Last checked at 28 Apr 2010 07:52
China Shoto plc
("China Shoto" or "the Group")
Final Results & Notice of AGM
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 2009.
Highlights
| • | Revenue up 16.1% to £ 212.57 million (2008: £183.08 million)
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| • | Pre-tax profit up 117.1% to £25.07 million (2008: £11.55 million)
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| • | Net profit up 131.4% to £ 23.30 million（excluding minority interests） (2008: £10.07 million)
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| • | Diluted earnings per share up 128% to 98.34p (2008: 43.14p)
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| • | Granted 11 patents, bringing the total number of patents held to 126 as at the period
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| • | Successful £1.82 million acquisition of battery recycling plant at January 2010
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| • | Full-year dividend of 5 pence per share recommended by the Board
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Notice of AGM
Notice is hereby given that the Annual General Meeting of China Shoto plc will be held at 8th Floor, 131 Finsbury Pavement, London EC2A 1NT at 10.00 a.m. on 22 June 2010.
A full version of the Annual Report and Accounts, including Notice of Annual General Meeting, is set out below and is also available for download from the Company's web site at www.chinashoto.com.
Yang Shanji, Chairman, commented:
"With the recovery of the global economy, we are confident the development of overseas markets, especially in developing countries, will create and drive new demand for products from Chinese equipment suppliers. In 2010, the Group will accelerate the development of its overseas distribution networks and strengthen its sales push into international markets to maintain its growth momentum whilst continuing to deliver value to our shareholders."
| For further information: |
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| China Shoto plc Yang Shanji, Executive Chairman | Tel: +44 (0) 20 7242 2666 / +86 159 6108 0515 www.chinashoto.com
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| Seymour Pierce Limited Stewart Dickson
| Tel: +44 (0) 20 7107 8000 www.seymourpierce.com
|
| Media enquiries: Allan Piper/ Jiang Lei lei@firstcitypr.com |
Tel: +44 (0) 20 7242 2666 / +852 2854 2666 www.firstcitypr.cn |
China Shoto plc To be A Green Energy Solution Provider
Company Number: 05448599
2009 Annual Report and Accounts
Contents
Directors, Secretary and Advisers
Highlights
Company Overview
Chairman's Statement
Finance Director's Report
Board of Directors
Directors' Report
Corporate Governance
Directors' Responsibility Statement
Remuneration Report
Independent Auditors' Report
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statements
Notes to the Financial Statements
Notice of Annual General Meeting
Form of Proxy
Directors, Secretary and Advisers
Directors
Yang Shanji (Executive Director)
Qian Shan'gao (Executive Director)
Zhou Yuezhang (Executive Director)
Zhou Ping (Executive Director)
Zhou Weigang (Executive Director)
Bernard Harry Asher (Non-Executive Director)
Peter Maurice Crystal (Non-Executive Director)
Li Shuang (Non-Executive Director)
Company Secretary
Peter Maurice Crystal
Registered Office
The Broadgate Tower,
20 Primrose Street,
London EC2A 2RS
Registered Number
05448599
Auditor
BDO LLP
2 City Place
Beehive Ring Road
Gatwick
West Sussex
RH6 0PA
Nominated Adviser and Broker
Seymour Pierce Limited
20 Old Bailey London EC4M 7EN
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Solicitors
Reed Smith LLP
The Broadgate Tower,
20 Primrose Street,
London EC2A 2RS
Company Overview
Business Introduction
China Shoto plc (the "Company") and its subsidiaries (referred to as the "Group") is mainly engaged in the production of back up batteries and power type batteries, the back up batteries used primarily by telecommunications operators, but also by customers in the power, railway, and power type batteries mainly used by electric bicycle manufacturer and retailing sectors. During the year ended 31 December, 2009, the Group remained the largest single supplier of batteries to China Unicom, China Mobile and China Telecom (China's three major telecom operators), and is the largest back up battery manufacturer in China.
Total revenue increased by 16.1% to £212.57 million in 2009 (2008: £183.08 million). Revenue from back up battery business in 2009 increased by 19.3% to £196.53 million (2008: £164.79 million).
Acquisition
In January 2010, the Group acquired a controlling equity interest in Rugao Tianpeng Metallurgy Co., Ltd ("Rugao Tianpeng") for a total consideration of £1.82 million. Rugao Tianpeng is mainly engaged in battery recycling business and is located in Rugao City, Jiangsu Province, China; within easy reach of the Group's production facilities in Jiangyan.
Strategic Objective
The Company has become the largest back up battery producer in China. As a China Environment Friendly Enterprise, the Company intends to become a green energy solution provider through enhancing R&D and progressive development of its existing and new green energy storage products.
Products
●AGM VRLA Battery ("AGM Battery")
●GEL VRLA Battery ("GEL Battery")
●Flooded Lead Acid Battery ("Flooded Battery")
●Power Type Battery（"PTB"）
Manufacturing
The Group's factories are conveniently located in Jiangyan, Jiangsu Province, two hours from Shanghai, giving convenient access to well-developed transportation networks.
The Group has 10 back up battery production lines and two power type battery production lines which are utilised according to market demand. The annual production capacity of the back up battery production lines is 3 million KVAH (1.0 KVAH is equivalent to one back up battery of 2V500AH). The annual production capacity of the power type battery production lines is 500,000 KVAH (0.12 KVAH is equivalent to one power type battery of 12V10AH).
Products are manufactured according to international and domestic industrial standards and comply with the network license requirements of major countries in Europe, America and South Asia. The Group has also met the international authentication standards of other countries such as Indonesia, Russia and Nigeria, and of the International Electrotechnical Commission.
Research and Development
The Company's R&D Centre is mainly responsible for developing new types of GEL and AGM Battery, 12V 13AH Spiral Wound Battery and Super Capacitor, and for updating the technical development of existing products in all of those categories.
Meanwhile, the Group's facilities have been inspected by the China Intellectual Property Bureau and approved as a National Class Intellectual Property Trial Unit, which will enhance market recognition of its independent research and innovation capability. It will also strongly support the Group's future application for status such as a High-New Technology Enterprise.
Sales and Market
Market sectors served include telecommunications, electric power, railways and electric bicycles sectors.
Key Customers
Back up battery business:
China's three major telecoms operators remain our primary customers for back up batteries. Other major clients in this sector include ZTE Corporation and Huawei Technologies.
Power type battery business:
During 2009, demand for power type batteries shifted away from the primary market (where customers includes e-bike manufacturers) to the secondary market (where the customers were e-bike accessory distributors, repair shops, and retailers). The Group achieved new breakthroughs in provinces of Jiangsu, Shandong, Henan, Hebei, and Anhui, among others.
Sales and Service Network
The Group now has eighty nine domestic sales offices and five overseas offices in Duesseldorf, Dubai, Moscow, Singapore and New Delhi.
Chairman's Statement
During 2009, with a slow-moving global economy, the Company focused on its existing objectives, to improve the quality of its products and services and reduce cost. Additionally, we have strengthened market exploration, increased operational effectiveness, continued integration processes and maintained cost control. The efforts of our staff and the loyalty of our customers have enabled us to achieve a pleasing set of results.
The dedication of the Company's senior management team has again been reflected in our strong performance and results. I would like to express my thanks to all of our customers and suppliers and commit to a continued effort to meet their needs and requirements.
The Company will continue to improve its social responsibility, recycling, energy-saving and emission-reduction programmes for the wider economic benefit of the community. The Company has acquired Rugao Tianpeng, augmenting the battery recycling qualifications required by the telecom operators. The Company remains fully committed to supporting environmental programs within China and elsewhere and to being a green energy provider.
In China, the Group remains the major supplier to nationwide units to the three biggest Chinese telecoms operators as well as to ZTE Corporation and Huawei Technologies. Overseas, the Group is continuing to implement its export strategy and is pleased to have signed framework agreements with Nokia Siemens Telecom and Emerson Network Energy Co., Ltd amongst others. A strong relationship with leading telecom operators worldwide should increase our brand recognition and enable the Company to be well-placed for the future in a changing market environment.
Results and Dividend
Revenue increased by 16.1% in 2009 to £ 212.57 million (2008: £183.08 million).
Operating profit increased by 85.9% to £26.34 million (2008: £14.17 million).
Net profit for the financial year attributable to equity holders of the parent increased by 131.4% to £23.30 million (2008: £10.07 million).
In our Interim Report published in September 2009, the Company undertook to carefully consider the distribution of a year-end dividend. I am delighted to announce that the Board recommends a full-year dividend of 5 pence per share. If approved by shareholders at the Annual General Meeting on 22 June 2010, the dividend will be paid on 30 June 2010 to shareholders on the register at the close of business on 18 June 2010, with the shares going ex-dividend on 16 June 2010. The Company continues to put shareholders interests among the key considerations in its continued strategic development.
Operating Overview
Market Overview
Business segments
Back up batteries
Sales revenue from the back up battery business in 2009 increased 19.3% to £196.53 million accounting for 92.5% of the Company revenue (2008: £164.79 million and 90%).
Power type batteries
Sales from the power type battery business in 2009 reached at £16.04 million, accounting for 7.5% of the Company's revenues (2008: £18.29 million and 10%).
Geographical segments
Domestic sales
Domestic sales in 2009 rose to £202.93 million and accounted for 95.5% of the Company's total revenues (2008: £153.37 million and 84%).
Foreign sales
Foreign sales in 2009 were £9.64 million, and accounted for 4.5% of the total (2008: £29.71 million and 16%).
Key customers
Back up batteries
The year of 2009 was the third consecutive year in which the Group was the largest single supplier to China's three largest telecom operators and to ZTE Corporation and Huawei Technology. Sales to these customers accounted for 87% of total back up battery revenues. In December 2009, the Group signed a framework agreement with Nokia Siemens Networks, and during the year also has entered into business relationships with other overseas companies such as Indus Tower, Emerson, and General Electric.
We are also pleased that our back up batteries will be used to provide power in many pavilions at the forthcoming Shanghai EXPO 2010 China. The use in China Mobile Pavilion, the Pacific United Nations Pavilion, and the International Organization United Pavilion, underscores the increasing brand recognition and popularity of our products.
Power type batteries
In 2009, the Company expanded and extended its distribution network for secondary market and bolstered its sales teams. Revenues from the secondary market of power type batteries accounted for 61.2% of the total power type battery revenue (2008: 31.1%).
The Group strengthened its communications with customers through continued improvements to its technical support and after-sale services.
In 2009, the Group strengthened its presence at key international telecom fairs, such as the Singapore Asia Telecom Fair, the Mobile World Congress 2009 (Spain), the Brazil International Telecommunications Exhibition, the Middle East (Abu Dhabi) International Communications Exhibition, the Moscow International Telecom Equipment Exhibition, the Switzerland ITU World Telecom Fair, the Beijing International Telecom Fair and the 7th International Lead Acid Battery Fair/Technical Communication held in China in 2009.
Research and Development
The R&D Centre is mainly responsible for developing products of new type GEL Batteries and new type AGM Batteries, Spiral Wound Batteries and Super Capacitors, and for updating the technical development of existing GEL Batteries, AGM Batteries, Power Type Batteries and Spiral Wound Batteries and Super Capacitors.
Patents Granted
During the reporting period, the Group was granted 11 patents, bringing the total number of patents awarded by the China Intellectual Property Bureau to 126 in total, including 13 invention patents.
Directorate Changes
On 15 September 2009, Mr Cao Guifa resigned from the Board as Chairman, to be replaced by Mr Yang Shanji. Mr Qian Shangao was appointed as executive director on 15 October 2009.
Social Responsibility
As a National Environmentally Friendly Enterprise, we remain committed to commercial development in parallel with the Company's wider social responsibilities. Whilst balancing the requirements of our shareholders, staff, customers, suppliers, and social and environmental demands, we are committed to pursuing value for the benefit of the whole community.
The Group has attained ISO14001 environment management system certification and GB/T18001 vocation health and safety management certification, and the Group's products have passed CE Verification, UL Verification and EU RoHS tests.
Outlook
China's major telecom operators invested heavily in 3G infrastructure construction during 2009 which fuelled a steady increase in demand for back up battery products. During 2010, they are expected to shift their investment priorities from infrastructure construction to product marketing and development. With less investment in domestic network construction, the total demand for back up battery products will reduce accordingly and this will bring new challenges as well as opportunities to the Group's business. However, with the recovery of the global economy, we are confident that the development of overseas markets, especially in developing countries, will create and drive new demand for products from Chinese equipment suppliers. In 2010, the Group will accelerate the development of its overseas distribution networks and strengthen its sales push into international markets to maintain its growth momentum whilst continuing to deliver value to our shareholders.
