-3x Short China Regulatory News (CHNS)

17 Sep 2008 07:00



China Shoto plc

("China Shoto" or the "Group")

Interim results for the six months to 30th June 2008

Highlights

 

•	Turnover up 81% to £68.6million (H1 2007: £38.0million)
•	Profit for the period up 29% to £3.9million (H1 2007: £3.0million)
•	Foreign sales revenue increased to £ 11.7million (H1 2007: £0.5million)
•	Basic earnings per share from continuing operations up 44% to 16.3p(H1 2007: 11.4p)
•	New product large capacity spiral wound battery achieves successful market introduction
•	The Board recommends an interim dividend of 1.5 pence per share (H1 2007: nil)

Chairman's Statement 

Despite the snowstorms across China, the Sichuan Wenchuan Earthquake and the pressure of growing inflation in H1 2008, China's economy has sustained its recent rapid growth. According to a report issued by the National Bureau of Statistics of China, the Gross Domestic Product growth was 10.4% for the first half of 2008.

In the six months ending 30 June 2008, China Shoto plc has achieved results which have exceeded expectations. In particular, the Group has made progress in overseas sales and in the OEM market, highlighting a successful strategy focusing on core markets involving an assessment of the market, renovating current products and developing new products.

Operational Review

Back up batteries：

During the first half of the year the revenue from back up batteries increased by 142% to￡59.3 million compared to ￡24.5 million in the same period last year, representing 86% of the Group's total revenue. The division realised a profit of￡4.3 million, an increase of 30% compared with￡3.3 million in H1 2007.

China Mobile, China Unicom, China Telecom, China Netcom and China Tietong remain the main customers of the Group. Sales revenues from telecommunication service operators are up 91% compared to the same period last year.

The Group achieved £11.7million of overseas sales in H1 2008, 23 times the figure of £0.5 million in H1 2007. In particular, sales to India represented 82.8% of overseas sales. As the Indian telecommunications market is the second largest telecommunications market after China amongst developing countries, the Group has focused on marketing to this market following the successful cooperation with Reliance Communications. An active program and cooperation with Indian's key telecommunications operators is in place.

Power type batteries:

In H1 2008 the Group adjusted its manufacturing configuration because of capacity shortage for back up batteries, and the margin are more attractive in Back up batteries. This resulted in a decrease of 31% in PTB business compared to the same period of 2007.

Research and Development 

R&D for back up batteries has focused on creating smaller products to meet demand; the Group successfully developed four types of 12V series Narrow Front Terminal AGM Batteries, and two types of 12V series Narrow Front Terminal Gel Batteries. These new products are more compact and save space in the installation. 

In R&D program for power type batteries, the Group successfully finished the development of 12V 25AH and a series of new power batteries used in electric motorcycles.  

An environmentally friendly super energy storage system-super capacitor developed and produced by the research laboratory in the first half of the year was successfully installed and used in solar-energy street lighting systems at the Beijing Olympic Village. 

A large capacity spiral wound battery used by heavy machines has been introduced into the market. Revenues of 8 million RMB are anticipated. 

Financial Review

The sales revenue in H1 2008 increased by 81% to £68.6 million compared to £38.0 million in H1 2007. The net profit achieved of £3.9 million was an increase of 29% compared to the £3.0 million achieved in H1 2007. The overseas sales for H1 2008 were £11.7million which is 23 times the sales in H1 2007 which were £0.5 million. 

Principal risks and uncertainties 

In overseas markets, the Group has adjusted the price of its products in line with RMB appreciation and adopted exchange rate risk avoidance mechanisms such as export finance under letter of credits and bill discounts and other methods to reduce risks in exchange rates. 

Changes in national monetary policy have limited the growth of bank loans which is slowing down cash flows from our customers.

Interim Dividend 

The Board recommends an interim dividend for 2008 of 1.5 pence per share.

Outlook 

The Government has an investment plan of over 300 billion RMB in the telecom networks following the corporate restructurings of China's Telecom Operators and the issuance of 3G license. The plan could bring new market opportunities for the Group in the next 2 years. The Group continues to seek opportunities to achieve continuous and sustainable growth, both organically and, where appropriate, through acquisitions. Our core objective to increase shareholder value remains unchanged and the whole of our team is committed to achieving this.

