RNS Number:6330B
China Shoto plc
19 April 2006
Press Release 19 April 2006
China Shoto plc
("China Shoto" or "the Company" or "the Group")
Unaudited Preliminary Results
China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteries
and power supply systems, announces its unaudited Preliminary Results for the
year ended 31 December 2005.
Highlights
* turnover increased by 52% to #28.4 million (2004: #18.7 million)
* net profit, before share based payment expenses of #0.2 million, has more
than doubled to #3.3 million (2004: #1.5 million)
* basic earnings per share increased by 102% to 19.80 pence (2004: 9.79
pence)
* trading ahead of expectations
* acquired controlling stake in Beijing Full Three Dimension Co., Ltd after
the year-end
* employee health and safety management certificate awarded to the Group
* granted "State Environment Friendly Enterprise" title by Jiangsu provincial
government
* average time taken by customers to pay fell from 124 days in Q4 2004 to 93
days in Q4 2005
* joined AIM December 2005
Commenting on the unaudited Preliminary Results, Cao Guifa, Executive Chairman
said "The Directors are pleased with the excellent progress achieved by China
Shoto. We believe that, building on the strong foundations that have been
established, the Company is well positioned to achieve further substantial
growth. We look forward to the future with confidence and enthusiasm."
- Ends -
For further information:
China Shoto plc
Cao Guifa, Executive Chairman Tel: +44 (0) 20 7398 7700
www.chinashoto.com
Seymour Pierce Limited
Stuart Lane / John Depasquale Tel: +44 (0) 20 7107 8000
jdp@seymourpierce.com www.seymourpierce.com
Media enquiries:
Abchurch
Henry Harrison-Topham / Katherine Murphy Tel: +44 (0) 20 7398 7700
henry.ht@abchurch-group.com www.abchurch-group.com
Chairman's Statement
Flotation
2005 has been a successful year for China Shoto. The Group raised #6.0 million
before expenses and its shares were admitted to trading on AIM on 6 December
2005. The Group has used some of the funds raised to build a new battery
manufacturing plant which will significantly expand the production capacity of
power type Valve Regulated Lead Acid ("VRLA") batteries.
Results and Dividend
The annual results are ahead of expectations. Turnover for the year increased by
52% to #28.4 million (2004: #18.7 million). Operating profit increased by 90% to
#4.4 million (2004: #2.3 million). Basic earnings per share increased by 102 %
to 19.80 pence (2004 9.79 pence).
The Directors do not recommend the payment of a final dividend for 2005.
Business Progress
Strong organic growth in the existing business reinforces our leading position
in the industry. Operating results are ahead of previous years, as a result of
high sales and of continuing efficiencies with regard to cost controls. Sales
to China Mobile, the largest telecom service provider in China, and to ZTE
Corporation ("ZTE"), one of the largest telecom equipment manufacturers in
China, increased by 142% and 234% respectively over the last 12 months. Gross
profit margin increased by over 4%.
The production of power type VRLA batteries used in electric bicycles is
regarded as a key business for the Company in the future. Pursuant to the
flotation, #3.2 million of the funds raised are being used to establish a power
type VRLA battery facility within a newly built 28,000 sq. metre plant. With the
new facility the Company's production capacity will be more than doubled. The
use of the electric bicycle in China is showing rapid expansion, and this market
is set to be a key growth and profit opportunity for the Group. In addition, the
overall increase in the Company's production capacity will enable it to meet
increased demand for its products which will in turn enhance its brand.
In the first half of the year the Company acquired a 30% stake in the Beijing
Full Three Dimension Power Engineering Co, Ltd ("FTD") and in early 2006,
completed the purchase of an additional 21%, to take its holding in FTD to 51%.
FTD is a leading turbine design and refurbishment technology service provider
based in Beijing, specialising in the reconstruction of ageing turbines and the
development of new turbines. For the year ending 31 December 2005, FTD's
turnover and net profit were #11.5 million and #0.6 million respectively. The
Board believes that with FTD as a subsidiary, the Company has a wider range of
cost- effective and environmentally friendly solutions for efficient energy
generation.
