6th Dec 2005 08:00
China Shoto plc06 December 2005 Press Release 6 December 2005 China Shoto plc ("China Shoto" or "the Group") First day of dealings China Shoto plc, a leading Chinese producer of industrial batteries and powersupply systems, today announces the commencement of dealings of its OrdinaryShares on the AIM market (AIM) of the London Stock Exchange. Seymour Pierce isacting as Nominated Adviser and as Broker to China Shoto. The stock market EPICis CHNS.L Admission StatisticsIssue Price 130pNumber of Placing Shares being issued 4,615,385Proportion of the enlarged issued Share Capital being issued under the Placing 23 %Number of Ordinary Shares in issue at Admission 20,000,000Gross proceeds of the Placing £6 millionMarket capitalisation of the Ordinary Shares on Admission at the Issue Price £26 millionEstimated net proceeds of the Placing to be received by the Company £5 million Placing and Use of Proceeds The net proceeds of the Placing will be used by the Group to construct a newPower VRLA battery plant; to increase its holding in FTD to 51 per cent. and toprovide working capital. The Directors believe that the Company has reached thestage where the admission of its shares to trading on AIM will significantlyassist it in achieving its objective of growing revenue and profitability bothin China and abroad. Cao Guifa, Executive Chairman of China Shoto plc, said: "We are delighted thatthe AIM flotation of the Group has been completed successfully. The timing ofour AIM Admission makes both strategic and commercial sense for the Group as itwill allow us to increase our penetration of our domestic market and for us toexpand sales overseas. We now look forward to working with our newinstitutional shareholders and taking the Group to the next stage of itsdevelopment." - Ends - For further information:China Shoto plcCao Guifa, Executive Chairman Tel: +44 (0) 20 7398 7700 www.chinashoto.com Seymour Pierce LimitedStuart Lane / John Depasquale Tel: +44 (0) 20 7107 [email protected] www.seymourpierce.com Media enquiries:AbchurchHenry Harrison-Topham / Katherine Murphy Tel: +44 (0) 20 7398 [email protected] www.abchurch-group.com Information on the Group Introduction China Shoto is one of China's leading companies engaged in the design,development, manufacture and sale of industrial batteries and power supplysystems. China Shoto operates from extensive modern facilities in Jiangyan Citywhich is in Jiangsu Province, some 220 kilometres from both Shanghai andNanjing, and has a large research and development facility in Nanjing. TheGroup also has a significant interest in FTD, a leading turbine design andrefurbishment service provider in China. Significant investment in new factories and equipment has been made over thelast three years and the Group has a comprehensive distribution and servicenetwork covering the whole of mainland China. The Group's products are widelyused in telecommunications, electrical power, the UPS market, electricalbicycles, railway locomotives and passenger trains and other markets. ChinaShoto is a leading supplier of VRLA batteries to major Chinese companies such asChina Telecom, China Mobile, China Unicom, China Netcom and China Tietong.China Shoto intends to target those domestic markets which have significantgrowth potential, such as the telecommunications market where it is the leadingsupplier, and use its competitive position to exploit opportunities outsideChina. China Shoto has begun to develop its overseas sales through an agent inRussia and directly to North America, Europe, Australia and Asia. The Group's Products China Shoto is principally involved in the production of rechargeable lead acidbatteries which are sold as individual units or as battery systems for a widerange of industrial applications. It also supplies related products such aschargers, power equipment and battery accessories. The Group owns all theintellectual property in respect of the products designed, manufactured and soldby the Group. Services include systems design, configuration and integration,and the development of related computer control programmes. Rechargeable lead acid batteries represent the most mature technology, have thewidest industrial application and have well understood manufacturing processes.Nevertheless, there is scope to improve production processes and the performanceof batteries through innovation in, for example, the design of electrolytes andelectrodes and the shape of certain components. Batteries can be designed and manufactured with different characteristics fordifferent applications. Rechargeable lead acid batteries can be utilised inthree main categories of application: • reserve power batteries, for example for telecommunications and computer back up systems; • starter batteries, for example for rail locomotives; and • power batteries, for example for electric bicycles and tools. Reserve power batteries are used for back up power