-3x Short China Regulatory News (CHNS)

26 Apr 2007 07:00

China Shoto plc26 April 2007 Press Release 26 April 2007 China Shoto plc ("China Shoto" or "the Company" or "the Group") Final Results China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteriesand power supply systems, announces its Final Results for the year ended 31December 2006. Highlights • revenue increased by 134% to £66.45 million (2005: £28.41 million) • net profit increased by 29% to £4.0 million (2005: £3.11 million) • sales revenues of new power type battery business in 2006 represents 30% of total revenues • acquired 59% controlling stake in Yangzhou Zhenghe Company in March 2006 • acquired additional 21% stake in Beijing Full Three Dimension Power Engineering Co, Ltd ("FTD") to take a controlling position of 51% • debtor days fell from 121 days in 2005 to 75 days in 2006 • second fundraising, raising £5.0 million, with new shares admitted to trading on 12 June 2006 • an interim dividend for 2006 of 1.5 pence per share (2005: nil) • a final dividend for 2006 of 3 pence per share (2005: nil) Commenting on the Final Results, Cao Guifa, Executive Chairman, said: "Webelieve that our expanded and improved range of products and sharply increasingoutput underpin the prospects for a successful 2007, and that the Group willcontinue to deliver impressive results and create significant long term valuefor shareholders. We believe that, building on the strong foundations that havebeen established, the Group is well positioned to achieve further substantialgrowth. We look forward to the future with confidence and enthusiasm." For further information: China Shoto plcCao Guifa, Executive Chairman Tel: +44 (0) 20 7398 7700 www.chinashoto.com Seymour Pierce LimitedStuart Lane / John Depasquale Tel: +44 (0) 20 7107 8000jdp@seymourpierce.com www.seymourpierce.com Media enquiries:AbchurchHenry Harrison-Topham / Laura Riascos Tel: +44 (0) 20 7398 7700henry.ht@abchurch-group.com www.abchurch-group.com Chairman's Statement Our strategy is to focus on growth segments in our core markets by positioningChina Shoto as a leading Chinese producer of lead acid batteries. We are takingand shall continue to take advantage of the favourable opportunities in ourstrongly growing markets. Placing 2006 has been another successful year for China Shoto. The Group raised £5.0million before expenses in a secondary placing of new shares which were admittedto trading on AIM on 12 June 2006. The proceeds of the placing have been mainlyused to increase AGM battery production capacity, to provide working capital forthe Group, to extend the current AGM product portfolio through an investment inYangzhou Zhenghe, and to purchase the power type battery production line ofJiangsu Electrical Appliance and Cable Co., Ltd. ("Cable Co."). Results and Dividend Revenue increased by 134% to £66.45 million in 2006 (2005: £28.41 million).Operating profit increased by 30% to £5.79 million (2005: £4.42 million). Basic earnings per share in 2006 are 18.30 pence (2005: 19.80 pence), which wasaffected by the significant increase in raw material prices during the year. Aninterim dividend in relation to 2006 of 1.5 pence per share was paid in November2006. The Directors recommend the payment of a final dividend for 2006 of 3pence per share. Business Progress The sales revenue of the back up battery business in 2006 was £39.22 million, anincrease of 38% compared with £28.41million in 2005. Sales to five majortelecommunication service providers constitute 74% of total back up batterybusiness revenues. The power type battery ("PTB") business was newly added in 2006, and will becomean important business sector for the Group in the future. Best Co. constructeda new production facility of 28,000 sq. meters in less than nine months with£3.25 million of the funds raised during 2006. The Group also purchased the PTBproduction line from Cable Co. The aggregate PTB revenue for the year is 30% ofthe total revenues of the Group. According to market forecasts, the PTBbusiness will be the main growth highlight for the Group in 2007. In the turbine business, the Company acquired an additional 21% stake to takeits controlling position in Beijing Full Three Dimension Power Engineering Co.,Ltd ("FTD") to 51% in 2006. For the year ended 31 December 2006, FTD's revenueand net profit were £6.91 million and £0.51 million respectively. The revenueis 10% of the total revenues of the Group. Global telecommunications expansion and Chinese 3G network construction bothoffer considerable opportunities. China Shoto is confident of the quality andcompetitiveness of its products which have already successfully challengedforeign suppliers in the Chinese domestic market. Furthermore, the