay. Although Proreka takes precautions in the maintenance of its machinery and equipment, nevertheless, there can be no assurance that these machinery and equipment will not break down and impact its revenue and earnings. In addition, the Proreka Group is also exposed to certain other risks which include: (i) (ii) (iii) (iv) ability to renew or maintain permits, approvals and licences required to operate; changes in general economic conditions and political conditions, inflation, taxation, interest rates and exchange rates of foreign currencies and changes in business conditions such as, but not limited to, deterioration in prevailing market conditions as well as increase in costs of labour; changes in the competitive environment; and dependence on skilled personnel. Although Proreka has the necessary internal precautionary measures to mitigate/limit these risks, there is no assurance that such measures will be sufficient. Nevertheless, Proreka is confident that it is able to withstand such risks and is able to limit any potential consequential losses. 5. OUTLOOK AND PROSPECTS 5.1 Overview and prospects of the Malaysian Economy The Malaysian economy is expected to post robust growth this year, led by sturdy domestic demand and strong export performance. The positive projection also takes into account the implementation of macroeconomic policy initiatives, which spurred higher consumption activity and recovery in private investment. A stable employment market, moderate inflation as well as strong business and consumer confidence coupled with firm recovery in the region provided a conducive environment for the Malaysian economy to expand at a rapid pace of 9.5% in the first half of 2010 (January June 2009: -5.1%). Going forward, while growth in advanced economies is expected to be slow and uneven in the second half of 2010, developments in emerging economies remain positive and will provide impetus to the export sector. On the domestic front, the strong fundamentals and revival of private investment will support domestic demand in the second half of the year. Accordingly, the economy is expected to expand 7.0% in 2010 (2009: -1.7%). 13

14 The Malaysian economy is projected to expand between 5.0% to 6.0% in 2011 (2010: 7.0%), mainly driven by domestic demand and supported by a favourable external sector. The strong economic fundamentals will continue to propel the growth momentum of domestic demand. Private investment activity, which turned positive in 2010, is envisaged to contribute significantly to economic growth. This is in line with the expected commencement of 52 Private Finance Initiatives (PFIs) over the 10th Malaysia Plan ( 10MP ) period as well as the implementation of private sector projects under the National Key Economic Areas. Private consumption is expected to strengthen in view of low unemployment and increasing disposable household income. Growth prospects are also premised on firm prices of major commodities which will spur rural household spending in With the private sector spearheading growth, public expenditure is expected to moderate, reflecting the Government s commitment towards prudent fiscal management. (Source: Economic Report 2010/2011 issued by the Ministry of Finance, Malaysia) 5.2 Overview and prospects of the Manufacturing and Automotive industries Manufacturing Industry The manufacturing sector posted a sterling performance, surging 16.4% in the first six (6) months of 2010 (January June 2009: -16.2%). Growth was led by the upturn in global demand and reinforced by strong performance of domestic oriented industries. Output expanded 14.1% (January July 2009: -16.0%) with sales value of manufactured products expanding 19.0% to RM307.4 billion (January July 2009: -25.4%; RM258.3 billion). Exportoriented industries registered double-digit growth of 12.1% (January July 2009: -20.3%) with a sharp turnaround in most sub-sectors as a result of strong external demand. Similarly, growth in domestic-oriented industries was robust, expanding 16.3% (January July 2009: %), driven mainly by the chemicals, construction-related and transport equipment subsectors. The capacity utilisation rate improved to 82.0% in the second quarter of 2010 (Q1 2010: 81.7%), prompting higher capital expenditure in the sector. For the year, the manufacturing sector is expected to grow 10.8% (2009: -9.4%), spurred by strong domestic and regional demand. Value-added of the manufacturing sector is expected to expand further by 6.7% (2010: 10.8%), in tandem with better economic conditions. The export-oriented industries are projected to grow at a steady pace, supported by strong intra-regional trade. The Electrical and Electronic and Mechanical and Electrical subsectors are envisaged to lead growth. Domestic oriented industries are anticipated to expand in line with resilient consumer spending and sustained business confidence. (Source: Economic Report 2010/2011 issued by the Ministry of Finance, Malaysia) Automotive Industry The 2010 total industry volume ( TIV ) had overtaken the previous record of 552,316 units achieved in Compared to 2009, registration of new motor vehicles in Malaysia for 2010 jumped substantially by 68,251 units to register a double digit growth of 12.7%. According the Malaysian Automotive Association, factors attributed to the performance in 2010 include interalia: Plans launched by the Government in 2010 such as the Government Transformation Programme Roadmap, New Economic Model, 10th Malaysia Plan and the Economic Transformation Programme resulting in higher consumer and business confidence; and 14