applications to ensurecontinuous power supply in case of main power failure or outage. Furtherexamples of where reserve power batteries are used to provide back-up powerinclude switchgear and control systems used in electricity transmission,hospitals, process control, air traffic control, security systems, utility,railway and military applications. Reserve power batteries also serve asuninterruptible power supplies in computer installations for banks, airlines andback-up servers for wireless networks. Other telecommunications applicationsinclude central and local switching systems, satellite stations, optical fibrerepeating boxes, cable TV transmission boxes and radio transmission stations. There are two primary lead acid battery technologies: valve-regulated (VRLA, orsealed) and Flooded (vented). Two types of VRLA technologies exist, Gel andAGM. VRLA batteries have replaced other types of reserve power batteries becausethey enhance safety, are more environmentally acceptable, need less maintenanceand can be used in both vertical and horizontal positions. The construction of VRLA batteries is designed to prevent electrolyte lossthrough evaporation or spillage and this in turn prolongs the life of thebattery and reduces maintenance. VRLA batteries have high energy transferringefficiency, fast charging acceptability and low self discharge and areconsidered to be safer, more reliable and environmentally friendly. • VRLA: AGM - uses an electrolyte immobilized in an absorbent glass mat (AGM) separator. AGM batteries require low maintenance, are sealed against fumes, hydrogen, leakage, and are non-spilling even if they are broken. Charging voltages are standard for most AGM batteries so there is no need for special charging adjustments or problems with incompatible chargers or charge controls. Since the internal resistance is extremely low, there is almost no heating of the battery even under heavy charge and discharge currents. AGM batteries have a very low self-discharge rate so they can remain in storage for much longer periods without requiring charging. The plates are tightly packed and rigidly mounted, and therefore will withstand shock and vibration. • VRLA: Gel - uses a gel electrolyte. The gel product range offers a wide range of capabilities such as heat resistance, deep discharge resistance, long shelf life and high cyclic performance. Gel batteries offer more stability of capacity over the battery life than AGM, and a longer service life. However, the gel electrolyte costs more than the glass mat separators, and the manufacturing process is more sophisticated. Gel batteries are particularly appropriate, for example, for critical office based computer control rooms and railway signalling systems. • Flooded (vented) - used in applications requiring high reliability but with the ability to allow for regular maintenance. Liquid is stored in an unsealed container. Transparent containers and accessible internal construction are features of these batteries that allow end users to check the battery's physical condition. Due to cheaper production costs, there is still a place for the standard Flooded deep cycle battery. In many installations, where the batteries are set in an area where there is no concern about fumes or leakage, a flooded battery can be a more economic choice. AGM Batteries AGM batteries, which have a mature technology, are widely used throughout China.Their low maintenance, high reliability and low cost have led to them beingused as the principal back up power supply in many industries. The Group hasbeen providing AGM batteries since 1995 and the Group's AGM range now comprises28 products. The Group has recently developed the power type VRLA battery, a type of AGMbattery, of which China Shoto produces 6 different versions. The telecommunications market, which continues to grow strongly, is a key marketfor the Group. This market is served mainly by AGM 2v batteries and China Shotois the largest supplier to the domestic Chinese market. The VRLA batteries arealso sold to the electrical bicycle market. The Group has also developed a 12vbattery aimed principally at producing an uninterruptible power supply forcommercial applications such as finance, banking and security and also fortelecommunications sub stations. Gel Batteries Gel batteries are a newer technology, providing stable performance, highreliability and long service life. Gel batteries are commonly used in NorthAmerica and Europe but the Directors believe there is significant potential inChina where Gel batteries currently have a small share of the overall batterymarket. The Directors believe that Gel batteries will become more widely usedin China and that the Group is well positioned to exploit this market. TheGroup was the first manufacturer of Gel batteries in China and is currently theleading one of only three domestic manufacturers. It is the largest Chinesemanufacturer of a full range of 2v