19th Apr 2006 07:01
China Shoto plc19 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 batteriesand power supply systems, announces its unaudited Preliminary Results for theyear 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 Chairmansaid "The Directors are pleased with the excellent progress achieved by ChinaShoto. We believe that, building on the strong foundations that have beenestablished, the Company is well positioned to achieve further substantialgrowth. We look forward to the future with confidence and enthusiasm." - 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 Chairman's Statement Flotation 2005 has been a successful year for China Shoto. The Group raised £6.0 millionbefore expenses and its shares were admitted to trading on AIM on 6 December2005. The Group has used some of the funds raised to build a new batterymanufacturing plant which will significantly expand the production capacity ofpower type Valve Regulated Lead Acid ("VRLA") batteries. Results and Dividend The annual results are ahead of expectations. Turnover for the year increased by52% 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 positionin the industry. Operating results are ahead of previous years, as a result ofhigh sales and of continuing efficiencies with regard to cost controls. Salesto China Mobile, the largest telecom service provider in China, and to ZTECorporation ("ZTE"), one of the largest telecom equipment manufacturers inChina, increased by 142% and 234% respectively over the last 12 months. Grossprofit margin increased by over 4%. The production of power type VRLA batteries used in electric bicycles isregarded as a key business for the Company in the future. Pursuant to theflotation, £3.2 million of the funds raised are being used to establish a powertype VRLA battery facility within a newly built 28,000 sq. metre plant. With thenew facility the Company's production capacity will be more than doubled. Theuse of the electric bicycle in China is showing rapid expansion, and this marketis set to be a key growth and profit opportunity for the Group. In addition, theoverall increase in the Company's production capacity will enable it to meetincreased 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 BeijingFull 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 providerbased in Beijing, specialising in the reconstruction of ageing turbines and thedevelopment of new turbines. For the year ending 31 December 2005, FTD'sturnover and net profit were £11.5 million and £0.6 million respectively. TheBoard believes that with FTD as a subsidiary, the Company has a wider range ofcost- effective and environmentally friendly solutions for efficient energygeneration. Global telecommunication expansion offers considerable opportunities to theCompany. China Shoto is confident of the strength of its products which havealready successfully challenged foreign suppliers in the Chinese domesticmarket. Furthermore, the Group continues to establish an internationaldistribution network. Social Responsibilities The Company is committed to operating to the highest ethical standards. We arededicated to offering our customers quality products and excellent services.China Shoto will continue to strive towards best practice standards consistentwith profitability, and at the same time will seek to deliver attractiveshareholder returns. The Company offers employees career developmentopportunities and is supportive of their family life and goals outside work. Environmental Standards China Shoto was the first Chinese company in the industry to receivecertification to ISO14001, the international standard of Environment ManagementSystems. In November 2005 the Company was certified to GB/T28001 for vocation,health and safety management systems. In December 2005, the Company was awardedthe title of "Environment Friendly Enterprise" by the Jiangsu environmentprotection 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 positioningChina Shoto as an environmentally friendly energy solution provider, we are wellplaced to take advantage of the opportunities of strongly growing markets. We believe that our expanded and improved range of products and sharplyincreasing output underpin the prospects for a successful 2006, and that theCompany will continue to deliver impressive results and create significant longterm value for shareholders. It is the Board's intention to initiate payment ofdividends, commencing with an interim and final dividend for the year ending 31December 2006. The aggregate dividend payable for the year 2006 is expected tobe 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 lookforward 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 weraised £6.0 million (before expenses) to enable China Shoto to undertake asignificant 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 theGroup. Sales of batteries to domestic telecom service providers and systemequipment manufacturers made up 68% of total sales. Sales to China Mobile andChina Netcom increased by 142% and 117% respectively. Sales to ZTE, a systemsequipment manufacturer, continued to