RNS Number:5229V
China Shoto plc
26 April 2007
Press Release 26 April 2007
China Shoto plc
("China Shoto" or "the Company" or "the Group")
Final Results
China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteries
and power supply systems, announces its Final Results for the year ended 31
December 2006.
Highlights
* revenue increased by 134% to #66.45 million (2005: #28.41 million)
* net profit increased by 29% to #4.0 million (2005: #3.11 million)
* sales revenues of new power type battery business in 2006 represents 30% of total revenues
* acquired 59% controlling stake in Yangzhou Zhenghe Company in March 2006
* acquired additional 21% stake in Beijing Full Three Dimension Power Engineering Co, Ltd ("FTD") to take
a controlling position of 51%
* debtor days fell from 121 days in 2005 to 75 days in 2006
* second fundraising, raising #5.0 million, with new shares admitted to trading on 12 June 2006
* an interim dividend for 2006 of 1.5 pence per share (2005: nil)
* a final dividend for 2006 of 3 pence per share (2005: nil)
Commenting on the Final Results, Cao Guifa, Executive Chairman, said: "We
believe that our expanded and improved range of products and sharply increasing
output underpin the prospects for a successful 2007, and that the Group will
continue to deliver impressive results and create significant long term value
for shareholders. We believe that, building on the strong foundations that have
been established, the Group is well positioned to achieve further substantial
growth. We look forward to the future with confidence and enthusiasm."
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 / Laura Riascos Tel: +44 (0) 20 7398 7700
henry.ht@abchurch-group.com www.abchurch-group.com
Chairman's Statement
Our strategy is to focus on growth segments in our core markets by positioning
China Shoto as a leading Chinese producer of lead acid batteries. We are taking
and shall continue to take advantage of the favourable opportunities in our
strongly growing markets.
Placing
2006 has been another successful year for China Shoto. The Group raised #5.0
million before expenses in a secondary placing of new shares which were admitted
to trading on AIM on 12 June 2006. The proceeds of the placing have been mainly
used to increase AGM battery production capacity, to provide working capital for
the Group, to extend the current AGM product portfolio through an investment in
Yangzhou Zhenghe, and to purchase the power type battery production line of
Jiangsu Electrical Appliance and Cable Co., Ltd. ("Cable Co.").
Results and Dividend
Revenue increased by 134% to #66.45 million in 2006 (2005: #28.41 million).
Operating profit increased by 30% to #5.79 million (2005: #4.42 million).
Basic earnings per share in 2006 are 18.30 pence (2005: 19.80 pence), which was
affected by the significant increase in raw material prices during the year. An
interim dividend in relation to 2006 of 1.5 pence per share was paid in November
2006. The Directors recommend the payment of a final dividend for 2006 of 3
pence per share.
Business Progress
The sales revenue of the back up battery business in 2006 was #39.22 million, an
increase of 38% compared with #28.41million in 2005. Sales to five major
telecommunication service providers constitute 74% of total back up battery
business revenues.
The power type battery ("PTB") business was newly added in 2006, and will become
an important business sector for the Group in the future. Best Co. constructed
a new production facility of 28,000 sq. meters in less than nine months with
#3.25 million of the funds raised during 2006. The Group also purchased the PTB
production line from Cable Co. The aggregate PTB revenue for the year is 30% of
the total revenues of the Group. According to market forecasts, the PTB
business will be the main growth highlight for the Group in 2007.
In the turbine business, the Company acquired an additional 21% stake to take
its controlling position in Beijing Full Three Dimension Power Engineering Co.,
Ltd ("FTD") to 51% in 2006. For the year ended 31 December 2006, FTD's revenue
and net profit were #6.91 million and #0.51 million respectively. The revenue
is 10% of the total revenues of the Group.
Global telecommunications expansion and Chinese 3G network construction both
offer considerable opportunities. China Shoto is confident of the quality and
competitiveness 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 the welfare of its employees and its social and
community responsibilities. 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
The Group passed the certification of ISO14001 and GB/T18001 vocation health and
safety management system. In June 2006, the battery products passed the EU RoHS
test.
Outlook
We believe that our expanded and improved range of products and sharply
increasing output underpin the prospects for a successful 2007, and that the
Group will continue to deliver impressive results and create significant long
term value for shareholders. We believe that, building on the strong
foundations that have been established, the Group is well positioned to achieve
further substantial growth. We look forward to the future with confidence and
enthusiasm.