Finally I take this opportunity to express my appreciation to Mr Cao Guifa who contributed to the development of the Company while he was a Chairman of the Company. Also I would like to thank our Directors, management and staff for their dedication in achieving our established objectives, and all of our investors and customers for their continued support and trust in the Company.
Yang Shanji
Chairman
28 April 2010
Finance Director's Report
Results
The Board regards the following measures as key performance indicators:
Sales revenue increased by 16.1% to £ 212.57 million (2008: £183.08 million).
Operating profit increased by 85.9% to £ 26.34 million (2008: £14.17 million).
Pre-tax profit increased by 117.1% to £ 25.07 million (2008: £11.55 million).
Net profit attributable to equity holders of the parent increased by 131.4% to £23.30 million (2008: £10.07 million).
Diluted earnings per share from continuing operations in 2009 increased by 128% to 98.34p (2008: 43.14 p).
Income Tax
China Shoto plc
China Shoto plc is a non-resident company registered in England and Wales and only subject to UK corporation tax for any activities undertaken in the UK.
The latest taxation laws of the People's Republic of China, which came into effect on 1 January 2008, uniformly adjust the applicable income tax rate for both domestic capital and foreign capital enterprise to a rate of 25%. The Group and its significant subsidiary undertakings are subject to income tax at the following tax rates:
Jiangsu Shuangdeng Group Co., Ltd ("JSG Co")
As a foreign enterprise, JSG Co enjoys a preferential policy of a five-year transition period between new and old enterprise income tax laws. No tax was payable in 2009 and a half-relief tax rate of 12.5% will be applied from 2010 to 2012, the full applicable income tax rate will be 25% from 2013.
Jiangsu Fuste Power Supply Co., Ltd
From 2009 tax year, the full income tax rate of 25% has been applied.
Jiangsu Best Power Supply Co., Ltd
The applicable income tax rate is 12.5% for the tax years 2009 and 2010. From the January of 2011, its applicable income tax rate will be 25%.
Jiangsu Shuangdeng Power Supply Co., Ltd ("JS Power")
The Company enjoys tax transitional preference for the years 2009 to 2010. Its applicable income tax rate is 20% for these years.
Nanjing Shuangdeng Science and Technology Development Academy Co., Ltd
Since 2008 is the first profit-making year for the Academy, it is entitled to income tax exemption in 2008 and 2009 and a half relief of 12.5% tax rate will be imposed in 2010, 2011 and 2012. After the preferential period, the applicable income tax rate will be 25%.
Yangzhou Zhenghe Power Supply Co., Ltd
The Company is entitled to a half relief of 12.5% for the years 2009 to 2011. Its applicable income tax will be 25% from 2012.
Earnings and Dividends
Diluted earnings per share increased 128% to 98.34p (2008: 43.14p). The Board recommends a full year dividend for 2009 of 5 pence per share.
Shareholders' Equity
The share of equity of the Company attributable to shareholders of the parent increased by 37.5% to £72.22 million in 2009 (2008: £52.52 million). Retained earnings in the Company increased by 108.8% to £33.03 million (2008: £15.82 million).
Cash Flow
The Company focused on improving cash flow management, enabled the net cash flows from operating activities to be £27.02 million (2008: £38.57 million) against the background of the global economic crisis. Net cash flow for the year was equivalent to 115.2% of net profit.
Borrowing
In 2009 the Group entered into credit agreements with the Jiangyan branch of China Construction Bank, the Jiangyan branch of Agricultural Bank of China, the Jiangyan branch of Industrial and Commercial Bank of China, the Nanjing branch of China Minsheng Banking Corp. Ltd, the Jiangyan branch of Bank of China, the Jiangyan branch of Bank of Communications, and the Nanjing branch of China Merchants Bank. On 31 December 2009, the Company's short term bank borrowing stood at £28.3 million compared with £32.8 million as at 31 December 2008.
Cost management
The Group reduced manufacturing wastages through product technological innovation, enhanced cost estimates and control, and more precise cost audits and management.
Liquidity Risk
Liquidity risk arises from the Group's management of working capital. The Company has financed its operations primarily through a mix of short-term and long-term borrowings. The Liquidity risk was significantly reduced by increasing facilities from the banks.
Foreign Exchange Risk
Foreign sales in 2009 were £9.64 million, accounting for 4.5% of total revenue. These sales were all settled in US Dollars currency which showed only small fluctuations against the RMB currency during 2009.
The Company effectively reduced and controlled risks regarding export payment through the application of export credit insurance, letters of credit and advance payments, among other measures, alongside the application of effective financial instruments to reduce foreign exchange risks.
Interest Rate Risk
There is no significant interest rate risk for the Company and the main interest rate risk is the rate of return on short term cash deposit and bank borrowings.
Zhou Weigang
Finance Director
28 April 2010
Board of Directors
Yang Shanji, Executive Chairman
Yang Shanji has a Master's Degree in Administration and the title of Senior Economist. He is the main founder and the largest shareholder of the Company. He is Chairman of the Board and CEO of the Company. Mr. Yang is one of the pioneers in the China battery industry, and is the Vice Director of both the China Battery Industry Association and China Industrial Association of Power Sources. He has more than 29 years of senior enterprise management experience and has a strong reputation in the battery industry. Mr. Yang is regularly recognised for his work in the industry, receiving titles such as the National Model Labor in Light Industry and Top Ten Outstanding Men in the China Telecommunications Power Supply Industry on several occasions.
Qian Shangao, Executive Director
Mr. Qian Shangao has a Master's Degree. He is a senior engineer, the title of Senior Economist, and is one of the founders of JSG Co. He worked as a plant supervisor in Jiangsu Taixian Electric Cooking Utensils Factory from February 1975 to March 1990. And from 1990 to 1995, he was the Deputy Director of the Jiangyan Sealed Storage Battery Factory (Jiangyan factory). He joined JS Power as Deputy General Manager when it was set up in 1995. Since September 2003 he has been Vice President of JSG Co.
Zhou Yuezhang, Executive Director
Zhou Yuezhang holds a Master's Degree and he is one of the founders of the JSG Co. From 1990 to 1995, he was the deputy Director of the Jiangyan Factory. He joined as deputy general manager when it was set up in 1995. He has been the Vice President of JSG Co since September 2003. Mr. Zhou has 20 years management experience in the lead acid battery industry.
Zhou Ping, Executive Director
Zhou Ping holds a Master's Degree, the title of Senior Economist, and has been appointed as Chief Marketing Officer of the Company. He is an economist with 16 years' experience in the battery and industrial power supply sector, and works for the Group during this period. He is responsible for market planning and sales management for the Group.
Zhou Weigang, Executive Director
Zhou Weigang, holds a Master's Degree, the title of Senior Economist and is an accountant. He has been appointed as Chief Finance Officer of the Company. In 2009, he was awarded with the title of "Provincial Advance Chief Financial Officer" by the Finance Office of Jiangsu Province, China. He has 29 years experience in senior accounting and corporate finance for Chinese industrial companies. He has served the Group for 12 years, most recently as the Group's financial controller in accounts, financial management and risk control for 10 years. He was part of the team which assisted in the listing of the Company on the AIM market in December 2005.
Bernard Harry Asher, Non-Executive Director
Mr. Asher, who resides in London, was an Executive Director of HSBC Holdings from 1986 to 1998 and Chairman of HSBC Investment Bank. In 1998 Mr. Asher became Non-Executive Vice Chairman of the Legal & General Group, Chairman of Lonrho Africa, and a Non-Executive Director of Morgan Sindall, IMH (formerly Seymour Pierce Group plc) and TIR Capital Protection Fund. Mr. Asher is the Chairman of Liontrust, a UK based equity investment fund. Currently, Mr. Asher is a Director of Debts U.K. and Medicap.
Li Shuang, Non-Executive Director
Li Shuang is a Professor in the Central University of Finance and Economics. Professor Li acted as the Deputy Secretary-General of the Chinese Institute of Certified Public Accountants (CICPA) from 1999 to 2002, and then an advisor to CICPA from 2002-2004. Now he is the member of Accounting Society of China (ASC), and Director and member of CICPA and China Audit Society, a member of Academic Committee of Audit Society. He is also a Non-Executive Director of two companies listed in China and an Exterior Supervisor of a listed company.
Peter Maurice Crystal, Non-Executive Director
Mr. Crystal is a Non-Executive Director. He is a Solicitor and has over 30 years' experience advising Directors and Companies whose shares are listed on the London Stock Exchange and AIM. Founder of law firm Memery Crystal, he specializes in matters relating to listed companies and advising on flotations, takeovers, mergers and all corporate finance activities. He is a graduate of Oxford and McGill Universities, a former Law Society Examiner, Director of several companies and a speaker on corporate finance and corporate governance.
Directors' Report
The Directors are pleased to submit the annual report and financial statements for the year ended 31 December 2009.
Principal Activities
The principal activity of China Shoto plc is acting as a holding company. Its subsidiaries mainly devote themselves to the design, development, manufacture and sale of back up or power type batteries.
Business Review
The Company has performed satisfactorily during the year and the trading performance materially exceeded expectations at the beginning of the year.
The Income Statement of the Company shows revenue of £212.57 million for the year and profit attributable to equity holders of the parent of £23.30 million for the year.
Revenue has increased by 16.1%. Back up battery revenue was £196.53 million in 2009, which increased by 19.3% from £164.79 million in 2008. Further details of revenue by product segment are set out in note 26 to the accounts.
Given the similarity of the business and customers of JS Power and JSG Co, in order to improve the comprehensive power of the Company, the Group merged the assets and business into JSG Co in November 2009.
The Group successfully signed a share transfer agreement in January 2010 for a total consideration of £1.82 million for the entire share capital of Rugao Tianpeng.
Further details of the Group's operations, performance and key performance indicators are set out in the Chairman's Statement and the Finance Director's Report.
Principal Risks and Uncertainties
Turbulence in global financial markets and economies may adversely affect the battery industry, the demand for our products operating results, financial condition and liquidity.
Market Risks
With the reduction of infrastructure investment by the major Chinese telecom operators in 2010, the domestic telecom market may experience increased levels of competition. This may generate some pressure on pricing and cost. Specifically it may result in a decrease of the sales price of the Company's products which may in turn bring down sales margins.
Acquisition Risk
In January 2010, we acquired the company Rugao Tianpeng. However, the acquisition could expose us to potential risks, including risks associated with the management of new operations, technologies and personnel.
Foreign Exchange Rate Risk
The Company's exports markets are exposed to fluctuating foreign exchange rate which may influence the Company's sales and profitability overseas. Other forms of financial risk are discussed further in note 23 to the financial statements.
Dividend
The Board recommends a full year dividend of 5 pence per share. If approved by shareholders at the Annual General Meeting on 22 June 2010, the dividend will be paid on 30 June 2010 to shareholders on the register at the close of business on 18 June 2010, with the shares going ex-dividend on 16 June 2010.
Substantial Shareholders
The Company has not been notified of any beneficial interests, other than those of the Directors, in 3% or more of the issued share capital of the Company.
Directorate Changes
On 15 September 2009, Mr Cao Guifa resigned from the Board as Chairman to be replaced by Mr Yang Shanji. Mr Qian Shangao was appointed as Executive Director of the Company on 15 October 2009.
Employee Policy
As a China Environment Friendly Enterprise, we work to identify and minimise all health and safety risks in daily operations and in the production process. We also provide regular physical examination and occupational health and safety training for all employees. The Group also pays for endowment insurance, medical insurance, and unemployment insurance, as well as providing a housing fund for all employees in line with relevant national regulations.
The Group is committed to equal opportunities for its employees regardless of gender, age and religion and it rejects other forms of discrimination. Personnel are selected on the basis of merit and capability.
Environmental Policy
The Group passed the certification of ISO14001 and GB/T18001 vocation health and safety management and its products passed the CE Verification, UL Verification and EU RoHS test. Its subsidiary, JS Power, successfully signed a strategic cooperation agreement, the "Green Action Program", with China Mobile. As a China Environment Friendly Enterprise, environment protection is always integrated into planning by the Group which is demonstrated in our purchasing policies for equipment and raw materials, recycling of waste residue and purification of waste water.
Creditor Payment Policy
The Group pays for the main raw material (lead ingot) by cash on delivery. The payment for other raw materials is by bank acceptance with six months' maturity.
Financing
The Group currently uses bank borrowings of one year's maturity to provide finance for working capital requirements. Given the trading performance, the Company will continue to operate as a going concern in the foreseeable future.
Financial Instrument
The Company has its own cash resource and foreign exchange account which is managed to reduce exchange rate risk from transactions not denominated in RMB. The Company has not undertaken any transactions in financial derivatives. For further information on financial instruments please see note 23 to the financial statements.