Our objective of becoming the largest lead acid battery producer in Asia continues. We plan to gradually enter into renewable energy industries to become a powerful green energy solution provider.

Cao Guifa 

Chairman

Consolidated income statement 

For the six months ended 30 June 2008

	Notes	30 June 2008		30 June 2007		31 December 2007
		(Unaudited)		(Unaudited)		(Audited)
		£000		£000		£000
Revenue		68,594		37,990		107,497
Cost of sales		(51,510)		(28,472)		(82,376)
Gross profit		17,084		9,518		25,121
Other operating income		620		614		503
Distribution expenses		(8,265)		(3,753)		(11,131)
Administrative expenses		(4,016)		(2,394)		(5,869)
Other operating expenses		(21)		(3)		(96)
Profit from operations		5,402		3,982		8,528
Finance income		59		35		73
Finance costs		(1,106)		(549)		(1,445)
Profit before tax from continuing operations		4,355		3,468		7,156
Tax expense	4	(480)		(489)		(1,255)
Profit from continuing operations		3,875		2,979		5,901
Profit/(loss) on discontinued operations, net of tax		-		32		(14)
Profit for the period		3,875		3,011		5,887
Attributable to:
Equity holders of the parent		3,813		2,870		5,618
Minority interests		62		141		269
		3,875		3,011		5,887
Earnings per share for profit attributable to the  equity holders of the parent during the period
-Basic		16.33p		12.29p		24.07p
-Diluted		16.29p		12.08p		23.66p
Continuing operation
-Basic		16.33p		11.37p		24.87p
-Diluted		16.29p		11.17p		24.45p

 

Consolidated balance sheet 

As at 30 June 2008

	30 June 2008		30 June 2007		31 December 2007
	(Unaudited)		(Unaudited)		(Audited)
Assets	£000		£000		£000
Non-current assets
Property, plant and equipment	16,716		13,183		15,590
Available-for-sale investment	148		131		137
Intangible assets	1,891		1,735		1,778
Deferred tax assets	81		118		92
			118
	18,836		15,167		17,597
Current assets
Inventories	29,270		17,135		19,426
Trade and other receivables	42,568		29,361		31,479
Due from related parties	1,263		2,193		1,299
Short-term investments	4,311		578		1,290
Cash and cash equivalents	7,344		4,331		11,087
	84,756		53,598		64,581
			68,765
Total assets	103,592		68,765		82,178
Liabilities
Current liabilities
Bank borrowings	30,656		18,727		23,284
Trade and other payables	36,816		23,650		27,817
Income tax payable	260		199		516
			1,416
	67,732		42,576		51,617
Non-current liabilities
Deferred tax liabilities	-		56		-
			1,416
	-		56		-
Total liabilities	67,732		42,632		51,617
Equity
Share capital	2,334		2,334		2,334
Share premium	8,630		8,630		8,630
Other reserves	2,916		2,916		2,916
Statutory reserves	6,678		5,071		6,678
Retained earnings	13,332		9,102		10,406
Foreign currency translation reserve	1,402		(2,960)		(871)
			25,093
Total equity attributable to equity holders of the parent	35,292		25,093		30,093
Minority interests	568		1,040		468
Total equity and liabilities	103,592		68,765		82,178

Consolidated statement of changes in equity 

For the period ended 30 June 2008

 