and 12v Gel batteries with 22 types ofproducts. The barriers to entry for the manufacture of Gel batteries are higherthan those for AGM batteries, reflecting the more complex technology andproduction process. The Directors consider that Gel batteries also offer significant marketopportunities outside China, where the Group can benefit from the quality andprice competitiveness of its products. The Group takes care to ensure that itsproducts match the quality of products produced outside China, meeting therelevant international product standards. Flooded Batteries Flooded batteries, although a mature technology, are still widely used atpresent and the Group has therefore maintained an updated and complete productrange comprising 23 products. The Directors believe that maintaining acomprehensive product range, encompassing both mature and newer technologies, isimportant in addressing the varied requirements of its customer base. The Group's Markets The Chinese economy has been growing strongly with an average growth rate overthe last 27 years of 9.4 per cent. Much of this growth has occurred andcontinues to occur in areas where the Group's products are widely used includingtransport, telecommunications, industrial processes, banking and finance andpower generation. The stationary and motive industrial battery markets are dominated by lead acidbatteries. The markets are well established, and whilst competitivetechnologies emerge in certain applications, the demand for lead acid batteriesin both these markets is expected to exhibit growth on a five year view.Industry data shows that the stationary and motive lead acid battery marketswere valued at US$1.6 billion and US$1.5 billion respectively in 2004. Almost85 per cent. of the motive market is accounted for by heavy duty equipment andtractors, where Flooded batteries are the most common type, and which are notsectors currently targeted by the Group. Global demand for batteries isincreasing in areas such as fixed and mobile telephony and data transmission,the internet, critical electrical operations where power supply cannot beinterrupted, and in transportation. The applications for uninterruptible powerare increasingly dependent on the stored electrical energy in batteries, withhigh market growth forecast for the battery market for the foreseeable future.China Shoto intends to benefit from this growth both domestically and abroad. In 2004, the SLA battery market generated globally approximately US$1.60 billionin revenue and this is forecast to rise to US$2.53 billion by 2010. The AsiaPacific region accounted for some 25 per cent. of global SLA revenue in 2004 andits contribution is forecast to increase by some 9.5 per cent. compoundedannually during this decade. Revenues arise from the supply of original equipment and from the after-marketwhere margins are usually higher. The replacement of batteries for existingcapital equipment such as network devices and telecom switches is expected toaccount for some one third of total SLA battery sales. Telecommunicationsaccount for approximately 50 per cent. of the global SLA battery revenues. Demand for consistent power for electronics has increased with the dependence onmicro-processor based applications world wide. Grid failures and downtime canlead to major commercial losses. Rechargeable lead acid batteries provideelectrical power to systems and networks during power outages, and have provento be the preferred choice for applications ranging from UPS, DC power systems,emergency lighting, security alarms and switch gears. For example, DC powersystems are the key back up energy devices used to power telecom networks, inwireline or wireless base stations, central offices and private branchexchanges. The drivers of demand for stationary batteries can be summarised as: • Growth rates in telecommuncations investment, including wireless, 3G and VOIP, with particularly high growth rates in the Asia Pacific region; • Increased load requirements throughout the telecommunications sector driven by additional services such as messaging and gaming; • Growth in data centres, driving demand for UPS systems; • Growth in demand for electricity generation and therefore utility back up power supplies; • Increased dependence on network automation and requirement for increased back up times for real time processing; and • Demand for energy storage systems for the growing renewable energy sector, in particular solar power. The global MLA battery market generated revenues of some US$1.42 billion in 2003and is forecast to grow at approximately 3.9 per cent. compounded annually overthe remainder of this decade. The Asia Pacific region accounted for some 17.3per cent. of the 2003 global revenues, and is expected to rise by 4.9 per cent,compounded annually during the period to 2010. Some 60 per cent. of MLArevenues are attributable to the supply of original equipment with the balanceattributable to the