Cao Guifa
Chairman
25 April 2007
Chief Executive's Review
I am delighted to report China Shoto's results for 2006. In June 2006 we raised
#5.0 million (before expenses) in a secondary placing, and the new shares were
admitted to trading on AIM on 12 June 2006. These funds enabled China Shoto to
undertake a significant expansion of its production facilities and laid a strong
foundation for the performance growth in 2006.
Market Overview
Market Sectors
The revenue from back up battery sales was #39.22 million in 2006, an increase
of 38% compared with #28.41 million in 2005.
The revenue from the newly added PTB business was #20.33 million in 2006,
representing 30% of the total Group revenue.
The revenue from the turbine business in 2006 was #6.91 million, representing
10% of the total Group revenue.
The Group continues to supply start-up batteries to the locomotive industry, and
back-up batteries for both the power plant and broadcasting markets.
International
The export refund policy has been cancelled by the Chinese government, impacting
the overseas revenues in 2006. As a result, export sales only rose by 5% in
2006. China Shoto's main export products are gel and flooded batteries.
Gel and flooded batteries
More than 80% of the total exports of gel and flooded batteries are distributed
to the European, American and Russian markets. Marketing and sales
breakthroughs have also been made in South-East Asia and South America.
AGM Batteries
The 12V front-access battery which is used in the telecommunications and power
industries is exported to Russia and Italy.
Key Customers
Back up batteries
China Mobile, China Unicom, China Netcom, China Telecom and China Tietong
continued to be the key customers of the Group in 2006. Sales to these five
major telecommunication service providers amounted to 74% of total back up
battery business revenues, amongst which sales to China Mobile have increased by
97%.
PTB Business
The key customers of the PTB business are Beijing Xinri, Tianjin Taimei and
Tianjin Taifeng. The total PTB supply to the three key customers was #7.61
million, which is more than 50% of their purchases and accounts for 39% of the
Group's total PTB sales.
Turbine Business
The key customers of the turbine business are Minjiang Thermal Power Generation
Co., Ltd., Panzhihua Three Dimension Power Generation Co., Ltd., and Yibin Power
Generation Co., Ltd.
Sales and marketing
Back up batteries
The sales network has been improved further; seven new sales offices have been
set up in 2006.
PTB business
In 2006, the Group further developed the strategy of expanding PTB production
and sales. This included setting up sales and service networks in Tianjin,
Zhejiang and Jiangsu provinces, key areas for the manufacture of electric
bicycles. So far to date, 43 sales offices have been set up, and 138 sales
staffs have been employed.
Technical exchange, training and seminars
The Group has further strengthened its reputation as a leading brand in China,
by participating in industry seminars and by providing technical training to our
customers. The Group attended the 2006 Hanover Information and
Telecommunication Technology Fair (CeBIT 2006) in March 2006, and the Singapore
Telecommunication Exhibition in June 2006.
Operating Overview
Battery Products
Quality Control
China Shoto manufactures batteries according to IEC and German DIN standards,
and ensures the highest quality control using advanced manufacturing equipment
and production procedures. All of the 2V and 12V series of batteries have been
recognised as "State-designated Product Exempt from Quality Inspection" by the
General Administration of Quality Supervision, Inspection and Quarantine of P.
R. China.
Manufacturing
The product quality has been effectively guaranteed through strict monitoring in
the manufacturing process and detailed checks. Production capacity has also
increased through the installation of new equipment and the recruitment of
additional labour.
Logistics management
The transportation costs have decreased by 12% per KVAh through obtaining timely
transportation information, reducing one way transportation and focused
tendering based on specific areas or major projects.
Research and development
Patents Granted
The Company now holds over 90 patents. Fourteen patents were granted in 2006,
among which there are four invention patents.
Back up battery
High Power AGM Battery
In order to meet some particular requirements for high power batteries, the GFM
(G) series of AGM batteries with high power performance has been developed. At
the same time, four new specifications of 12V/80Ah, 12V/85Ah, 12V/100Ah and 12V/
165Ah front access batteries have been developed to meet international market
requirements.
