-3x Short China Regulatory News (CHNS)

22 Apr 2008 07:00

China Shoto plc22 April 2008 Preliminary Results Press Release 22 April 2008 China Shoto plc ("China Shoto" or "the Company" or "the Group") Preliminary Results China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteriesand power supply systems, announces its preliminary results for theyear ended 31 December 2007.Highlights • Revenue increased by 81% to £107.50 million (2006: £59.54 million)• Net profit attributable to equity holders of the parent increased by 41% to £5.62 million (2006: £4.00 million)• Sales revenue of back up battery in 2007 increased by 99% to £78.02 million (2006: £39.22 million)• Foreign sales revenue in 2007 increased 482% to £6.92 million (2006: £1.19 million).• Headline diluted earnings per share from continuing operations in 2007 increased 45.8% to 24.45 p (2006: 16.77 p).• The Technology Center of China Shoto was recognized as a State Class Enterprise Technology Center in September 2007.• The Board recommend a final dividend for 2007 of 4.5 pence per share. The introduction of the Third Generation Mobile infrastructureand the holding of the Olympic Games in China will give us a huge marketopportunity. We believe that our expanded range of quality products and sharplyincreased production output will underpin the prospects for continuous successin 2008. China Shoto has become the largest back up lead acid battery producerin China and we intend to become the largest lead acid battery producer in Asia.China Shoto also plans to gradually enter into renewable energy industries tobecome an environmental-friendly energy solution provider. For further information: China Shoto plcCao Guifa, Executive Chairman Tel: +44 (0) 20 7242 2666/ +86 159 6108 0515www.chinashoto.com Seymour Pierce LimitedStuart Lane / John Depasquale Tel: +44 (0) 20 7107 8000jdp@seymourpierce.comwww.seymourpierce.com Media enquiries:Allan Piper/ Jiang Lei Tel: +44 (0) 20 7242 2666/ +852 2854 2666lei@firstcitypr.comwww.firstcitypr.cn Chairman's Statement In 2007 China's economy has seen major developments. China Shoto, as a leadingChinese producer of lead acid batteries has achieved another year of substantialgrowth and revenue in this environment. To focus on the fast increase in ourcore market sector and expansion of our business, China Shoto disposed of its51% share in 2007 of the Beijing Full Three Dimension Power Engineering Co.,Ltd. ("FTD")'s turbine business. Our company is taking full advantage of thefavorable opportunities in our high growth market sectors. Results and DividendRevenue increased by 81% to £107.50 million in 2007 (2006: £59.54 million).Operating profit increased by 63% to £8.53 million (2006: £5.24 million). On 7 November 2007 the Group signed a contract to dispose of the turbinebusiness operated by FTD, which is a 51% owned subsidiary undertaking. Thedisposal was fully settled in cash. Earnings for the purpose of basic and diluted earnings per share are the netprofit for the financial year attributable to equity holders of the parentcompany of £5,618,000 (2006: £4,003,000). The Directors recommend payment of afinal dividend for 2007 of 4.5 pence per share in line with its stated dividendpolicy. Business ProgressThe sales revenue of the back up battery business in 2007 was £78.02 million.Sales to the six major telecommunication operators cover 88% of the totalbusiness revenues in this division. The sales revenue of the power battery business in 2007 was £29.48 million, anincrease of 45% compared with £20.33 million in 2006. Global telecommunications expansion, especially the fast expansion of the IndianTelecom market and the accelerated construction of the Chinese 3G network, offerconsiderable scope for our company's continuous expansion in 2008. Directorate ChangesOn 13 July 2007 Zhu Shiping, Wang Zhaobin and David Thomas retired from theBoard and we thank them for their efforts to our company. David Thomas alsoretired as company secretary. Zhou Ping and Zhou Weigang were appointed asexecutive directors and Peter Maurice Crystal was appointed as a non-executivedirector on 13 July 2007. Peter Crystal was appointed as company secretary on 31December 2007. Social ResponsibilityOur Company is committed to the welfare of its employees and responsibilities tothe community. We are dedicated to offering our customers quality products andexcellent services. China Shoto will continue to strive towards best practiceand standards in our industry consistent with profitability. The average returnon equity ratio for the last three years was 22%, and return on equity ratio for2005, 2006 and 2007 was 26%, 20% and 21% respectively. At the same time we willseek to deliver attractive returns to our shareholders. China Shoto offersemployees career development opportunities and supports