aftermarket, where margins are higher. This growth isexpected to reflect demand from the manufacturing sector coupled with demand forenvironmentally friendly equipment and vehicles. The Domestic Market Telecommunications This is a key market for the Group where it has already achieved highpenetration levels. On a global basis, the telecoms sector suffered a cyclicaldownturn following 2000. This downturn led to a curtailment in investmentspend, which in turn impacted industrial battery manufacturers supplying thesector world wide. In 2003, the market showed early signs of improvement whichhas gathered pace since. The demands of networking technology based on Internetprotocol and a proliferation of new services including gaming, multi mediamessaging and data streaming and the deployment of 3G are driving growth in themarket. In developing countries, particularly in China, the growth in wirelineand wireless networks is expected to be particularly strong, driven by overalleconomic growth and the government's plans to increase penetration of thepopulation. China has one of the largest and fastest growing telecommunications industriesin the world, with the highest number of fixed phone users. In addition, mobilephone usage is growing rapidly. From 2002-2004, mobile subscribers in Chinaincreased annually by over 60 million, an average annual increase of 30 percent. The Directors believe that the strong growth of the sector will give riseto increasing demand for VRLA batteries such as those manufactured and sold byChina Shoto. There has been a marked shift in the structure of the industry since 1996. Ascompared to a share of 11.1 per cent. in the total connections in 1996, wirelessnow accounts for more than half of the market share at 51.5 per cent. Thistrend is likely to continue into the future as wireless penetration is expectedto increase to 34 per cent. by 2010. In addition, the Directors believe thatthis growth will be supported by the development of the Chinesetelecommunications industry towards the deployment of 3G. The Group has approximately 20 per cent. market share of VRLA batteries suppliedto the telecommunications industry in China. (Source: "Battery World", ChinaIndustrial Association of Power Sources, Jan 2005) and the Group intends tomaintain its market position as the sector grows. Demand from the Group's fivelargest customers (China Telecom, China Unicom, China Mobile, China Netcom andChina Tietong) has increased consistantly since 2003. Electric Power AGM, Gel and Flooded batteries can all be used in the electric power market.Applications include power generators, power substations, and control andswitchgear equipment. Utilities are the major purchasers of back up powersystems, including batteries, which ensure that electrical power is continuouslyprovided to customers. The power industry in China is expected to register strong growth in theforeseeable future, driven by the continuing trend of rapid industrializationand ongoing capacity shortages. Under the "Tenth Five Year Plan" the electricalpower industry is expected to see high investment over the coming years. Thisis expected to encompass the expansion and upgrading of electricity transferringnetworks and a near doubling of network capacity by 2010. Flooded batteries aremost commonly used for industrial applications as they perform better at highertemperatures and are tolerant to abuse. Although usage of Gel batteries isexpected to increase in this sector, the Directors believe that the Floodedbatteries are likely to remain dominant over the next few years. The Group'sproducts are already widely used and accepted in the sector and the Directorsexpect an increased market share over the coming years. Locomotives and Vehicles The Group has the largest market share in this sector using its locomotive AGMMLA battery. The Directors believe that railway communications will provide anopportunity to grow revenue in this sector. UPS Back Up System The growth of UPS systems is determined by the growth in critical computing andnetwork equipment capacity. Demand for UPS systems in turn stimulates demandfor energy storage devices of which rechargeable lead acid batteries form amajor portion. The Group seeks to target those areas of the market wherereliability and service levels are important rather than those driven solely byprice. The UPS market represents an opportunity particularly for the Group'snewer Gel batteries. Solar Energy System Alternative sources of energy have been growing and finding an increased levelof acceptance in many applications. Many schemes utilising wind, tide and solarenergy receive government subsidies and are part of environmental programmesdesigned to address global concerns over climate change. Solar energy isgenerated using light from the sun. Photovoltaic cells are complemented bybatteries to provide electrical power, often to facilities that cannot accesspower grids. Rechargeable