-3x Short China Regulatory News (CHNS)

27 Sep 2006 07:01

China Shoto plc27 September 2006 Press Release 27 September 2006 China Shoto plc ("China Shoto" or "the Company" or "the Group") Unaudited Interim Results China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteriesand power supply systems, announces its unaudited Interim Results for the sixmonths ended 30 June 2006. Highlights • Turnover up 141% to £28.4 million as a result of increased turnover in existing business and new business lines (H1 2005: £11.8 million) • Profit after tax up 25% to £2.0 million (H1 2005: £1.6 million) • Established a new plant manufacturing batteries for electric bicycles, with a capacity of 12,000 units per day • Stake in FTD has been increased in 2006 from 30% to 51%, with FTD making good progress signing a new contract to supply 150MW turbine to Shangdong Haihua Group • Successful placing completed in period raising £5 million (before expenses) which have been or will be invested into the expansion of manufacturing capacity • Proposed interim dividend of 1.5 pence per share payable on 3 November 2006 • Average debtor days reduced from 122 to 102 days Commenting on the unaudited Interim Results, Cao Guifa, Executive Chairman,said: "Building on a strong performance in 2005 the Group has continued itsprogress, which is an endorsement of our strategy of focusing our sales effortson growth opportunities in our core markets. We will continue to focus oncontinuous and sustainable growth, both organically and, where appropriate,through selective acquisitions. Our core objectives remain unchanged, to growshareholder value, and the whole of our team is committed to achieving this. Iam confident that we will continue to produce good returns and I look forward toreporting continued progress for the whole year." - Ends - For further information:China Shoto plcCao Guifa, Executive Chairman Tel: +44 (0) 20 7398 7700 www.chinashoto.com Seymour Pierce LimitedStuart Lane / John Depasquale Tel: +44 (0) 20 7107 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 I am delighted to present China Shoto's interim results for the six months ended30 June 2006. Building on a strong performance in 2005 the Group has continuedits progress, which is an endorsement of our strategy of focusing our salesefforts on growth opportunities in our core markets. Operational Review AGM, Gel and Flooded Batteries: During the first half of the year our strongesttrading has been within our core business division of AGM, Gel and Floodedbatteries, which are mainly applied as backup batteries in the telecomsindustry. This division realised turnover of £14.5 million for the first sixmonths of 2006, representing 51% of the Group's total, and produced a grossprofit of £5.3 million, representing 69% of the Group's total. The sales to telecom service providers are continuing to grow. China Mobile,China Netcom, China Telecom and China Unicom continue to be the major clients ofthe Group, the orders from which increased by 30% compared to the same period oflast year. The Group is the major supplier of batteries to these clients,ranking first or second in the centralised tender ordering of China Mobile,China Netcom and China Unicom in the first half of this year. Power Type VRLA Batteries: In January 2006 Jiangsu Best Power Supply Co., Ltd.("Best Co.") was set up, specialising in the production of power type VRLAbatteries for use powering electric bicycles. £3.2 million of the IPO proceedswas used for the construction of the new plant covering 28,000 square meters andalso the purchase of manufacturing equipment. The plant was commissioned in Mayand full daily production capacity of 12,000 units was achieved by 31 July. Theplant continues to run at full capacity with round the clock working. The sales of power type batteries in this half year (without any significantcontribution from the new factory, which only came onstream in June) reached£6.6 million. The Group's primary market for these batteries are electricbicycle manufacturers in Tianjin, and in Jiangsu and Zhejiang provinces, and theGroup has also become the major supplier to one of the biggest manufacturers inBeijing. In our primary market, we target those large manufacturers with anannual production