Groupcontinues to establish an international distribution network. Social Responsibilities The Company is committed to the welfare of its employees and its social andcommunity responsibilities. We are dedicated to offering our customers qualityproducts and excellent services. China Shoto will continue to strive towardsbest practice standards consistent with profitability, and at the same time willseek to deliver attractive shareholder returns. The Company offers employeescareer development opportunities and is supportive of their family life andgoals outside work. Environmental Standards The Group passed the certification of ISO14001 and GB/T18001 vocation health andsafety management system. In June 2006, the battery products passed the EU RoHStest. Outlook We believe that our expanded and improved range of products and sharplyincreasing output underpin the prospects for a successful 2007, and that theGroup will continue to deliver impressive results and create significant longterm value for shareholders. We believe that, building on the strongfoundations that have been established, the Group is well positioned to achievefurther substantial growth. We look forward to the future with confidence andenthusiasm. Cao Guifa Chairman 25 April 2007 Chief Executive's Review I am delighted to report China Shoto's results for 2006. In June 2006 we raised£5.0 million (before expenses) in a secondary placing, and the new shares wereadmitted to trading on AIM on 12 June 2006. These funds enabled China Shoto toundertake a significant expansion of its production facilities and laid a strongfoundation for the performance growth in 2006. Market Overview Market Sectors The revenue from back up battery sales was £39.22 million in 2006, an increaseof 38% compared with £28.41 million in 2005. The revenue from the newly added PTB business was £20.33 million in 2006,representing 30% of the total Group revenue. The revenue from the turbine business in 2006 was £6.91 million, representing10% of the total Group revenue. The Group continues to supply start-up batteries to the locomotive industry, andback-up batteries for both the power plant and broadcasting markets. International The export refund policy has been cancelled by the Chinese government, impactingthe overseas revenues in 2006. As a result, export sales only rose by 5% in2006. China Shoto's main export products are gel and flooded batteries. Gel and flooded batteries More than 80% of the total exports of gel and flooded batteries are distributedto the European, American and Russian markets. Marketing and salesbreakthroughs have also been made in South-East Asia and South America. AGM Batteries The 12V front-access battery which is used in the telecommunications and powerindustries is exported to Russia and Italy. Key Customers Back up batteries China Mobile, China Unicom, China Netcom, China Telecom and China Tietongcontinued to be the key customers of the Group in 2006. Sales to these fivemajor telecommunication service providers amounted to 74% of total back upbattery business revenues, amongst which sales to China Mobile have increased by97%. PTB Business The key customers of the PTB business are Beijing Xinri, Tianjin Taimei andTianjin Taifeng. The total PTB supply to the three key customers was £7.61million, which is more than 50% of their purchases and accounts for 39% of theGroup's total PTB sales. Turbine Business The key customers of the turbine business are Minjiang Thermal Power GenerationCo., Ltd., Panzhihua Three Dimension Power Generation Co., Ltd., and Yibin PowerGeneration Co., Ltd. Sales and marketing Back up batteries The sales network has been improved further; seven new sales offices have beenset up in 2006. PTB business In 2006, the Group further developed the strategy of expanding PTB productionand sales. This included setting up sales and service networks in Tianjin,Zhejiang and Jiangsu provinces, key areas for the manufacture of electricbicycles. So far to date, 43 sales offices have been set up, and 138 salesstaffs have been employed. Technical exchange, training and seminars The Group has further strengthened its reputation as a leading brand in China,by participating in industry seminars and by providing technical training to ourcustomers. The Group attended the 2006 Hanover Information andTelecommunication Technology Fair (CeBIT 2006) in March 2006, and the SingaporeTelecommunication Exhibition in June 2006. Operating Overview Battery Products Quality Control China Shoto manufactures batteries according to IEC and German DIN standards,and ensures the highest quality control using advanced manufacturing equipmentand production procedures. All of the 2V and 12V series of batteries have beenrecognised as "State-designated Product Exempt from Quality Inspection" by theGeneral Administration of Quality Supervision, Inspection and Quarantine of P.R. China. Manufacturing The product quality has been effectively guaranteed through strict monitoring inthe manufacturing process and detailed checks. Production capacity has alsoincreased through the installation of new equipment and the recruitment ofadditional labour. Logistics management The transportation costs have decreased by 12% per KVAh through obtaining timelytransportation information, reducing one way transportation and focusedtendering based on specific areas or major projects. Research and development Patents Granted The Company now holds over 90 patents. Fourteen patents were granted in 2006,among which there are four invention patents. Back up battery High Power AGM Battery In order to meet some particular requirements for high power batteries, the GFM(G) series of AGM batteries with high power performance has been developed. Atthe same time, four new specifications of 12V/80Ah, 12V/85Ah, 12V/100Ah and 12V/165Ah front access batteries have been developed to meet international marketrequirements. Energy storage battery particularly used for photovoltaic systems GFMJ series, GFX (2V) series and 6-GFMJ (12V) series energy storage batteriesparticularly used for photovoltaic systems have been developed according to BSEN61427-2002 Standard; these batteries can meet the long-term cycle requirementof photovoltaic solar storage systems. Spiral Wound Battery 11 types of 2V, 6V and 12V series were developed in 2006. Power type batteries Several new models of 12V14Ah, 12V20Ah and 16V18Ah PTB have been successfullydeveloped, the performances of which have been significantly improved with theapplication of nanometer additives. Beijing Full Three Dimension Co., Ltd ("FTD") As announced during 2006, the Group now has a controlling stake in FTD afterincreasing its shareholding from 30% to 51% in January 2006. Sales generated byFTD were £6.91 million and net profit was £0.51 million in 2006. This revenueis 10% of the total Group revenue. FTD has continued the successful introduction of its 150MW turbine. Four havebeen installed and are now in operation. In 2006, three new orders were taken,one for the 150MW turbine design and two for refurbishment of three turbines. The design of a steam control valve for the CC150-8.83/(4.2)/1.27 type turbinehas been accomplished with FTD technology. Acquisition The Group acquired Yangzhou Zhenghe in 2006. This company mainly produces AGMbatteries, and has a production capacity of 25,000 KVAh of batteries (1.0 KVAhis equivalent to one back up battery). The cost of the acquisition was£216,000. Acquisition of Facilities The Group purchased the PTB production line from Cable Co. in 2006. Prospects China Shoto has established a strong reputation as a provider of high qualityproducts and services in its markets. The Group has clearly demonstrated itsability to grow in the domestic market. The Company views the future withoptimism. Yang Shanji Chief Executive 25 April 2007 Finance Director's Review Results The sales revenues of the Group have increased by 134% to £66.45 million (2005:£28.41 million). The operating profit of the Group is £5.79 million, an increase of 30% (2005:£4.42 million). The pre-tax profit of the Group is £5.06 million, an increase of 40% (2005:£3.63 million). The net profit of the Group attributable to equity holders of the parent is £4.0million, an increase of 29% (2005: £3.11 million). Taxation China Shoto's subsidiaries were subject to different tax treatments in 2006based on the enterprise, technology and location rules. Set out below are theapplicable treatments and the major changes anticipated in the next few years. Shuangdeng Group Co., Limited Incorporated as a foreign enterprise on 10 May 2005, the company has beenentitled to exemptions from PRC income tax for the last two years (2005 to 2006)and 50% relief for another three years thereafter (2007 to 2009). Shuangdeng Power Supply The company is recognised as a "technology and knowledge concentrated enterprise" and has been and continues to be entitled to a 15% PRC income tax rate. Fuste Power Supply The company is located in an area designated as an Economic Development CoastalRegion in accordance with PRC tax regulations and is entitled to an applicabletax rate of 24%. As an industry enterprise with foreign capital invested, it isentitled to 50% income tax relief from 2006 to 2008. Best Power Supply The company is located in an area designated as an Economic Development CoastalRegion. In accordance with PRC tax regulations the company is entitled to anapplicable tax rate of 24%. As a production enterprise in accordance