RNS Number:6324O
PAQ International Holdings Limited
25 February 2008
PAQ International Holdings Limited
Placing of shares and Admission to AIM
PAQ International Holdings Limited ("PAQ") is a manufacturer and distributor of
protective bags for mobile phones, laptops and other electrical devices, which
are manufactured in the People's Republic of China ("PRC") and distributed in
the PRC and in many other international locations.
KEY POINTS
* Placing of 16,666,667 shares at a Placing Price of 6p per share
* Number of Ordinary Shares in issue on Admission: 120,516,677
* Market capitalisation on Admission at the Placing Price: �7,231,001
* Dealings on AIM in the shares of PAQ begin today (25 February)
* Nominated Adviser and Broker to PAQ is Zimmerman Adams International
Limited. Co-broker to the Admission is Hichens, Harrison & Co. plc.
Kelvin Yau, Chief Executive of PAQ comments:
"I am delighted by the response from investors in London to our fund raising.
Our Admission to AIM will provide funds to accelerate our international
expansion, including the purchase of other manufacturing and distribution
businesses in China and the development of our retail business in many
territories, including China and the UK."
25 February 2008
ENQUIRIES:
PAQ International Holdings Tel: +852 9135 1811
Kelvin Yau, Chief Executive
Zimmerman Adams Tel: +44 (0) 20 7060 1760
Dominique Doussot
College Hill Tel: +44 (0) 20 7457 2020
Gareth David
Anthony Parker
PAQ International Holdings Limited:
Placing of shares and Admission to AIM
BACKGROUND INFORMATION
Based in China, the Group is a design group and vertically integrated
manufacturer distributing branded "softwear" for electronic products and
accessories. Founded in 1996, PAQ Manufacturing Limited, a wholly owned
subsidiary of PAQ, began by establishing a low cost manufacturing platform for
OEM products and has since developed higher-margin, branded lifestyle products
with distribution in over 25 countries.
In recent years the Group has put in place its own internal product development
team and has created a European distribution network. The growing maturity of
its brand led to a new source of income for the Group in 2006 with the receipt
of licensing fee revenues. Looking forward, the Group's key objectives are to
focus on building its brand in China and to establishing a presence in the US in
cooperation with a local partner and developing its distribution network in
China. China is moving from a low cost manufacturer and exporter of products to
consumers of branded products themselves. The Group therefore sees opportunities
for selling the Group's products in China.
The Directors believe that the Group's strategy of first establishing itself in
Europe has provided it with a firm customer base and credibility and experience
to help penetrate the local market, with China's middle class both able to
afford and willing to pay for branded and higher value products that reflect
their individuality. China's retail market appears to still have room for growth
in the next few years and the Group's projected entry into this market should
provide not only a stable demand for its products but a platform for growth.
Following discussions with the Group's US distributors, the Group intends to
distribute and market its products through establishment of a partnership with a
company in the United States in 2008.
As an example of the scale of the opportunity, the US market for accessories for
the iPod alone exceeds $1 billion. The Group is well positioned to reach
industry growth projection and capture market share: it reached a sales base of
US$ 2.9 million in 2006 from an initial base of only US$ 1.7 million in 2004.
The Group generates income from two basic product groups:
PAQ Branded Products
The Directors believe that PAQ branded products offer positive business
opportunities for margin expansion:
. Turnkey product solution is appealing to retailers/distributors
. High profile product line which is appealing to retailers/distributors
. Licensing strategy and regional exclusivity provide strong incentives for
distributors while also generating associated licensing revenues
. Additional co-branding opportunities
PAQ OEM Manufacturing Platform of the Group
The Group's OEM manufacturing platform in the PRC, which the Group wholly owns,
strives to be an established low cost producer of cut and sew products.
. The OEM manufacturing platform manufactures for both PAQ branded products
and OEMs
. Trendy modern designs by the Group's design team
. International retailers
In 2008, the Group intends to launch retail outlets in China to benefit from one
of the world's fastest growing consumer markets and is launching a new product
line called 'Tripaq Series' for retail in China. These new products include
luggage, sports bag, briefcase trolley, travel wallet, toilet kit, passport
holder and travel tote paq.