Global telecommunication expansion offers considerable opportunities to the
Company. China Shoto is confident of the strength of its products which have
already successfully challenged foreign suppliers in the Chinese domestic
market. Furthermore, the Group continues to establish an international
distribution network.
Social Responsibilities
The Company is committed to operating to the highest ethical standards. We are
dedicated to offering our customers quality products and excellent services.
China Shoto will continue to strive towards best practice standards consistent
with profitability, and at the same time will seek to deliver attractive
shareholder returns. The Company offers employees career development
opportunities and is supportive of their family life and goals outside work.
Environmental Standards
China Shoto was the first Chinese company in the industry to receive
certification to ISO14001, the international standard of Environment Management
Systems. In November 2005 the Company was certified to GB/T28001 for vocation,
health and safety management systems. In December 2005, the Company was awarded
the title of "Environment Friendly Enterprise" by the Jiangsu environment
protection bureau, which marks the government's approval of the Group's efforts.
Outlook
Our strategy is to focus on growth segments in our core markets. By positioning
China Shoto as an environmentally friendly energy solution provider, we are well
placed to take advantage of the opportunities of strongly growing markets.
We believe that our expanded and improved range of products and sharply
increasing output underpin the prospects for a successful 2006, and that the
Company will continue to deliver impressive results and create significant long
term value for shareholders. It is the Board's intention to initiate payment of
dividends, commencing with an interim and final dividend for the year ending 31
December 2006. The aggregate dividend payable for the year 2006 is expected to
be in the range of 25 to 30% of net earnings.
We believe that, building on the strong foundations that have been established,
the Company is well positioned to achieve further substantial growth. We look
forward to the future with confidence and enthusiasm.
Cao Guifa
Chairman
18 April 2006
Chief Executive's Review
I am delighted to report China Shoto's results for 2005. In December 2005 we
raised #6.0 million (before expenses) to enable China Shoto to undertake a
significant expansion of its production facilities. This is now underway.
Market Overview
Market Sectors
In 2005, the telecommunications sector continued to be the main focus for the
Group. Sales of batteries to domestic telecom service providers and system
equipment manufacturers made up 68% of total sales. Sales to China Mobile and
China Netcom increased by 142% and 117% respectively. Sales to ZTE, a systems
equipment manufacturer, continued to grow substantially by 234%.
The Group continues to supply start-up batteries to the locomotive industry, and
back-up batteries for both the power plant and broadcasting markets. In 2005,
the Chinese domestic highway system started to use gel batteries which are used
for backup battery power in highway speed detecting equipment. For example,
China Shoto now provides 60% of gel batteries being used in a pilot project in
Henan province in central China.
International
Exports of batteries in 2005 amounted to #1.1 million, an increase of 130%
compared to 2004. China Shoto's main international export products are gel and
flooded batteries; AGM batteries are also exported.
AGM Batteries
The 12V front-access battery which is used in the telecommunications and power
industries is exported to Russia and Italy.
Gel and flooded batteries
80% of the total exports of gel and flooded batteries are distributed to the
European, American and Russian markets. These products are largely distributed
through agents. 60% of the total sales of flooded batteries are to Europe and to
the USA. The Company has set up an office in Malaysia which is responsible for
sales and distribution to South-East Asia and as a result China Shoto's gel
battery is now being tested by a key Malaysian telecom service provider. The
Company has established a sales and distribution network in Thailand and
Indonesia.
Key Customers
AGM batteries
China Shoto won two major national tenders issued by China Mobile to provide
back-up batteries. In addition to this achievement the Company also won an 80%
share in China Unicom's 'Headquarters' project which aims to extend telecom
coverage to every village in four provinces in China. Furthermore, China Shoto
was also a key supplier of 2V and 12V AGM batteries for ZTE, and accounts for
over 90% of ZTE's total back-up battery purchases.
Gel and flooded batteries
China Shoto's gel and flooded batteries are now used by China Mobile in their
central exchange stations and in China Telecom's localised mobile telephone
network, marketed as the "Personal Handphone System". The Company is also the
main supplier of gel batteries to ZTE.