their goals outsidetheir family life and work. Environmental StandardsThe Group passed the certification of ISO14001 and GB/T18001 vocation health andsafety management system, and its products passed the CE Verification, ULVerification and EU RoHS test. OutlookThe Issuance of the Third Generation Mobile Telecommunication Technology Licenseand the holding of the Olympic Games in China will give us a huge marketopportunity. We believe that our expanded range of quality products and sharplyincreased production output will underpin the prospects for continuous successin 2008. China Shoto has become the largest back up lead acid battery producerin China and we intend to become the largest lead acid battery producer in Asia.China Shoto also plans to gradually enter into renewable energy industries tobecome an environmental-friendly energy solution provider. Cao GuifaChairman Chief Executive's Review I am delighted to report China Shoto's results for 2007, which show asubstantial growth in our core businesses, disposal of our controlling interestin the turbine business and further consolidation and enhancement of our leadingposition among communication operators and key OEM industries. Market Overview Market SectorsThe revenue from back up battery sales was £78.02 million in 2007, an increaseof 99% compared with £39.22 million in 2006. The revenue from PTB business was £29.48 million in 2007, an increase of 45%compared with £20.33 million in 2006. International MarketForeign sales in 2007 were £6.92 million, including Absorbed Glass Matt (AGM)batteries of £5.86 million, compared with £1.19 million in 2006. In 2007, ChinaShoto made a big step in attracting strategic large clients such as IndiaReliance and American GE, and took new market opportunities with a fastexpansion in gross revenue. AGM BatteriesIn October 2007, our company won a $10 million order from one of India's largesttelecom operators, Reliance Telecom. In addition, we successfully became thelocomotive battery supplier to GE Transportation System a subsidiary of AmericanGE. Gel and Flooded BatteriesOur Gel and Flooded Batteries are mainly sold in Europe, America and South-EastAsia. In addition, with China Mobile developing in the Pakistani market, ourproduct also entered that market. Key Customers Back up BatteriesSales to five major telecommunication service providers increased by 118% to£64.22 million compared to £29.49 million in 2006. Sales to China Mobile andChina Unicom in particular have increased by 120% to £49.29 million, as comparedto £22.38 million in 2006. PTB BusinessThe key customers of the PTB business are Beijing Xinri in Wuxi, Tianjin Taimei,Tianjin Taifeng and Jiangsu Yadea, which are important domestic manufacturers.The above four key customers accounted for 22.9 %, 6.6%, 5.2% and 2.3% of totalPTB sales, respectively. Sales and Marketing Back up batteryOur company successfully became a qualified supplier to Huawei Technologies, thelargest next generation telecom equipment manufacturer in China. In addition,our company has entered into five new provincial telecommunication markets,including Guangdong, Shanghai, Fujian, Hainan and Guizhou and maintained itshigh market shares in Jiangsu and Zhejiang telecommunication markets. PTB BusinessIn 2007, our company selected distributors of well-known electric bicyclemanufacturers and appointed experienced sales region agents. Technical Support and FairsOur company strengthened its communications with our customers with greatertechnical support and attended the major product fairs. In 2007, our company provided 29 technical trainings for China Mobile, ChinaUnicom, China Telecom, China Netcom, China Power and other customers.Our company was also represented at the China Sourcing Fair in Hong Kong inApril and October 2007, and the Russian Telecommunication Fair in May andOctober 2007. Operating Review Product Quality controlChina Shoto manufactures batteries according to IEC and German DIN standards,and ensures the highest quality control using advanced manufacturing equipmentand production processes. The company successfully developed the 12V Tubular GelBattery meeting the EU 40744 Standard. Both the 2V and 12V series of batterieshave been recognized as "State-designated Product Exempt from QualityInspection" by the General Administration of Quality Supervision, Inspection andQuarantine of P. R. China. In addition, our products passed the examination andapproval of the Quality Award Examination and Approval Committee to gain theJiangsu Province Quality Award of 2007. In addition, the lead-acid battery usedin power-assisted electric bicycle won the Product award of Jiangsu Province. ManufacturingProduct quality has been guaranteed by strict monitoring in manufacturingprocesses and detailed checks. Production capacity has also