The Directors believe that retail outlets will add value to the Group by giving
it complete vertical integration: from distribution to retail. The new stores
opening will be focused on targeting tier 1 cities namely Guangzhou, Beijing,
Shanghai and Shenzhen because the Directors believe that consumers in tier 1
cities have the most buying power.
Historically, the Group has tended to rely on low cost production efficiencies
to expand its market share. Going forward, the management intends to change this
focus from low cost manufacturing to design and brand building and to become a
branded product exporter. The Group plans to develop a distribution network in
China to feed domestic demand.
Approximately 70 per cent. of the Group's turnover comes from sale and business
transactions with distributors in Europe. It intends to intensify its business
in this region by creating strategic partnerships with major European retailers.
The Group is managed by an experienced team with a proven track record.
PRODUCTS
At present, the Group generates income from the sale of two basic product
groups:
. PAQ branded products; and
. PAQ OEM branded products.
PAQ branded products
Since its establishment in 1996, the Group's strategy has been to promote
higher-margin, branded lifestyle products with its distributors in over 25
countries. The Group started promoting the PAQ brand name in 2003. In 2006,
branded PAQ products accounted for around 70 per cent. of sales. With its own
internal product development team and its own brand name, the Group began
generating licensing income in 2006.
Brand building is one of the key business strategies of the Group. The Directors
believe that PAQ branded products offer the following advantages:
. PAQ products are appealing to distributors/retailers evidenced by the repeat
orders placed by them with the Group;
. Licensing strategy providing exclusivity; and
. Co-branding opportunities
Furthermore the Directors expect that the Group's retail operations in China,
which are proposed to be launched in Q1 2008, will allow the Group to benefit
from one of the world's fastest growing consumer markets and provide complete
vertical integration from design, manufacturing, distribution and sales. The
Group is targeting the following tier 1 cities in China: Guangzhou, Beijing,
Shanghai and Shenzhen because the populations in these cities have the highest
per capita income in China.
"Softwear" produced by the Group includes MP3 holders and accessories, camera
bags, school bags, and luggage. Since 2003, the Group has endeavoured to build a
low cost manufacturing platform for "softwear" products. The Directors believe
that the Group has been able to grow its business line through its economies of
scale, short lead-time from product development to manufacturing and commitment
to quality. OEM clients include Samsonite, Circuit City, Office Depot and
Leclerc. The Group also produces its own PAQ branded products.
Future growth opportunities include co-branded products with retailers that
allow retailers to sell "softwear" products co-branded with the brand names of
both the retailers and PAQ.
MANUFACTURING FACILITIES
The Group's manufacturing facility is in the Special Economic Zone of Shenzhen,
PRC. It currently has 214 workers of whom 14 are direct employees and 200 are
supplied through a procurement agreement with a service provider. The Group also
outsources some of its productions to third party manufacturers. The Directors
intend to scale up the production facilities when appropriate to meet the sales
demand.
CLIENT BASE
The Group has an established distribution network in over 25 countries. The
Group has repositioned itself from being, initially, an OEM manufacturer to
become a producer of its own branded products. While the Group's focus on
developing branded products is only 4 years old, it has been able to rapidly
attain market acceptance from its retail clients, as evidenced by repeat sales.
Its success has been such that several OEM clients now also distribute PAQ
branded products alongside their own.
Building on its early foundation as a low cost manufacturer, PAQ branded
products have been able to capture market share and develop a brand in Europe.
The Group intends to use this as a springboard to promote its products in the
Chinese market with a now internationally recognised brand. With the disposable
income of China's urban middle class rapidly growing, the Directors believe the
Group's strategy of first establishing itself in Europe provides it with the
necessary credibility and experience to penetrate China's middle class market
which can afford and is willing to pay for branded higher value products that
reflect their individuality.
STRATEGY
It is the Group's aim to become one of the most profitable specialists in the
PRC engaged in design, brand building and manufacture of "softwear" for branded
and OEM electronic products and accessories. The Directors believe that China's
retail market still has room for growth in the next few years and the Group's
proposals to develop a network of retail outlets owned by the Group will provide
a stable demand for its products, a new platform for growth and will further
enhance the awareness and profile of the PAQ brand.