Communication with Shareholders and the Market
The annual report and financial statements and interim statements are the primary vehicles for communication with shareholders. Meetings with significant shareholders are arranged through our Nominated Advisor Seymour Pierce Limited, and take place after the Final and Interim Financial Statements are published. Such meetings may also take place after other significant announcements, if any, are made to the market.
Reports published by the Group's broker are another means of communication with shareholders and the market. General information about the business is also available on the Company's website: www.chinashoto.com.
Annual General Meeting
The Annual General Meeting ("AGM") will be held on 22nd June, 2010 in London. Full details of the AGM and the resolutions to be put to the meeting are given in the notice of the AGM of this Annual Report.
Auditors
In accordance with Section 485 of the Companies Act 2006, a resolution for the re-appointment of BDO LLP as auditor of the Company is to be proposed at the AGM.
All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the auditors for the purposes of their audit and to establish that the auditors are aware of the information. The directors are not aware of any relevant audit information of which the auditors are unaware.
By order of the board
Peter Maurice Crystal
Company Secretary
Corporate Governance
Introduction
The Board of Directors is accountable to the Company's shareholders for good corporate governance. Although the Company's shares are traded on AIM, the Directors plan to comply with the Combined Code where practicable and appropriate.
Below is a brief description of the role of the Board and its committees, followed by a statement regarding the Group's system of internal financial control.
The Board and its Committees
The Board
The Board comprises eight Directors, five of whom are Executive Directors and three of whom are Non-Executive directors. The Board believes this balance to be appropriate. The Board is responsible to shareholders for the proper management of the Group and it meets not less than four times a year, sometimes by telephone, in order to review trading performance, ensure adequate funding, set and monitor strategy, examine acquisition opportunities and capital expenditure projects, report to shareholders and to consider any major issues that arise.
Audit Committee
The Audit Committee, which is chaired by Li Shuang, comprises the three Non-Executive Directors only. It meets at least once a year.
The Audit Committee receives and reviews reports from management and the Group's auditors relating to the Interim and Annual Financial Statements and the accounting and internal control systems in use throughout the Group. The Audit Committee has unrestricted access to the Group's auditors.
The Audit Committee advises the Board on the appointment of external auditors and their remuneration and discusses the nature and scope of the audit with the external auditors.
A formal statement of independence is received from the external auditors each year.
Remuneration Committee
The Remuneration Committee is chaired by Peter Maurice Crystal and includes Bernard Asher and Qian Shangao. It meets at least once a year.
It is responsible for reviewing the scale and structure of the Executive Directors' and senior employees' remuneration and the terms of their service or employment contracts including share option schemes and bonus arrangement. The remuneration and terms and conditions of the employment contracts of the Non-Executive Directors are set by the entire Board.
Internal Control and Risk Management
The Board is responsible for establishing and maintaining the Group's system of internal control. The key procedures, which the Directors have established with a view to providing effective internal controls, are as follows:
l Management structure
The Board has overall responsibility for the Company. Executive Directors together with key senior executives at the Company's level meet monthly to discuss sales and day to day operational matters. The subsidiary undertakings of the Group also hold monthly management meetings to summarize operating activities, as well as additional meetings on matters such as quality analysis and control, and financial cost analysis.
l Identification of business risks
The Board is responsible for identifying the major business risks faced by the Group and for determining the appropriate course of action to manage those risks.
The Board has established a sound risk evaluation and control system and ensures that directed measures be taken to manage such risks after identifying and evaluating them. In addition, the directors take responsibility for monitoring changes in economic activity and the external environment, and communicate with members of the Company internal and external auditors.
The Board and the Audit Committee have reviewed the effectiveness of the internal control system.
l Budgetary process
Each year the Board approves the annual budget, and key risk areas are identified. Performance is monitored and relevant action is taken throughout the year through the quarterly reporting to the Board of variances from the budget, updated forecasts for the year and information on the key risk areas.
Directors' Responsibilities Statement
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards ("IFRS"s) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.
In preparing these financial statements, the directors are required to:
·; select suitable accounting policies and then apply them consistently;
·; make judgments and accounting estimates that are reasonable and prudent;
·; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;
·; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company's website is the responsibility of the directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Remuneration Report
Remuneration Policy
The aim of the Company's remuneration policy is to reward the performance of the employees and thereby enhance shareholder value. Remuneration of the Executives of the Company is designed to provide rewards that will attract and retain high quality executives capable of achieving the Group's performance targets on both an annual and a long term basis.
At the time of the listing of the Company, it was decided that the remuneration policy then in operation would remain in place, and that adjustments to that policy would be made at the appropriate time.
The Remuneration Committee
The principal functions of the Remuneration Committee are to review the remuneration packages of Directors and senior employees of the Group and its subsidiaries. The Remuneration Committee can modify and draft the remuneration terms or, if appropriate, suggest changes and reports to the Board for approval.
The Committee also reviews all service contracts for senior staff.
The Board (excluding the Non-Executive Directors) determines the remuneration of Non-Executive Directors.
Directors' Remuneration
Executive Directors
The main components of Executive Directors' remuneration are:
Salary
The basic salary of each Director is determined by taking into account the Director's experience, responsibility and value to the Company.
Bonus awards
In addition to the salary, all Executive Directors were eligible for a performance-related bonus. The bonus was based on the annual budget and linked to achieving specified executive tasks during the year ended 31 December 2009. The targets were designed to ensure that the total remuneration varies in line with company performance.
Benefits
Benefits for the Executive Directors include medical insurance and contribution by the Company to the State Pension Scheme (which is subject to stipulations of the State).
Non-Executive Directors
The fees of the Non-Executive Directors reflect the time that they are required to commit to their duties.
Remuneration
The remuneration of the Directors for the year ended 31 December 2009 is set out in note 5 to Financial Statements.
Share Options
The share options of the following Directors that had interests in options to subscribe for ordinary shares are set out below:
| Name | As at 31 Dec 2009 and 31 Dec 2008 | % of Issued Capital | Exercise price | Date of grant
| Exercise period
|
| Yang Shanji | 500,000 | 2.14% | £1.30 | 30 Nov 2005 | Dec 2008-Dec 2015 |
| Qian Shangao | 100,000 | 0.5% | £1.30 | 30 Nov 2005 | Dec 2008-Dec 2015 |
| Zhou Yuezhang | 200,000 | 0.86% | £1.30 | 30 Nov 2005 | Dec 2008-Dec 2015 |
| Zhou Ping | 100,000 | 0.5% | £1.30 | 30 Nov 2005 | Dec 2008-Dec 2015 |
| Zhou Weigang | 100,000 | 0.5% | £1.30 | 30 Nov 2005 | Dec 2008-Dec 2015 |
Mr. Cao Guifa cancelled his right to exercise his 300,000 options during the year ended 31 December 2009.
Contracts of Service
The service agreements with each of the Executive Directors are terminable on 12 months' notice by either party.
The Non-Executive directors all have letters of appointment with an initial fixed term of 12 months. The appointment may be terminated at any time thereafter by six months' written notice.
Independent Auditor'sReport
TO THE MEMBERS OF CHINA SHOTO PLC
We have audited the financial statements of China Shoto plc for the year ended 31 December 2009 which comprise the consolidated income statement, the consolidated and company balance sheets, the consolidated and company statements of changes in equity and the consolidated and company cash flow statements and the related notes.The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
·; the financial statements give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2009 and of the group's profit for the year then ended;
·; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
·; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
·; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the highlights summary, company overview, chairman's statement, finance director's report, board of director's profile, directors' report, corporate governance statement and remuneration report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
·; adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
·; the parent company financial statements are not in agreement with the accounting records and returns; or
·; certain disclosures of directors' remuneration specified by law are not made; or
·; we have not received all the information and explanations we require for our audit.
James Roberts (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
Gatwick
United Kingdom
28 April 2010
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Consolidated Income Statement
|
|
| 2009 |
| 2008 |
| For the year ended 31 December 2009 | Notes | £000 |
| £000 |
|
|
|
|
|
|
| Revenue | 3 | 212,569 |
| 183,083 |
| Cost of sales |
| (144,547) |
| (134,794) |
| Gross profit |
| 68,022 |
| 48,289 |
| Other operating income | 3 | 4,540 |
| 382 |
| Distribution expenses |
| (31,653) |
| (23,259) |
| Administrative expenses |
| (11,766) |
| (10,866) |
| Other operating expenses |
| (2,804) |
| (377) |
| Profit from operations | 4 | 26,339 |
| 14,169 |
| Finance income | 3 | 440 |
| 194 |
| Finance costs | 6 | (1,705) |
| (2,811) |
| Profit before tax |
| 25,074 |
| 11,552 |
| Tax expense | 7 | (1,610) |
| (1,258) |
| Profit after tax |
| 23,464 |
| 10,294 |
| Attributable to : |
|
|
|
|
| Owners of the parent |
| 23,304 |
| 10,070 |
| Non-controlling interests |
| 160 |
| 224 |
|
|
| 23,464 |
| 10,294 |
| Earnings per share for profit attributable to the |
|
|
|
|
| equity shareholders of the parent during the year |
|
|
|
|
| -Basic | 9 | 99.83p |
| 43.14p |
| -Diluted | 9 | 98.34p |
| 43.14p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
|
|
| £000 |
| £000 |
|
|
|
|
|
|
| Profit for the year |
| 23,464 |
| 10,294 |
| Other comprehensive income |
|
|
|
|
| Exchange differences on translating foreign operations |
| (2,855) |
| 13,740 |
| Total comprehensive income for the year |
| 20,609 |
| 24,034 |
|
|
|
|
|
|
| Total comprehensive income attributable to： |
|
|
|
|
| Owners of the parent |
| 20,521 |
| 23,529 |
| Non-controlling interest |
| 88 |
| 505 |
|
|
| 20,609 |
| 24,034 |
|
|
|
|
|
|
The accompanying notes form an integral part of the consolidated financial statement.
Consolidated Balance Sheet
As at 31 December 2009
Company Number: 05448599
| | | | Group | Company | Group | Company |
| | | Notes | 2009 | 2009 | 2008 | 2008 |
| Assets | | | £000 | £000 | £000 | £000 |
| Non-current assets | | | | | | |
| Property, plant and equipment | | 10 | 26,791 | - | 25,249 | - |
| Intangible assets | | 12 | 2,565 | - | 3,123 | - |
| Deferred tax assets | | 20 | 198 | - | 43 | - |
| Investment in subsidiary undertaking | | | - | 20,977 | - | 20,977 |
| Due from related parties | | 19 | - | 11,238 | - | 12,620 |
| | | | 29,554 | 32,215 | 28,415 | 33,597 |
| Current assets | | | | | | |
| Inventories | | 13 | 36,875 | - | 28,410 | - |
| Trade and other receivables | | 14 | 47,079 | - | 36,056 | - |
| Short-term investments | | 15 | 5,685 | - | 3,946 | - |
| Cash and cash equivalents | | 16 | 63,995 | 254 | 50,797 | 197 |
| | | | 153,634 | 254 | 119,209 | 197 |
| Total assets | | | 183,188 | 32,469 | 147,624 | 33,794 |
| Liabilities | | | | | | |
| Current liabilities | | | | | | |
| Bank borrowings | | 17 | 28,329 | - | 32,845 | - |
| Trade and other payables | | 18 | 72,173 | 52 | 61,122 | 52 |
| Income tax payable | | | 60 | - | 164 | - |
| | | | 100,562 | 52 | 94,131 | 52 |
| Non-current liabilities | | | | | | |
| Bank borrowings | | 17 | 1,366 | - | - | - |
| Long term payable-Payroll | | | 7,775 | - | - | - |
| Deferred income | | | 455 | - | - | - |
| Due to related parties | | 19 | - | 369 | - | 2,945 |
| | | | 9,596 | 369 | - | 2,945 |
| Total liabilities | | | 110,158 | 421 | 94,131 | 2,997 |
| | | | | | | |
| Capital and reserves | | | | | | |
| Share capital | | 21 | 2,334 | 2,334 | 2,334 | 2,334 |
| Share premium | | 22 | 8,630 | 8,630 | 8,630 | 8,630 |
| Other reserves | | 22 | 2,916 | 18,462 | 2,916 | 18,462 |
| Share option reserve | | 22 | 977 | 977 | 977 | 977 |
| Statutory reserves | | 22 | 14,529 | - | 9,252 | - |
| Retained earnings | | 22 | 33,033 | 1,645 | 15,823 | 394 |
| Foreign currency translation reserve | | 22 | 9,805 | - | 12,588 | - |
| Total equity attributable to equity holders | | | 72,224 | 32,048 | 52,520 | 30,797 |
| Non-controlling interests | | | 806 | - | 973 | - |
| Total equity and liabilities | | | 183,188 | 32,469 | 147,624 | 33,794 |
| | | | | | | |
The financial statements were approved and authorised for issue by the Board of Directors on 28 April 2010 and signed on its behalf by:
Shanji Yang
Chief Executive
The accompanying notes form an integral part of the consolidated financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2009
|
Group |
Attributable to equity holders |
|
| |||||||
|
| Share Capital
| Share Premium
| Other Reserves
| Share option Reserve
| Statutory Reserves
| Retained Earnings
| Foreign currency translation Reserve
| Total
| Non-controlling interests
| Total
|
|
| ||||||||||
|
| ||||||||||
|
| Note 21 | Note 22 | Note 22 | Note 22 | Note 22 | Note 22 | Note 22 |
|
|
|
|
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at 1 January 2008 | 2,334 | 8,630 | 2,916 | 679 | 6,678 | 9,727 | (871) | 30,093 | 468 | 30,561 |
| Total comprehensive income | - | - | - | - | - | 10,070 | 13,459 | 23,529 | 505 | 24,034 |
| Transfer to statutory reserve | - | - | - | - | 2,574 | (2,574) | - | - | - | - |
| Employee share options | - | - | - | 298 | - | - | - | 298 | - | 298 |
| Dividends paid (note 8) | - | - | - | - | - | (1,400) | - | (1,400) | - | (1,400) |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at 1 January 2009 | 2,334 | 8,630 | 2,916 | 977 | 9,252 | 15,823 | 12,588 | 52,520 | 973 | 53,493 |
| Total comprehensive income | - | - | - | - | - | 23,305 | (2,784) | 20,521 | 88 | 20,609 |
| Transfer to statutory reserves | - | - | - | - | 5,277 | (5,277) | - | - | - | - |
| Dividends paid (note 8) | - | - | - | - | - | (817) | - | (817) | (255) | (1,072) |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at 31 December 2009 | 2,334 | 8,630 | 2,916 | 977 | 14,529 | 33,034 | 9,804 | 72,224 | 806 | 73,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the consolidated financial statements.