Energy storage battery particularly used for photovoltaic systems
GFMJ series, GFX (2V) series and 6-GFMJ (12V) series energy storage batteries
particularly used for photovoltaic systems have been developed according to BS
EN61427-2002 Standard; these batteries can meet the long-term cycle requirement
of photovoltaic solar storage systems.
Spiral Wound Battery
11 types of 2V, 6V and 12V series were developed in 2006.
Power type batteries
Several new models of 12V14Ah, 12V20Ah and 16V18Ah PTB have been successfully
developed, the performances of which have been significantly improved with the
application of nanometer additives.
Beijing Full Three Dimension Co., Ltd ("FTD")
As announced during 2006, the Group now has a controlling stake in FTD after
increasing its shareholding from 30% to 51% in January 2006. Sales generated by
FTD were #6.91 million and net profit was #0.51 million in 2006. This revenue
is 10% of the total Group revenue.
FTD has continued the successful introduction of its 150MW turbine. Four have
been installed and are now in operation. In 2006, three new orders were taken,
one for the 150MW turbine design and two for refurbishment of three turbines.
The design of a steam control valve for the CC150-8.83/(4.2)/1.27 type turbine
has been accomplished with FTD technology.
Acquisition
The Group acquired Yangzhou Zhenghe in 2006. This company mainly produces AGM
batteries, and has a production capacity of 25,000 KVAh of batteries (1.0 KVAh
is equivalent to one back up battery). The cost of the acquisition was
#216,000.
Acquisition of Facilities
The Group purchased the PTB production line from Cable Co. in 2006.
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. The Company views the future with
optimism.
Yang Shanji
Chief Executive
25 April 2007
Finance Director's Review
Results
The sales revenues of the Group have increased by 134% to #66.45 million (2005:
#28.41 million).
The operating profit of the Group is #5.79 million, an increase of 30% (2005:
#4.42 million).
The pre-tax profit of the Group is #5.06 million, an increase of 40% (2005:
#3.63 million).
The net profit of the Group attributable to equity holders of the parent is #4.0
million, an increase of 29% (2005: #3.11 million).
Taxation
China Shoto's subsidiaries were subject to different tax treatments in 2006
based on the enterprise, technology and location rules. Set out below are the
applicable treatments and the major changes anticipated in the next few years.
Shuangdeng Group Co., Limited
Incorporated as a foreign enterprise on 10 May 2005, the company has been
entitled to exemptions from PRC income tax for the last two years (2005 to 2006)
and 50% relief for another three years thereafter (2007 to 2009).
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.
Fuste Power Supply
The company is 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%. As an industry enterprise with foreign capital invested, it is
entitled to 50% income tax relief from 2006 to 2008.
Best Power Supply
The company is 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%. As a production enterprise in accordance with the
PRC tax legislation applicable to foreign investment enterprises, the company is
also entitled to exemptions from PRC income tax for the two years commencing
from 2006, being its first profit-making year of operation, and for three years
thereafter it is entitled to a 50% relief from PRC income tax.
Nanjing R&D
In 2005 the Nanjing operations were reregistered as both a foreign investment
enterprise and an industry enterprise located in a development zone in
accordance with PRC income tax legislation. It is therefore entitled to
exemptions from PRC income tax for two years commencing from its first
profit-making year of operation and 50% relief for another three years
thereafter. The applicable tax rate is 24%.
FTD
Beijing FTD is a foreign invested enterprise located in Zhongguancun High-New
Tech. Ind. Zone Haidian District Beijing City. Its enterprise income tax rate is
15% since 2004.
Yangzhou Zhenghe Power Supply
Yangzhou Zhenghe is a production type foreign invested enterprise located in
Xiaoji Town Jiangdu City, which has been entitled to exemptions from PRC income
tax for the first two years and 50% relief for another three years thereafter
from the first profit making year. Its applicable tax rate is 24%.
Earnings and Dividends
Basic earnings per share in 2006 are 18.30 pence (2005: 19.80 pence), which was
affected by the significant increase in raw material prices during the year. An
interim dividend of 1.5 pence per share was paid in November 2006 (2005: nil).
The Directors recommend the payment of a final dividend for 2006 of 3 pence per
share (2005: nil).
