News

Automotive Seatings Joint Venture In Indonesia

General Announcement

Reference No AA-070625-64222

Company Name	:	APM AUTOMOTIVE HOLDINGS BERHAD
Stock Name	:	APM
Date Announced	:	25/06/2007

Type	:	Announcement
Subject	:	Automotive Seatings Joint Venture in Indonesia

Contents :

Introduction
The Company informs that on 25 June 2007, an associate company of the APM Group, P.T. APM Armada Autoparts ("AAA") has entered into a joint-venture agreement ("JVA") with Johnson Controls Inc., ("JCI") in Jakarta to carry on a business of designing, manufacturing and selling automotive seatings including providing related after-sales services in Indonesia and for export markets.

Information on joint-venture company
The new joint-venture company, to be named P.T. Armada Johnson Controls ("JV Co."), will be a company incorporated pursuant to the provisions of the Indonesian Foreign Investment Law No. 1/1967 as amended as a foreign investment company and shall be a limited liability company subject to Law No. 1 of 1995.

The JV Co. will have an authorized share capital of USD6,000,000 made up of 6,000,000 ordinary shares of par value USD1.00 each, and an initial issued and paid-up capital of USD1,500,000. AAA will hold 60% equity interest whilst JCI will take up the remaining 40%.

Information on AAA and JCI
AAA is a joint-venture company established in Indonesia by the APM Group, via its wholly-owned investment holding subsidiary, Auto Parts Holdings Sdn Bhd and PT Mekar Armada Jaya in 2001 with each shareholder having equal equity interest. AAA commenced operations in 2002 manufacturing and distributing seats and has since established a very strong customer network. It is currently supplying seating products to OEM customers like Suzuki and Isuzu, among others from its plant in Tambun, Bekasi, about 38 km from Jakarta. Apart from seats, AAA also manufactures automotive interior parts. In 2006, it generated an annual turnover of USD3.7 million.

JCI is an American company, traded on the New York Stock Exchange. It is engaged in the design and manufacture of complete automotive seating and interior components and systems, apart from being a supplier of mechanical equipment and power solutions. The company employs 136,000 workers worldwide with a net sales of USD32 billion in 2006.

Business, capital and investment outlay/financing
JV Co. will commence immediate operations once all relevant governmental approvals have been obtained as AAA and JCI will merge their current seats businesses into the company. AAA's seats businesses include its current supply to OEM customers Suzuki, Isuzu as well as Hyundai. JCI will inject its current Nissan seat business.

The total investment outlay of the joint-venture is approximately USD6,000,000 which will be funded by capital injection and external borrowings. AAA's 60% shareholding of the initial USD900,000 will be injected in the form of assets of the seat assembly plant in Tambun, Bekasi as well as stocks which will be valued by an independent licensed appraiser.

The 2007 forecast for light vehicle production of 394,100 units (source: CSM Worldwide) in Indonesia is expected to increase to 519,600 units by 2009 (source: CSM Worldwide). The alliance of AAA and JCI is aimed at capturing a bigger seating market share. AAA offers ready seat assembly facilities for seat frames, trims and assembly with a current production capacity of 7,000 vehicle sets per month. JCI provides support in engineering and design development as well as other technical expertise.

Competition from other seat makers is an industry risk factor. Fears of tight credit control policy, high interest rates and high petroleum prices, among others, may impede the expected growth of the automotive industry in Indonesia, thus affecting vehicle production. A joint business study had been conducted by AAA and JCI, and parties are of the view that the joint-venture is feasible.

Salient terms of the JVA
1. Business
The business of JV Co. is the designing, manufacturing, supplying and selling of automotive seatings including providing related after-sales services in Indonesia and for export markets.

2. Capital and Equity Structure
JV Co. will have an authorized share capital of USD6,000,000 made up of 6,000,000 ordinary shares of par value USD1.00 each. The initial issued and paid-up capital is USD1,500,000 with AAA and JCI holding equity interest in the ratio of 60:40 respectively. The shares will be subscribed for in cash and in kind.

3. Management
JV Co. will be managed by a Board of Directors (BoD) and a Board of Commissioners (BoC). The BoD is responsible for the day-to-day management whilst the BoC supervises and oversees the activities of the BoD in managing the JV Co..

4. Conditions precedent
The joint-venture is conditional upon the following conditions being met and fulfilled -
i) the Capital Investment Coordinating Board of the Republic of Indonesia approving the joint venture upon terms and conditions acceptable to AAA and JCI;
ii) Such other approvals and permits as may be necessary for the commencement of the joint-venture and the establishment and operation of JV Co. including but not limited to the approval of the Minister of Law and Human Rights, registration of the Deed of Establishment in the Company Registry and the publication of JV Co. in the State Gazette of the Republic of Indonesia; and
iii) Approvals from the Board of Commissioners and Board of Directors of AAA and JCI respectively.

Approval/s required
The approvals of the relevant regulatory authorities of the Indonesian government as mentioned in item 4 of the salient terms of the JVA above.

Financial impact
The joint-venture is expected to produce reasonable returns for the Group in the longer term but will have no material effect on the earnings and net tangible assets of the Group for the financial year-ending 31 December 2007.

Directors' and substantial shareholders' interests
None of the directors and substantial shareholders of the Company have any interest, direct or indirect, in the joint-venture.

Directors' statement
The Directors of the Company are of the opinion that the joint-venture between AAA and JCI is in the interest of the APM Group.