Statement of changes in equity
For the year ended 31 December 2009
| Company | Share Capital
| Share Premium
| Other Reserves
| Share option Reserve
| Retained Earnings
| Total
|
|
| ||||||
|
| ||||||
|
| £000 | £000 | £000 | £000 | £000 | £000 |
|
|
|
|
|
|
|
|
| Balance as at 1 January 2008 | 2,334 | 8,630 | 18,462 | 679 | 34 | 30,139 |
| Total comprehensive income for the year | - | - | - | - | 1,760 | 1,760 |
| Employee share options | - | - | - | 298 | - | 298 |
| Dividends paid | - | - | - | - | (1,400) | (1,400) |
|
|
|
|
|
|
|
|
| Balance as at 1 January 2009 | 2,334 | 8,630 | 18,462 | 977 | 394 | 30,797 |
| Total comprehensive income | - | - | - | - | 2,068 | 2,068 |
| Dividends paid | - | - | - | - | (817) | (817) |
|
|
|
|
|
|
|
|
| Balance as at 31 December 2009 | 2,334 | 8,630 | 18,462 | 977 | 1,645 | 32,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the consolidated financial statements.
Consolidated cash flow statements
For the year ended 31 December 2009
|
| Notes | 2009 |
| 2008 |
|
|
| £000 |
| £000 |
| Cash flows from operating activities |
|
|
|
|
| Profit before tax from continuing operations |
| 25,074 |
| 11,552 |
| Adjustments for: |
|
|
|
|
| Amortisation of intangible assets | 12 | 79 |
| 53 |
| Depreciation of property, plant and equipment | 10 | 1,947 |
| 1,557 |
| Losses on disposal of property, plant and equipment |
| 558 |
| 36 |
| Gain on disposal of available-for-sale investments |
| - |
| (10) |
| Impairment loss on loans and receivables | 4 | 763 |
| 224 |
| Impairment on inventory |
| 93 |
| - |
| Share based payment expense | 25 | - |
| 298 |
| Financial income | 3 | (440) |
| (194) |
| Financial expense | 6 | 1,705 |
| 2,811 |
| Cash flow from operating activities before changes of working capital and provisions |
| 29,779 |
| 16,327 |
|
|
|
|
|
|
| Working capital changes: |
|
|
|
|
| Decrease/(Increase) in: |
|
|
|
|
| Inventories |
| (8,559) |
| 208 |
| Trade and other receivables |
| (12,831) |
| 8,848 |
| Trade and other payables |
| 20,530 |
| 14,845 |
| Cash generated from operations |
| 28,919 |
| 40,228 |
| Income tax paid |
| (1,895) |
| (1,661) |
| Net cash flows from operating activities |
| 27,024 |
| 38,567 |
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
|
| Financial income | 3 | 440 |
| 194 |
| Purchase of land use right |
| - |
| (450) |
| Purchase of property, plant and equipment |
| (7,461) |
| (3,971) |
| Funds placed on deposit |
| (1,739) |
| (1,622) |
| Disposal of available-for-sale |
| - |
| 170 |
| Proceeds from disposal of property, plant and equipment and land use right |
| 1,490 |
| 126 |
| Cash flows used in investing activities |
| (7,270) |
| (5,553) |
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
| Increase in bank borrowings |
| 49,875 |
| 50,354 |
| Decrease in bank borrowings |
| (49,768) |
| (51,560) |
| Interest paid | 6 | (1,705) |
| (2,811) |
| Dividends paid | 8 | (1,072) |
| (1,400) |
| Cash flows from financing activities |
| (2,670) |
| (5,417) |
|
|
|
|
|
|
| Net increase in cash and cash equivalents |
| 17,084 |
| 27,597 |
| Cash and cash equivalents at beginning of year |
| 50,797 |
| 11,087 |
| Foreign exchange differences |
| (3,886) |
| 12,113 |
| Cash and cash equivalents at end of year | 16 | 63,995 |
| 50,797 |
The accompanying notes form an integral part of the consolidated financial statements.
Company cash flow statement
For the year ended 31 December 2009
|
| Notes | 2009 |
| 2008 |
|
|
| £000 |
| £000 |
| Cash flows from operating activities |
|
|
|
|
| Profit before income tax |
| 2,068 |
| 1,760 |
| Investment income from subsidiary |
| (2,332) |
| (2,000) |
| Financial income |
| - |
| (6) |
|
|
|
|
|
|
| Cash used by operations loss before working capital changes |
| (266) |
| (246) |
| Working capital changes: |
|
|
|
|
| Increase in: |
|
|
|
|
| Other payable | 18 | - |
| 31 |
| Amounts due to subsidiary undertakings | 19 | 1,140 |
| 1,621 |
|
|
|
|
|
|
| Net cash from operating activities |
| 874 |
| 1,406 |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
|
| Financial income |
| - |
| 6 |
|
|
|
|
|
|
| Net cash flows from investing activities |
| - |
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
| Dividends paid to external shareholders | 8 | (817) |
| (1,400) |
|
|
|
|
|
|
| Cash flow from financing activities |
| (817) |
| (1,400) |
|
|
|
|
|
|
|
|
|
|
|
|
| Net increase in cash and cash equivalents |
| 57 |
| 12 |
| Cash and cash equivalents at beginning of year |
| 197 |
| 185 |
|
|
|
|
|
|
| Cash and cash equivalents at end of year | 16 | 254 |
| 197 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the consolidated financial statements.
Notes to the Financial Statements
For the year ended 31 December 2009
1 General information
China Shoto plc is a company incorporated in the United Kingdom on 10 May 2005. The address of the registered office is given on the front page, and the principal place of business is Shuangdeng Science and Industrial Zone, Liangxu Town, Jiangyan City, Jiangsu Province, China. Details of the Group's reporting and functional currencies are disclosed in note 2 below.
The Group financial statements consolidate those of the company and its subsidiaries (together referred to as the Group). The parent company financial statements present information about the company as a separate entity and not about its group. The nature of the Group's operations and its principal activities are set out in the directors' report.
2 Accounting policies
The consolidated financial statements of China Shoto plc and its subsidiary undertakings (the 'Group') and the individual financial statements of China Shoto plc (the 'Company') have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force ('IFRS'), as adopted by the European Union, and those parts of the Companies Act 2006 applicable to companies preparing financial statements under IFRS.
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its income statement in these financial statements. The Group profit for the year includes profit after tax £2,068,000 (2008: £1,760,000), which is dealt with in the financial statements of the Company.
Standards effective but not yet adopted
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the group's accounting periods beginning on or after 1 January 2010 or later periods and which the group has decided not to adopt early and are not expected to have a material impact on the group's accounts. These are:
| Name | Date of issue |
| Improvements to IFRSs (2009) | 16 April 2009 |
| Group Cash-settled Share-based Payment Transactions (Amendments to IFRS 2) | 18 June 2009 |
| Additional Exemptions for First-time Adopters (Amendments to IFRS 1) | 23 July 2009 |
| Classification of Rights Issues (Amendment to IAS 32) | 8 October 2009 |
| IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments | 26 November 2009 |
| Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards | 28 January 2010 |
| Revised IAS 24 Related Party Disclosures | 4 November 2009 |
| Amendments to IFRIC 14 IAS 19 - Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction | 26 November 2009 |
| IFRS 9 Financial Instruments | 12 November 2009 |
Estimates and assumptions
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimate and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
a) Useful lives and depreciation of intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods. Details of the estimated useful lives are shown in the policy note for depreciation. While the estimated useful life of an asset is determined on acquisition, using best estimates, both residual values and estimated useful lives are monitored on an annual basis. More details including carrying values are included in Note 11.
b) Inventory
The company reviews the net realisable value of, and demand for, its inventory on a quarterly basis to provide assurance that recorded inventory is stated at the lower of cost or net realisable value. Factors that could impact estimated demand and selling prices include the timing and success of future technological innovations, competitor actions, supplier prices and economic trends. Changes of the expected net realizable value of inventory could potentially result in the reduction of the profit for the year.
c) Allowance for doubtful trade receivables
The Group makes sales on credit. A proportion of the outstanding credit sales may prove uncollectable in due course. An estimate is made of the uncollectible portion of accounts receivables using a percentage based on the ageing profile of the amounts outstanding, and also individually confirmed according to the customers' accrual credit conditions. Historically the Group has not born losses exceeding 1% of gross book value of trade and other receivables but has increased its allowance for doubtful trade receivables during this period to reflect tightening monetary policy in China, in particular.
There is a degree of uncertainty as to actions the Group is able to undertake to enforce collection of doubtful debts, which may impact the eventual recoverable amounts. Accordingly, the Directors have assessed their best estimate of the recoverability of such debts as nil. More details of the allowance for doubtful trade and other receivables is provided in Note15.
d) Income taxes
The group is subject to income tax in several jurisdictions within the People's Republic of China and significant judgment is required in determining the provision for income taxes. The carrying amount of the group's income tax payable at 31 December 2009 was £60,000 (2008: £164,000). The company believes that its tax liabilities are adequate for all of its years of operations based on the assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the company recognises tax liabilities based on best estimates of whether additional taxes and interest may be due.
Subsidiaries
A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors.
In the Company's separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses.
Principles of consolidation
The consolidated financial statements comprise the financial statements of the China Shoto plc and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances.
All inter-group balances, transactions, income, expenses, profits and losses resulting from inter-group transactions that are recognized as assets, are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases.
Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus cost directly attributable to the acquisition. Identified assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date.
Any excess of the cost of the business combination over the Group's interest in the net fair value of the identified assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated below.
Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. These are presented in the consolidated balance sheet within equity, separately from the parent shareholder's equity, and are separately disclosed in the consolidated income statement.
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.
Foreign currencies
The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and the 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 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 consolidated results are presented in Sterling reflecting the Company's UK quotation and investor base. 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 foreign currency translation reserve within equity.
Revenue recognition
Revenue from the sale of goods is recognised upon significant risks and rewards of ownership of the goods being transferred to the customer, which coincides with acceptance of the goods sold and the quality inspection by clients, being a contractual requirement of the Group's customers.
Government grants
Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When a grant relates to an expense item, it is recognised in the consolidated income statement over the period necessary to match it on a systematic basis to the costs that it is intended to compensate. Where a grant relates to an asset, it is included in deferred income and amortized to the consolidated income statement in equal annual installments over the expected useful life of the relevant asset.
Employee benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statements as incurred.
Borrowings costs
Borrowing costs are expensed as incurred. The Group does not incur any interest costs that qualify for capitalization under IAS 23 'Borrowing costs'.
Share-based payments
Where equity settled share options are awarded to employees for services provided in respect of the flotation, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The fair value of the award is recognised over the vesting period as an increase in the cost of investment in the subsidiary in the company balance sheet. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received.