Reorganisation
During the year the operations of a subsidiary, Jiangsu Longyuan Shuangdeng
Power Supply Co., Ltd. were amalgamated into another subsidiary, Jiangsu
Shuangdeng Power Supply Co., Ltd, and Jiangsu Longyuan Shuangdeng Power Supply
Co., Ltd has subsequently been wound up.
Acquisition
The Company acquired Yangzhou Zhenghe in 2006 for #216,000. Yangzhou Zhenghe
mainly produces AGM batteries and has a production capacity of 25,000 KVAh of
batteries (1.0 KVAh is equivalent to one back up battery).
Acquisition of Facilities
The Group purchased the PTB production line from Cable Co. in 2006.
Equity shareholders' funds
Shareholders' funds have increased to #23.44 million (2005: #16.06 million).
The retained earnings were #6.77 million (2005: #3.84 million).
Cash Flow
The Group achieved good results in its cash flow from operating activities in
2006. Debt management has also been extremely effective in 2006. Interest paid
was #822,000 (2005: #864,000) and tax payments were #607,000 (2005: #496,000).
Debtor days
Debtor days fell from 121 days in 2005 to 75 days in 2006.
In the back up battery business, debtor days fell from 121 days in 2005 to 91
days in 2006.
In the power type battery business, debtor days were 38 days in 2006.
In the turbine business, debtor days are 152 days in 2006.
Borrowing
The Group entered into short-term credit agreements with Jiangyan Branch of Bank
of China, Jiangyan Branch of China Construction Bank, Jiangyan Branch of
Agricultural Bank of China and Nanjing Branch of Shenzhen Development Bank.
At 31 December 2006, the Group had outstanding bank loans of #12.24 million
(2005: #12.08 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 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
25 April 2007
Consolidated income statement
For the year ended 31 December 2006
Year ended Year ended
Notes 31 December 31 December
2006 2005
Unaudited
#000 #000
Revenue 66,454 28,413
Cost of sales (47,654) (18,161)
Gross profit 18,800 10,252
Other operating income 790 694
Selling and distribution expenses (8,579) (3,879)
Administrative expenses (5,172) (2,681)
Other operating expenses (47) (20)
Share of results of associate - 56
Profit from operations 5,792 4,422
Finance income 91 67
Finance costs (822) (864)
Profit before tax 5,061 3,625
Tax 4 (789) (514)
4,272 3,111
Attributable to:
Equity holders of the parent 4,003 3,111
Minority interests 269 -
4,272 3,111
Earnings per share in pence:
Basic 6 18.30p 19.80p
Diluted 6 17.93p 19.74p
All amounts relate to continuing operations
Consolidated balance sheet
As at 31 December 2006
31 December 31 December
Notes 2006 2005
Unaudited
#000 #000
Assets
Non-current assets
Property, plant and equipment 12,409 8,559
Investment in associate - 512
Other investment 130 -
Land use right 1,361 1,393
Other intangible assets 167 17
Deferred tax assets 31 36
14,098 10,517
Current assets
Inventories 10,122 3,547
Trade receivables 15,009 11,953
Other receivables and prepayments 7,224 3,480
Due from related parties 1,011 1,963
Short-term investments 947 2,350
Cash and cash equivalents 9,937 8,300
44,250 31,593
Total assets 58,348 42,110
Liabilities
Current liabilities
Bank borrowings 12,236 12,083
Trade payables 7,547 3,919
Notes payable 4,041 4,126
Other payables and accruals 6,805 5,058
Amount due to customers on construction 2,309 -
contracts
Due to related parties 656 765
Income tax payable 145 97
Deferred tax liability 21 -
Total liabilities 33,760 26,048
Capital and reserves
Share capital 8 2,334 2,000
Share premium 8,630 3,875
Other reserves 2,916 2,916
Statutory reserves 5,071 4,024
Retained earnings 6,769 3,837
Foreign currency translation reserve (2,272) (590)
Total equity attributable to equity
holders of the parent
23,448 16,062
Minority interests 1,140 -
Total equity and liabilities 58,348 42,110
Consolidated statement of changes in equity (unaudited)
For the year ended 31 December 2006
Attributable to equity holders
Share Share Other Statutory Retained Currency Total
capital premium reserves reserves earnings translation Minority Total