been increasedthrough the installation of new equipment and the recruitment of additionallabour. Cost managementIn 2007, the price of the main raw material, lead ingot, increased from anaverage price of 14,430RMB in January to 19,830 RMB in December, which lead toincreased cost pressure. The Group initiated negotiations with thetelecommunications operators and its OEM Customers, resulting in a linkage tothe price of lead, which effectively alleviated pressure arising from theincrease in the raw material price by passing it on to the customer, byagreement. Research and developmentIn 2007, the Group increased its input in Scientific and Technological R&D toreflect the demands of our market and its customers and increased research innew technologies to ensure the industrial development of new intellectualproperty and the advancement of our new technical programs. Patents GrantedTwo patents were granted in 2007. The Company now holds 98 patents among whichthere are 10 invention patents. Back up battery AGM BatteryThe company successfully developed its fifth model of AGM battery ranging from2V200 to 2V1000Ah which had been introduced into the market. At the same time,the 12V Tubular Gel Battery was successfully developed under the EU 40744Standard and was put to the market. Spiral Wound BatteryThe spiral wound battery team developed a large capacity spiral wound battery of12V 50Ah. Power type batteriesTo meet demand on large capacity battery in the electric bicycle market, ourcompany successfully developed the 16V18Ah power type battery, which was alsoput to the market. ProspectsChina Shoto intends to become a recognised environmentally friendly energysolution provider. Our high quality products and excellent service record fullydemonstrates our growth both in China and abroad. The company will continue withits brand strategy, and will exploit development opportunities of 3G andoverseas telecommunications markets. The company intends to reduce operationrisk and achieve larger market share through acquisition or accessory partsoutsourcing. Looking forward to the future, the company will firmly consolidateits core business. Yang ShanjiChief Executive Finance Director's Review ResultsSales revenues of the Group have increased by 81% to £107.50 million (2006:£59.54 million). Operating profit of the Group is £8.53 million, an increase of 63% (2006: £5.24million). Pre-tax profit of the Group is £7.16 million, an increase of 59% (2006: £4.51million). Net profit of the Group attributable to equity holders of the parent is £5.62million, an increase of 41% (2006: £4.00 million). Diluted earnings per share from continuing operations in 2007 is 24.45 p, anincrease of 45.8% (2006: 16.77 p). Income taxThe Company and significant subsidiary undertakings are subject to income tax onthe following bases and at the following rates:China Shoto plc The Company is a non-resident UK company, subject to UK corporation tax at thestandard rate of 30% on UK profits. Jiangsu Shuangdeng Group Co. LtdIn 2005 the company reregistered as a foreign enterprise and is entitled toexemptions from PRC income tax for the two years commencing from its firstprofit-making year of operation and to a 50% relief from PRC income tax foranother three years thereafter. Its standard applicable tax rate is 24% duringtax holiday. In accordance with the latest PRC taxation laws which will come into effect on 1January 2008, starting from 1 January 2008, enterprises who once enjoyed apreference on taxation exemption or relief on certain period such as "exemptionfrom 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 fiveyears", will apply the original taxation law and administration law regulationas well as the preferential system and preferential term till the end of theperiod regulated in the relevant regulation after the implementation of the newtaxation. However, those who haven't enjoyed the taxation preferential becauseof no profit-making will account its preferential term from the year 2008. Since2008 is the company's first profit-making year, it is free from income tax in2008 and 2009, and a half tax rate of 12% will be imposed in 2010, 2011 and2012. Jiangsu Fuste Power Supply Co. Ltd and Jiangsu Best Power Supply Co. LtdThe companies are located in an area designated as an Economic DevelopmentCoastal Region in accordance with PRC tax regulations and are entitled to anapplicable tax rate of 24%; meanwhile as a production enterprise in accordancewith the PRC tax legislation applicable to foreign investment enterprises eachcompany is entitled to exemptions from PRC income tax for the two yearscommencing from their first profit-making year of operation (2004 for JiangsuFuste Power Supply Co. Ltd and 2006 for Jiangsu Best Power Supply Co. Ltd) andfor another three years thereafter they are