Sales and marketing
Sales network
China Unicom, China Mobile, China Telecom and China Netcom are moving towards
centralising nationally their procurement procedures. Accordingly, China Shoto
has formed four dedicated customer account teams to service these customers. In
addition, China Shoto has 30 national sales offices which work in conjunction
with these account teams to service the Group's customers throughout China.
Power type batteries
In the second half of 2005, the Company further developed its strategy for the
large scale production and sale of power-type batteries. This included setting
up sales and service networks in Tianjin and in Zhejiang and Jiangsu provinces,
key areas for the manufacture of electric bicycles.
Technical exchange, training and seminars
The Group has further strengthened its reputation as a leading brand in China
through attending industry seminars and by providing technical training to our
customers. In June 2005, the Group was invited to attend the "3rd China Telecom
Power Supply Seminar" held by the Ministry of Information Industry, which
provided exposure to major domestic and international telecom service providers.
Operating Overview
AGM batteries
AGM batteries continue to be the highest contributors to the Group's turnover
and gross profit.
Manufacturing
The acceptance rate on the first testing of products reached 99.5%, achieved
through controlled monitoring of the manufacturing process and detailed checks
and procedures at the end of the manufacturing cycle. Production capacity has
also increased through the use of new equipment and the recruitment of
additional labour.
Technical advances
2005 saw the addition of five new battery designs to the product range. Changes
to the manufacturing process for these batteries are expected to create a
reduction in production costs of around 10%.
Logistics management
The Group continues to implement measures to reduce transportation costs, for
example, by introducing competitive tendering and reducing single journey
transportation.
Gel and flooded batteries
Sales of gel and flooded batteries have continued to increase.
Localised sourcing of material
The Group has reduced purchase costs by localising the sourcing of parts and
components of eleven types of gel batteries and eight types of flooded
batteries.
Exports
Rising international demand in the UPS market provides the opportunity for China
Shoto to increase the export of 12V and 6V flooded batteries.
Quality Control
China Shoto manufactures batteries according to German DIN standards and has the
highest quality control using advanced manufacturing equipment and production
procedures. The acceptance rate on the first testing of products reached 99.8%.
Research and development
The Group continues to place considerable emphasis on remaining at the forefront
of technological innovation. The Company holds over 80 patents, 18 of which were
granted during the course of 2005. These patents cover the Group's existing
technologies and research projects in such fields as supercapacitors, lithium
ion batteries and direct methanol fuel cells.
In addition a 2V/2.5Ah spiral wound battery has also been successfully
developed. This project passed our stringent appraisal system for efficient
manufacture in December 2005. We have now started pilot production. These
batteries are used in, inter alia, medical instruments, sports equipment and
traffic management applications.
China Shoto successfully designed several new models extending the power type
VRLA battery range: 12V7AH, 12V14AH, 12V16AH and 12V20AH.
Beijing Full Three Dimension Co., Ltd ("FTD")
As previously announced the Group now has a controlling stake in FTD, after
increasing its shareholding from 30% to 51%. In 2005 sales generated by FTD were
#11.5 million and its net profit was #0.6 million.
FTD has continued the successful introduction of its 150 MW turbine. Four have
been delivered of which two are installed and in operation. In 2005 orders were
taken for the refurbishment of two turbines; one has already been refurbished
and is operating, the other one will be completed in the first half of 2006.
FTD was awarded certificate ISO-9001, which is the international standard of
quality management systems, in 2005.
Prospects
China Shoto has established a strong reputation as a provider of high quality
products and services in its markets. The Group has clearly demonstrated its
ability to grow in the domestic market and is now developing its strategy for
overseas expansion. The Company views the future with optimism.
Yang Shanji
Chief Executive
18 April 2006
Finance Director's Review
Results
Group sales have increased by 52% to #28.41 million (2004: #18.69 million).
The operating profit of the Group is #4.56 million*, an increase of 96% (2004:
#2.32 million).
The pre-tax profit of the Group is #3.77 million*, an increase of 112% (2004:
#1.78 million).
The net profit of the Group is #3.25 million*, an increase of 116% (2004: #1.51
million).