with thePRC tax legislation applicable to foreign investment enterprises, the company isalso entitled to exemptions from PRC income tax for the two years commencingfrom 2006, being its first profit-making year of operation, and for three yearsthereafter it is entitled to a 50% relief from PRC income tax. Nanjing R&D In 2005 the Nanjing operations were reregistered as both a foreign investmententerprise and an industry enterprise located in a development zone inaccordance with PRC income tax legislation. It is therefore entitled toexemptions from PRC income tax for two years commencing from its firstprofit-making year of operation and 50% relief for another three yearsthereafter. The applicable tax rate is 24%. FTD Beijing FTD is a foreign invested enterprise located in Zhongguancun High-NewTech. Ind. Zone Haidian District Beijing City. Its enterprise income tax rate is15% since 2004. Yangzhou Zhenghe Power Supply Yangzhou Zhenghe is a production type foreign invested enterprise located inXiaoji Town Jiangdu City, which has been entitled to exemptions from PRC incometax for the first two years and 50% relief for another three years thereafterfrom the first profit making year. Its applicable tax rate is 24%. Earnings and Dividends Basic earnings per share in 2006 are 18.30 pence (2005: 19.80 pence), which wasaffected by the significant increase in raw material prices during the year. Aninterim dividend of 1.5 pence per share was paid in November 2006 (2005: nil).The Directors recommend the payment of a final dividend for 2006 of 3 pence pershare (2005: nil). Reorganisation During the year the operations of a subsidiary, Jiangsu Longyuan ShuangdengPower Supply Co., Ltd. were amalgamated into another subsidiary, JiangsuShuangdeng Power Supply Co., Ltd, and Jiangsu Longyuan Shuangdeng Power SupplyCo., Ltd has subsequently been wound up. Acquisition The Company acquired Yangzhou Zhenghe in 2006 for £216,000. Yangzhou Zhenghemainly produces AGM batteries and has a production capacity of 25,000 KVAh ofbatteries (1.0 KVAh is equivalent to one back up battery). Acquisition of Facilities The Group purchased the PTB production line from Cable Co. in 2006. Equity shareholders' funds Shareholders' funds have increased to £23.44 million (2005: £16.06 million).The retained earnings were £6.77 million (2005: £3.84 million). Cash Flow The Group achieved good results in its cash flow from operating activities in2006. Debt management has also been extremely effective in 2006. Interest paidwas £822,000 (2005: £864,000) and tax payments were £607,000 (2005: £496,000). Debtor days Debtor days fell from 121 days in 2005 to 75 days in 2006. In the back up battery business, debtor days fell from 121 days in 2005 to 91days in 2006. In the power type battery business, debtor days were 38 days in 2006. In the turbine business, debtor days are 152 days in 2006. Borrowing The Group entered into short-term credit agreements with Jiangyan Branch of Bankof China, Jiangyan Branch of China Construction Bank, Jiangyan Branch ofAgricultural Bank of China and Nanjing Branch of Shenzhen Development Bank. At 31 December 2006, the Group had outstanding bank loans of £12.24 million(2005: £12.08 million). Currency risks The Group has limited exposure to currency risk. Raw materials are purchased inChinese Renminbi ("RMB") and export sales are currently relatively small. Indeveloping an international market, the Group will need to take account of thenegative effect of appreciation of the RMB. Interest rate risks The interest rate risk is the fluctuation of interest rates both at the presenttime and in the future. The interest rates payable under the Group's bankfacilities are generally variable with the fluctuation of the Central Bank'sbase interest rate. Changes in this rate have been modest. For certain bankborrowing arrangements, the interest rate is fixed. Zhou Yuezhang Finance Director 25 April 2007 Consolidated income statementFor the year ended 31 December 2006 Year ended Year ended Notes 31 December 31 December 2006 2005 Unaudited £000 £000 Revenue 66,454 28,413Cost of sales (47,654) (18,161) Gross profit 18,800 10,252Other operating income 790 694Selling and distribution expenses (8,579) (3,879)Administrative expenses (5,172) (2,681)Other operating expenses (47) (20)Share of results of associate - 56 Profit from operations 5,792 4,422Finance income 91 67Finance costs (822) (864) Profit before tax 5,061 3,625Tax 4 (789) (514) 4,272 3,111 Attributable to:Equity holders of the parent 4,003 3,111Minority interests 269 - 4,272 3,111Earnings per share in pence:Basic 6 18.30p 19.80p Diluted 6 17.93p 19.74p All amounts relate to continuing operations Consolidated balance sheetAs at 31 December 2006 31 