Income tax
Income tax for the financial year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case such tax is recognised in equity.
Current tax is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous financial years.
Deferred tax is provided using balance sheet liability method, providing for temporary differences as at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for differences arising on the initial recognition of goodwill and goodwill for which amortisation is not deductible.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Dividends
Equity dividends are recognised when they become legally payable. In respect of interim dividends to equity shareholders, this is when they are paid. In respect of final dividends to equity shareholders, this is when they are approved at the annual shareholders' meeting. The Company will recognise investment income when the subsidiaries' dividend is approved by their shareholders' meetings.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
Depreciation is calculated using the straight-line method so as to write off the cost of property, plant and equipment reduced by the estimated residual value of the assets over their estimated useful lives. The estimated residual value and annual depreciation rates used for this purpose are as follows:
| Item | Estimated residual value | Useful life | Annual depreciation rates |
| Building | 10% | 40 | 2.25% |
| Machinery | 10% | 10 | 9% |
| Motor vehicles | 10% | 5 | 18% |
| Office equipment | 10% | 5 | 18% |
Fully depreciated plant and equipment are retained in the financial statements until such time that they are no longer in use. Construction in progress represents property, plant and equipment under construction and is stated at cost. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for use.
Intangible assets
a) Land use rights
Land use rights arise when the Bureau of the Land and Resources of People's Republic of China grants the group rights to develop, use and operate land during a limited period of time. Land use rights are measured initially at cost and subsequently amortised on a straight-line basis over the life of the asset. The life of the land use right is taken to the length of time for which the right has been granted (42 to 50 years). The carrying values of land use rights are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
b) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary or associated undertaking at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement, through administrative expenses, and is not subsequently reversed.
c) Other intangible assets
The cost of intangible assets acquired in a business combination is their value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Intangible assets are amortised through administrative expenses on a straight-line basis over their estimated useful economic lives and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and amortisation method for intangible assets are reviewed at least at each financial year-end.
The estimated useful economic lives for the Group's intangible assets are as follows:
Trademark & Patents 10 years
Investment in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for impairment.
Impairment of assets
The carrying amounts of non-current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of the asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised through administrative expenses in the income statement.
The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm's length transaction less costs to sell. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash generating unit.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. Reversals of impairment losses are recognised in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity. Unless otherwise stated, book value of financial assets is not materially different from their fair values.
a) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provision is recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being made based on past experience after analysis of the ageing of receivable.
For trade receivables such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that trade receivables will not be collectable, the gross carrying value of the assets is written off against the associated provision.
The Group's loans and receivables comprise trade and other receivables, amounts due from related parties, short-term investment and cash and cash equivalents in the balance sheet.
The short-term investments are bank deposits with original maturities of more than three months but within a financial year. The short-term investments are security for export sales or notes payables with an initial maturity of more than three months. The short-term investments are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash and cash equivalents comprise cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
b) Available-for-sale investment
Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities as well as corporate bonds. They are carried at fair value with changes in fair value recognised directly in a separate component of equity (available-for-sale reserve) other than exchange differences, which are recognised in profit or loss. Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously charged to equity, is recognised in the income statement. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the income statement. Interest on corporate bonds classified as available-for-sale is calculated using the effective interest method and is recognised in finance income in the income statement.
Financial liabilities and equity
The Group classifies its financial liabilities into one of the categories discussed below, depending on the purpose for which the asset was acquired.
Financial liabilities of the Group include trade and other payables, amounts due to related parties and bank borrowings.
Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and repayable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Equity instruments are recorded net of direct issue costs.
Research and development expenditure
Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an asset when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention and availability of resource to complete the asset, the ability to measure reliably the expenditure during development, and whether the asset will generate future economic benefits.
If development expenditure cannot be distinguished from the research phase of an internal project to create an intangible asset, the research and development expenditure of internal projects is recognised in the income statement as incurred.
Following initial recognition, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. During the period of development, the asset is tested for impairment annually.
No costs in the current or prior period meet the criteria required for capitalisation.
3 Revenue
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Revenue |
|
|
|
| Sale of goods | 212,569
|
| 183,083 |
|
|
|
|
|
| Other operating income |
|
|
|
| Waste disposal and sale of by-products | 1,403 - |
| - |
| Government grant income | 1,879 |
| 244 |
| Rental Income | 160 |
| - |
| Material sale | 143 |
| - |
| Penalty income | 360 |
| - |
| Electricity income from third parties | 402 |
| - |
| Other | 193 |
| 138 |
|
|
|
|
|
|
| 4,540 |
| 382 |
|
|
|
|
|
| Finance income |
|
|
|
| Interest income | 440
|
| 194 |
|
|
|
|
|
|
|
|
|
|
| Total income | 217,549 |
| 183,659 |
|
|
|
|
|
|
|
|
|
|
Government grant income is a direct subsidy which is received by the Group from the finance bureau and other government departments.
4 Profit from operations
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| After charging / (crediting): |
|
|
|
| Cost of inventories recognized as an expense | 144,547 |
| 134,794 |
| Auditors' remuneration |
|
|
|
| - audit of Group accounts | 33 |
| 39 |
| - audit of individual accounts of subsidiary undertakings | 51 |
| 52 |
| - non-audit services - Tax | 11 |
| 22 |
| - General advice | 47 |
| 6 |
| Amortisation of intangible assets | 79 |
| 53 |
| Depreciation of property, plant and equipment | 1,947 |
| 1,557 |
| Loss on disposal of property, plant and equipment | 558 |
| 36 |
| Impairment loss on loans and receivables | 763 |
| 224 |
| Research and development expenditure | 717 |
| 1,305 |
| Foreign exchange gains | (9) |
| (96) |
| Inventory written down to net realizable value | 93 |
| - |
| Employee share options | - |
| 298 |
|
|
|
|
|
5 Information regarding directors and employees
|
| 2009 |
| 2008 |
| Average number of employees of the Group | Number |
| Number |
| Management and administration | 171 |
| 211 |
| Sales | 311 |
| 321 |
| Manufacturing | 2,069 |
| 2,087 |
|
|
|
|
|
|
| 2,551 |
| 2,619 |
|
|
|
|
|
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| The aggregate payroll costs of these employees were as follows: |
|
|
|
| Wages and salaries | 20,700 |
| 19,216 |
| Social security costs | 940 |
| 934 |
|
|
|
|
|
|
|
|
|
|
|
| 21,640 |
| 20,150 |
| Share-based payment expense (see note 25) | - |
| 298 |
|
|
|
|
|
|
| 21,640 |
| 20,448 |
|
|
|
|
|
Directors' remuneration were as follows:
|
| 2009 | 2009 | 2009 | 2009 | 2008 | |||
|
| Salary | Benefits | Bonus | Total emoluments | Total emoluments | |||
|
| £000 | £000 | £000 | £000 | £000 | |||
| Yang Shanji | 30 | - | 619 | 649 | 429 | |||
| Zhou Yuezhang | 20 | 1 | 173 | 194 | 153 | |||
| Zhou Weigang | 20 | 1 | 173 | 194 | 153 | |||
| Zhou Ping | 20 | 1 | 154 | 175 | 153 | |||
| Qian Shangao | 20 | 1 | 175 | 196 | - | |||
| Li Shuang | 15 | - | - | 15 | 10 | |||
| Bernard Asher | 15 | - | - | 15 | 10 | |||
| Peter Maurice Crystal | 15 | - | - | 15 | 10 | |||
| Cao Guifa | 30 | - | 47 | 77 | 84 | |||
|
|
|
|
|
|
| |||
| Total | 185 | 4 | 1,341 | 1,530 | 1,002 | |||
|
|
|
|
|
|
| |||
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
|
|
|
|
|
| Emoluments | 1,530 |
| 1,002 |
| Share-based payment expense (see note 25) | - |
| 242 |
|
|
|
|
|
|
| 1,530 |
| 1,244 |
|
|
|
|
|
|
|
|
|
|
There were no payments for post-employment benefits, other long-term benefits and termination benefits in respect of directors.
6 Finance costs
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Interest expense on bank and other loans | 1,705 |
| 2,811 |
|
|
|
|
|
7 Income tax
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Income tax expense is as follows: |
|
|
|
| Prior year under provision | 299 |
| - |
| Current income tax | 1,492 |
| 1,335 |
| Total current tax | 1,791 |
| 1,335 |
|
|
|
|
|
| Deferred income tax: |
|
|
|
| Origination and reversal of temporary differences | (181) |
| (77) |
|
|
|
|
|
|
|
|
|
|
|
| 1,610 |
| 1,258 |
|
|
|
|
|
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax applied to profits for the year are as follows:
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
|
|
|
|
|
| Profit before tax | 25,074 |
| 11,552 |
|
|
|
|
|
| Expected tax charge based on the standard tax rate of individual group companies | 6,763 |
| 3,752 |
| Effect of reduction in tax rate | (5,189) |
| (2,927) |
| Tax effect of non-deductible expenses and non-taxable revenue | (263) |
| 438 |
| Difference in tax rate of tax rate relief | - |
| (5) |
| Adjustment for under provision in prior year | 299 |
| - |
|
| 1,610 |
| 1,258 |
|
|
|
|
|
The Company and significant subsidiary undertakings are subject to income tax on the following basis and at the following rates:
China Shoto plc
The Company is a non-resident UK company, subject to UK corporation tax at the standard rate of 28% (2008: 28%) on UK profits.
Jiangsu Shuangdeng Group Co. Ltd
In 2005 the company reregistered as a foreign enterprise and is entitled to exemptions from PRC income tax for the two years commencing from its first profit-making year of operation and to a 50% relief from PRC income tax for another three years thereafter.
In accordance with the latest PRC taxation laws which came into effect on 1 January 2008, its standard applicable tax rate is 25%. Enterprises who once enjoyed a preference on taxation exemption or relief on certain periods such as "exemption from tax in the first two years and half of the tax in the next three years" or "exemption from tax in the first five years and half of the tax in the next five years", will apply the original taxation law and administration law regulation as well as the preferential system and preferential term till the end of the period regulated in the relevant regulation after the implementation of the new taxation. However, those who haven't enjoyed the taxation preferential because of no profit-making will account for it from 2008. Since 2008 is the company's first profit-making year, it is free from income tax in 2008 and 2009, and a half tax rate of 12.5% will be imposed in 2010, 2011 and 2012. So the actual tax rate is nil in 2009.
Jiangsu Fuste Power Supply Co. Ltd and Jiangsu Best Power Supply Co. Ltd
The companies are located in an area designated as an Economic Development Coastal Region in accordance with PRC tax regulations. In accordance with the PRC tax legislation applicable to foreign investment enterprises each company is entitled to exemptions from PRC income tax for the two years commencing from their first profit-making year of operation (2004 for Jiangsu Fuste Power Supply Co. Ltd and 2006 for Jiangsu Best Power Supply Co. Ltd) and for another three years thereafter they are entitled to a 50% relief from PRC income tax. Its applicable tax rate is 25% according to the latest taxation laws which came into effect on 1 January 2008. So the actual tax rate of Jiangsu Fuste Power Supply Co. Ltd is 25% and Jiangsu Best Power Supply Co. Ltd is 12.5% in 2009.
Jiangsu Shuangdeng Power Supply Co. Ltd
According to the latest PRC taxation laws which came into effect on 1 January 2008, the actual income tax rate is 20% in 2009.
Nanjing Shuangdeng Science and Technology Development Academy Co. Ltd
In 2005 the company re-registered as a foreign investment enterprise and meanwhile it is a production enterprise located in a development zone in accordance with the PRC income tax legislation so it is entitled to exemptions from PRC income tax for the two years commencing from its first profit-making year of operation and thereafter it is entitled to a 50% relief from PRC income tax for the next three years.
In accordance with the latest PRC taxation laws which came into effect on 1 January 2008, its standard applicable tax rate is 25%. Enterprises who once enjoyed a preference on taxation exemption or relief on certain periods such as "exemption from tax in the first two years and half of the tax in the next three years" or "exemption from tax in the first five years and half of the tax in the next five years", will apply the original taxation law and administration law regulation as well as the preferential system and preferential term till the end of the period regulated in the relevant regulation after the implementation of the new taxation. However, those who haven't enjoyed the taxation preferential because of no profit-making will account for it from 2008. Since 2008 is the company's first profit-making year, it is free from income tax in 2008 and 2009, and a half tax rate of 12.5% will be imposed in 2010, 2011 and 2012. So the actual tax rate is nil in 2009.