* These figures are stated before share based payment expenses of #145,000
pursuant to IFRS 2.
Taxation
China Shoto's subsidiaries were subject to different tax treatments in 2005
based on the enterprise, technology and location rules.
Shuangdeng Group Co., Limited
Since it was incorporated as a foreign enterprise on 10 May 2005 the Company has
been entitled to exemptions from PRC income tax for the first two years (2005 to
2006) and it is entitled to a 50% relief from PRC income tax for another three
years thereafter (2007 to 2009).
Longyuan Shuangdeng Power Supply
Located in an area designated as an Economic Development Coastal Region in
accordance with PRC tax regulations, the Company is entitled to an applicable
tax rate of 24%. Meanwhile as a industry enterprise with foreign investment it
is entitled to a 50% relief from PRC income tax in 2005.
Fuste Power Supply
Located in an area designated as an Economic Development Coastal Region in
accordance with PRC tax regulations and is entitled to an applicable tax rate of
24%; meanwhile as a industry enterprise with foreign investment enterprises it
was entitled to exemptions from PRC income tax for the year of 2005.
Shuangdeng Power Supply
The company is recognised as a "technology and knowledge concentrated enterprise
" and has been and continues to be entitled to a 15% PRC income tax rate.
Nanjing R&D
In 2005 the Nanjing operations were reregistered as both a foreign investment
enterprise and a industry enterprise located in a development zone in accordance
with the PRC income tax legislation; therefore it is entitled to exemptions from
PRC income tax for the two years commencing from their first profit-making year
of operation and thereafter FTD benefits from a reduced rate of corporate of 15%
on net profits because of its status as a high tech business.
Earnings and Dividends
Basic earnings per share in 2005 are 19.80 pence. The Directors do not recommend
the payment of a final dividend for 2005.
Acquisition
The Group purchased a 30% stake in FTD during the year at cost of #425,000. In
January 2006 the Group purchased a further 21% stake in FTD at cost of #260,000.
FTD's turnover for the year ended 31 December 2005 was #11.5 million and its net
profit was #0.6 million.
Equity shareholders' funds
Shareholders' funds have increased to #16.1 million (2004: #7.5 million). The
retained earnings were #3.8 million (2004: #1.7 million).
Cash Flow
The Group has achieved significant improvement in its cash flow from operating
activities from negative #833,000 in 2004 to positive #3,185,000 in 2005. Debt
management improved significantly in 2005. Effective control over raw
materials, production in progress and finished products improved inventory
turnover to 5 times (2004: 3 times).
Interest paid was #864,000 (2004: #587,000) and tax payments were #496,000
(2004: #337,000).
Debtor days
Average debtor days in the fourth quarter of 2005 were 93 days compared to 124
days for the same period of 2004.
Borrowing
The Group entered into credit agreements with Bank of China, China Construction
Bank, Agricultural Bank of China and Shenzhen Development Bank.
At 31 December 2005, the Group had outstanding bank loans of #12.1 million
(2004: #10.0 million)
Currency risks
The Group has limited exposure to currency risk. Raw materials are purchased in
Chinese Renminbi ("RMB") and export sales are currently relatively small. In
developing an international market, the Group will need to take account of the
negative effect of any appreciation of the RMB.
Interest rate risks
The interest rate risk is the fluctuation of interest rates both at the present
time and in the future. The interest rates payable under the Group's bank
facilities are generally variable with the fluctuation of the Central Bank's
base interest rate. Changes in this rate have been modest. For certain bank
borrowing arrangements, the interest rate is fixed.