December 31 December Notes 2006 2005 Unaudited £000 £000AssetsNon-current assetsProperty, plant and equipment 12,409 8,559Investment in associate - 512Other investment 130 -Land use right 1,361 1,393Other intangible assets 167 17Deferred tax assets 31 36 14,098 10,517 Current assetsInventories 10,122 3,547Trade receivables 15,009 11,953Other receivables and prepayments 7,224 3,480Due from related parties 1,011 1,963Short-term investments 947 2,350Cash and cash equivalents 9,937 8,300 44,250 31,593 Total assets 58,348 42,110 LiabilitiesCurrent liabilitiesBank borrowings 12,236 12,083Trade payables 7,547 3,919Notes payable 4,041 4,126Other payables and accruals 6,805 5,058Amount due to customers on construction 2,309 -contractsDue to related parties 656 765Income tax payable 145 97Deferred tax liability 21 - Total liabilities 33,760 26,048 Capital and reservesShare capital 8 2,334 2,000Share premium 8,630 3,875Other reserves 2,916 2,916Statutory reserves 5,071 4,024Retained earnings 6,769 3,837Foreign currency translation reserve (2,272) (590) Total equity attributable to equityholders of the parent 23,448 16,062Minority interests 1,140 -Total equity and liabilities 58,348 42,110 Consolidated statement of changes in equity (unaudited)For the year ended 31 December 2006 Attributable to equity holders Share Share Other Statutory Retained Currency Total capital premium reserves reserves earnings translation Minority Total reserve interests £000 £000 £000 £000 £000 £000 £000 £000 £000 Balance as at 1 January 2005 - - 4454 3206 1744 (1,949) 7,455 - 7,455 Net profit for the financial - - - - 3,111 - 3,111 - 3,111yearForeign currency translation - - - - - 1,359 1,359 - 1,359Total recognized income and 4,470 - 4,470expense Issue of ordinary shares to 1,538 - (1,538) - - - - - -the vendors of LeadstarEnterprises LtdIssue of ordinary shares on 462 5,538 - - - - 6,000 - 6,000placingShare issue costs - (1,663) - - - - (1,663) - (1,663)Transfer to statutory reserves - - - 818 (818) - - - -Share based payment expense Employee share options - - - - 27 - 27 - 27 Expenses of flotation - - - - 118 - 118 - 118Dividends paid - - - - (345) - (345) - (345) Balance as at 31 December 2005 2,000 3,875 2,916 4,024 3,837 (590) 16,062 - 16,062 Net profit for the financial - - - - 4,003 - 4,003 269 4,272yearForeign currency translation - - - - - (1,682) (1,682) (97) (1,779)Total recognized income and 2,321 2,493expense Acquisition of subsidiary - - - - - - - 968 968Issue of ordinary shares on 314 4,716 - - - - 5,030 - 5,030placingShare issue costs - (201) - - - - (201) - (201)Exercise of share options 20 240 - - - - 260 - 260Transfer to statutory reserves - - - 1,047 (1,047) - - - -Share based payment expense Employee share options - - - - 326 - 326 - 326 Expenses of flotation - - - - - - - - -Dividends paid - - - - (350) - (350) - (350) Balance as at 31 December 2006 2,334 8,630 2,916 5,071 6,769 (2,272) 23,448 1,140 24,588(unaudited) Unaudited consolidated cash flow statementFor the year ended 31 December 2006 Year ended Year ended 31 December 31 December Notes 2006 2005 (Unaudited) £000 £000 Net cash from operating activities a 1,606 3,185 Cash flows from investing activitiesPurchase of associate - (425)Purchase of land use right (807) (60)Purchase of property, plant and equipment (4,905) (954)Purchase of subsidiary undertakings 666 -Purchase of investment (130) -Purchase of short-term investment - (2,336)Proceeds from disposal of property, plant 186 93 and equipmentProceeds from disposal of short-term 1,664 21investment Cash flows used in investing activities (3,326) (3,661) Cash flows from financing activitiesNet cash inflow from share placing 5,089 4,337Increase in short-term bank borrowings 153 674Interest paid (822) (864)Dividends paid (350) - Cash flows from financing activities 4,070 4,147 Net increase in cash and 2,350 3,671 cash equivalentsCash and cash equivalents at beginning of year 8,300 3,845Foreign exchange differences (713) 784 Cash and cash equivalents at end of year 9,937 8,300 Notes to the unaudited consolidated cash flow statements (a) Cash flows from operating activities Year ended Year ended 31 December 31 December 2006 2005 £000 £000 Profit before tax 5,061 3,625Adjustments for:Amortisation of other intangible assets 14 1Amortisation of land use right 29 28Allowance for doubtful trade debts 104 27Allowance for doubtful non-trade debts 200 27Depreciation of property, plant and equipment 820 855Losses on disposal of property, plant and equipment 21 20Gain on disposal of short-term investment - (56)Share based payment expense 326 145Financial income (91) (67)Financial expense 822 864 Operating profit before working capital changes 7,306 5,469Working capital changes:(Increase)/decrease