Yangzhou Zhenghe Power Supply Co. Ltd
The company is a production enterprise and in accordance with the PRC tax legislation applicable to foreign investment enterprises the company is entitled to exemptions from PRC income tax for the two years commencing from its first profit-making year of operation (2007 for Yangzhou Zhenghe Power Supply Co., Ltd) and for another three years thereafter they are entitled to a 50% relief from PRC income tax. Its applicable tax rate is 25% according to the latest taxation laws which came into effect on 1 January 2008. The period from 2009 to 2011 is for half-relief, so its applicable tax rate is 12.5%. From 2012, its applicable tax rate is 25%.
8 Dividends
|
|
| Group |
| Group |
| Company |
| Company |
|
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
|
|
| £000 |
| £000 |
| £000 |
| £000 |
| Dividends paid |
| 817 |
| 1,400 |
| 817 |
| 1,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Shoto plc declared an annual dividend of 3.5p per ordinary share amounting to £817,031 on 28 April 2009 which was approved by the shareholders on 16 Jun 2009.
China Shoto plc declared an annual dividend of 4.5p per ordinary share amounting to £1,050,000 on 22 April 2008 which was approved by the shareholders on 22 May 2008 and declared an interim dividend of 1.5p per ordinary share amounting to £350,000 on 18 September 2008.
9 Earnings per share from continuing operations
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 £23,304,000 (2008: £10,070,000).
The profit from continuing operations for the financial year attributable to equity holders of the parent is as follows:
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Profit attributable to equity holders of the parent | 23,304 |
| 10,070 |
|
|
|
|
|
The weighted average number of ordinary shares used in the calculation of earnings per share from continuing operations has been derived as follows:
|
| Group |
| Group |
| Number of ordinary shares | 2009 |
| 2008 |
| Weighted average number of ordinary shares - basic | 23,343,770 |
| 23,343,770 |
| Dilutive effect of share options | 353,832 |
| - |
|
|
|
|
|
| Weighted average number of ordinary shares - diluted |
23,697,602 |
| 23,343,770 |
|
|
|
|
|
10 Property, plant and equipment
| Group | Buildings | Machinery | Motor Vehicle | Office Equipment | Construction in progress | Total |
|
|
|
|
|
|
|
|
| Cost | £000 | £000 | £000 | £000 | £000 | £000 |
| At 1 January 2008 | 9,111 | 9,709 | 365 | 1,526 | 1 | 20,712 |
| Additions | 353 | 676 | 27 | 361 | 2,119 | 3,536 |
| Reclassifications | 589 | 295 | (15) | (264) | (605) | - |
| Disposals | (21) | (165) | (14) | (83) | (46) | (329) |
| Exchange adjustment | 4,594 | 5,107 | 180 | 712 | 381 | 10,974 |
|
|
|
|
|
|
|
|
| At 31 December 2008 | 14,626 | 15,622 | 543 | 2,252 | 1,850 | 34,893 |
| Additions | 1,763 | 441 | 119 | 1,327 | 3,805 | 7,455 |
| Transferred in | 3,565 | 1,269 | - | - | (4,834) | - |
| Disposals | (741) | (1,395) | (51) | (133) | (2) | (2,322) |
| Exchange adjustments | (1,393) | (1,150) | (52) | (148) | (192) | (2,935) |
|
|
|
|
|
|
|
|
| At 31 December 2009 | 17,820 | 14,787 | 559 | 3,298 | 627 | 37,091 |
| Accumulated depreciation |
|
|
|
|
|
|
| At 1 January 2008 | 1,014 | 3,135 | 118 | 855 | - | 5,122 |
| Reclassifications | - | 113 | (8) | (105) | - | - |
| Charge for the period | 240 | 1,103 | 69 | 145 | - | 1,557 |
| Disposals | - | (73) | (9) | (48) | - | (130) |
| Exchange adjustments | 567 | 2,031 | 78 | 419 | - | 3,095 |
|
|
|
|
|
|
|
|
| At 31 December 2008 | 1,821 | 6,309 | 248 | 1,266 | - | 9,644 |
| Charge for the period | 328 | 1,133 | 82 | 404 | - | 1,947 |
| Disposals | (197) | (695) | (33) | (45) | - | (970) |
| Exchange adjustments | (82) | (98) | (22) | (119) | - | (321) |
|
|
|
|
|
|
|
|
| At 31 December 2009 | 1,870 | 6,649 | 275 | 1,506 | - | 10,300 |
| Net book value |
|
|
|
|
|
|
| At 1 January 2008 | 8,097 | 6,574 | 247 | 671 | 1 | 15,590 |
|
|
|
|
|
|
|
|
| At 31 December 2008 | 12,805 | 9,313 | 295 | 986 | 1,850 | 25,249 |
|
|
|
|
|
|
|
|
| At 31 December 2009 | 15,950 | 8,138 | 284 | 1,792 | 627 | 26,791 |
|
|
|
|
|
|
|
|
Assets pledged as security
At as 31 December 2009, building and machinery with carrying amount of £4,283,413 (2008: £8,758,000) are subjected to a first charge to secure the Group's bank borrowings.
According to Government Document Number 304(2007) of Nanjing Jiangnin District, the company signed with Nanjing Jiangnin Economic & Technological Development Company. The property with net value of £380,560.00 and an area of 4,498.36 square meters was exchanged. The area of the property after exchange is 4,994 square meters. The surplus area is measured at £3000 per square meter. Due to the Government's procedures, the company did not get land use right certificate and property ownership certificate in time as the agreement confirmed. It is estimated that the company can get them in June 2010.
11 Investment in subsidiary undertakings
|
| Company |
| Company |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Cost: |
|
|
|
| At the beginning of the financial year | 20,977 |
| 20,679 |
| Addition from share-based payment to employees of subsidiaries | - |
| 298 |
|
|
|
|
|
| At the end of the financial year | 20,977 |
| 20,977 |
|
|
|
|
|
12 Intangible assets
|
| Group | Group | Group |
|
| Land use rights
| Trademark
| Total
|
| Cost: | £000 | £000 | £000 |
|
|
|
|
|
| At 1 January 2008 | 1,894 | 20 | 1,914 |
| Additions | 450 | - | 450 |
| Exchange adjustments | 1,018 | 10 | 1,028 |
| At 1 January 2009 | 3,362 | 30 | 3,392 |
| Additions | 6 | - | 6 |
| Disposal | (240) | (28) | (268) |
| Exchange adjustments | (302) | (2) | (304) |
| At 31 December 2009 | 2,826 | - | 2,826 |
| Accumulated amortization: |
|
|
|
|
|
|
|
|
| At 1 January 2008 | 131 | 5 | 136 |
| Amortisation for the financial year | 51 | 2 | 53 |
| Exchange adjustments | 76 | 4 | 80 |
| At 1 January 2009 | 258 | 11 | 269 |
| Amortisation for the financial year | 76 | 3 | 79 |
| Disposal | (46) | (13) | (59) |
| Exchange adjustments | (27) | (1) | (28) |
| At 31 December 2009 | 261 | - | 261 |
| Net book value: |
|
|
|
| At 31 December 2008 | 3,104 | 19 | 3,123 |
| At 31 December 2009 | 2,565 | 2,564 | 2,565 |
The Group's land use rights have a remaining amortization period of between 36 and 48 years.
Because of the construction of Naning South Railway Station, the company signed an agreement with Nanjing Jiangnin Economic & Technological Development Company according to Government Document Number 304(2007) of Nanjing Jiangnin District. The land with net value of £203,994 and an area of 12374.28 square meterter was transferred at £43.77 per square meter. The Company achieved land transfer income of £337,597.
Assets pledged as security
As at 31 December 2009, land use rights with a carrying amount of £1,242,879 (2008: £2,371,000) are subject to a first charge to secure the Group's bank borrowings.
13 Inventories
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Raw materials | 7,211 |
| 3,939 |
| Work in progress | 5,635 |
| 4,376 |
| Finished goods | 24,029 |
| 20,095 |
|
|
|
|
|
|
| 36,875 |
| 28,410 |
|
|
|
|
|
14 Trade and other receivables
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Trade receivables | 40,880 |
| 32,010 |
| Notes receivable | 3,978 |
| 1,015 |
| Other receivables | 1,006 |
| 837 |
| Total financial assets other than short term investments and cash and cash equivalents classified as loans and receivables | 45,864 |
| 33,862 |
| Advances to suppliers | 964 |
| 2,191 |
| Prepayments | 251 |
| 3 |
|
|
|
|
|
|
| 47,079 |
| 36,056 |
|
|
|
|
|
|
|
|
|
|
Loans and receivables shown above are stated net of an allowance for doubtful receivables, the movements on this account being summarized below:
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Balance at beginning of financial year | 948 |
| 452 |
| Disposal of subsidiary undertaking | - |
| - |
| Allowance for the financial year | 763 |
| 224 |
| Receivable written off during the year as uncollectable | - |
| - |
| Exchange adjustments | (113) |
| 272 |
|
|
|
|
|
|
| 1,598 |
| 948 |
|
|
|
|
|
The allowance account for doubtful receivables includes an amount of £nil (2008: nil) in respect of related parties.
Trade receivables are generally on 90 day terms. The ageing analysis of loans and other receivables which are past due, but not impaired is as follows:
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| 1-90 days overdue | 9,108 |
| 5,992 |
| 91-270 days overdue | 10,902 |
| 7,781 |
| 271-630 days overdue | 2,523 |
| 1,623 |
| 631-990 days overdue | 130 |
| 47 |
|
| 22,663 |
| 15,443 |
|
|
|
|
|
|
|
|
|
|
Loans and receivables that are neither past due nor impaired amount to £23,201,000 (2008: £18,419,000). The credit quality of these receivables is considered to be satisfactory. Included in 91 - 270 days overdue are debtors retentions of £2.7 million.
15 Short term investments
|
| Group |
| Group |
|
| 2009 |
| 2008 |
| Cost: | £000 |
| £000 |
| Deposits with an initial maturity of more than 3 months | 285 |
| - |
| -Deposits secured for notes payable | 5,400 |
| 3,834 |
| -Deposits for export sale | - |
| 112 |
|
|
|
|
|
|
| 5,685 |
| 3,946 |
16 Cash and cash equivalents
|
| Group |
| Group |
| Company |
| Company |
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| £000 |
| £000 |
| Cash | 41,508 |
| 36,085 |
| 254 |
| 197 |
| Deposits-secured for Notes Payables with an initial maturity of 3 months or less | 22,487 |
| 14,712 |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
| 63,995 |
| 50,797 |
| 254 |
| 197 |
|
|
|
|
|
|
|
|
|
Cash earns interest at a fixed rate of between 0.15% and 1.17% in 2009 (2008: 0.36% and 0.72%).
17 Bank borrowings
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Short-term bank borrowings | 28,329 |
| 32,845 |
| Long-term borrowings | 1,366 |
| - |
|
| 29,695 |
| 32,845 |
|
|
|
|
|
Bank borrowings are all at fixed rates and are secured by a first mortgage over the Group's main property, plant and equipment and land use right (notes 11 and 13), guaranteed by the Group company internally. The Group has no defaults and breaches of principal or interest on bank borrowings.
Bank borrowings have an average maturity of 6 months from the end of the financial year (2008: 7 months) and an interest rate ranging from 0.3% to 4.86% (2008: 4.86% to 7.84%). The weighted average interest rate is 2.58% (2008: 7.07%).
The Group did not breach any of its covenants and did not default on payments of interest and principal on its bank borrowings.
18 Trade and other payables
|
| Group |
| Group |
| Company |
| Company |
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| £000 |
| £000 |
| Trade payables | 17,640 |
| 15,777 |
| - |
| - |
| Notes payable | 27,413 |
| 15,157 |
| - |
| - |
| Staff costs payable | 9,692 |
| 6,796 |
| - |
| - |
| Amount due to employees | 5,250 |
| 3,318 |
| - |
| - |
| Due to related parties | 100 |
| 38 |
|
|
|
|
| Other payables | 10,544 |
| 14,817 |
| 52 |
| 52 |
|
|
|
|
|
|
|
|
|
| Total other financial liabilities excluding bank borrowings | 70,639 |
| 55,903 |
| 52 |
| 52 |
| Advances from customers | 1,181 |
| 1,643 |
| - |
| - |
| Other tax payable | 353 |
| 3,576 |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
| 72,173 |
| 61,122 |
| 52 |
| 52 |
|
|
|
|
|
|
|
|
|
Including bank borrowings, the Group's total other financial liabilities amounts to £108,774,000 (2008：£88,748,000).