	Attributable to equity holders							Minority interests	Total
For the six months ended 30 June 2008 (Unaudited)	Share	Share	Other	Statutory	Retained	Foreign Currency	Total
	capital	premium	Reserves	reserves	earnings	Translation Reserve
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Balance as at 1 January 2008	2,334	8,630	2,916	6,678	10,406	(871)	30,093	468	30,561
Net profit for the financial period	-	-	-	-	3,813	-	3,813	62	3,875
Foreign currency translation	-	-	-	-	-	2,273	2,273	38	2,311
Total recognized income and expense							6,086	100	6,186
Share based payment expense
Employee share options	-	-	-	-	163	-	163	-	163
Dividends paid	-	-	-	-	(1,050)	-	(1,050)	-	(1,050)
Balance as at 30 June 2008	2,334	8,630	2,916	6,678	13,332	1,402	35,292	568	35,860
	Attributable to equity holders							Minority interests	Total
For the six months ended 30 June 2007(Unaudited)	Share	Share	Other	Statutory	Retained	Foreign Currency	Total
	capital	premium	Reserves	reserves	earnings	Translation  Reserve
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Balance as at 1 January 2007	2,334	8,630	2,916	5,071	6,769	(2,272)	23,448	1,140	24,588
Net profit for the financial period	-	-	-	-	2,870	-	2,870	141	3,011
Foreign currency translation	-	-	-	-	-	(688)	(688)	5	(683)
Total recognized income and expense							2,182	146	2,328
Share based payment expense
Employee share options	-	-	-	-	163	-	163	-	163
Dividends paid	-	-	-	-	(700)	-	(700)	-	(700)
Dividends paid to minority shareholders of subsidiaries	-	-	-	-	-	-	-	(246)	(246)
Balance as at 30 June 2007	2,334	8,630	2,916	5,071	9,102	(2,960)	25,093	1,040	26,133
For the twelve months ended 31 December 2007 (audited)   Balance as at 1 January 2007	2,334	8,630	2,916	5,071	6,769	(2,272)	23,448	1,140	24,588
Net profit for the financial period	-	-	-	-	5,618	-	5,618	269	5,887
Foreign currency translation	-	-	-	-	-	1,401	1,401	17	1,418
Total recognized income and expense							7,019		7,305
Disposal of subsidiary	-	-	-	-	-	-	-	(712)	(712)
Transfer to statutory reserves	-	-	-	1,607	(1,607)	-	-	-	-
Share based payment expense
Employee share options	-	-	-	-	326	-	326	-	326
Dividends paid	-	-	-	-	(700)	-	(700)	-	(700)
Dividends announced to minority shareholders of subsidiaries	-	-	-	-	-	-	-	(246)	(246)
Balance as at 31 December 2007	2,334	8,630	2,916	6,678	10,406	(871)	30,093	468	30,561

 

Consolidated cash flow statements

For the period ended 30 June 2008 

	30 June 2008	30 June 2007	31 December 2007
	(Unaudited)	(Unaudited)	(Audited)
Cash flows from operating activities	£000	£000	£000
Profit before tax from continuing operations	4,355	3,468	7,156
Profit/(Loss) before tax from discontinued operations	-	1	351
Profit before tax	4,355	3,469	7,507
Adjustments for:
Amortisation of intangible assets	23	41	50
Depreciation of property, plant and equipment	683	560	1,137
Losses/(profit) on disposal of property, plant and equipment	20	(10)	42
Share based payment expense	163	163	326
Financial income	(59)	(48)	(88)
Financial expense	1,106	493	1,460
Cash flow from operating activities before changes of working capital and provisions	6,291	4,668	10,434
Working capital changes:
Gain on payable write-off	-	-	(9)
(Increase)/decrease in:
Inventories	(8,085)	(6,990)	(8,997)
Trade and other receivables	(8,447)	(10,259)	(12,504)
Due from related parties	132	937	(228)
Increase/(decrease) in:
Trade and other payables	6,848	1,077	9,817
Due to related parties	-	-	(651)
Cash generated from/(used in) operations	(3,261)	(10,567)	(2,138)
Interest received	59	48	88
Income tax paid	(749)	(422)	(976)
Net cash flows from operating activities	(3,951)	(10,941)	(3,026)
Cash flows from investing activities
Purchase of land use right	(2)	(241)	(422)
Purchase of property, plant and equip	(1,004)	(1,106)	(3,627)
Purchase of short-term investment	(2,832)	375	(283)
Disposal of a subsidiary undertaking, net of cash transferred	-	-	(361)
Proceeds from disposal of property, plant and equipment	133	288	307
Dividend from former subsidiary (declared before disposal)	-	-	175
Cash flows used in investing activities	(3,705)	(684)	(4,211)
Cash flows from financing activities
Increase in bank borrowings	23,993	7,837	37,853
Decrease in bank borrowings	(18,593)	(1,383)	(27,864)
Interest paid	(1,106)	(493)	(1,460)
Dividends paid	(1,050)	-	(700)
Cash flows from financing activities	3,244	5,961	7,829
Net increase in cash and cash equivalents	(4,412)	(5,664)	592
Cash and cash equivalents at beginning of period	11,087	9,937	9,937
Foreign exchange differences	669	58	558
Cash and cash equivalents at end of period	7,344	4,331	11,087