entitled to a 50% relief from PRCincome tax. After the tax holiday, its applicable tax rate is 25% according tothe latest taxation laws, which will come into effect in 1 January 2008. Jiangsu Shuangdeng Power Supply Co. LtdThe company is recognised as a "technology and knowledge concentratedenterprise" and entitled to a 15% PRC income tax rate because it is a productionenterprise and also located in an area designated as an Economic DevelopmentCostal Region in accordance with PRC tax regulations. Its applicable tax rate in2008 is 18% (2009: 20%, 2010: 22%, 2011: 24% and 2012: 25% thereafter) accordingto the latest taxation laws which will come into effect in 1 January 2008. Nanjing Shuangdeng Science and Technology Development Academy Co. LtdIn 2005 the company reregistered as a foreign investment enterprise andmeanwhile it is a production enterprise located in a development zone inaccordance with the PRC income tax legislation so it is entitled to exemptionsfrom PRC income tax for the two years commencing from its first profit-makingyear of operation and thereafter it is entitled to a 50% relief from PRC incometax for the next three years. Its applicable tax rate is 24%. In accordance with the latest PRC taxation laws which will come into effect on 1January 2008, starting from 1 January 2008, enterprises who once enjoyed apreference on taxation exemption or relief on certain period such as "exemptionfrom 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 fiveyears", will apply the original taxation law and administration law regulationas well as the preferential system and preferential term till the end of theperiod regulated in the relevant regulation after the implementation of the newtaxation. However, those who haven't enjoyed the taxation preferential becauseof no profit-making will account its preferential term from the year 2008. Since2008 is the company's first profit-making year, it is free from income tax in2008 and 2009, and a half tax rate of 12% will be imposed in 2010, 2011 and2012. Yangzhou Zhenghe Power Supply Co., LtdThe company is a production enterprise and in accordance with the PRC taxlegislation applicable to foreign investment enterprises the company is entitledto exemptions from PRC income tax for the two years commencing from its firstprofit-making year of operation (2007 for Yangzhou Zhenghe Power Supply Co.,Ltd) and for another three years thereafter they are entitled to a 50% relieffrom PRC income tax. Its applicable tax rate is 24% during tax holiday. Afterthe tax holiday, its applicable tax rate is 25% according to the latest taxationlaws which will come into effect in 1 January 2008. Earnings and DividendsDiluted earnings per share from continuing operations in 2007 increased 45.8% to24.45 p (2006: 16.77 p). The Directors recommend the payment of a final dividendfor 2007 of 4.5 pence per share (2006: 4.5 p). Equity shareholders' fundsShareholders' funds have increased to £30.09 million (2006: £23.44 million).Retained earnings total £10.41 million (2006: £6.77 million). Cash FlowThe considerable increase in sales volume in 2007 resulted in the need forgreater working capital. Although debtor days reduced by 6 days from that of2006, cash flow from operating activities in 2007 was still negative, at £3.03million. The Group covered its deficit in operating cash flows by increased bankborrowings. Interest paid was £1.46 million (2006: £822,000) and tax paymentswere £976,000 (2006: £607,000). Debtor daysDebtor days fell from 75 days in 2006 to 69 days in 2007. In the back up battery business, debtor days fell from 91 days in 2006 to 77days in 2007. In the power type battery business, debtor days fell from 38 days in 2006 to 26days in 2007 BorrowingThe Group entered into credit agreements with Jiangyan Branch of Bank of China,Jiangyan Branch of China Construction Bank, Jiangyan Branch of Agricultural Bankof China and Nanjing Branch of Shenzhen Development Bank, Taizhou Branch of Bankof Communication. In addition, the Group was entitled to be the honor creditenterprise by Jiangsu Provincial Bank Industry in 2007.At 31 December 2007, the Group had short term bank loans of £23.28 million(2006: £12.24 million). Liquidity riskLiquidity risk arises from the Group's management of working capital.The Group's policy as regards liquidity is to ensure sufficient cash resourcesare maintained to meet short-term liabilities. To achieve this aim, the groupimproved receivable turnover ratio by requiring customers who do not pay withinallowed credit terms, to pay interest on top of their debt. The Group also seeksto reduce liquidity risk by obtaining high credit level in banks. Foreign exchange risksApproximately 6% of the Group's sales are denominated in USD. The Group's policyin regard to currency risk is to limit payment