19 Related parties
The group companies set out in note 24, the directors and the following related parties have been identified:
| Related parties |
| Relationship |
|
|
|
|
| Jiangsu Shuangdeng Electric Appliance and Cable Co. Ltd |
| Significant influence by the Chief Executive
|
Directors' remuneration is disclosed in note 5. Amounts due from and to related parties are as follows:
|
| Group |
| Group |
| Company |
| Company |
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| £000 |
| £000 |
|
|
|
|
|
|
|
|
|
| Due from subsidiary undertakings - Non-trade | - |
| - |
| 11,238 |
| 12,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due to related parties |
|
|
|
|
|
|
|
| -due to Chief Executive Shanji Yang | 41 |
| 2 |
| - |
| - |
| -due to the directors | 59 |
| 12 |
| - |
| - |
| -due to other shareholders | - |
| 24 |
| - |
| - |
| Due to subsidiary undertakings - Non-trade | - |
| - |
| 369 |
| 2,945 |
|
|
|
|
|
|
|
|
|
|
| 100 |
| 38 |
| 369 |
| 2,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant transactions during the financial years with related parties, all of which were negotiated at arms' length, were as follows:
|
| Group |
| Group |
| Company |
| Company |
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| £000 |
| £000 |
| Sale of goods: |
|
|
|
|
|
|
|
| Shenyang Shuangdeng Sci-tech Development Co. Ltd. | - |
| 2,288 |
| - |
| - |
| Jiangsu Shuangdeng Electric Appliance and Cable Co. Ltd | 118 |
| 73 |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
| 118 |
| 2,361 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Other operating income: |
|
|
|
|
|
|
|
| Jiangsu Shuangdeng Electric Appliance and Cable Co. Ltd | 237 |
| 147 |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
| 237 |
| 147 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Purchases: |
|
|
|
|
|
|
|
| Jiangsu Shuangdeng Electric Appliance and Cable Co. Ltd | 83 |
| 192 |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
| 83 |
| 192 |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Declared dividend |
|
|
|
|
|
|
|
| Leadstar Enterprises Limited | - |
| - |
| 2,334 |
| 2,000 |
|
|
|
|
|
|
|
|
|
|
| - |
| - |
| 2,334 |
| 2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to the Company from subsidiary undertakings represent net proceeds from the listing on AIM, which have been advanced to the trading subsidiaries to invest in new plant and working capital. Amounts due to subsidiary undertakings represent costs paid on the Company's behalf by its subsidiary undertakings. In the opinion of the directors, the Group is controlled by Mr. Shanji Yang, General Manager and Director, who owned 55.36% of the issued share capital of China Shoto plc at 31 December 2009 (2008: 47.06%).
20 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a respective companies' tax rate. The movements in deferred tax assets and liabilities during the period are shown below:
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Deferred tax assets |
|
|
|
| At beginning of the financial year | 43 |
| 92 |
| Transfer to/(from) income statement | 181 |
| (77) |
| Difference in tax rate of tax rate relief | - |
| 5 |
| Exchange differences | (26) |
| 23 |
|
|
|
|
|
| At end of the financial year | 198 |
| 43 |
|
|
|
|
|
21 Share capital
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Authorised |
|
|
|
| 100,000,000 Ordinary shares of 10p each | 10,000 |
| 10,000 |
|
|
|
|
|
| Allotted, called up and fully paid: |
|
|
|
| 23,343,770 Ordinary shares of 10p each | 2,334 |
| 2,334 |
|
|
|
|
|
|
|
|
|
|
22 Reserves
Share premium account
Share premium represents the amount subscribed for shares in excess of the nominal value less expenses incurred on the issue of shares.
Other reserves
In accordance with IFRS 3, the principles of reverse acquisition accounting have been applied in the consolidated financial statements in respect of the business combination of the Company and Leadstar Enterprises Limited. The fair value of the Company's net assets and business were assessed at £2, being the book value of its assets, and therefore no goodwill arose on this transaction. In accordance with companies legislations, the difference between the fair value of Leadstar Enterprises Limited's net assets on acquisition and the nominal value of the ordinary shares issued by the Company on consolidation also has been credited to other reserves.
In the Company's financial statements, the difference between the fair value of the consideration paid and the nominal value of the 10p ordinary shares issued to the vendors of Leadstar Enterprises Limited have been credited to other reserves.
Share option reserve
The share option reserve represents the cumulative share based payment charge for options issued by the Group.
Statutory reserves
Statutory reserves comprise the following:
Statutory surplus reserveUnder People's Republic of China ("PRC") regulations and the Articles of Association of the relevant companies, companies within the Group registered in the PRC are required to transfer 10% of their profit after income tax, as determined under PRC GAAP, to the statutory surplus reserve until the reserve balance reaches 50% of its registered capital. The transfer to this reserve must be made before the distribution of dividends to equity owners. The statutory surplus reserve can be used to make up previous years' losses, if any, and may be converted into paid-in capital in proportion to the existing interests of equity owners, provided that the balance after such conversion is not less than 25% of the registered capital.
Statutory public welfare fund
According to the relevant PRC regulations and the Articles of Association of the relevant companies, companies within the Group registered in PRC are required to transfer 10% of their profit after income tax, as determined under PRC GAAP, to the statutory public welfare fund. The statutory public welfare fund is incorporated for the purpose of providing employee facilities and other collective benefits to its employees.
Retained earnings
The retained earnings reserve comprises the cumulative net gains and losses recognised in the consolidated income statement.
Foreign currency translation reserve
The foreign currency translation reserve comprises the gains and losses arising on translating the net assets and the results of overseas operations into pounds Sterling.
23 Financial instruments
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. The parent company has neither significant financial instruments nor significant exposure to such risks.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
·; Trade and other receivables
·; Short term investment
·; Cash and cash equivalents
·; Trade and other payables
·; Bank borrowings
All financial assets are designated as loans and receivables (note 14). Available-for-sale asset, all financial assets and liabilities are carried at amortised cost.
General objective, policies and procedures
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's Finance Director.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:
a) Credit Risk
Credit risk arises principally from the Group's trade and other receivables.
The carrying amount of financial assets represents the group's maximum exposure to credit risk. A significant proportion of the group's credit risk relates to trade and receivables. The Group distinguishes its clients by two kinds of credit line. One is 100% credit and the other is nil credit. The Group controls the credit risk from the clients of nil credit through prepayment before goods are transferred to them. The Group also receives a monthly sale and gathering report detailing all customers. In this report if the debt is collected outside the credit period interest is charged.
Management review all debtors for impairment and are comfortable that all un-provided debts are fully recoverable.
Quantitative disclosures of the credit risk in relation to trade and other receivables are disclosed in note 14.
b) Liquidity Risk
Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group's policy as regards liquidity is to ensure sufficient cash resources are maintained to meet short-term liabilities. To achieve this aim, the group improved receivables turnover ratios by requiring the customer to pay interest on overdue balances. The Group also seeks to reduce liquidity risk by obtaining high credit ratings from banks in order to get ease of access to finance when required. The Group has no defaults or breaches on its financial liabilities.
A maturity analysis of liabilities, including bank borrowings and interest is given below：
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Repayable within 1 month | 22,104 |
| 19,992 |
| Repayable within 2-3 months | 50,864 |
| 19,183 |
| Repayable within 4- 6months | 16,511 |
| 32,674 |
| Repayable 7-12 months | 8,821 |
| 12,691 |
| Repayable over 1 year | 9,810 |
| 4,208 |
| Total | 108,110 |
| 88,748 |
c) Market risk
Market risk arises from the Group's use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) and price of lead ingot (price risk). The policy for each of these risks is discussed below:
d) Currency Risk
The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with cash generated from their own operations in that currency.
The Group has transaction currency exposures. Such exposure arises from sales by an operating unit in currencies other than its functional currency. Approximately 5% of the Group's sales are denominated in USD.
If the exchange rate were to move significantly between the year end and date of payment or receipt there could be an impact on the Group's net income. As all financial assets and liabilities are short term in nature, this risk is not considered to be substantial.
An analysis by currency of the group's financial assets is below：
|
| Group |
| Group |
|
| 2009 |
| 2008 |
|
| £000 |
| £000 |
| Financial assets |
|
|
|
| Renminbi | 45,392 |
| 35,303 |
| US Dollar | 1,654 |
| 593 |
| Other | 33 |
| 160 |
|
| 47,079 |
| 36,056 |
|
|
|
|
|
A 10% strengthening of the RMB against the USD would result in reported group profit being £853,000 lower. Conversely, a 10% weakening of the RMB against the USD would result in reported group profit being £853,000 higher.
The group prepares its consolidated financial statements in sterling and therefore the group's net asset position are exposed to retranslation risk as a result of movements in the RMB and Sterling exchange rate.
e) Interest rate risk
Interest rate risk arises from the potential changes in interest rates that may have an adverse effect on the Group in the current reporting period and in future years.
The Group is exposed to interest rate risk through the impact of change in interest rates on interest-bearing debts and interest-bearing cash. Other than the bank deposits and borrowings, the Group has no other significant interest-bearing assets and liabilities. The Group's policy is to secure all its borrowings at fixed borrowing rates and is therefore only exposed to fair value interest rate risk. Similarly all deposits earn interest at a fixed rate.
f) Price risk
The Group's balance sheet and income statement is exposed to the price of lead ingot, the main raw material used by the Group in its production process. In 2009, the price of the main raw material, lead ingot, changed between a month average price RMB 11,985 and RMB 15,938. The Group initiated negotiations with the telecommunications operators and its OEM customers, resulting in a linkage to the price of lead, which effectively alleviated pressure arising from the increase in the raw material price by passing it on to the customer, by agreement. The Group does not hedge the price of lead ingot.
Capital management
The Group considers its capital to comprise its ordinary share capital, share premium and accumulated retained earnings. In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. The group has historically considered a mix of debt and equity funding as the most appropriate form of capital for the group.
Fair values
The book value and fair value of all the Group's and companies financial assets and liabilities are the same.
24 Group companies
The companies comprising the Group are as follows:
|
Name of the companies |
Place and date of incorporation |
Principal activities | Proportion (%) of ownership interest at 31 December 2009 |
|
Leadstar Enterprises Limited |
British Virgin Islands 18 March 2005 |
Investment holding | 100% |
| Jiangsu Shuangdeng Group Co. Ltd | China, 16 September 2003 | Investment holding | 100% |
| Hong Kong Wealth Source Development Co. Ltd | Hong Kong, China, 24 September 1997 | Investment holding | 100% |
| Jiangsu Shuangdeng Power Supply Co. Ltd | China, 9 December 1995 | Manufacturing, sales and development of AGM batteries | 100% |
| Jiangsu Fuste Power Supply Co. Ltd | China, 23 October 2001 | Manufacturing and sales of GEL and GFX batteries | 100% |
| Nanjing Shuangdeng Science and Technology Development Academy Co. Ltd | China, 18 June 2001 | Technology research and development, manufacture and sales of UPS | 100% |
| Jiangsu Best Power Supply Co. Ltd | China, 13 January 2006 | Manufacturing and sales power-aided bicycle batteries | 100% |
| Glory Trinity Engineering Ltd
| Hong Kong, China, 26 February 2003 | Investment holding | 100% |
| Yangzhou Zhenghe Power Supply Co., Ltd
| China, 2 November 2001 | Manufacturing, sales and development of GFM batteries | 59% |
The only direct subsidiary of the Company is Leadstar Enterprises Limited. All other investments in subsidiaries are held indirectly.
25 Share-based payments
Equity-settled share options
1,480,000 share options were granted to certain directors and employees on flotation of the Company, and a total of 320,000 share options were granted to Seymour Pierce Limited and FT International Corporate Advisory Limited for services provided in respect of the flotation. The options granted to the directors and employees are exercisable in the period December 2008 to December 2015 and lapse thereafter or if the employee leaves the Group. The options granted to Seymour Pierce Limited and FT International Corporate Advisory Limited are exercisable at any time up to 2 years from the date of listing on AIM; 200,000 of the options were exercised in 2006 and the remaining 120,000 options lapsed in December 2007.
All the options were granted at the placing price of £1.30 per share.
|
| 2009 |
| 2008 |
| Exercise |
|
| Number of |
| Number of |
| price(£) |
|
| Options |
| Options |
|
|
| Outstanding at the beginning of the period | 1,480,000 |
| 1,480,000 |
| 1.30 |
| Lapsed during the period | 300,000 |
| - |
| 1.30 |
|
|
|
|
|
|
|
| Outstanding at the end of the period | 1,180,000 |
| 1,480,000 |
| 1.30 |
|
|
|
|
|
|
|
| Exercisable at the end of the period | 1,180,000 |
| 1,480,000 |
| 1.30 |
The Group recognised total expenses of £nil (2008: £298,000) related to equity-settled share-based payment transaction during the year. All options had vested at 31 December 2008.
26 Segmental information
The Group's report segments reflect the internal reporting format provided to the Chief Operating Decision maker and are as follows:
l The Power Type Batteries segment is comprised of power-aided bicycle batteries. This segment contributes 8% (2008: 10%) to Group turnover.
l The Back Up Batteries segment includes Valve Regulated, Flooded and Gel batteries. This segment contributes 92% (2008: 90%) to Group turnover.