Marketing and sales development for the Group will be targeted to be primarily
store-in-store to begin, followed by point of purchase, with the goal of
achieving a significant initial entry in 2008 and introducing its own
independent store/franchise concept by 2009. The Directors believe that the
Group's success depends on its ability to position its outlets close to and
inside large format electronic retailers, as PAQ's retail platform in China is
not anticipated to be a 'destination store'.
China is likely to remain as the 'manufacturer to the world' in coming decades
as its large urbanizing population has kept unskilled wages relatively low. The
Group aims to maintain a strong growth rate in each of the next 3 years while
endeavouring to remain as a low cost producer of cut and sew products
accessories for electronics - manufacturing both PAQ and global OEM branded
products.
THE MARKET
PAQ Branded Products
The Directors believe that the Group's business is similar to well known
"softwear" brands such as Crumpler and Case Logic. Crumpler has not only a full
range of cases and bags but it has developed its own retail concept in Asia
having opened three stores in Singapore. As a result of discussions with
distributors of the Group in the US, the Group also intends to distribute and
market its products through the establishment of a partnership with a company in
the United States in 2008. As an example of the scale of the potential market,
the US market for accessories for the iPod alone exceeds US$1 billion. The
Directors believe the Group is well positioned to capture market share in the US
for "softwear" products.
China Retail Operations
The Group's China retail operations will first aim at seeding stores in 4 major
cities in China, namely, Guangzhou (population: 12 million), Shanghai
(population: 19 million), Shenzhen (population: 12 million) and Beijing
(population: 17 million). These cities with the highest per capita income in
China are the obvious targets for the Group's initial foray into the Chinese
market.
DIRECTORS
The Board comprises three executive directors and two independent non-executive
directors whose details are as follows:
Kelvin Kwong Chi Yau, aged 41, Chairman and Chief Executive Officer
Mr. Yau, a Computer Electronics graduate from Wilfred Laurier University, is a
co-founder of the current business model of PAQ Manufacturing and has been the
visionary for the organisation responsible for the development of sales. With
over 8 years of experience in China-based manufacturing, Mr. Yau formerly
managed the sales of a specialty bag manufacturer in an unrelated family
business.
Edmund Lui, aged 40, President and Chief Operating Officer
Mr. Lui is a co-founder of PAQ Manufacturing. Mr. Lui was formerly a Hong Kong-
based manager of a cut-and-sew manufacturer in China for a period of 6 years
prior to establishing PAQ Manufacturing and previously worked as a sales and
marketing manager for Chi Leung International Development Ltd for 8 years, a
local China trade company. Mr. Lui is responsible for day to day production and
product development of the Group.
Hong Yi Wang, aged 46, Executive Director
Mr. Wang has been an experienced business administration practitioner and
researcher in the China market since 1991. He holds an EMBA degree and was
awarded the Guangzhou Municipal Government Science and Technology Progress Award
Second-class Prize in 2005. Mr. Wang is responsible for business development for
PAQ-branded retail market in China.
Kevin Ka Keung Miu, aged 41, Non-Executive Director
Mr. Miu is an experienced corporate finance practitioner with a long-standing
record in handling deals relating to PRC businesses. He is a director of
corporate finance at Grand Vinco Capital Limited, a corporate finance house in
Hong Kong. He holds a Bachelor's degree in Accounting and a Master's degree in
Business Administration. He is a non-executive director of LED International
Holdings Limited, an AIM company.
Ivor Colin Shrago, aged 65, Independent Non-Executive Director
Mr. Shrago is a solicitor of the Supreme Court of Judicature (UK) and a
solicitor of the Supreme Court of Hong Kong. He is a partner at Edwin Coe LLP, a
UK law firm. Ivor practises commercial property law and general commercial law
and has previously spent six years in Hong Kong.
Summary Financial Information
The following information has been extracted without adjustment from the
historical financial information relating to PAQ Manufacturing for the three
years ended 31 December 2006 and the unaudited interim financial information for
the six months ended 30 June 2007.