terms to immediate letters ofcredit or prepayment before transporting goods to clients.In 2007, the foreign sales revenue increased 482% to £6.92 million (2006: £1.19million). At 31st December 2007, the year-end exchange rate between RMB andPound Sterling had appreciated by 5.09% to 14.5807 (2006: 15.3232). Directorsbelieve that RMB will continue appreciating in 2008. The appreciation of the RMBwill have a positive impact on the operating results of the Group. Interest rate riskThe borrowing rate for the Group changes in line with the Central Bank interestrate. The one-year RMB loan benchmark interest rate increased to 7.47% on 31stDec 2007 (2006: 6.12%). A tight currency policy implemented in 2007 alsoincreased the finance costs borne by the Group. The Group will continue tocarefully monitor its borrowings and strengthen control over trade receivablesto minimize any risks and improve its cash utilization. Zhou WeigangFinance Director Unaudited Consolidated Income StatementFor the year ended 31 December 2007 Notes 2007 2006 Unaudited Audited £000 £000 Revenue 107,497 59,544Cost of sales (82,376) (41,839) ---------- ---------Gross profit 25,121 17,705Other operating income 503 774Distribution expenses (11,131) (8,456)Administrative expenses (5,869) (4,739)Other operating expenses (96) (43) ---------- ---------Profit from operations 8,528 5,241Finance income 73 76Finance costs (1,445) (808) ---------- ---------Profit before tax from continuing operations 7,156 4,509Tax expense 4 (1,255) (746) ---------- ---------Profit from continuing operations 5,901 3,763(Loss)/profit on discontinued operations, netof tax 7 (14) 509 ---------- ---------Profit for the year 5,887 4,272 ========== =========Attributable to:Equity holders of the parent 5,618 4,003Minority interests 269 269 ---------- --------- 5,887 4,272 ========== =========Earnings per share for profit attributable totheequity holders of the parent during the year-Basic 6 24.07p 18.30p ========== =========-Diluted 6 23.66p 17.93p ========== ========= Continuing operations-Basic 6 24.87p 17.11p ========== =========-Diluted 6 24.45p 16.77p ========== ========= Unaudited Consolidated Balance SheetAs at 31 December 2007 Notes 2007 2006 Unaudited Audited Assets £000 £000Non-current assetsProperty, plant and equipment 15,590 12,409Available-for-sale investment 137 130Intangible assets 1,778 1,528Deferred tax assets 92 31 --------- --------- 17,597 14,098 --------- ---------Current assetsInventories 19,426 10,122Trade and other receivables 31,479 22,233Due from related parties 1,299 1,011Short-term investments 1,290 947Cash and cash equivalents 11,087 9,937 --------- --------- 64,581 44,250 --------- ---------Total assets 82,178 58,348 ========= =========LiabilitiesCurrent liabilitiesBank borrowings 23,284 12,236Trade and other payables 27,817 20,702Income tax payable 516 145Due to related parties - 656 --------- --------- 51,617 33,739 --------- ---------Non-current liabilitiesDeferred tax liabilities - 21 --------- --------- - 21 --------- --------- Total liabilities 51,617 33,760 --------- ---------EquityShare capital 8 2,334 2,334Share premium 8,630 8,630Other reserves 2,916 2,916Statutory reserves 6,678 5,071Retained earnings 10,406 6,769Foreign currency translation reserve (871) (2,272) --------- ---------Total equity attributable to equity holdersof the parent 30,093 23,448 --------- ---------Minority interests 468 1,140 --------- ---------Total equity and liabilities 82,178 58,348 ========= ========= Unaudited Consolidated Statement of Changes in EquityFor the year ended 31 December 2007 Attributable to equity holders Minority Total Foreign interests Share Share Other Statutory Retained currency Total capital premium reserves reserves earnings translation reserve Note 25 Note 26 Note 26 Note 26 Note 26 Note 26 £000 £000 £000 £000 £000 £000 £000 £000 £000Balance as at1 January 2006 2,000 3,875 2,916 4,024 3,837 (590) 16,062 - 16,062 Net profit forthe financialyear - - - - 4,003 - 4,003 269 4,272Foreigncurrencytranslation - - - - - (1,682) (1,682) (97) (1,779) ------ ------ ------ ------ ------ ------ ----- ------ ------Totalrecognizedincome andexpense 2,321 2,493 Acquisition ofsubsidiary - - - - - - - 968 968Issue ofordinaryshares onplacing 314 4,716 - - - - 5,030 - 5,030Share issuecosts - (201) - - - - (201) - (201)Exercise ofshare options 20 240 - - - - 260 - 260Transfer tostatutoryreserves - - - 1,047 (1,047) - - - -Share basedpaymentexpenseEmployee shareoptions - - - - 326 - 326 - 326Dividends paid - - - - (350) - (350) - (350) ------ ------ ------ ------ ------ ------ ----- ------ ------Balance as at31 December2006 2,334 8,630 2,916 5,071 6,769 (2,272) 23,448 1,140 24,588 Net profit forthe financialyear - - - - 5,618 - 5,618 269 5,887Foreigncurrencytranslation - - - - - 1,401 1,401 17 1,418 ------ ------ ------ ------ ------ ------ ----- ------ ------Totalrecognizedincome andexpense 7,019 7,305 Disposal ofsubsidiary - - - - - - - (712) (712)Transfer tostatutoryreserves - - - 1,607 (1,607) - - - -Share basedpaymentexpenseEmployee shareoptions - - - - 326 - 326 - 326Dividends paid - - - - (700) - (700) - (700)Dividendsannounced tominority - - - - - - - (246) (246)shareholdersofsubsidiaries ------ ------ ------ ------ ------ ------ ----- ------ ------Balance as at31 December2007 2,334 8,630 2,916 6,678 10,406 (871) 30,093 468 30,561 Unaudited Consolidated Cash Flow StatementsFor the year ended 31 December 2007 Notes 2007 2006 Unaudited Audited Cash flows from operating activitiesProfit before tax from continuingoperations 7,156 4,509Profit before tax from discontinuedoperations 351 552 ---------- ---------Profit before tax 7,507 5,061Adjustments for:Amortisation of intangible assets 50 43Depreciation of property, plant andequipment 1,137 820Losses on disposal of property, plant andequipment 42 21Share based payment expense 326 326Financial income (88) (91)Financial expense 1,460 822 ---------- ---------Cash flow from operating activitiesbefore 10,434 7,002changes of working capital and provisionsWorking capital changes:Gain on payable write-off (9) -(Increase)/decrease in:Inventories (8,997) (6,392)Trade and other receivables (12,504) 903Due from related parties (228) 952Increase/(decrease) in:Trade and other payables 9,817 (234)Due to related parties (651) (109) ---------- ---------Cash (used in)/generated from operations (2,138) 2,122Interest received 88 91Income tax paid (976) (607) ---------- ---------Net cash flows from operating activities (3,026) 1,606 ---------- ---------Cash flows from investing activitiesPurchase of land use right (422) (807)Purchase of property, plant and equipment (3,627) (4,905)Purchase of subsidiary undertakings - 666Purchase of investment - (130)Purchase of short-term investment (283) 1,664Disposal of a subsidiary undertaking, netof cash transferred 7 (361) -Proceeds from disposal of property, plantand equipment 307 186Dividend from former subsidiary (declaredbefore disposal) undertaking 175 - ---------- ---------Cash flows used in investing activities (4,211) (3,326) ---------- ---------Cash flows from financing activitiesNet cash inflow from share placing - 5,089Increase in bank borrowings 37,853 32,657Decrease in bank borrowings (27,864) (32,504)Interest paid (1,460) (822)Dividends paid (700) (350) ---------- ---------Cash flows from financing activities 7,829 4,070 ---------- --------- ---------- ---------Net increase in cash and cash equivalents 592 2,350Cash and cash equivalents at beginning ofyear 9,937 8,300Foreign exchange differences 558 (713) ---------- ---------Cash and cash equivalents at end of year 11,087 9,937 Notes to the financial statementsFor the year ended 31 December 2007 1. General informationThe financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2007 or 2006. The financialinformation for the year ended 31 December 2006 is derived from the Company'sstatutory accounts for that year and those statutory accounts have beendelivered to the Registrar of Companies. The auditors have reported on thoseaccounts; their report was unqualified and did not contain any statements underthe Companies Act 1985, s237(2) or (3). The statutory accounts for the yearended 31 December 2007 will be finalised on the basis of the financialinformation presented in this preliminary announcement and will be delivered tothe Registrar of Companies following the Company's annual general meeting. China Shoto plc is a company incorporated in the United Kingdom under theCompanies Act 1985. 2. Accounting policiesThe consolidated financial statements of China Shoto plc and its subsidiaryundertakings (the 'Group') and the individual financial statements of ChinaShoto plc (the 'Company') have been prepared in accordance with thoseInternational Financial Reporting Standards and Interpretations in force ('IFRS'), as adopted by the European Union, and those parts of the Companies Act 1985applicable to companies preparing financial statements under IFRS.The Group profit for the year includes a loss of £141,000 (2006: profit aftertax of £1,282,000), which is dealt with in the financial statements of theCompany. Principles of consolidationThe consolidated financial statements comprise the financial statements of theChina Shoto plc and its subsidiaries as at the balance sheet date. The financialstatements of the subsidiaries are prepared for the same reporting date as theparent company. Consistent accounting policies are applied for like transactionsand events in similar circumstances. Foreign currenciesThe functional currency of the subsidiary undertakings is Renminbi ("RMB"), andthe financial statements of