reserve interests
#000 #000 #000 #000 #000 #000 #000 #000 #000
Balance as at 1 January 2005 - - 4454 3206 1744 (1,949) 7,455 - 7,455
Net profit for the financial - - - - 3,111 - 3,111 - 3,111
year
Foreign currency translation - - - - - 1,359 1,359 - 1,359
Total recognized income and 4,470 - 4,470
expense
Issue of ordinary shares to 1,538 - (1,538) - - - - - -
the vendors of Leadstar
Enterprises Ltd
Issue of ordinary shares on 462 5,538 - - - - 6,000 - 6,000
placing
Share issue costs - (1,663) - - - - (1,663) - (1,663)
Transfer to statutory reserves - - - 818 (818) - - - -
Share based payment expense
Employee share options - - - - 27 - 27 - 27
Expenses of flotation - - - - 118 - 118 - 118
Dividends paid - - - - (345) - (345) - (345)
Balance as at 31 December 2005 2,000 3,875 2,916 4,024 3,837 (590) 16,062 - 16,062
Net profit for the financial - - - - 4,003 - 4,003 269 4,272
year
Foreign currency translation - - - - - (1,682) (1,682) (97) (1,779)
Total recognized income and 2,321 2,493
expense
Acquisition of subsidiary - - - - - - - 968 968
Issue of ordinary shares on 314 4,716 - - - - 5,030 - 5,030
placing
Share issue costs - (201) - - - - (201) - (201)
Exercise of share options 20 240 - - - - 260 - 260
Transfer to statutory reserves - - - 1,047 (1,047) - - - -
Share based payment expense
Employee share options - - - - 326 - 326 - 326
Expenses of flotation - - - - - - - - -
Dividends paid - - - - (350) - (350) - (350)
Balance as at 31 December 2006 2,334 8,630 2,916 5,071 6,769 (2,272) 23,448 1,140 24,588
(unaudited)
Unaudited consolidated cash flow statement
For the year ended 31 December 2006
Year ended Year ended
31 December 31 December
Notes 2006 2005
(Unaudited)
#000 #000
Net cash from operating activities a 1,606 3,185
Cash flows from investing activities
Purchase of associate - (425)
Purchase of land use right (807) (60)
Purchase of property, plant and equipment (4,905) (954)
Purchase of subsidiary undertakings 666 -
Purchase of investment (130) -
Purchase of short-term investment - (2,336)
Proceeds from disposal of property, plant 186 93
and equipment
Proceeds from disposal of short-term 1,664 21
investment
Cash flows used in investing activities (3,326) (3,661)
Cash flows from financing activities
Net cash inflow from share placing 5,089 4,337
Increase in short-term bank borrowings 153 674
Interest paid (822) (864)
Dividends paid (350) -
Cash flows from financing activities 4,070 4,147
Net increase in cash and 2,350 3,671
cash equivalents
Cash and cash equivalents at beginning of year 8,300 3,845
Foreign exchange differences (713) 784
Cash and cash equivalents at end of year 9,937 8,300
Notes to the unaudited consolidated cash flow statements
(a) Cash flows from operating activities
Year ended Year ended
31 December 31 December
2006 2005
#000 #000
Profit before tax 5,061 3,625
Adjustments for:
Amortisation of other intangible assets 14 1
Amortisation of land use right 29 28
Allowance for doubtful trade debts 104 27
Allowance for doubtful non-trade debts 200 27
Depreciation of property, plant and equipment 820 855
Losses on disposal of property, plant and equipment 21 20
Gain on disposal of short-term investment - (56)
Share based payment expense 326 145
Financial income (91) (67)
Financial expense 822 864
Operating profit before working capital changes 7,306 5,469
Working capital changes:
(Increase)/decrease in:
Inventories (6,392) 1,134
Trade receivables 714 (3,615)
Other receivables, deposits and prepayments (115) (237)
Due from related parties 952 (102)
Increase/(decrease) in:
Trade payables 444 397
Other payable and accruals (593) (130)
Notes payables (85) 698
Due to related parties (109) -
Cash generated from operations 2,122 3,614
Interest received 91 67
Income tax paid (607) (496)
Net cash from operating activities 1,606 3,185
(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 10 pence ordinary shares at 130 pence each to the shareholders of
Leadstar Enterprises Limited in exchange for the entire share capital of
Leadstar Enterprises Limited.