of over 100,000 bicycles. In addition we are graduallyincreasing our share in the retail market for electric bicycles and accessories,which we regard as the secondary market for these products and we intend to makethe secondary market the main market for the Company's power type batteries inthe future. The electric bicycle market continues to grow strongly. According to the lateststatistics from the Jiangsu Bicycle Association, the production volume of themajor 50 electric bicycle manufacturers in the first half of 2006 increased bymore than 75% compared to the same period of last year. To secure our expansionin this market, Best Co. has set up 15 new offices in the last six months,expanding its sales and service network to cover 27 provinces. At the sametime, the company has ensured that each of its main clients and potential majorclients have been visited personally by sales staff. Turbine Business: Since 6 January 2006, the Group has increased its interest inFTD from 30% to 51%. During the first half FTD's turnover was £6.6 million, andgross profit was £0.9 million. During the period FTD successfully completed contracts to supply 150 MW turbinesto Minjiang Power Plant and Yibin Power Plant. In March FTD signed a contractto supply a 150MW turbine to Shandong Haihua Group, with a total contract valueof £4.1 million. In April, FTD signed a contract for the refurbishment of twosets of 125MW turbines with Shandong Linyi Power Company, with a total contractvalue of £3.5 million. FTD will continue its technology research, and developfurther series models of the 150MW turbine, which will be the main thrust of thecompany's business in the foreseeable future. Financial Review During the period under review, Group turnover increased by 141% as a result ofstrong growth from existing customers, especially our key customers in thetelecoms sector. Resulting from growing demand from the telecoms sector, theturnover of AGM, GEL and flooded batteries increased by 27% compared to the sameperiod of last year. Booming sales of power type batteries and our recentlyacquired turbine business FTD, together with a good performance from ourexisting business, caused Group revenues to increase substantially. The Group continues its efforts to accelerate the collection of accountsreceivables. With good quality clients located in Guangdong, Jiangsu, Hebei,Zhejiang and Shanghai, representing an increased proportion of our customers, wehave succeeded in reducing average debtor days from 122 days (the average in2005) to 102 days in the first half year. Further Share Issue Following our IPO, China Shoto successfully completed a further issue of 3.1million ordinary shares at a placing price of 160 pence per share in the firsthalf, raising £5 million (before expenses). The new shares were admitted totrading on AiM on 12 June 2006. Proceeds of this new issue have been or will beused in clearly identified projects, mainly for the expansion of manufacturingcapacity. Dividend policy As stated in the annual report for 2005, it is the Board's intention to payinterim and final dividends for the year ending 31 December 2006, with theaggregate dividend payable currently intended to be 25% to 30% of the Company'snet income. Given the encouraging first half results, the Board has decided topay an interim dividend of 1.5 pence per share. The record date will be 6October 2006, and the dividend will be paid on 3 November 2006. The Boardintends that a final dividend for the year will be declared at the announcementof the full year results. Outlook We will continue to focus on continuous and sustainable growth, both organicallyand, where appropriate, through selective acquisitions. In the first half year,the Company acquired Yangzhou Zhenghe Power Supply Company, to increase bothproduction capacity and our product lines, with a smaller capital investment andwithin a shorter timescale than internal development could provide. The GFMhorizontally-installed battery of Zhenghe is expected to have substantialapplications in the telecom and power industries. The Group is currentlynegotiating to acquire the power type battery production line of JiangsuShuangdeng Electrical Appliance and Cable Company. Following this acquisitionthe total Group production