the subsidiary undertakings have been drawn up inRMB. As sales and purchases are denominated primarily in RMB and receipts fromoperations are usually retained in RMB, the directors are of the opinion thatRMB reflects the economic substance of the underlying events and circumstancesrelevant to the Group. Monetary assets and liabilities maintained in currenciesother than RMB are translated into the RMB at the rates of exchange ruling atthe balance sheet date. Transactions in currencies other than RMB are translatedat rates ruling on the transaction dates. All resulting exchange differences aredealt with in the income statements. The presentation currency of the Group is pounds sterling and therefore thefinancial statements have been translated from RMB to pounds sterling at thefollowing exchange rates: Year-end rates Average rates31 December 2006 £1 = RMB 15.3232 £1 = RMB 14.750531 December 2007 £1 = RMB 14.5807 £1 = RMB 15.2166 Assets and liabilities are translated into sterling at the closing rate, and allincome and expenses are translated at the average rate during the financialperiod, being an approximation for the actual rates at the date of thetransactions. All resulting exchange differences are taken to the foreigncurrency translation reserve within equity. 3. Segment reports Reporting formatThe primary segment reporting format is determined to be business segments asthe Group's risks and rates of return are affected predominantly by differencesin the products and services produced. The operating businesses are organizedand managed separately according to the nature of the products and servicesprovided, with each segment representing a strategic business unit that offersdifferent products and serves different markets. The operating businesses areall located in the People's Republic of China, and therefore geographicinformation is provided only in respect of the destination of sales. Business segmentsThe Group is comprised of the following business segments:The Power Type Batteries ('PTB') business segment is comprised of power-aidedbicycle batteries. The Back up batteries business segment includes Value Regulated Lead AcidBatteries and Flooded and Gel Batteries. The Turbine business segment includes the development and construction of newturbines and the refurbishment and reconstruction of existing turbines. Allocation basis and transfer pricingSegment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis. Business segmentsThe following tables present certain sales, profit, asset, liability and otherinformation regarding the Group's business segments for the years ended 31December 2007 and 2006. Back up Batteries PTB Eliminations Continuing Turbine Total operations 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000Revenue:Sales toexternal customers 78,018 39,218 29,479 20,326 - - 107,497 59,544 5,817 6,910 113,314 66,454Inter-segmentsales - 1,706 5,814 1,166 (5,814) (2,872) - - - - - - ------ ------ ------ ------ ------ ------ ------ ----- ------ ------ ----- ------------Total revenue 78,018 40,924 35,293 21,492 (5,814) (2,872) 107,497 59,544 5,817 6,910 113,314 66,454 ====== ====== ====== ====== ====== ====== ====== ===== ====== ====== ====== ====== Results:Segment profit 7,535 3,961 1,149 1,566 - - 8,684 5,527 351 552 9,035 6,079 Unallocatedcorporateexpenses (1,528) (1,018) - - (1,528)(1,018) ------ ----- ------ ------ ------ ------Profit fromoperationsbeforetaxation 7,156 4,509 351 552 7,507 5,061 Incometaxation (1,255) (746) 1 (43) (1,254) (789) Loss fromsellingdiscontinuedoperation - - (366) - (366) ------ ----- ------ ------ ----- ------ Profit for theyear 5,901 3,763 (14) 509 5,887 4,272 Back up Batteries PTB Turbine Eliminations Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000Assets and liabilites:Segment assets 60,591 39,574 2,122 9,587 - 6,753 (11,621) (1,706) 51,092 54,208Unallocatedassets 31,086 4,140 ------ ------ Total assets 82,178 58,348 ====== ======Segmentliabilities 42,792 27,278 - 5,119 - 5,139 (22,036) (4,721) 20,756 32,815Unallocatedliabilities 30,861 945 ------ ------Totalliabilites 51,617 33,760 ====== ====== Other segment information:Capital expenditure:Property,plant andequipment 3,388 2,265 599 2,748 1 76 - - 3,988 5,089Intangibleassets - 130 356 - - - - - 356 130Depreciationandamortization 915 775 256 71 16 17 - - 1,187 863 - - ======= ====== ====== ====== ===== ====== ====== ====== ====== ====== b) Geographical segments Domestic sales Export sales Elimination Total 2007 2006 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 £000 £000Segment sales 106,394 65,260 6,920 1,194 - - 113,314 66,454 ======== ======= ======= ======= ====== ====== ======== ======= 4 Income tax Group Group 2007 2006 Unaudited Audited £000 £000Income tax expense is as follows:Current income tax 1,324 731Deferred income