Measurement of operating segment profit or loss, assets and liabilities.
The accounting policies of the operating segments are the same as those described in the summary of significant policies.
The Group evaluates performance on operating segment profit or loss from operations before tax not including non-recurring losses, such as restructuring costs and goodwill impairment, and also excluding the effects of share based payments.
Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of group resources at a rate acceptable to local tax authorities. This policy was applied consistently throughout the current and prior period.
Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities and defined benefit liabilities. Even though loans and borrowings arise from finance activities rather than operating activities, they are allocated to the segments based on relevant factors (e.g. funding requirements). Details are provided in the reconciliation from segment assets and liabilities to the group position.
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| Back up batteries | PTB | Eliminations | Continuing operations | ||||
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| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
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| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Revenue: |
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| Sales to external customers | 196,531 | 164,794 | 16,038 | 18,289 | - | - | 212,569 | 183,083 |
| Inter-segment sales | - | - | 9,676 | 22,718 | (9,676) | (22,718) | - | - |
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| Total revenue | 196,531 | 164,794 | 25,714 | 41,007 | (9,676) | (22,718) | 212,569 | 183,083 |
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| Results: |
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| Segment profit | 26,011 | 11,499 | (669) | 337 | - | - | 25,342 | 11,836 |
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| Unallocated corporate expenses |
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| (268) | (284) |
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| Profit from operations before taxation |
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| 25,074 | 11,552 |
| Income taxation |
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| (1,610) | (1,258) |
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| Profit for the year |
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| 23,464 | 10,294 |
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| Back up batteries | PTB | Eliminations | Consolidated | ||||
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| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
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| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Assets and liabilites: |
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| Segment assets | 169,119 | 161,319 | 10,835 | 3,837 | - | (22,646) | 179,954 | 142,510 |
| Unallocated assets |
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| 3,234 | 5,114 |
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| Total assets |
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| 183,188 | 147,624 |
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| Segment liabilities | 104,141 | 103,617 | 5,454 | - | - | (19,746) | 109,595 | 83,871 |
| Unallocated liabilities |
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| 563 | 10,260 |
| Total liabilites |
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| 110,158 | 94,131 |
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| Other segment information: |
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| Finance income | 440 | 194 | - | - | - | - | 440 | 194 |
| Finance costs | 1,705 | 2,811 | - | - | - | - | 1,705 | 2,811 |
| Capital expenditure: |
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| Property, plant and equipment | 7,417 | 3,434 | 38 | 102 | - | - | 7,455 | 3,536 |
| Intangible assets | 6 | 450 | - | - | - | - | 6 | 450 |
| Depreciation and amortization | 1,782 | 1,432 | 244 | 178 | - | - | 2,026 | 1,610 |
Geographical segments
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| India | Singapore | Others | Total | ||||
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| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
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| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Export sales to | 5,704 | 25,969 | 1,032 | - | 2,908 | 3,745 | 9,644 | 29,714 |
All export sales originate from the Back up batteries segment.
27 Construction commitments
Construction commitments as at 31 December 2009 but not recognized in the financial statements is £3,422,068 (2008: £1,850,000).
28 Post balance sheet event
The Company signed a share ownership acquisition contract with Jiangsu Tianpeng Lead Oxide Co., Ltd and Jiangsu Tianpeng Chemical Industry Co., Ltd regarding acquisition of Rugao Tianpeng Metallurgy Co, Ltd (hereafter referred to as "Tianpeng Metallurgy") on 19 December 2009. The total consideration is £1,820,000. The company has paid £182,000 on 28 December, 2009 and £1,275,300 in January 2010, and the balance £362,700 will be paid during July 2010. The Company had acquired substantial control of Tianpeng Metallurgy on the 22 January 2010. The total assets and liabilities as at 31December 2009 were £1,973,278 and £1,252,700, respectively.
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the fifth Annual General Meeting of China Shoto plc will be held on 8th Floor, 131 Finsbury Pavement London EC2A 1NT at 10am on 22nd June 2010 to transact the following resolutions. Resolutions 1-5 will be proposed as ordinary resolutions and resolutions 6-7 will be proposed as special resolutions:
Ordinary Business
1. To receive and adopt the Group's Annual Report and Financial Statements for the financial year ended 31 December 2009, together with the Directors' Report and the Auditors' Report on those financial statements.
2. To re-appoint BDO LLP as Auditors to hold office from the conclusion of this Meeting until the conclusion of the next Annual General Meeting of the Company at which financial statements are laid and to authorise the Directors to fix their remuneration.
3. To declare a full year dividend of 5 pence per ordinary share.
4. To reappoint Peter Maurice Crystal who retires by rotation as a Non-Executive Director.
5. To reappoint Zhou Yuezhang who retires by rotation as an Executive Director.
Special business
6. That for the purposes of Section 551 of the Companies Act 2006 (the "Act") the Directors be and they are generally and unconditionally authorised to exercise all the powers of the Company to allot shares, grant rights to subscribe for or to convert any securities into shares in the Company, in substitution of all previous authorities conferred on the Directors in accordance with Section 80 of the Companies Act 1985 up to a maximum number of 5 million shares having an aggregate nominal value of £500,000 to such persons and at such times and on such terms as the Directors think proper, provided that this authority shall expire on the day falling 15 months after the date of the passing of this resolution or, if earlier, at the conclusion of the annual general meeting of the Company to be held in 2011 unless and to the extent that such authority is renewed or extended prior to such date, save that the Company may make an offer or agreement before the expiry of this authority which would or might require shares to be allotted after such expiry and the Directors may allot shares pursuant to such an offer or agreement as if the authority conferred hereby had not expired.
7. That, subject to the passing of resolution 6 above, the Directors are empowered, in substitution for all existing authorities and pursuant to Sections 570 and 573 of the Act to allot shares, grant rights to subscribe for or to convert any securities into shares in the Company for cash as if Section 561(1) of the Act did not apply to any such allotment of shares, grant rights to subscribe for or to convert any securities into shares in the Company provided that this power shall be limited to the allotment of equity securities as follows:
(a) the allotment of equity securities in connection with any issue by way of rights issue or other offering where the number of equity securities to be allotted to holders of ordinary shares of the Company on a fixed record date is proportionate (as nearly as may be) to the number of ordinary shares then held by such shareholders, subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with legal or practical problems under the laws of, or the requirements of, any regulatory or stock exchange authority in any jurisdiction or in relation to fractional entitlements; and
(b) otherwise than pursuant to sub-paragraph (a) above, up to a maximum number of 5 million shares having an aggregate nominal value of £500,000,
provided that this power shall, unless it is (prior to its expiry) duly revoked or varied or renewed by the Company in general meeting, expire on the day falling 15 months after the date of the passing of this resolution or, if earlier, at the conclusion of the annual general meeting of the Company to be held in 2011, save that the Company may make an offer or agreement before the expiry of this power which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities pursuant to such an offer or agreement.
By Order of the Board
Peter Maurice Crystal
Company Secretary
28 April 2010
Registered Office:
The Broadgate Tower,
20 Primrose Street,
London EC2A 2RS
Notice of Annual General Meeting
NOTES
In addition to the noted set out below explanation of certain of the resolutions is set out in Appendix 1.
1. A member entitled to attend and vote at the Meeting may appoint one or more proxies to attend and on a poll vote instead of him. A proxy need not be a member of the Company.
2. To be effective, the instrument appointing a proxy and any authority under which it is executed (or a notarially certified copy of such authority) must be deposited with the Company's registrars, Capita Registrars, not less than 48 hours before the time of the holding of the Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meetings.
3. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the register of members of the Company as at 10.00 am on 20th June 2010 shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Or if the meeting is adjourned, such time being not more than 48 hours prior to the time fixed for the adjourned meeting. Changes to entries on the register of members after 10.00 am on 20th June 2010 shall be disregarded in determining the rights of any person to attend or vote at the meeting.
4. The register of interests of directors and their families in the Company's shares and copies of all Directors' service contracts and copies of any letter of appointments, as appropriate as well as the Company's Articles of Association will be available for inspection at the registered office of the Company during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this Notice until the conclusion of the Meeting and will be available for inspection at the place of the AGM and at least 15 minutes prior to and during the meeting.
Appendix 1 - Explanation of certain resolutions
Resolutions 4 and 5: Election of Directors
Both Zhou Yuezhang and Peter Crystal, who retire by rotation in accordance with Article 80 of the Company's articles of association, being eligible to do so, have confirmed their intention to seek re-election by the shareholders at the meeting as an Executive Director and Non-Executive Director respectively.
Resolution 6: Allotment of Shares
Under Section 551 of the Companies Act 2006 (the "Act"), the Directors of the Company may only allot shares if authorised to do so. The articles of association give a general authority to allot shares, but that authority is subject to renewal by shareholders each year. This resolution proposes that the directors' authority be renewed, giving the power to allot shares up to an aggregate nominal value of £500,000, which is equal to approximately [21]% of the issued share capital of the Company as at the date of this Notice. This authority shall expire (unless previously renewed or revoked by the Company in general meeting) on the day falling 15 months after the date of the passing of the resolution or, if earlier at the conclusion of the annual general meeting of the Company to be held in 2011.
Resolution 7: Waiver of Pre-emption Rights
In the case of a new allotment of shares or convertible securities for cash, Section 561 of the Act grants pre-emption rights to existing shareholders. However, the directors may be given the power under Sections 570 and 573 of the Act to disapply generally the provisions of Section 561, Accordingly, the Directors consider that it is in the best interests of the Company for the existing authority granted by shareholders at the 2009 annual general meeting of the Company to be renewed for a period expiring (unless previously renewed or revoked by the Company in general meeting) on the day falling 15 months after the date of the passing of the resolution or, if earlier at the conclusion of the annual general meeting of the Company to be held in 2011.
Recommendation
The Directors recommend that you vote in favour of all of these resolutions, as they intend to do in respect of their own shares. The Directors consider that the resolutions are in the best interests of the Company and its shareholders as a whole.
Form of Proxy
I/We (name in full) of being (a) shareholder/(s) of China Shoto plc hereby appoint the Chairman of the Meeting
or as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 8th Floor, 131 Finsbury Pavement, London, EC2A 1NT on 22nd June 2010 at 10am and at any adjournment of the Meeting.
Please indicate with an 'X' in the space below how you wish your vote to be cast. In the absence of any specific direction, and on any other resolution or motion put to the Meeting, the proxy will, vote or abstain as the proxy thinks fit.
| RESOLUTION | FOR | AGAINST |
| 1. To receive and adopt the Company's Annual Report and Financial Statements for the financial year ended 31 December 2009, together with the Directors' Report and the Auditors' Report on those Financial Statements. |
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| 2. To re-appoint BDO LLP as Auditors. |
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| 3. To declare a full year dividend of 5 pence per ordinary share. |
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| 4. To reappoint Peter Maurice Crystal who retires by rotation as a Non-Executive Director. |
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| 5. To reappoint Zhou Yuezhang who retires by rotation as an Executive Director. |
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| 6. To authorise the Directors to allot relevant securities in the Company pursuant to section 551 of the Companies Act 2006. |
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| 7. To disapply the provisions of section 561 of the Companies Act 2006 in respect of the allotment of equity securities in the Company. |
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Signature(s) Date 2010
NOTES：
1 To be valid, this Form of Proxy, duly completed, must be deposited with the Company's Registrars at, Capita Registras, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not less than 48 hours before the time appointed for the Meeting.
2 In the case of joint holders, only one signature is required.
3 In the case of a corporation, this Form of Proxy must be executed under its common seal or signed on its behalf by an officer or duly authorized agent.
4 Any alteration made to this Form or Proxy must be initialed.
5 Completion and return of a Form of Proxy will not preclude shareholders from attending and voting in person should they subsequently decide to do so. However the shareholder's proxy appointment will be terminated.
6 Any shareholder entitled to attend and vote at the above Meeting may appoint one or more proxies of his/her own choice to attend and, on a poll, to vote instead of him/her. If a shareholder appoints more than one proxy, he/she shall specify the number of shares in respect of which each proxy is entitled to exercise the relevant votes and shall ensure that no proxy is appointed to exercise the votes which any other proxy has been appointed by that shareholder to exercise. A proxy need not be a shareholder of the Company. A shareholder completing a Form of Proxy will not thereby be precluded from attending in person instead of by proxy. However the shareholder's proxy appointment will be terminated.
7. The appointment of a proxy shall be deemed to have the right to demand or join in demanding a poll but shall not confer any further right to speak at the meeting, except with the permission of the Chairman of the meeting.