A subsidiary undertaking, 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 financial statements
For the year ended 31 December 2006
1. General information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2006 or 2005. The financial
information for the year ended 31 December 2005 is derived from the Company's
statutory accounts for that year and those statutory accounts have been
delivered to the Registrar of Companies. The auditors have reported on those
accounts; their report was unqualified and did not contain any statements under
the Companies Act 1985, s237(2) or (3). The statutory accounts for the year
ended 31 December 2006 will be finalised on the basis of the financial
information presented in this preliminary announcement and will be delivered to
the Registrar of Companies following the Company's annual general meeting.
China Shoto plc is a company incorporated in the United Kingdom under the
Companies Act 1985. The financial information presents information about the
Company and its subsidiaries (together 'the Group') on a consolidated basis.
2 Accounting policies
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 annual financial
statements for the year ended 31 December 2006. The accounting policies are
consistent with those that were applied in the Group's financial statements for
the year ended 31 December 2005 and there have been no changes to accounting
policies during 2006.
The consolidated financial information of China Shoto plc and its subsidiary
undertakings (the 'Group') has been prepared in accordance with those
International Financial Reporting Standards and Interpretations in force ('
IFRS'), as adopted by the European Union. The preparation of financial
statements in conformity with IFRSs requires management to make assumptions that
affects the application of accounting policies and the amounts of assets,
liabilities, income and expenditure. The estimates and associated assumptions
are based on historical experience and other relevant factors, the results of
which form the basis for the judgements that underlie the carrying value of the
assets and liabilities. Actual results may differ from these estimates. The
most significant areas in which judgements are required relate to the evaluation
of fair values in the application of acquisition accounting, the estimate of
useful economic lives and residual values of non-current assets and the
recoverable amount of current and non-current assets. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimates are
revised if the revision affects only that period, or in the period of revision
and future periods if the revision affects both the current and future periods.
For the years ended 31 December 2006, the Group is comprised of three business
segments and one geographic segment (2005: one business and geographic segment).
Basis of consolidation
The acquisition of Leadstar Enterprises Limited by China Shoto plc on 30
November 2005 has been accounted for using the principles of reverse acquisition
accounting, 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 arose in respect of this
transaction. The comparative financial statements and the results up to the date
of the business combination represent those of the Leadstar Enterprises Limited
group.
Foreign currencies
The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and
the audited financial statements of the subsidiary undertakings have been drawn
up in RMB. As sales and purchases are denominated primarily in RMB and receipts
from operations are usually retained in RMB, the directors are of the opinion
that RMB reflects the economic substance of the underlying events and
circumstances relevant to the Group. Monetary assets and liabilities maintained
in currencies other than RMB are translated into the RMB at the approximate
rates of exchange ruling at the balance sheet date. Transactions in currencies
other than RMB are translated at rates ruling on the transaction dates. All
resulting exchange differences are dealt with in the income statements.
The presentation currency of the Group is pounds sterling and therefore the
financial information has been translated from RMB to pounds sterling at the
following exchange rates:
Year end rates Average rates
31 December 2005 #1 = RMB 13.9122 #1 = RMB 14.8270
31 December 2006 #1 = RMB 15.3232 #1 = RMB 14.7505
Assets and liabilities are translated into sterling at the closing rate, and all
income and expenses are translated at the average rate during the financial
period, being an approximation for the actual rates at the date of the
transactions. All resulting exchange differences are taken to the Exchange
reserve within equity.
3 Segment reports
Reporting format
The primary segment reporting format is determined to be business segments as
the Group's risks and rates of return are affected predominantly by differences
in the products and services produced. The operating businesses are organized
and managed separately according to the nature of the products and services
provided, with each segment representing a strategic business unit that offers
different products and serves different markets.
Business segments
The Group is comprised of the following business segments:
The Power Type Batteries ('PTB') business segment is comprised of power-aided
bicycle batteries.
The Back up batteries business segment included Value Regulated Lead Acid
Batteries and Flooded and Gel Batteries.
The Turbine business segment includes the development and construction of new
turbines and the refurbishment and reconstruction of existing turbines.
Allocation basis and transfer pricing
Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
a.) Business segments
The following table presents certain sales, profit asset, liability and other
information regarding the Group's business segments for the years ended 31
December 2006 and 2005.