capacity of power type batteries will be increased to18,000 units per day. Our core objectives remain unchanged, to grow shareholder value, and the wholeof our team is committed to achieving this. I am confident that we willcontinue to produce good returns and I look forward to reporting continuedprogress for the whole year. Cao GuifaChairman26 September 2006 Consolidated income statementFor the six months ended 30 June 2006 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 (Unaudited) (Audited) (Audited) £000 £000 £000 Revenue 3 28,367 11,760 28,413Cost of sales 3 (20,624) (7,872) (18,161)Gross profit 7,743 3,888 10,252Other operating income 517 517 689Selling and distribution expenses (3,351) (1,450) (3,879)Administrative expenses (1,907) (738) (2,681)Other operating expenses (5) (16) (20)Share of results of associate - - 56Profit from operations 2,997 2,201 4,417Finance income 27 28 72Finance costs (319) (393) (864)Profit before tax 2,705 1,836 3,625Tax (401) (284) (514)Equity minority interests (259) - -Net profit 2,045 1,552 3,111Earnings per share in pence:Basic 6 10.03p 10.09p 19.80pDiluted 6 9.88p 10.06p 19.74p All amounts relate to continuing operations. Consolidated balance sheetAs at 30 June 2006 Notes 30 June 30 June 31 December 2006 2005 2005 (Unaudited) (Audited) (Audited) £000 £000 £000AssetsNon current assetsProperty, plant and equipment 9,559 8,142 8,559Investment in associate - 425 512Land use right 1,328 1,282 1,393Other intangible assets 16 18 17Deferred tax assets 27 22 36Goodwill 4 184 - -Total non-current assets 11,114 9,889 10,517 Current assetsInventories 7,026 3,730 3,547Trade receivables 20,051 9,626 11,953Other receivables and prepayments 6,780 6,006 3,480Due from related parties 3,010 1,648 1,963Short-term investments 2,214 34 2,350Cash and cash equivalents 10,274 2,131 8,300Total current assets 49,355 23,175 31,593Total assets 60,469 33,064 42,110 LiabilitiesCurrent liabilitiesBank borrowings 13,433 10,610 12,083Trade payables 6,862 3,226 3,919Notes payable 5,642 3,036 4,126Other payables and accruals 10,248 6,244 5,058Due to related parties 180 478 765Income tax payable 164 188 97Total current liabilities 36,529 23,782 26,048Total liabilities 36,529 23,782 26,048 Capital and reservesShare capital 7 2,334 - 2,000Share premium 8,704 - 3,875Other reserves 2,916 4,454 2,916Statutory reserves 4,024 3,552 4,024Retained earnings 5,971 2,640 3,837Foreign currency translation reserve (1,146) (1,364) (590) (1,364)Total equity 22,803 9,282 16,062Minority interests-equity 1,137 - -Total equity and liabilities 60,469 33,064 42,110 Consolidated cash flow statementsFor the six months ended 30 June 2006 Notes Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 (Unaudited) (Audited) (Audited) £000 £000 £000 Net cash from operating activities (3,011) (889) 3,185Cash flows from investing activitiesPurchase of trade mark - - -Purchase of associated undertakings - - (425)Purchase of subsidiary undertakings (499) - -Purchase of land use right - - (60)Purchase of property, plant and equipment (1,025) (577) (954)Purchase of short-term investment (88) - (2,336)Proceeds from disposal of property, plant andequipment - 1 93 Proceeds from disposal of short-term investment - - 21Cash flows used in investing activities (1,612) (576) (3,661)Cash flows from financing activitiesNet cash inflow from share placing 5,163 - 4,337Repayment of long-term bank borrowings - - -Increase in short-term bank borrowings 1,350 (45) 674Interest paid (319) (392) (864)Dividends paid to external shareholders - - -Cash flows from financing activities 6,194 (437) 4,147 Net increase in cash and cash equivalents 1,571 (1,902) 3,671Cash and cash equivalents at beginning of period 8,300 3,845 3,845Foreign exchange differences 403 188 784Cash and cash equivalents at end of period 10,274 2,131 8,300 Notes to the consolidated financial statementsFor the six months ended 30 June 2006 1. General information China Shoto plc is a company incorporated in the United Kingdom on 10 May 2005under the Companies Act 1985. The consolidated financial statements of theCompany for the six months ended 30 June 2006 comprise China Shoto plc (the 'Company') and its subsidiary undertakings (the 'Group'). The consolidatedinterim financial statements were authorised for issue on 26 September 2006. 