Year ended 31st December S ix months ended 30
June 2007
2004 audited 2005 audited 2006 audited 2007 Unaudited HK$
HK$'000 HK$'000 HK$'000 '000
Turnover 13,492 18,735 22,372 11,846
Cost of sales -12,060 -13,925 -13,820 -8,846
Gross profit 1,432 4,810 8,552 3,000
Gross profit margin 10.6% 25.7% 38.2% 25.3%
Other revenue 165 392 8,513 7,576
Distribution costs -463 -584 -1,010 -295
Administrative expenses -1,235 -3,293 -4,150 -2,156
Other operating expenses -577 -1,604 -1,872 -743
Operating (Loss)/Profit -678 -279 10,033 7,382
Operating (loss)/profit -5.0% -1.5% 44.8% 62.3%
margin
Finance costs -12 -244 -612 -359
Taxation - - -1,500 -1,200
(Loss)/profit -690 -523 7,921 5,823
Loss/profit margin -5.1% -2.8% 35.4% 49.2%
The Group's turnover has increased significantly during the Relevant Periods,
growing by 39 per cent, 19 per cent and 6 per cent (on an annualised basis)
between the year ended 31 December 2004 ("2004") and 31 December 2005 ("2005")
and 31 December 2006 ("2006") and the six months ended 30 June 2007 ("HY2007")
respectively.
This growth has been achieved along with an improved gross margin percentage,
which increased from 10.6 per cent. in 2004 to 25.7 per cent in 2005 to 38.2 per
cent in 2006 and decreased to 25.3 per cent in HY2007.
The majority of income has been generated from sales of PAQ branded products and
OEM branded products accounting for 23 per cent and 77 per cent of sales in
2004, 74 per cent and 26 per cent of sales in 2005, 73 per cent and 27 per cent
of sales in 2006 and 81 per cent and 19 per cent of sales in HY2007
respectively. During 2006 the Group's largest 10 customers generated 68 per
cent. of total sales in the year (with these same companies contributing 42 per
cent. and 3 per cent. of sales in 2005 and 2004 respectively).
The Group had positive net assets as at 31 December 2006 and 30 June 2007.
Furthermore, its current assets as at these dates have been significantly
greater than its current liabilities.
CURRENT TRADING AND PROSPECTS
The development of the Group's business since the end of the last completed
financial year has been in line with the Board's expectations and the Board is
confident as to the prospects of the Group for at least the current financial
year and beyond.
Since 31 December 2006 (the last financial year reported in this Admission
Document), the Group has increased both the volume of its production and sales
and has also expanded its products range. The Group has also increased the
proportion of sales of PAQ branded products vis-a-vis OEM products. In general,
PAQ branded products have higher margin than OEM products.
In 2007, the Group also diversified its income stream by entering into the brand
licensing business. There were no significant changes in the inventory level,
costs base or selling price of the OEM and PAQ branded products.
DETAILS OF THE PLACING
Under the Placing, 16,666,667 Ordinary Shares have been conditionally placed at
the Placing Price pursuant to the Placing, representing 13.83 per cent. of the
Enlarged Issued Share Capital. It is anticipated that the Placing, which is not
being underwritten or guaranteed, will raise �1,000,000 for the Company and
�950,000 after expenses. At the Placing Price, the Company will have a market
capitalisation of �7,231,001 on Admission.
The Placing Shares will, on issue, rank pari passu in all respects with the
Existing Ordinary Shares, including the right to receive all dividends or other
distributions thereafter declared made or paid.
REASONS FOR THE PLACING AND ADMISSION AND USE OF PROCEEDS
The net proceeds of the Placing will be used primarily for the following
purposes:
. to facilitate the development of new products and services and to upgrade
existing products of the Group;
. to expand marketing activities worldwide; and
. to identify opportunities for additional joint ventures and
to promote the Group's products and brand through deals with business
partners.
The Directors believe that the profile of the Company will be enhanced by its
position as an AIM company. It will also, inter alia, provide a more liquid
market for its shares.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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