Back up
batteries PTB Turbine Eliminations Consolidated
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
#000 #000 #000 #000 #000 #000 #000 #000 #000 #000
Revenue:
Sales to external
customers 39,218 28,413 20,326 - 6,910 - - - 66,454 28,413
Inter-segment 1,706 - 1,166 - - - (2,872) - - -
sales
Total revenue 40,924 28,413 21,492 - 6,910 - (2,872) - 66,454 28,413
Results:
Segment profit 3,961 4,426 1,566 - 552 - - - 6,079 4,426
Share of profit
of associate - 56
(1,018) (857)
Profit from
operations
Before taxation 5,061 3,625
Income taxation (789) (514)
Profit for the 4,272 3,111
year
Back up batteries PTB Turbine Eliminations Consolidated
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
#000 #000 #000 #000 #000 #000 #000 #000 #000 #000
Asset and liabilities:
Segment assets 39,574 40,716 9,587 - 6,753 - (1,719) (2,892) 54,195 37,824
Unallocated 4,140 4,286
assets
Total assets 58,335 42,110
Segment 27,278 27,673 5,119 - 5,140 - (4,721) (2,479) 32,816 25,194
liabilities
Unallocated
liabilities 945 854
Total liabilities 33,761 26,048
Other segment
information:
Capital
expenditure:
Property, plant
and equipment 2,265 847 2,748 - 76 - - - 5,089 847
Intangible assets 130 60 - - - - - - 130 60
Depreciation and
amortisation 775 884 71 - 17 - - - 863 884
b.) Geographical segments
Domestic Export
Sales sales Elimination Total
2006 2005 2006 2005 2006 2005 2006 2005
#000 #000 #000 #000 #000 #000 #000 #000
Segment sales 65,260 27,272 1,194 1,141 - - 66,454 28,413
4 Income tax
Group Group
Year ended Year ended
31 December 31 December
2006 2005
#000 #000
Income tax expense is as follows:
Current income tax - current year 779 527
Deferred income tax 15 (13)
794 514
Deferred tax assets
At beginning of the financial period 36 20
Transfer to/(from) income statement (3) 13
Exchange differences (2) 3
At the end of the financial period 31 36
Deferred tax liabilities
At beginning of the financial period - -
Acquisition of a subsidiary 14
Transfer to/(from) income statement 8 -
Exchange differences (1) -
At the end of the financial period 21 -
Tax effect of temporary difference arising from:
Allowance for bad and doubtful debts 31 31
Income not subject to income tax (21) -
Potential gain on share options - 5
10 36
Reconciliation of effective tax rates 5,061 3,625
Profit before tax
Tax at respective companies' domestic income tax 660 519
rate
Tax effect of non-deductible expenses 171 -
Tax adjustment in respect of prior year (42) -
Tax effect of share-based payment expenses - (5)
789 514
5 Dividends
Group Group Group
Year ended Year ended Year ended
31 December 31 December 31 December
2006 2005 2006
#000 #000 #000
Interim dividends paid 350 345 350
China Shoto plc declared a dividend of 1.5p per ordinary share amounting to
#350,000 on 3 November 2006 to its shareholders at that date. No dividends were
paid or declared by the Company in the year ended 31 December 2005.
The directors recommend the payment of a final dividend of 3 pence per share for
2006 (2005: nil). This dividend has not been accrued in these financial
statements.
A subsidiary undertaking, Hong Kong Wealth Source Development 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.
6 Earnings per share
Earnings for the purpose of basic and diluted earnings per share are the net
profit for the financial year attributable to equity holders of the parent of
#4,003,000 (2005: #3,111,000).
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
31 December 31 December
2006 2005
Number of ordinary shares
Weighted average number of ordinary shares - basic 21,880,671 15,713,395
Dilutive effect of share options 441,050 48,600
Weighted average number of ordinary shares - 22,321,721 15,761,995
diluted
7 Acquisition of subsidiaries
Acquisition of Beijing Full Three Dimension Engineering Co. Ltd ('FTD')
FTD became an associated undertaking of the Group on 23 June 2005. On 6 January
2006, the Group increased its interest in FTD from 30% to 51%. Accordingly it
has been treated as a subsidiary undertaking from that date. In calculating the
goodwill arising on acquisition the fair value of the net assets of FTD have
been assessed and adjusted from book values where necessary. The principal
adjustments reflect the Group's assessment of the fair values of construction
contracts. No profits were generated by FTD in the 6 day period from 1 January
2006 to 6 January 2006. In the financial year ended 31 December 2006, FTD
contributed #259,000 to consolidated profit after tax and minority interests.