Zhou Yuezhang
Finance Director
18 April 2006
Consolidated unaudited income statement
For the year ended 31 December 2005
Year ended Year ended
Note 31 December 31 December
2005 2004
#000 #000
Revenue 28,413 18,688
Cost of sales (18,161) (12,750)
Gross profit 10,252 5,938
Other operating income 689 569
Selling and distribution expenses (3,879) (3,003)
Administrative expenses (2,681) (1,147)
Other operating expenses (20) (37)
Share of results of associate 56 -
Profit from operations 4,417 2,320
Finance income 72 45
Finance costs (864) (590)
Profit before tax 3,625 1,775
Tax (514) (269)
Net profit for the year attributable to 3,111 1,506
equity holders
Earnings per share in pence:
Basic 2 19.80p 9.79p
Diluted 2 19.74p 9.76p
All amounts relate to continuing operations
Consolidated unaudited balance sheet
As at 31 December 2005
31 December 31 December
2005 2004
#000 #000
Assets
Non-current assets
Property, plant and equipment 8,559 7,811
Investment in associates 512 -
Land use right 1,393 1,208
Other intangible assets 17 18
Deferred tax assets 36 20
10,517 9,057
Current assets
Inventories 3,547 4,164
Trade receivables 11,953 7,213
Other receivables and prepayments 3,480 2,976
Due from related parties 1,963 1,623
Short-term investments 2,350 31
Cash and cash equivalents 8,300 3,845
31,593 19,852
Total assets 42,110 28,909
Liabilities
Current liabilities
Bank borrowings 12,083 9,950
Trade payables 3,919 3,061
Notes payable 4,126 2,960
Other payables and accruals 5,058 4,741
Due to related parties 765 669
Income tax payable 97 73
26,048 21,454
Total liabilities 26,048 21,454
Capital and reserves
Share capital 2,000 -
Share premium 3,875 -
Other reserves 2,916 4,454
Statutory reserves 4,024 3,206
Retained earnings 3,837 1,744
Foreign currency translation (590) (1,949)
reserve
Total equity 16,062 7,455
Total equity and liabilities 42,110 28,909
Consolidated unaudited statement of changes in equity
For the year ended 31 December 2005
Share Share Other Statutory Retained Currency Total
capital premium reserves reserves earnings translation
reserve
#000 #000 #000 #000 #000 #000 #000
Balance as at 31 December 2003 - - 4,454 2,622 2,947 (1,394) 8,629
Net profit for the financial - 1,506 - 1,506
year - - -
Transfer to statutory reserves - - - 584 (584) - -
Dividends paid to external
shareholders - - - - (2,125) - (2,125)
Foreign currency translation - - - - - (555) (555)
Balance as at 31 December 2004 - - 4,454 3,206 1,744 (1,949) 7,455
Issue of ordinary shares to the
vendors of Leadstar Enterprises
Limited 1,538 - (1,538) - - - -
Issue of ordinary shares on 462 5,538 - - - - 6,000
placing
Share issue costs - (1,663) - - - - (1,663)
Net profit for the financial
year - - - - 3,111 - 3,111
Transfer to statutory reserves - - - 818 (818) - -
Share based payment expense
- Employee share options - - - - 27 - 27
- Expenses of flotation - - - - 118 - 118
Dividends paid to external
shareholders - - - - (345) - (345)
Foreign currency translation - - - - - 1,359 1,359
Balance as at 31 December 2005 2,000 3,875 2,916 4,024 3,837 (590) 16,062
Consolidated unaudited cash flow statement
For the year ended 31 December 2005
Year ended Year ended
31 December 31 December
Notes 2005 2004
#000 #000
Net cash from operating activities a 3,185 (833)
Cash flows from investing activities
Purchase of trade mark - (20)
Purchase of associate (425) -
Purchase of land use right (60) (1,218)
Purchase of property, plant and equipment (954) (2,009)
Purchase of short-term investment (2,336) (20)
Proceeds from disposal of property, plant 93 133
and equipment
Proceeds from disposal of short-term 21 1,451
investment
Cash flows used in investing activities (3,661) (1,683)
Cash flows from financing activities
Net cash inflow from share placing 4,337 -
Repayment of long-term bank borrowings - -
Increase in short-term bank borrowings 674 6,401
Interest paid (864) (587)
Dividends paid to external shareholders - (2,125)
Cash flows from financing activities 4,147 3,689
Net increase in cash and
cash equivalents 3,671 1,173
Cash and cash equivalents at beginning of year 3,845 2,923
Foreign exchange differences 784 (251)
Cash and cash equivalents at end of year 8,300 3,845
Notes to the unaudited consolidated cash flow statements
(a) Cash flows from operating activities
Year ended Year ended
31 December 31 December
2005 2004
#000 #000
Profit before tax 3,625 1,775
Adjustments for:
Amortisation of trade mark 1 1
Amortisation of land use right 28 24
Allowance for doubtful trade debts 27 (182)
Allowance for doubtful non-trade debts 27 (32)
Depreciation of property, plant and equipment 855 709
Losses on disposal of property, plant and equipment 20 18
Gain on disposal of short-term investment (56) (13)
Share based payment expense 145 -
Financial income (72) (30)
Financial expense 864 587
Operating profit before working capital changes 5,464 2,857
Working capital changes:
(Increase)/decrease in:
Inventories 1,134 (2,056)
Trade receivables (3,615) 2,897
Other receivables, deposits and prepayments (237) 810
Due from related parties (102) 1,148
Increase/(decrease) in:
Trade payables 397 1,433
Other payable and accruals (130) (2,067)
Notes payables 698 130
Due to related parties - (5,678)
Cash generated from/(used in) operations 3,609 (526)
Interest received 72 30
Income tax paid (496) (337)
Net cash used in operating activities 3,185 (833)
(b) Non-cash flow transactions
On 30 November 2005, the shareholders of Leadstar Enterprises Limited and China
Shoto plc entered into a share exchange agreement. China Shoto plc issued
15,384,615 10p ordinary shares at 130p each to the shareholders of Leadstar
Enterprises Limited in exchange for the entire share capital of Leadstar
Enterprises Limited.
(c) Dividend
Hong Kong Wealth Source Development Co. Ltd declared a dividend of #34.50 per
ordinary share amounting to #345,000 on 30 June 2005 to its shareholders at that
date. All the dividend was set against the debt due from those shareholders.
Notes to the unaudited consolidated financial statements
1. Basis of preparation
The financial information set out in this announcement does not constitute the
Group's financial statements for the year ended 31 December 2005 and the year
ended 31 December 2004. The Company was incorporated on 10 May 2005 and has not
previously submitted annual financial statements. The financial information set
out in this announcement has been prepared on the basis of the accounting
policies to be adopted in the Group's first annual financial statements. The
Group's annual financial statements will be delivered to the Registrar of
Companies following the company's annual general meeting.
The consolidated financial statements include the financial statements of China
Shoto plc and all of its subsidiary undertakings as at 31 December 2005 using
the acquisition method of accounting. The acquisition of Leadstar Enterprises
Limited by China Shoto plc on 30 November 2005 has been accounted for as a
reverse acquisition, in accordance with IFRS 3 'Business Combinations', on the
basis that the management, who are the former majority shareholders of Leadstar
Enterprises Limited, retained effective control of the Group. The fair value of
the assets of China Shoto plc at the date of the business combination were
equivalent to the fair value of the company and the fair value of the notional
number of equity instruments which would have been issued by Leadstar
Enterprises Limited to acquire China Shoto plc, and therefore no goodwill arises
in respect of this business combination. The comparative financial statements
and the results up to the date of the business combination represent those of
the Leadstar Enterprises Limited group.
2 Earnings per share
Earnings for the purpose of basic and diluted earnings per share are the net
profit for the financial year of #3,111,000 (2004: #1,506,000).
The weighted average number of ordinary shares used in the calculation of
earnings per share has been derived as follows:
Group Group
Year ended Year ended
Weighted average number of ordinary shares - basic 31 December 31 December
2005 2004
Number Number
15,384,615 10p ordinary shares issued to the vendors of 15,384,615 15,384,615
Leadstar Enterprises Limited
2 #1 ordinary shares issued on incorporation, and 13 -
subsequently split into 20 10p ordinary shares
4,615,385 10p ordinary shares issued on placing 328,767 -
15,713,395 15,384,615
Weighted average number of ordinary shares -
diluted
Weighted average number of ordinary shares - basic 15,713,395 15,384,615
Dilutive effect of share options 48,600 48,600
At end of the financial period 15,761,995 15, 433,215
This information is provided by RNS
The company news service from the London Stock Exchange
END
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