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Maker of radio equipment turns it up to 11 with export deals

Peter Conlon, president and CEO of Nautel Ltd.

PAUL DARROW/The Globe and Mail

Nautel Ltd. was in the midst of redesigning its products when the Great Recession hit, pummelling domestic and global markets. But the Hackett's Cove, N.S., manufacturer of radio broadcast transmitters stayed the course and kept pouring money into product innovations such as Internet input/output and equipment that can transmit digital broadcasts.

"The owners allowed us to continue investing aggressively in product development at the very time we probably shouldn't have," recalls Peter Conlon, president and chief executive officer of Nautel, which sells its products to AM and FM radio stations in 177 countries. "As a result, we burst onto the scene in 2009 with brand-new, incredibly efficient products, while our competitors had decided not to invest in new products."

Pushing product development during the economic crisis was a gamble for Nautel, Mr. Conlon says, but the results were a game changer for the company. Before 2009, a sale for Nautel would typically consist of one transmitter per order. But after it launched its advanced line of transmitters, it began receiving high-volume orders, each worth millions of dollars, from countries looking to replace aging equipment.

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For instance, in 2009 Argentina's national broadcaster, Radio Nacional, ordered 18 transmitters from Nautel. The following year, All India Radio bought 27 of its transmitters. The company has also made mass-volume sales to broadcasters in Turkey, Australia and the Philippines.

Sound like great news all-round? Yes and no. For Nautel, as with most other companies, a sudden surge in sales translated into a need for more money to finance production. After four decades of using working capital to pay for pre-export production, the company now needed to look for an external source of financing.

"We're shipping higher-power systems, which oftentimes go out as transmitter and antenna," Mr. Conlon says. "We don't manufacture antennas so we have to actually buy them from somebody and ship them with our product. So now that we're shipping a large number of products, we're also spending a lot of money on our shipments."

Nautel considered its options for external financing: a bank-issued loan or line of credit, venture capital funding, or financing through Export Development Canada, a federal Crown corporation.

In the end, Nautel chose to seek financing from its bank, with EDC acting as guarantor. Initially, Nautel arranged financing on a per contract basis but eventually set up a line of credit as multiple-product sales increased.

"Other organizations, such as venture capitalists, are wonderful to work with but want an equity play or a board seat," Mr. Conlon says.

While arranging credit was the critical piece that allowed Nautel to play in the big leagues, it's only one part of the financing structure that exporters need to operate successfully in the global marketplace, he says.

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To protect itself from non-payment on a shipment, Nautel makes extensive use of letters of credit, which are issued by the overseas customer's bank to guarantee payment to the exporter.

"A well-written letter of credit protects you amazingly, so you don't find yourself in a position where a customer refuses to pay," he says. "We're very fortunate at Nautel because we have someone internally who is very conversant with letters of credit and can negotiate around issues such as shipment terms and product price."

Clear and favourable payment terms are also an important part of export financing, Mr. Conlon says. Nautel usually asks for a down payment on each order, he adds.

"One of the things we always want to do is structure payment to get as much of it upfront and have as much of it dependent on things we can control, like shipment – we often ask for a piece of payment once we ship something," he says. "This way we don't leave ourselves at the mercy of customers paying us whenever they feel like it."

Nautel also uses EDC to guarantee letters of credit, Mr. Conlon says.

Four years after it launched its breakthrough radio transmitters, Nautel continues to innovate. It recently introduced a remote diagnostic and problem-reporting system for its radio transmitters. This year, it expanded beyond the radio market with new television transmitters.

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The business continues to grow dramatically, Mr. Conlon says. He points to an interesting fact: 40 per cent of total product shipments in Nautel's 44-year history took place in the past seven years.

Having made the leap from a low-volume exporter to one that boasts multimillion-dollar shipments, Nautel will continue to rely on external financing, Mr. Conlon says.

"We will use external financing again and will continue to use it because we're always on the edge," he says. "No matter what our business looks like, there's always going to be a business opportunity out there that we will want to go after, and financing is the cost of doing business."

Selling abroad?

Peter Conlon, president and CEO of Nautel Ltd., offers financing advice for exporters.

Choose the right providers: When scoping out banks and guarantors, go with the ones that have experience with exporters and importers. Find out how well they know the foreign markets you're selling to, and whether they have a local presence in those markets.

Reduce your risks: Ask your foreign customers for a letter of credit from their bank. You'll likely need to shoulder the costs for arranging this legal document, but you'll be protecting yourself from non-payment on a shipment.

Get bulk payments upfront: Ask for a significant down payment when you seal the deal, followed by another bulk payment upon shipment.

Keep your capital flowing: Watch out for agreements that tie up your working capital, making it hard to finance manufacturing of the products you just sold.

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