2. Accounting policies The consolidated financial statements for the six months ended 30 June 2006 havebeen prepared in accordance with those International Financial ReportingStandards and Interpretations in force ('IFRS') and those parts of the CompaniesAct 1985 applicable to companies preparing financial statements under IFRS. Basis of consolidation The consolidated financial statements include the financial statements of ChinaShoto plc and all of its subsidiary undertakings as at 30 June 2006 using theacquisition method of accounting. The results of subsidiary undertakings areincluded from the date of acquisition. The acquisition of Leadstar Enterprises Limited by China Shoto plc on 30November 2005 has been accounted for as a reverse acquisition, in accordancewith IFRS 3 'Business Combinations', on the basis that the management, who arethe former majority shareholders of Leadstar Enterprises Limited, retainedeffective control of the Group. The fair value of the assets of China Shoto plcat the date of the business combination were equivalent to the fair value of thecompany and the fair value of the notional number of equity instruments whichwould have been issued by Leadstar Enterprises Limited to acquire China Shotoplc, and therefore no goodwill arises in respect of this business combination.The comparative financial statements and the results up to the date of thebusiness combination represent those of the Leadstar Enterprises Limited group. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary or associated undertaking at the date ofacquisition. Goodwill is recognised as an asset and reviewed for impairment atleast annually. Any impairment is recognised immediately in the incomestatement, through administrative expenses and is not subsequently reversed. Any excess of the Group's interest, in the net fair value of the identifiableassets and liabilities acquired, over cost will be recognised as income afterconsidering the future losses and expenses identified in the Group's acquisitionplan and the aggregate fair value of acquired identifiable non-monetary assets. Subsidiary undertakings An entity is treated as a subsidiary undertaking when the Group has the power,directly or indirectly, to govern the financial and operating policies of anentity so as to obtain benefits from its activities. In assessing control,potential voting rights that are currently exercisable or convertible are takeninto account. The financial statements of subsidiary undertakings are includedin the consolidated financial statements from the date that control commencesuntil the date that control ceases. Foreign currencies The functional currency of the subsidiary undertakings is Renminbi ('RMB'), andthe unaudited financial statements of the subsidiary undertakings have beendrawn up in RMB. As sales and purchases are denominated primarily in RMB andreceipts from operations are usually retained in RMB, the directors are of theopinion that 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 RMB at the rates of exchangeruling at the balance sheet date. Transactions in currencies other than RMB are translated at rates ruling on thetransaction dates. All resulting exchange differences are dealt with in theincome 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: Period-end rates Average rates30 June 2005 £1 = RMB 14.8351 £1 = RMB 15.498931 December 2005 £1 = RMB 13.9122 £1 = RMB 14.827030 June 2006 £1 = RMB 14.6280 £1 = RMB 14.2700 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. The functional currency and the presentation currency of the Company is poundssterling. Monetary assets and liabilities maintained in currencies other thanpounds sterling are translated into pounds sterling at the approximate rates ofexchange ruling at the balance sheet date. Transactions in currencies other thanpounds sterling are translated at rates ruling on the transaction dates. Allresulting exchange differences are dealt with in the income statement. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand impairment losses. The cost of an asset comprises its purchase price andany directly attributable costs of bringing the asset to its working conditionand location for its intended use. Depreciation is calculated on the straight-line method so as to write off thecost of property, plant and equipment reduced by the estimated residual value ofthe assets over their estimated useful lives. The estimated residual value andannual depreciation rates used for this purpose are as follows: Item Estimated residual value Useful life Annual depreciation ratesBuilding 10% 40 2.25%Machinery 10% 10 9%Motor vehicles 10% 5 18%Office equipment 10% 5 18% From 1 January 2006, the Group changed the useful life of buildings from 20years to 40 years to reflect the actual useful life of buildings. This change ofuseful life will affect the depreciation expense in both the current and futureperiods. 3. Segment reporting Segment reporting is presented in the consolidated interim financial statementsin respect of the Group's business segments, which are the primary basis ofsegment reporting. The business segment reporting format reflects the Group'smanagement and internal reporting structure. The Group is comprised of the following business segments: AGM VRLA batteries sales ('AGM ') Flooded batteries and Gel VRLA batteries sales ('FGB') Power-type VRLA batteries ('PTB') Turbine design and refurbishment business ('Turbine business') Others Six months ended 30 June 2006 AGM Sale FGB Sales PTB Sales Turbine Others Total business £000 £000 £000 £000 £000 £000Revenue 12,343 2,124 6,633 6,642 625 28,367Cost of sales (7,606) (1,534) (5,190) (5,776) (518) (20,624)Gross profit 4,737 590 1,443 866 107 7,743 Six months ended 30 June 2005 AGM Sale FGB Sales PTB Sales Turbine Others Total business £000 £000 £000 £000 £000 £000Revenue 10,564 861 51 - 284 11,760Cost of sales (6,960) (645) (42) - (225) (7,872)Gross profit 3,604 216 9 - 59 3,888 Year ended 31 December 2005 AGM Sale FGB Sales PTB Sales Turbine Others Total business £000 £000 £000 £000 £000 £000Revenue 23,636 2,261 1,468 - 1,048 28,413Cost of sales (14,657) (1,634) (1,144) - (726) (18,161)Gross profit 8,979 627 324 - 322 10,252 4. 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. Since 6January 2006, the Group has increased its interest in FTD from 30% to 51%.Accordingly it has been treated as a subsidiary undertaking from that date. Incalculating the goodwill arising on acquisition the fair value of the net assetsof FTD have been assessed and adjusted from book value where necessary. Noprofits were generated by FTD in the 6 day period from 1 January 2006 to 6January 2006. In the six months to 30 June 2006, FTD contributed £272,712 toconsolidated profit after tax. 1 January 30 June 2006 2005 £000 £000 (unaudited) (audited)Cost of investment on acquisition 272 425 Share of net assets on acquisition (243) (270)Goodwill arising 29 155 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 three months to 30 June 2006,YZP incurred a loss of £3,857 which has been included within the consolidatedincome statement. Included within other operating income is £287,000 whichrepresents, the excess of the Group's interest in the net fair value of YZP'sidentifiable assets, liabilities and contingent liabilities over cost, arisingon this acquisition. In accordance with IFRS this has been recognisedimmediately within the consolidated income statement. 31 March 2006 £000 (unaudited)Cost of investment in subsidiary 227Share of net assets on acquisition (514)Excess of the Group's interest in the net fair value of YZP's (287)identifiable assets, liabilities and contingent liabilities overcost 5 Dividends Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 (unaudited) (audited) (audited) Interim dividends paid - 310 310Exchange adjustments - - 35 310 345 A subsidiary undertaking, Hong Kong Wealth Source Development Ltd. declared adividend of £31.00 per ordinary share amounting to £310,000 on 30 June 2005 toits shareholders at that date. All the dividends were set against the debt duefrom those shareholders. The interim dividends paid in 2004 relate to dividendspaid by various subsidiary undertakings to former shareholders following theestablishment of the Group. 