tax:Origination and reversal of temporary differences (57) 15Previously recognised deferred tax liabilitywritten (12) -off in the year (69) 15 --------- --------- 1,255 746 ========= =========Profit before tax 7,156 4,509 Expected tax charge based on the standard tax rateof individual group companies 1,729 689Effect of reduction in tax rate (726) (112)Tax effect of non-deductible expenses 276 169Difference in tax rate of tax rate relief (13) -Double tax relief applied on sale of discontinuedoperation (11) - --------- --------- 1,255 746 ========= ========= ========= ========= 5 Dividends Group Group Company Company 2007 2006 2007 2006 Unaudited Audited Unaudited Audited £000 £000 £000 £000Interim dividends paid 700 350 700 350 ========= ========= ========= ======== China Shoto plc declared a dividend of 1.5p per ordinary share amounting to£350,000 on 3 November 2006 to its shareholders at that date. China Shoto plcdeclared a dividend of 3p per ordinary share amounting to £700,000 on 26 April2007 to its shareholders at that date. 6 Earnings per share from continuing operationsEarnings for the purpose of basic and diluted earnings per share are the netprofit for the financial year attributable to equity holders of the parent of£5,618,000 (2006: £4,003,000). The profit from continuing operations for the financial year attributable toequity holders of the parent is as follows: Group Group 2007 2006 Unaudited Audited £ £Profit attributable to equity holders of the parent 5,618,000 4,003,000Loss on discontinued operation, net of tax 14,000 (509,000)Minority interest of discontinued operation 172,751 249,410 ---------- ---------Profit from continuing operations attributable toequity holders of the parent 5,804,751 3,743,410 ========== ========= The weighted average number of ordinary shares used in the calculation ofearnings per share from continuing operations has been derived as follows: Group GroupNumber of ordinary shares 2007 2006 Unaudited AuditedWeighted average number of ordinary shares -basic 23,343,770 21,880,671Dilutive effect of share options 400,985 441,050 ---------- ---------Weighted average number of ordinary shares -diluted 23,744,755 22,321,721 7 Disposal of a subsidiary undertakingOn 7 November 2007 the Group signed a contract to dispose of Beijing Full ThreeDimension Engineering Co. Ltd (FTD) which was a 51% is owned subsidiaryundertaking. The disposal consideration was fully settled in cash. The netassets of FTD as of the date of disposal were as follows: 7 November 2007 Unaudited £000Property, plant and equipment 64Inventories 566Trade receivables 3,979Bank balances and cash 879Deferred tax liability (7)Trade payables (4,023)Minority interest (712)Attributable goodwill 138 --------- 884Loss on disposal (366) ---------Total consideration 518 =========Satisfied by:Cash 518 ---------Net cash inflow arising on disposal:Cash consideration 518Bank balances and cash disposed of (879) --------- (361) 8 Share capital 2007 2006 Unaudited Audited £000 £000Authorised100,000,000 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 ========= ========== Number £000Issued on incorporation - 2 £1 ordinary shares 2 -Sub-division into 10 ordinary shares 18 -Issue of 10p ordinary shares on reverse acquisitionof Leadstar Enterprises Ltd on 30 November 2005 15,384,615 1,538Issue of 10p ordinary shares on placing on 6 December2005 4,615,385 462 --------- ----------At 31 December 2005 20,000,020 2,000Exercise of 10p share options on 3 April 2006 100,000 10Exercise of 10p share options on 5 May 2006 100,000 10Issue of 10p ordinary shares on placing on 12 June2006 3,143,750 314 --------- ----------At 31 December 2006 and 2007 23,343,770 2,334 ========= ========== The Company was incorporated on 10 May 2005 with authorised share capital of£1,000 divided into 1,000 ordinary shares of £1 each. On incorporation, 2ordinary shares of £1 each were issued for cash at £1 per share. On 30 November2005 the authorised share capital was sub-divided into 10,000 ordinary shares of10p each, and the authorised share capital was increased to £10,000,000 by thecreation of a further 99,990,000 ordinary shares of 10p each, and 15,384,615shares were issued in consideration for the entire issued share capital ofLeadstar Enterprises Limited. On 5 December 2005, 4,615,385 ordinary shares of10p were issued in connection with the placing. On 3 April and 5 May 2006,200,000 ordinary shares of 10p were issued in respect of the exercise of shareoptions granted to the Company's advisers at the time of the flotation. Theweighted average price of options exercised in the year was 130 pence. On 12June 2006, 3,143,750 ordinary shares of 10 p were issued in connection with theplacing. - Ends - This information is provided by RNS The company news service from the London Stock Exchange