grow substantially by 234%. The Group continues to supply start-up batteries to the locomotive industry, andback-up batteries for both the power plant and broadcasting markets. In 2005,the Chinese domestic highway system started to use gel batteries which are usedfor backup battery power in highway speed detecting equipment. For example,China Shoto now provides 60% of gel batteries being used in a pilot project inHenan 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 andflooded batteries; AGM batteries are also exported. AGM Batteries The 12V front-access battery which is used in the telecommunications and powerindustries is exported to Russia and Italy. Gel and flooded batteries 80% of the total exports of gel and flooded batteries are distributed to theEuropean, American and Russian markets. These products are largely distributedthrough agents. 60% of the total sales of flooded batteries are to Europe and tothe USA. The Company has set up an office in Malaysia which is responsible forsales and distribution to South-East Asia and as a result China Shoto's gelbattery is now being tested by a key Malaysian telecom service provider. TheCompany has established a sales and distribution network in Thailand andIndonesia. Key Customers AGM batteries China Shoto won two major national tenders issued by China Mobile to provideback-up batteries. In addition to this achievement the Company also won an 80%share in China Unicom's 'Headquarters' project which aims to extend telecomcoverage to every village in four provinces in China. Furthermore, China Shotowas also a key supplier of 2V and 12V AGM batteries for ZTE, and accounts forover 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 theircentral exchange stations and in China Telecom's localised mobile telephonenetwork, marketed as the "Personal Handphone System". The Company is also themain supplier of gel batteries to ZTE. Sales and marketing Sales network China Unicom, China Mobile, China Telecom and China Netcom are moving towardscentralising nationally their procurement procedures. Accordingly, China Shotohas formed four dedicated customer account teams to service these customers. Inaddition, China Shoto has 30 national sales offices which work in conjunctionwith 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 thelarge scale production and sale of power-type batteries. This included settingup 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 Chinathrough attending industry seminars and by providing technical training to ourcustomers. In June 2005, the Group was invited to attend the "3rd China TelecomPower Supply Seminar" held by the Ministry of Information Industry, whichprovided 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 turnoverand gross profit. Manufacturing The acceptance rate on the first testing of products reached 99.5%, achievedthrough controlled monitoring of the manufacturing process and detailed checksand procedures at the end of the manufacturing cycle. Production capacity hasalso increased through the use of new equipment and the recruitment ofadditional labour. Technical advances 2005 saw the addition of five new battery designs to the product range. Changesto the manufacturing process for these batteries are expected to create areduction in production costs of around 10%. Logistics management The Group continues to implement measures to reduce transportation costs, forexample, by introducing competitive tendering and reducing single journeytransportation. 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 andcomponents of eleven types of gel batteries and eight types of floodedbatteries. Exports Rising international demand in the UPS market provides the opportunity for ChinaShoto to increase the export of 12V and 6V flooded batteries. Quality Control China Shoto manufactures batteries according to German DIN standards and has thehighest quality control using advanced manufacturing equipment and productionprocedures. 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 forefrontof technological innovation. The Company holds over 80 patents, 18 of which weregranted during the course of 2005. These patents cover the Group's existingtechnologies and research projects in such fields as supercapacitors, lithiumion batteries and direct methanol fuel cells. In addition a 2V/2.5Ah spiral wound battery has also been successfullydeveloped. This project passed our stringent appraisal system for efficientmanufacture in December 2005. We have now started pilot production. Thesebatteries are used in, inter alia, medical instruments, sports equipment andtraffic management applications. China Shoto successfully designed several new models extending the power typeVRLA 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, afterincreasing 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 havebeen delivered of which two are installed and in operation. In 2005 orders weretaken for the refurbishment of two turbines; one has already been refurbishedand 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 ofquality management systems, in 2005. Prospects China Shoto