The fair value of the net assets acquired and the goodwill arising are as
follows:
Recognised on acquisition Recognised on acquisition
6 January 2006 23 June 2005
#000 #000
Non-current assets 101 112
Current assets:
Trade and other receivables 7,674 11,316
Cash and cash equivalents 1,168 1,946
Total assets 8,943 13,374
Current liabilities (7,704) (12,474)
Net identifiable assets 1,239 900
Share of net assets on acquisition date 632 270
6 January 23 June
2006 2006
Cost of investment on acquisition 30% interest in FTD - 425
Cost of investment on acquisition 21% interest in FTD 260 -
Cost of net assets on acquisition 30% interest in FTD - (270)
Cost of net assets on acquisition 21% interest in FTD (260) -
Goodwill arising - 155
The total goodwill arising on the acquisition was
#137,000.
Cash inflow on acquisition
#000
Cash paid (260)
Net cash acquired with the subsidiary 1,168
Net cash inflow on acquisition 908
Acquisition of Yangzhou Zhenghe Power Co. Ltd ("YZP")
On 31 March 2006, the Group acquired 59% of YZP. It has been treated as a
subsidiary undertaking from that date. In calculating the goodwill arising on
acquisition the fair value of the net assets of YZP have been assessed and
adjusted from book value where necessary. In the nine months to 31 December
2006, YZP contributed #7,000 to consolidated profit after tax and minority
interests. Included within other operating income is #277,000, which represents,
the excess of the Group's interest in the net fair value of YZP's identifiable
assets, liabilities and contingent liabilities over cost, arising on this
acquisition. In accordance with IFRS 3 this has been recognised immediately in
the consolidated income statement, within other operating income. The fair
value of the net assets acquired are as follows:
31 March
2006
#000
Non-current assets 880
Current assets
Inventories 182
Total assets 1,062
Current liabilities (182)
Net identifiable assets 880
Share of net assets on acquisition date 519
31 March
2006
#000
Cost of investment on acquisition 242
Share of net asset on acquisition date (519)
Excess of net assets over costs (277)
Cash inflow on acquisition
#000
Cash paid (242)
Net cash acquired with the subsidiary -
Net cash inflow on acquisition (242)
8 Share capital
31 December 31 December
2006 2005
#000 #000
Authorised
100,000,000 Ordinary shares of 10p each 10,000 10,000
Allotted, called up and fully paid:
23,343,770 (2005: 20,000,020) Ordinary shares of 10p each 2,334 2,000
Number #000
Issued on incorporation - 2 #1 ordinary shares 2 -
Sub-division into 10 ordinary shares 18 -
Issue of 10p ordinary shares on reverse acquisition of Leadstar 15,384,615 1,538
Enterprises Ltd on 30 November 2005
Issue of 10p ordinary shares on placing on 6 December 2005 4,615,385 462
At 31 December 2005 20,000,020 2,000
Exercise of 10p share options on 3 April 2006 100,000 10
Exercise of 10p share options on 5 May 2006 100,000 10
Issue of 10p ordinary shares on placing on 12 June 2006 3,143,750 314
At 31 December 2006 23,343,770 2,334
The Company was incorporated on 10 May 2005 with authorised share capital of
#1,000 divided into 1,000 ordinary shares of #1 each. On incorporation, 2
ordinary shares of #1 each were issued for cash at #1 per share.
On 30 November 2005 the authorised share capital was sub-divided into 10,000
ordinary shares of 10p each, and the authorised share capital was increased to
#10,000,000 by the creation of a further 99,990,000 ordinary shares of 10p each,
and 15,384,615 shares were issued in consideration for the entire issued share
capital of Leadstar Enterprises Limited.
On 5 December 2005, 4,615,385 ordinary shares of 10p were issued in connection
with the placing.
On 3 April and 5 May 2006, 200,000 ordinary shares of 10p were issued in
respect of the exercise of share options granted to the Company's advisers at
the time of the flotation.
On 12 June 2006, 3,143,750 ordinary shares of 10p were issued in connection with
the placing.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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