Notes to the interim consolidated financial information 

For the six months ended 30 June 2008 

1. General information 

China Shoto plc is a company incorporated in the United Kingdom on 10 May 2005 under the Companies Act 1985. The interim consolidated financial information of the Company for the six months ended 30 June 2008 comprises China Shoto plc (the 'Company') and its subsidiary undertakings (the 'Group'). 

The interim consolidated financial information was authorised for issue on 17 Sep 2008. 

2. Accounting policies

Basis of preparation 

This unaudited consolidated interim financial information has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively EU IFRSs). The principal accounting policies used in preparing the interim results are unchanged from those disclosed in the group's financial statements for the year ended 31 December 2007.

While the financial information included in this interim consolidated financial information has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (IFRSs), this interim consolidated financial information does not itself contain sufficient information to comply fully with IFRSs. 

The financial information for the six months ended 30 June 2008 and 30 June 2007 is unreviewed and unaudited and does not constitute the group's statutory financial statements for those periods. The comparative financial information for the full year ended 31 December 2007 has, however, been derived from the statutory financial statement for that period. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 237(2)-(3) of the Companies Act 1985. 

Foreign currencies

The functional currency of the subsidiary undertakings is Renminbi ('RMB'), and the unaudited interim consolidated financial information of the subsidiary undertakings have been drawn up in RMB. The presentation currency of the Group is pounds sterling and therefore the interim consolidated financial information has been translated from RMB to pounds sterling at the following exchange rates: 

	Period-end rates	Average rates
30 June 2007	£1 = RMB 15.2455	£1 = RMB 15.1841
31 December 2007	£1 = RMB 14.5807	£1 = RMB 15.2166
30 June 2008	£1 = RMB 13.5342	£1 = RMB 13.9622

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 within equity. 

3. Segment reports

Reporting format 

The primary segment reporting format is determined to be business segments as the Group's risks and rates of return are affected predominantly by differences in the products and services produced. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The operating businesses are all located in the People's Republic of China, and therefore geographic information is provided only in respect of the destination of sales. 

Business segments

The Group is comprised of the following business segments:

The Back up batteries business segment includes Value Regulated Lead Acid Batteries and Flooded and Gel Batteries. 

The Turbine business segment includes the development and construction of new turbines and the refurbishment and reconstruction of existing turbines. On 7 November 2007 the Group disposed of Beijing Full Three Dimension Engineering Co. Ltd which carried out all of the Group's turbine manufacturing operation.

Allocation basis and transfer pricing

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.  

Business segments 

The following tables present certain sales, profit regarding the Group's business segments for the period ended 30 June 2007 and 2008 and 31 December 2007.  

Six months to 30 June 2008 (Unaudited)	Back up Batteries	PTB	Eliminations	Continuing operations	Turbine	Total
	2008	2008	2008	2008	2008	2008
	£000	£000	£000	£000	£000	£000
Revenue：
Sales to external customers	59,312	9,282	-	68,594	-	68,594
Inter-segment sales	-	13,840	(13,840)	-	-	-
Total revenue	59,312	23,122	(13,840)	68,594	-	68,594
Results:
Segment profit	4,305	383	-	4,688	-	4,688
Unallocated corporate expenses				(333)	-	(333)
Profit from operations before taxation				4,355	-	4,355
Income taxation				(480)	-	(480)
Profit for the period				3,875	-	3,875