lead acid batteries are appropriate for thisapplication. Photovoltaic batteries are at present mainly used in Western China where aseries of solar system stations have been built under a government sponsoredproject. The Group is participating in this project and supplying AGM andFlooded batteries. The growth in demand for photovoltaic systems represents agrowth opportunity for the Group, which has a range of products already suppliedto the domestic market. Electric Bicycle Market Batteries for electric bicycles form part of the motive, rather than stationary,market segment and represent a new market opportunity for China Shoto. Themarket opportunity has arisen through China Shoto designing a batteryappropriate for what is perceived to be an exponentially growing demand cycle.The Directors consider this opportunity to be specific to the Chinese domesticmarket. The power battery 12 volt VRLA/AGM technology that Shoto has developedfor electric bicycles is appropriate for scooters, cars and electrical powertools. In China, the market for electrical vehicles is dominated by electric bicycleswhere annual production has increased from some 54,000 bicycles in 1998 to anestimated 6 million bicycles in 2005. This growth has created significantdemand for power type lead acid batteries with an estimated market value of some£1 billion within the next decade. The electric bicycle can run for 80kilometres after charging the battery for about 8 hours, normally overnight, atspeeds of up to 40 kilometres per hour. An electric bicycle costs between 1,000Yuan and 2,000 Yuan (£65-£130) and its battery service life is about one year.The battery set for a bicycle represents revenues of approximately £15 for thebattery supplier. The Directors believe the Group will be able to achieve significant revenuegrowth in this rapidly growing market. In addition to the new bicycle marketthere is very strong demand for replacement batteries given that bicyclebatteries typically last only one or two years. The Directors believe thatsuccess in this market will depend on sustaining profitability through largescale efficient production, brand recognition and strong service networks, allof which China Shoto has. International Markets The Group has historically focused on its domestic markets but believes it isnow in a position to exploit market opportunities outside China. The Group'sproducts are designed and manufactured to meet international standards. Thecosts of production are also materially lower than those achieved bymanufacturers in Europe, Australia and North America. The Group's product range is also capable of addressing the varying needs ofdifferent international markets. In North America and South East Asia, forexample, AGM batteries still dominate with Gel battery demand growing strongly.In Europe, Gel batteries are more widely used with an estimated market share ofsome 70 per cent. The Group has only recently started to put in place its plansto address overseas markets but in 2004 export sales already accounted for 2.6per cent. of total sales. This largely represented Gel battery sales in NorthAmerica, Europe, Russia and South East Asia. The Group is licensed to export tothe key international battery markets and the Directors intend to increase thelevel of export sales with the key driver expected to be its Gel batteries. Asin China, the telecommunications sector is being targeted for significantgrowth. Competition There are many battery manufacturers in China. The larger identified AGMmanufacturers that supply the telecoms industry and other industrial markets, inaddition to China Shoto, are Coslight, Narada and Huada. Coslight is a HongKong listed company, Narada is a subsidiary of a large private conglomerate, andHuada is a subsidiary of Enersys. The Directors believe that China Shoto hasthe largest share of the Chinese telecommunications market. The three majorglobal players are Exide Technologies, Enersys and C&D Technologies. All threeare quoted on US stock markets. In Asia, the market leader is GS Yuasa. Sales and Marketing In China the Group sells primarily through a direct sales team, using a networkof 30 offices covering mainland China. The sales team comprises sales staff(accounting for 2/3) and after-sales service staff (accounting for 1/3). TheGroup provides advice on client requirements, consulting services and bespokesystem design as well as installation and maintenance services. The Directorsconsider that direct relationships with its customers, coupled with an efficientafter sales service, are important for the continued growth of the Group. TheGroup also has a marketing team based in the head office which is responsiblefor general marketing, liaising with key domestic and international customersand product training. The Group attends relevant telecommunications exhibitionsand attended international exhibitions in Turkey and Malaysia (September 2005)and plans to attend