has established a strong reputation as a provider of high qualityproducts and services in its markets. The Group has clearly demonstrated itsability to grow in the domestic market and is now developing its strategy foroverseas 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: £1.51million). * These figures are stated before share based payment expenses of £145,000pursuant to IFRS 2. Taxation China Shoto's subsidiaries were subject to different tax treatments in 2005based 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 hasbeen entitled to exemptions from PRC income tax for the first two years (2005 to2006) and it is entitled to a 50% relief from PRC income tax for another threeyears thereafter (2007 to 2009). Longyuan Shuangdeng Power Supply Located in an area designated as an Economic Development Coastal Region inaccordance with PRC tax regulations, the Company is entitled to an applicabletax rate of 24%. Meanwhile as a industry enterprise with foreign investment itis 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 inaccordance with PRC tax regulations and is entitled to an applicable tax rate of24%; meanwhile as a industry enterprise with foreign investment enterprises itwas 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 investmententerprise and a industry enterprise located in a development zone in accordancewith the PRC income tax legislation; therefore it is entitled to exemptions fromPRC income tax for the two years commencing from their first profit-making yearof 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 recommendthe payment of a final dividend for 2005. Acquisition The Group purchased a 30% stake in FTD during the year at cost of £425,000. InJanuary 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 netprofit was £0.6 million. Equity shareholders' funds Shareholders' funds have increased to £16.1 million (2004: £7.5 million). Theretained earnings were £3.8 million (2004: £1.7 million). Cash Flow The Group has achieved significant improvement in its cash flow from operatingactivities from negative £833,000 in 2004 to positive £3,185,000 in 2005. Debtmanagement improved significantly in 2005. Effective control over rawmaterials, production in progress and finished products improved inventoryturnover 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 124days for the same period of 2004. Borrowing The Group entered into credit agreements with Bank of China, China ConstructionBank, 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 inChinese Renminbi ("RMB") and export sales are currently relatively small. Indeveloping an international market, the Group will need to take account of thenegative effect of any appreciation of the RMB. Interest rate risks The interest rate risk is the fluctuation of interest rates both at the presenttime and in the future. The interest rates payable under the Group's bankfacilities are generally variable with the fluctuation of the Central Bank'sbase interest rate. Changes in this rate have been modest. For certain bankborrowing arrangements, the interest rate is fixed. Zhou Yuezhang Finance Director 18 April 2006 Consolidated unaudited income statementFor the year ended 31 December 2005 Year ended Year ended Note 31 December 31 December 2005 2004 £000 £000Revenue 28,413 18,688Cost of sales (18,161) (12,750) Gross profit 10,252 5,938Other operating income 689 569Selling 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 2,320Finance income 72 45Finance costs (864) (590) Profit before tax 3,625 1,775Tax (514) (269) Net profit for the year attributable to 3,111 1,506equity 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 sheetAs at 31 December 2005 31 December 31 December 2005 2004 £000 £000AssetsNon-current assetsProperty, plant and equipment 8,559 7,811Investment in associates 512 -Land use right 1,393 1,208Other intangible assets 17 18Deferred tax assets 36 20 10,517 9,057 Current assetsInventories 3,547 4,164Trade receivables 11,953 7,213Other receivables and prepayments 3,480 2,976Due from related parties 1,963 1,623Short-term investments 2,350 31Cash and cash equivalents 8,300 3,845 31,593 19,852 Total assets 42,110 28,909 LiabilitiesCurrent liabilitiesBank borrowings 12,083 9,950Trade payables 3,919 3,061Notes payable 4,126 2,960Other payables and accruals 5,058 4,741Due to related parties 765 669Income tax payable 97 73 26,048 21,454 Total liabilities 26,048 21,454 Capital and reservesShare capital 2,000 -Share premium 3,875 -Other reserves 2,916 4,454Statutory reserves 4,024 3,206Retained earnings 3,837 1,744Foreign 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 equityFor 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 £000Balance as at 31 December 2003 - - 4,454 2,622 2,947 (1,394) 8,629Net profit for the financial - 1,506 - 1,506year - - -Transfer to statutory reserves - - - 584 (584) - -Dividends paid to externalshareholders - - - - (2,125) - (2,125)Foreign currency translation - - - - - (555) (555) Balance as at 31 December 2004 - - 4,454 3,206 1,744 (1,949) 7,455Issue of ordinary shares to thevendors of Leadstar EnterprisesLimited 