in:Inventories (6,392) 1,134Trade receivables 714 (3,615)Other receivables, deposits and prepayments (115) (237)Due from related parties 952 (102)Increase/(decrease) in:Trade payables 444 397Other payable and accruals (593) (130)Notes payables (85) 698Due to related parties (109) - Cash generated from operations 2,122 3,614Interest received 91 67Income tax paid (607) (496) Net cash from operating activities 1,606 3,185 (b) Non-cash flow transactions On 30 November 2005, the shareholders of Leadstar Enterprises Limited and ChinaShoto plc entered into a share exchange agreement. China Shoto plc issued15,384,615 10 pence ordinary shares at 130 pence each to the shareholders ofLeadstar Enterprises Limited in exchange for the entire share capital ofLeadstar Enterprises Limited. A subsidiary undertaking, Hong Kong Wealth Source Development Co. Ltd, declareda dividend of £34.50 per ordinary share amounting to £345,000 on 30 June 2005 toits shareholders at that date. All the dividend was set against the debt duefrom those shareholders. Notes to the financial statements For the year ended 31 December 2006 1. General information The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2006 or 2005. The financialinformation for the year ended 31 December 2005 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 2006 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. The financial information presents information about theCompany and its subsidiaries (together 'the Group') on a consolidated basis. 2 Accounting policies The financial information set out in this announcement has been prepared on thebasis of the accounting policies to be adopted in the Group's annual financialstatements for the year ended 31 December 2006. The accounting policies areconsistent with those that were applied in the Group's financial statements forthe year ended 31 December 2005 and there have been no changes to accountingpolicies during 2006. The consolidated financial information of China Shoto plc and its subsidiaryundertakings (the 'Group') has been prepared in accordance with thoseInternational Financial Reporting Standards and Interpretations in force ('IFRS'), as adopted by the European Union. The preparation of financialstatements in conformity with IFRSs requires management to make assumptions thataffects the application of accounting policies and the amounts of assets,liabilities, income and expenditure. The estimates and associated assumptionsare based on historical experience and other relevant factors, the results ofwhich form the basis for the judgements that underlie the carrying value of theassets and liabilities. Actual results may differ from these estimates. Themost significant areas in which judgements are required relate to the evaluationof fair values in the application of acquisition accounting, the estimate ofuseful economic lives and residual values of non-current assets and therecoverable amount of current and non-current assets. The estimates andunderlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimates arerevised if the revision affects only that period, or in the period of revisionand future periods if the revision affects both the current and future periods.For the years ended 31 December 2006, the Group is comprised of three businesssegments and one geographic segment (2005: one business and geographic segment). Basis of consolidation The acquisition of Leadstar Enterprises Limited by China Shoto plc on 30November 2005 has been accounted for using the principles of reverse acquisitionaccounting, in accordance with IFRS 3 'Business Combinations', on the basis thatthe management, who are the former majority shareholders of Leadstar EnterprisesLimited, retained effective control of the Group. The fair value of the assetsof China Shoto plc at the date of the business combination were equivalent tothe fair value of the company and the fair value of the notional number ofequity instruments which would have been issued by Leadstar Enterprises Limitedto acquire China Shoto plc, and therefore no goodwill arose in respect of thistransaction. The comparative financial statements and the results up to the dateof the business combination represent those of the Leadstar Enterprises Limitedgroup. Foreign currencies The functional currency of the subsidiary undertakings is Renminbi ("RMB"), andthe audited financial statements of the subsidiary undertakings have been drawnup in RMB. As sales and purchases are denominated primarily in RMB and receiptsfrom operations are usually retained in RMB, the directors are of the opinionthat RMB reflects the economic substance of the underlying events andcircumstances relevant to the Group. Monetary assets and liabilities maintainedin currencies other than RMB are translated into the RMB at the approximaterates of exchange ruling at the balance sheet date. Transactions in currenciesother than RMB are translated at rates ruling on the transaction dates. Allresulting exchange differences are dealt with in the income statements. The presentation currency of the Group is pounds sterling and therefore thefinancial information has been translated from RMB to pounds sterling at thefollowing exchange rates: Year end rates Average rates 31 December 2005 £1 = RMB 13.9122 £1 = RMB 14.827031 December 2006 £1 = RMB 15.3232 £1 = RMB 14.7505 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 Exchangereserve within equity. 