the forthcoming international exhibition in Germany (March2006). For the overseas market, the Group has to date used head office staff and localagents where appropriate. The Group intends to grow its export markets usingboth local agents and direct sales and intends to recruit a new director orsenior executive with responsibility for international marketing. Production Facilities Production is undertaken in three factories on the Company's site in JiangyanCity. The overall site area is 437,000 square metres which contains officespace of 1,933 square metres, production and warehouse facilities of over 47,000square metres and associated accommodation facilities. Three suppliers havepremises on this land, and an electric cable manufacturer managed by China Shotois also based there. The Group currently operates six production lines with current productioncapacity of 800,000 battery units per year with a further six to be establishedin two new factories which are expected to be constructed and completed during2006 using part of the proceeds of the Placing. The site has adequate room forfurther factory facilities to be built. The Group's premises and equipment areof a high specification with modern equipment imported from Germany, UK and US. The factories operate seven days per week, closing only for national holidays.The Group pays close attention to employee training including health and safetyissues. Attention is also given to operating high quality standards, the Grouphaving achieved ISO9001 Quality Systems Accreditation and ISO14001 EnvironmentalSystem Accreditation. Quality standards are set and maintained by a dedicatedteam and the customer return rate was less than 0.1 per cent. in 2004. The manufacturing process is key to lead acid battery performance, requiringconsistency in manufacturing to maintain quality over time. The numerous stepsof the manufacturing process require human intervention despite the use ofmodern equipment therefore the skills and experience of the staff engaged inproduction are particularly important to maintaining a reputation for quality. The Group is periodically inspected for compliance with environmental issues.The Directors are not aware of any existing or pending environmental issueswhich may affect the Group. Suppliers The main raw materials used in the production of the Group's batteries are leadingots, separators and battery cases. Lead ingots are the major element,representing approximately 70 per cent. of material costs and around 60 percent. of the Group's cost of sales. Lead is sourced domestically. Industry datasuggests that China is one of the world's largest lead producers and also one ofits largest consumers. The Group purchases from seven of the largest domesticproducers. In common with all battery manufacturers, the Group is exposed to fluctuationsin raw material prices. A key feature over the last 18 months has been a 60 percent. rise in the price of lead. In 2005, the price increase has moderated andis below its peak, but nevertheless is expected to remain at high levels thisyear. The higher price of lead has to a large extent been passed on by theGroup in increased product prices. A central purchase team is responsible for all purchases, using tendering toensure competitive prices and quality. All materials are multi-sourced with noreliance on any one supplier and alternative suppliers are available. FTD FTD is a leading turbine design and refurbishment service provider. It is basedin Beijing and was incorporated in 1995, originally as a joint venture byBeijing High Tech Industry Development Centre and Hong Kong Zhonglian ElectricPower Finance Co Ltd. The following year several large Chinese turbinemanufacturers and universities all became shareholders. FTD's own research anddevelopment ability is complemented by its connection with the researchdepartment of the Institute of Engineering Thermaphysics, part of the ChineseAcademy of Sciences. The Group currently holds 30 per cent. of the issued sharecapital of FTD. Post Admission, China Shoto intends to subscribe for furthershares in FTD which will bring its total shareholding to approximately 51 percent. Historically, FTD has concentrated on the redesign and reconstruction of olderturbines to improve their efficiency and reduce their emissions and has to datereconstructed over 100 such turbines. The Directors believe that FTD hasapproximately 70 per cent. of the share of the turbine refurbishment market. FTDis also engaged in blade design. FTD has utilised its turbine expertise to develop its own 150MW turbine. Thiscompetes with 135MW turbines and is cheaper to install and operate. FTD has entered into an agreement with Shanghai Turbine Company to manufacturefive turbine units, one of which has already been delivered and is in operationwith two more expected to be in operation by the end of the year. FTD's Market Demand for electricity in China continues to rise and in