Six months to 30 June 2007 (Unaudited)	Back up Batteries	PTB	Eliminations	Continuing operations	Turbine	Total
	2007	2007	2007	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Revenue:
Sales to external customers	24,525	13,465	-	37,990	3,602	41,592
Inter-segment sales	3	-	(3)	-	-	-
Total revenue	24,528	13,465	(3)	37,990	3,602	41,592
Results:
Segment profit	3,302	726	-	4,028	1	4,029
Unallocated corporate expenses				(560)	-	(560)
Profit from operations before taxation				3,468	1	3,469
Income taxation				(489)	31	(458)
Profit for the year				2,979	32	3,011

Twelve months to 31 December 2007 (Audited)	Back up Batteries	PTB	Eliminations	Continuing operations	Turbine	Total
	2007	2007	2007	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Revenue:
Sales to external customers	78,018	29,479	-	107,497	5,817	113,314
Inter-segment sales	-	5,814	(5,814)	-	-	-
Total revenue	78,018	35,293	(5,814)	107,497	5,817	113,314
Results:
Segment profit	7,535	1,149	-	8,684	351	9,035
Unallocated corporate expenses				(1,528)	-	(1,528)
Profit from operations before taxation				7,156	351	7,507
Income taxation				(1,255)	1	(1,254)
Loss from selling discontinued operation				-	(366)	(366)
Profit/（loss） for the year				5,901	(14)	5,887

Geographical segments 

Six months to 30 June 2008 (Unaudited) 

	Domestic sales				Export sales				Elimination						Total
	2008		2007		2008		2007		2008		2007		2008		2007
	£000		£000		£000		£000		£000		£000		£000		£000
Segment sales	56,894		41,117		11,700		475		-		3,602		68,594		37,990

Twelve months to 31 December 2007 (Audited) 

		Domestic sales		Export sales		Elimination		Total
		2007		2007		2007		2007
		£000		£000		£000		£000
Segment sales		106,394		6,920		5,817		107,497

All export sales originate from the Back up Batteries segment.

 

4. Income tax

	30 June 2008		30 June 2007		31 December 2007
	(Unaudited)		(Unaudited)		(Audited)
	£000		£000		£000
Income tax expense is as follows:
Current income tax	463		509		1,324
Deferred income tax:
Origination and reversal of temporary differences	17		(20)		(57)
Previously recognized deferred tax liability written off in the period	-		-		(12)
	17		(20)		(69)
	480		489		1,255

5. Dividends

	30 June 2008		30 June 2007		31 December 2007
	(Unaudited)		(Unaudited)		(Audited)
	£000		£000		£000
Dividends on ordinary shares declared and paid during the six months period	1,050		700		700

China Shoto plc declared a dividend of 4.5p per ordinary share amounting to £1,050,000 on 22 April 2008 and the dividend was approved by the shareholders on 22 May 2008. China Shoto plc declared a dividend of 3p per ordinary share amounting to £700,000 on 26 April 2007 and the dividend was approved by the shareholders on 12 June 2007. 

 

6. Earnings per share from continuing operations 

Earnings for the purpose of basic and diluted earnings per share are the net profit attributable to equity holders of the parent for the six months ended 30 June 2008 of £3,813,000 (30 June 2007: £2,870,000) and twelve months ended 31 December 2007 of £5,618,000. 

The profit from continuing operations for the financial period attributable to equity holders of the parent is as follows:

	30 June 2008		30 June 2007		31 December 2007
	(Unaudited)		(Unaudited)		(Audited)
	£000		£000		£000
Profit attributable to equity holders of the parent	3,813		2,870		5,618
Profit/（Loss） on discontinued operation, net of tax	-		(32)		14
Minority interest of discontinued operation	-		16		173
Profit from continuing operations attributable to equity holders of the parent	3,813		2,854		5,805

The weighted average number of ordinary shares used in the calculation of earnings per share from continuing operations has been derived as follows:

	30 June 2008		30 June 2007		31 December 2007
	(Unaudited)		(Unaudited)		(Audited)
	£000		£000		£000
Number of ordinary shares
Weighted average number of ordinary shares - basic	23,744,755		23,343,770		23,343,770
Dilutive effect of share options	66,642		411,971		400,985
Weighted average number of ordinary shares - diluted	23,811,397		23,755,741		23,744,755

ENDIR LAMATMMTBBBP