15 Innovative and attractive offers and schemes for new car buyers such as low hire purchase interest rates, longer repayment periods and extended warranty periods. TIV for both passenger and commercial vehicles segment is expected to increase in The forecasted TIV is as follows: Market Segment 2011 (Forecast) 2010 (Actual) Variance Units % Passenger Vehicles Commercial Vehicles 555, ,594 11, ,000 61,562 1, Total Vehicles 618, ,156 12, (Source: Malaysian Automotive Association, Press Release dated 19 January 2011) Premised on the above, the Board of AutoV is of the view that the prospects of Proreka appear to be favourable due to the clientele list that it is currently servicing and its existing projects in hand. 5.3 Prospects of the enlarged AutoV Group The Proposed Acquisition is expected to create new opportunities within the enlarged AutoV Group by providing access to the Proreka Group s existing clientele and product range. The Board of AutoV is confident that the future prospects of the enlarged AutoV Group will be positive in view of the following: (i) (ii) (iii) (iv) Upon completion of the Proposed Acquisition, the enlarged AutoV Group will be in an even stronger position (in terms of lower production cost, increased product range and wider customer reach) to capitalise and benefit from the continued growth in the manufacturing and automotive industry; The future plans to be undertaken by the enlarged AutoV pursuant to the Proposed Acquisition includes the localisation and development of new components for the original equipment manufacturer (OEM) market, particularly metal brackets, latches, buckles and hinges used for the automotive industry. These plans do not have a definite timeframe and is not expected to incur substantial financial resources; From the Proposed Acquisition, the AutoV Group is able to utilise Proreka s expertise in prototype modelling, polyurethane injection moulding and expertise in LED lighting. As a result, the AutoV Group will not need to rely on external consultants and is hence able to reduce its production cost; and The Proposed Acquisition enables the enlarged AutoV Group to compete more effectively within the automotive industry in terms of cost and product range. With the integration of Proreka and AutoV s operations, production time is expected to improve. 15

16 6. FINANCIAL EFFECTS OF THE PROPOSALS 6.1 Share Capital The effects of the Proposed Acquisition on the issued and paid-up share capital of AutoV are shown below: No. of AutoV Shares Share capital RM Existing 58,359,747 58,359,747 After the Proposed Acquisition 6,525,000 6,525,000 64,884,747 64,884,747 Assuming full conversion of RCPS 10,900,000 10,900,000 Total issued and paid-up share capital 75,784,747 75,784,747 The Proposed IASC and Proposed Amendments will not have any effect on the issued and paid-up share capital of AutoV. 16

17 6.2 Substantial Shareholders Shareholdings The effects of the Proposed Acquisition on the shareholdings of the substantial shareholders of AutoV are shown below: Substantial shareholders Existing After the Proposed Acquisition Assuming full conversion of RCPS <Direct> <Indirect> <Direct> <Indirect> <Direct> <Indirect> No. of No. of No. of No. of No. of No. of AutoV AutoV AutoV AutoV AutoV AutoV Shares Shares Shares Shares Shares Shares ( 000) % ( 000) % ( 000) % ( 000) % ( 000) % ( 000) % Existing Substantial Shareholders Kong Kok Keong 15, , , AIC Corporation Berhad 11, , , Datuk Goh Tian Chuan ,600* ,600* ,600* Jotech holdings Berhad ,600* ,600* ,600* The Vendors Yong Nam Yun , , Chu Yoon Kong Sim Mou Hooi Lim Teck Ling , , Lim Ted Huat Kua Siah Heng , Note: * Deemed interest through his/their substantial shareholding in AIC Corporation Berhad. The Proposed IASC and Proposed Amendments will not have any effect on the shareholdings of the substantial shareholders of AutoV. 17

18 6.3 Net Assets ( NA ) and Gearing Based on the audited consolidated financial statements of AutoV as at 31 December 2010, the proforma effects of the Proposed Acquisition on the consolidated NA and gearing of AutoV are shown below: (I) (II) (III) Audited as at 31 December 2010 After the Proposed Acquisition After the full conversion of all RCPS (RM 000) (RM 000) (RM 000) Share capital - Ordinary shares 58,360 64,885 75,785 - Preference shares Share premium 2,421 20,879 10,088 Capital reserves Accumulated losses (15,662) *(16,062) *(16,062) Shareholders equity 45,819 70,511 70,511 No. of shares ( 000) 58,360 64,885 75,785 NA per share (RM) Borrowings 1,564 9,585 9,585 Gearing (times) Note: * after deducting expenses relating to the Proposed Acquisition of RM400,000 The Proposed IASC and Proposed Amendments will not have any effect on the NA and gearing of AutoV. 6.4 Earnings and earnings per share The Proposed Acquisition is expected to be earnings accretive and will contribute positively to the long-term future earnings and earnings per share of the enlarged AutoV group. The Proposed IASC and Proposed Amendments will not have any effect on the earnings and earnings per share of the AutoV Group. 7. APPROVALS REQUIRED FOR THE PROPOSED ACQUISITION The Proposals are subject to and conditional upon approvals from, amongst others, the following: (i) Bursa Securities, for the listing of and quotation for the following on the Main Market of Bursa Securities: (a) (b) new AutoV Shares to be issued pursuant to the Proposed Acquisition; and new AutoV shares to be issued pursuant to the conversion of the RCPS; (ii) MITI, if applicable; 18

19 (iii) (iv) the shareholders of AutoV at an extraordinary general meeting to be held for the Proposals; and other relevant authorities, if required. The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of Bursa Securities Main Market Listing Requirements is 60.85%, which is the Purchase Consideration of Proreka compared against the NA of AutoV for FYE 31 December As the Purchase Consideration maybe adjusted, the necessary announcement and calculation of the adjusted percentage ratio will be made in due course, if any. 8. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS None of the Directors or major shareholders of AutoV or persons connected to the Directors and/or major shareholders of AutoV have any interest, direct or indirect, in the Proposals. 9. DIRECTORS STATEMENT After taking into consideration all aspects of the Proposed Acquisition, the Board of AutoV is of the opinion that the Proposed Acquisition is fair and reasonable and in the best interest of the AutoV Group. 10. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by within 6 months from the date of the SPA. 11. DOCUMENTS AVAILABLE FOR INSPECTION The SPA is available for inspection at the registered office of AutoV at Wisma AIC, Lot 3, Persiaran Kemajuan, Section Shah Alam during normal business hours on Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 1 June