the last five years hasincreased by an average of over 7 per cent. per annum. The Chinese Governmentis committed to increasing power generation capacity and reducing emissions.The Directors believe that the utilization of FTD's technology can make asubstantial contribution to the achievement of this objective, both byrefurbishing existing turbines to increase their efficiency and electricityoutput whilst cutting their emissions and coal consumption building new turbinesutilizing FTD's technology. FTD intends to generate revenues in both areas ofactivity. Research and Development China Shoto's research and development facilities are based in Nanjing,employing approximately fifty highly qualified scientists and otherprofessionals. The facility is responsible for the development of new productsand technologies as well as the continuous development of production processesto improve quality, cost effectiveness and the sustainable development of theGroup's core technologies. The Group has also developed strong relationshipswith leading Chinese universities, thereby supplementing the technologicalexpertise available to it and benefits from a level of government funding.Current research projects include super capacitors, lithium batteries and directmethanol fuel cells. Research carried out by FTD is carried on from its ownpremises in Beijing. Intellectual Property The Group prides itself on being at the forefront of technological innovation inits industry, both in respect of its products and its manufacturing processes.Accordingly, the Company takes particular care to ensure that its intellectualproperty is properly protected. The Group owns all intellectual property in respect of the products manufacturedand sold by the Group. 66 patents, registered in the PRC, are held by the Groupwith a further 60 patents in the process of application. Of the patents inplace 64 relate to batteries and two relate to FTD's turbines; of those inapplication 58 relate to batteries and two relate to FTD's turbines. The patentapplication process typically takes some 26 months for a new invention and some8 months for design patents. Staff The Group employs over 600 personnel, the majority whom are engaged inproduction, sales and research and development. Salary levels are adjusted toreflect the level of profitability achieved by the Group. The Group has notlost any key employees in recent years and attributes this primarily to thefollowing reasons: • China Shoto is a fast growing company providing opportunities for career progression; • with a strong corporate identity; and • providing competitive salaries and benefits linked to performance. In accordance with relevant state pensions laws, all employees are entitled tojoin a pension scheme. This scheme does not provide a guarantee in respect offuture pension benefits and the Group has no obligations in respect of anydeficits. The Group has historically over-provided for pension contributionsand the pension provision in the balance sheet as at 31 December 2004 was£345,000. The Directors do not expect any charge to the profit and loss accountin respect of pension provision for at least the next two years. Current Trading and Prospects Summary profit and loss 6 month period Year ended Year ended Year ended ended 31 December 31 December 31 December 30 June 2002 2003 2004 2005 £000 £000 £000 £000Revenue 15,859 16,415 18,688 11,760Cost of sales (8,226) (9,513) (12,750) (7,872)Gross profit 7,633 6,902 5,938 3,888Other operating income 271 530 569 517Selling and distribution expenses (4,239) (3,851) (3,003) (1,450)Administrative expenses (2,383) (2,131) (1,147) (738)Other operating expenses (69) (25) (37) (16)Profit from operations 1,213 1,425 2,320 2,201Finance income 531 40 45 28Finance costs (502) (305) (590) (393)Profit before income tax 1,242 1,160 1,775 1,836Income tax (89) (245) (269) (284)Net profit for the year 1,153 915 1,506 1,552 In late 2003, the Group was restructured under the current management to achievegreater operating efficiencies. In addition, significant investment has beenmade since 2003 in new factory premises and equipment. These changes assistedthe Group in achieving high sales growth over the period, particularlyreflecting: • high growth in the Chinese telecommunications market; • launch of the new Gel and Flooded batteries, • development of the AGM 12v to complement the existing AGM 2v telecoms range. The audited figures to 30 June 2005 show trends in production sales and thecosts of sales which continue to be reflected in the period from the end of thelast fianancial year to the date of this document. The current high lead priceis being reflected in higher product prices in the current financial year. TheDirectors believe that the investments and changes referred to above, coupledwith the introduction of new products, will enable the Group to benefit from itsstrength in the telecommunications market, the growing revenue from