1,538 - (1,538) - - - -Issue of ordinary shares on 462 5,538 - - - - 6,000placingShare issue costs - (1,663) - - - - (1,663)Net profit for the financialyear - - - - 3,111 - 3,111Transfer to statutory reserves - - - 818 (818) - -Share based payment expense - Employee share options - - - - 27 - 27 - Expenses of flotation - - - - 118 - 118Dividends paid to externalshareholders - - - - (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 statementFor the year ended 31 December 2005 Year ended Year ended 31 December 31 December Notes 2005 2004 £000 £000Net cash from operating activities a 3,185 (833) Cash flows from investing activitiesPurchase 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 133and equipmentProceeds from disposal of short-term 21 1,451investment Cash flows used in investing activities (3,661) (1,683) Cash flows from financing activitiesNet cash inflow from share placing 4,337 -Repayment of long-term bank borrowings - -Increase in short-term bank borrowings 674 6,401Interest paid (864) (587)Dividends paid to external shareholders - (2,125) Cash flows from financing activities 4,147 3,689 Net increase in cash andcash equivalents 3,671 1,173Cash and cash equivalents at beginning of year 3,845 2,923Foreign 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 £000Profit before tax 3,625 1,775Adjustments for:Amortisation of trade mark 1 1Amortisation of land use right 28 24Allowance for doubtful trade debts 27 (182)Allowance for doubtful non-trade debts 27 (32)Depreciation of property, plant and equipment 855 709Losses on disposal of property, plant and equipment 20 18Gain 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 2,857Working capital changes:(Increase)/decrease in:Inventories 1,134 (2,056)Trade receivables (3,615) 2,897Other receivables, deposits and prepayments (237) 810Due from related parties (102) 1,148Increase/(decrease) in:Trade payables 397 1,433Other payable and accruals (130) (2,067)Notes payables 698 130Due to related parties - (5,678) Cash generated from/(used in) operations 3,609 (526)Interest received 72 30Income 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 ChinaShoto plc entered into a share exchange agreement. China Shoto plc issued15,384,615 10p ordinary shares at 130p each to the shareholders of LeadstarEnterprises Limited in exchange for the entire share capital of LeadstarEnterprises Limited. (c) Dividend Hong Kong Wealth Source Development Co. Ltd declared a dividend of £34.50 perordinary share amounting to £345,000 on 30 June 2005 to its shareholders at thatdate. 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 theGroup's financial statements for the year ended 31 December 2005 and the yearended 31 December 2004. The Company was incorporated on 10 May 2005 and has notpreviously submitted annual financial statements. The financial information setout in this announcement has been prepared on the basis of the accountingpolicies to be adopted in the Group's first annual financial statements. TheGroup's annual financial statements will be delivered to the Registrar ofCompanies following the company's annual general meeting. The consolidated financial statements include the financial statements of ChinaShoto plc and all of its subsidiary undertakings as at 31 December 2005 usingthe acquisition method of accounting. The acquisition of Leadstar EnterprisesLimited by China Shoto plc on 30 November 2005 has been accounted for as areverse acquisition, in accordance with IFRS 3 'Business Combinations', on thebasis that the management, who are the former majority shareholders of LeadstarEnterprises Limited, retained effective control of the Group. The fair value ofthe assets of China Shoto plc at the date of the business combination wereequivalent to the fair value of the company and the fair value of the notionalnumber of equity instruments which would have been issued by LeadstarEnterprises Limited to acquire China Shoto plc, and therefore no goodwill arisesin respect of this business combination. The comparative financial statementsand the results up to the date of the business combination represent those ofthe Leadstar Enterprises Limited group. 2 Earnings per share Earnings for the purpose of basic and diluted earnings per share are the netprofit for the financial year of £3,111,000 (2004: £1,506,000). The weighted average number of ordinary shares used in the calculation ofearnings per share has been derived as follows: Group Group Year ended Year endedWeighted average number of ordinary shares - basic 31 December 31 December 2005 2004 Number Number15,384,615 10p ordinary shares issued to the vendors of 15,384,615 15,384,615Leadstar Enterprises Limited2 £1 ordinary shares issued on incorporation, and 13 -subsequently split into 20 10p ordinary shares4,615,385 10p ordinary shares issued on placing 328,767 - 15,713,395 15,384,615 Weighted average number of ordinary shares -dilutedWeighted average number of ordinary shares - basic 15,713,395 15,384,615Dilutive 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 ExchangeRelated Shares:
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