3 Segment reports Reporting format The 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. Business segments The 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 included 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 pricing Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis. a.) Business segments The following table presents certain sales, profit asset, liability and otherinformation regarding the Group's business segments for the years ended 31December 2006 and 2005. Back up batteries PTB Turbine Eliminations Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Revenue:Sales to externalcustomers 39,218 28,413 20,326 - 6,910 - - - 66,454 28,413 Inter-segment 1,706 - 1,166 - - - (2,872) - - -salesTotal revenue 40,924 28,413 21,492 - 6,910 - (2,872) - 66,454 28,413 Results:Segment profit 3,961 4,426 1,566 - 552 - - - 6,079 4,426Share of profitof associate - 56 (1,018) (857)Profit fromoperationsBefore taxation 5,061 3,625Income taxation (789) (514)Profit for the 4,272 3,111year Back up batteries PTB Turbine Eliminations Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Asset and liabilities:Segment assets 39,574 40,716 9,587 - 6,753 - (1,719) (2,892) 54,195 37,824Unallocated 4,140 4,286assetsTotal assets 58,335 42,110 Segment 27,278 27,673 5,119 - 5,140 - (4,721) (2,479) 32,816 25,194liabilitiesUnallocatedliabilities 945 854 Total liabilities 33,761 26,048 Other segmentinformation:Capitalexpenditure:Property, plantand equipment 2,265 847 2,748 - 76 - - - 5,089 847 Intangible assets 130 60 - - - - - - 130 60Depreciation andamortisation 775 884 71 - 17 - - - 863 884 b.) Geographical segments Domestic Export Sales sales Elimination Total 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000 Segment sales 65,260 27,272 1,194 1,141 - - 66,454 28,413 4 Income tax Group Group Year ended Year ended 31 December 31 December 2006 2005 £000 £000 Income tax expense is as follows:Current income tax - current year 779 527Deferred income tax 15 (13) 794 514 Deferred tax assetsAt beginning of the financial period 36 20Transfer to/(from) income statement (3) 13Exchange differences (2) 3At the end of the financial period 31 36 Deferred tax liabilitiesAt beginning of the financial period - -Acquisition of a subsidiary 14Transfer to/(from) income statement 8 -Exchange differences (1) -At the end of the financial period 21 - Tax effect of temporary difference arising from:Allowance for bad and doubtful debts 31 31Income not subject to income tax (21) -Potential gain on share options - 5 10 36 Reconciliation of effective tax rates 5,061 3,625 Profit before taxTax at respective companies' domestic income tax 660 519rateTax effect of non-deductible expenses 171 -Tax adjustment in respect of prior year (42) -Tax effect of share-based payment expenses - (5) 789 514 5 Dividends Group Group Group Year ended Year ended Year ended 31 December 31 December 31 December 2006 2005 2006 £000 £000 £000 Interim dividends paid 350 345 350 China Shoto plc declared a dividend of 1.5p per ordinary share amounting to£350,000 on 3 November 2006 to its shareholders at that date. No dividends werepaid or declared by the Company in the year ended 31 December 2005. The directors recommend the payment of a final dividend of 3 pence per share for2006 (2005: nil). This dividend has not been accrued in these financialstatements. A subsidiary undertaking, Hong Kong Wealth Source Development Ltd. declared adividend of £34.50 per ordinary share amounting to £345,000 on 30 June 2005 toits shareholders at that date. All the dividend was set against the debt duefrom those shareholders. 