the sale ofGel batteries and rising export revenues. Directors The Company has a Board with strong operational and industrial expertisecomplemented by international experience. Executive Directors Cao Guifa (aged 51) Executive Chairman Cao Guifa became the chairman of the former holding company of China Shoto in2002 and he is a substantial shareholder of the Group through Wit InvestLimited. From 1979 to 1993 he served as a research fellow and then doctoralsupervisor in the Chinese Academy of Sciences ("CAS"), which is a leadingChinese academic institution and comprehensive research and development centrefor science and technology. Between 1988 and 1995 Mr. Guifa held severalpositions as a local consultant to the World Bank on development projects inChina. He has more than 10 years of investment banking experience gained at asubsidiary of CAS, where he was general manager. Yang Shanji (aged 52) Chief Executive Yang Shanji became the general manager of JS Power in 1995 before becoming thegeneral manager of the former holding company of China Shoto in 2002. He is asubstantial shareholder of the Group through Two Stars Invest Limited. He firstbecame involved in the rechargeable battery industry in 1990 and he has morethan 25 years of management experience in a number of manufacturing enterprises.He also has a masters degree in administration from the University ofCanberra. Zhou Yuezhang (aged 47) Finance Director From 1990 to 1995 Zhou Yuezhang was the factory deputy director of the JiangyanSealed Storage Battery Factory. Mr. Zhou is also one of the founders of theShuangdeng Group. He joined JS Power as deputy general manager in 1995 when itwas set up. He has been appointed as the deputy general manager of theShuangdeng Group since September 2003 when the Shuangdeng Group formally cameinto existence. He has nearly 15 years of management experience in storagebattery industry and holds a masters degree in administration from theUniversity of Canberra. Zhu Shiping (aged 64) Zhu Shiping is a graduate of Nhui University and has been a Senior Engineersince 1989. From 1963 to 1987, Mr. Zhu worked in the fourteenth researchinstitute of the Government's former Electronic Department. Having worked forShenzhen Huada Power Supply Co., Ltd. from 1987 to 1993 Mr. Zhu became the chiefengineer of the Jiangyan Sealed Storage Battery Factory. He has served asdeputy general manager of JS Power and Shuangdeng Group and as a director ofShuangdeng Group since September 2003. Wang Zhaobin (aged 42) Wang Zhaobin, is a graduate of Suzhou University. He served as civil servantfrom 1989 to 2003. In September 2003 Mr. Wang joined the Group and wasappointed as deputy general manager in March 2004. Non-Executive Directors Bernard Asher (aged 69) Bernard Asher, who resides in London, was an Executive Director of HSBC Holdingsfrom 1986 to 1998 and Chairman of HSBC Investment Bank. In 1998 Bernard becameNon-executive Vice Chairman of Legal & General Group, Chairman of Lonrho Africaplc, and a Non-executive director of Morgan Sindall plc, IMH (formerly SeymourPierce Group plc) and TIR Capital Protection Fund. Mr. Asher is the chairman ofLiontrust, a UK based equity investment fund. Li Shuang (aged 61) Li Shuang is a professor in the Central University of Finance and Economics.Professor Li was appointed as the deputy secretary-general of the ChineseInstitute of Certified Public Accountants ("CICPA") from 1999 to 2002, and thenan advisor to CICPA from 2002-2004. He is currently a director of theAccounting Society of China, and a director of the China Audit Society. As arepresentative of CICPA Professor Li was also a member of the EducationCommittee of the International Federation of Accountants, a member of theInstitute of Internal Auditors and a member of the American AccountingAssociation. He is also an independent non-executive director of threecompanies listed in China. David Thomas (aged 51) David Thomas, who resides in London, has a degree in Law from Oxford University.He is an English solicitor and has more than 20 years working experience inthe fields of international enterprise financing, law, and quoted companies.Between 1985 and 2000, he was a partner in several major law firms specialisingin corporate finance and finance law. Between 2000 and 2002 he was a Directorof Beeson Gregory Limited and company secretary of Beeson Gregory Group plc.Mr. Thomas is currently an independent non-executive director of three AIMpublic companies whose shares are traded on AIM and whose businesses are basedin China. Dividend Policy The Directors intend to pay a dividend in respect of the financial year ending31 December 2006 and intend thereafter to adapt a progressive dividend policycommensurate with its available distributable reserves whilst retainingsufficient profits for re-investment in the Group. - Ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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