6 Earnings per share Earnings for the purpose of basic and diluted earnings per share are the netprofit for the financial period for the six months ended 30 June 2006 of£2,045,000 (2005: £1,552,000). The weighted average number of ordinary shares used in the calculation ofearnings per share has been derived as follows:Weighted average number of ordinary shares - basic Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 (unaudited) (audited) (audited) Number Number Number15,384,615 10p ordinary shares issued to the vendors ofLeadstar Enterprises Limited 15,384,615 15,384,615 15,384,6152 £1 ordinary shares issued on incorporation, andsubsequently split into 20 10p ordinary shares 20 3 134,615,385 10p ordinary shares issued on placing 4,615,385 - 328,767100,000 10p share options exercised on 10 April 2006 44,751 - -100,000 10p share options exercised on 5 May 2006 30,939 - -3,143,750 10p ordinary shares issued on placing 312,638 - - 20,388,348 15,384,618 15,713,395 Weighted average number of ordinary shares - dilutedWeighted average number of ordinary shares - basic 20,388,348 15,384,618 15,713,395Dilutive effect of share options 320,746 48,600 48,600 20,709,094 15,433,218 15,761,955 7. Share capital 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 (unaudited) (audited) (audited)Authorised 100,000,000 Ordinary shares of 10p each 10,000 - 10,000Allotted, called up and fully paid:23,343,770 (2005 : 20,000,020) Ordinary shares 2,334 - 2,000of 10p each Number Number NumberIssued on incorporation - 2 £1 ordinary shares 2 - 2Sub-division into 10 ordinary shares 18 - 1830 November 2005 Issue of 10p ordinary shares on reverseacquisition of Leadstar Enterprises Ltd 15,384,615 - 15,384,615 6 December 2005 Issue of 10p ordinary shares on placing 4,615,385 - 4,615,38510 April 2006 Exercise of share options 100,000 - -5 May 2006 Exercise of share options 100,000 - -12 June 2006 Issue of 10p ordinary shares on placing 3,143,750 - - 23,343,770 - 20,000,020 8 Group companies The companies comprising the Group are as follows:Name of the companies Place and date of Principal activities Proportion of incorporation interests to the Group at 30 June 2006Leadstar Enterprises Limited British Virgin Investment holding 100% Islands 18 March 2005 Jiangsu Shuangdeng Group Co. Ltd China, Investment holding 100% 16 September 2003 Hong Kong Wealth Source Development Co. Hong Kong, China, Investment holding 100%Ltd 24 September 1997 Glory Trinity Engineering Ltd Hong Kong, China, Investment holding 100% 26 February2003 Jiangsu Shuangdeng Power Supply Co. Ltd China, Manufacturing, sales 100% 9 December 1995 and development of AGM batteries Jiangsu Longyuan Shuangdeng Power China, Manufacturing AGM 100%Supply Co. Ltd 2 August 1999 batteries Jiangsu Fuste Power Supply Co. Ltd China, Manufacturing and 100% 23 October 2001 sales of GEL and GFX batteries Nanjing Shuangdeng Science and Technology China, Technology research 100%R&D Institute Co. Ltd 18 June 2001 and development, manufacture and sales of UPS Jiangsu Best Power Supply Co., Ltd China, Manufacturing and 100% 13 January 2006 sales power-aided bicycle batteries Beijing Full Three Dimension Engineering China, Design and 51%Co. Ltd 13 April 1995 reconstruction of turbines Yangzhou Zhenghe Power Co., Ltd China, Manufacturing, sales 59% 2 November 2001 and development of GFM batteries 9 Subsequent events On July 2006 the trade and assets of Jiangsu Longyuan Shuangdeng Power SupplyCo. Ltd were transferred into Jiangsu Shuangdeng Power Supply Co. Ltd. On 26 September the company decided to pay an interim dividend of 1.5 pence pershare to its shareholders. The record date will be 6 October 2006, and paymentdate will be 3 November 2006. 10 Other The comparative figures for the period ended 31 December 2005 were derived fromthe statutory accounts for that year which have been delivered to the Registrarof Companies. Those accounts received an unqualified audit report which did notcontain statements under sections 237(2) or (3) (accounting record or returnsinadequate, accounts not agreeing with records and returns or failure to obtainnecessary information and explanations) of the Companies Act 1985. Copies of this document will be made available to the public free of charge fora period of one month at the offices of Seymour Piece Limited, BucklersburyHouse, 3 Queen Victoria Street, London EC4N 8EL. This information is provided by RNS The company news service from the London Stock Exchange