6 Earnings per share Earnings 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£4,003,000 (2005: £3,111,000). The weighted average number of ordinary shares used in the calculation ofearnings per share has been derived as follows: Group Group Year ended Year ended 31 December 31 December 2006 2005Number of ordinary shares Weighted average number of ordinary shares - basic 21,880,671 15,713,395Dilutive effect of share options 441,050 48,600Weighted average number of ordinary shares - 22,321,721 15,761,995diluted 7 Acquisition of subsidiaries Acquisition of Beijing Full Three Dimension Engineering Co. Ltd ('FTD') FTD became an associated undertaking of the Group on 23 June 2005. On 6 January2006, the Group increased its interest in FTD from 30% to 51%. Accordingly ithas been treated as a subsidiary undertaking from that date. In calculating thegoodwill arising on acquisition the fair value of the net assets of FTD havebeen assessed and adjusted from book values where necessary. The principaladjustments reflect the Group's assessment of the fair values of constructioncontracts. No profits were generated by FTD in the 6 day period from 1 January2006 to 6 January 2006. In the financial year ended 31 December 2006, FTDcontributed £259,000 to consolidated profit after tax and minority interests. The fair value of the net assets acquired and the goodwill arising are asfollows: Recognised on acquisition Recognised on acquisition 6 January 2006 23 June 2005 £000 £000 Non-current assets 101 112Current assets:Trade and other receivables 7,674 11,316Cash and cash equivalents 1,168 1,946Total assets 8,943 13,374Current liabilities (7,704) (12,474)Net identifiable assets 1,239 900Share of net assets on acquisition date 632 270 6 January 23 June 2006 2006 Cost of investment on acquisition 30% interest in FTD - 425Cost of investment on acquisition 21% interest in FTD 260 -Cost of net assets on acquisition 30% interest in FTD - (270)Cost of net assets on acquisition 21% interest in FTD (260) -Goodwill arising - 155 The total goodwill arising on the acquisition was£137,000. Cash inflow on acquisition £000 Cash paid (260)Net cash acquired with the subsidiary 1,168Net cash inflow on acquisition 908 Acquisition of Yangzhou Zhenghe Power Co. Ltd ("YZP") On 31 March 2006, the Group acquired 59% of YZP. It has been treated as asubsidiary undertaking from that date. In calculating the goodwill arising onacquisition the fair value of the net assets of YZP have been assessed andadjusted from book value where necessary. In the nine months to 31 December2006, YZP contributed £7,000 to consolidated profit after tax and minorityinterests. Included within other operating income is £277,000, which represents,the excess of the Group's interest in the net fair value of YZP's identifiableassets, liabilities and contingent liabilities over cost, arising on thisacquisition. In accordance with IFRS 3 this has been recognised immediately inthe consolidated income statement, within other operating income. The fairvalue of the net assets acquired are as follows: 31 March 2006 £000 Non-current assets 880Current assetsInventories 182Total assets 1,062Current liabilities (182)Net identifiable assets 880Share of net assets on acquisition date 519 31 March 2006 £000 Cost of investment on acquisition 242Share of net asset on acquisition date (519)Excess of net assets over costs (277) Cash inflow on acquisition £000 Cash paid (242)Net cash acquired with the subsidiary -Net cash inflow on acquisition (242) 8 Share capital 31 December 31 December 2006 2005 £000 £000Authorised100,000,000 Ordinary shares of 10p each 10,000 10,000Allotted, called up and fully paid:23,343,770 (2005: 20,000,020) Ordinary shares of 10p each 2,334 2,000 Number £000Issued on incorporation - 2 £1 ordinary shares 2 -Sub-division into 10 ordinary shares 18 -Issue of 10p ordinary shares on reverse acquisition of Leadstar 15,384,615 1,538Enterprises Ltd on 30 November 2005Issue of 10p ordinary shares on placing on 6 December 2005 4,615,385 462At 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 June 2006 3,143,750 314At 31 December 2006 23,343,770 2,334 The Company was incorporated on 10 May 2005 with authorised share capital of£1,000 divided into 1,000 ordinary shares of £1 each. On incorporation, 2ordinary shares of £1 each were issued for cash at £1 per share. On 30 November 2005 the authorised share capital was sub-divided into 10,000ordinary shares of 10p each, and the authorised share capital was increased to£10,000,000 by the creation of a further 99,990,000 ordinary shares of 10p each,and 15,384,615 shares were issued in consideration for the entire issued sharecapital of Leadstar Enterprises Limited. On 5 December 2005, 4,615,385 ordinary shares of 10p were issued in connectionwith the placing. On 3 April and 5 May 2006, 200,000 ordinary shares of 10p were issued inrespect of the exercise of share options granted to the Company's advisers atthe time of the flotation. On 12 June 2006, 3,143,750 ordinary shares of 10p were issued in connection withthe placing. - Ends - This information is provided by RNS The company news service from the London Stock Exchange