("China Shoto" or "the Company" or "the Group")

 

 

China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteries and power supply systems, announces its unaudited Interim Results for the six months ended 30 June 2007.

 

 

Commenting on the unaudited Interim Results, Cao Guifa, Executive Chairman, said: "The Group has made excellent progress despite a number of external factors such as increased raw materials cost, Renminbi appreciation and increased competition. We look forward to the future with confidence."

 

 

 

 

 

 

 

I am delighted to present China Shoto's interim results for the six months ended 30 June 2007. Building on a strong performance in 2006 the Group has continued its progress, which is an endorsement of our strategy of focusing sales efforts on growth opportunities in our core markets.

 

In H1 2007, the Group achieved sales revenue of £41.6 million, an increase of 46.5% compared with £28.4 million in H1 2006; net profit was £3.0 million, an increase of 30.4% compared with £2.3 million in H1 2006.

 

Despite a number of adverse external factors such as increased raw materials cost, Renminbi appreciation and increased competition in H1 2007, the Group has achieved excellent results and maintained growth and the Group anticipates that the second half working capital outflow will be reversed into the positive.

 

The Group has become a certified supplier of Huawei Technologies which is China's largest next-generation telecommunications equipment manufacturer.  Additionally sales revenue from the OEM market has rapidly increased from £1.13 million in H1 2006 to £2.87 million in H1 2007, an increase of 154%. 

 

Debtor days have been reduced from 102 days in H1 2006 to 78 days in H1 2007. However in the second quarter central purchases by China Mobile and China Unicom resulted in deliveries of larger quantities of back up batteries which were then treated as sales revenue. However, payments had not been received as at 30 June 2007 in accordance with the terms of these contracts, as a consequence of which the trade receivables increased by £5.81 million to £20.82 million compared with £15.01 million at the end of last year.

 

 

Back up Batteries: The revenue of the back-up batteries business was £24.5 million in H1 2007, contributing 59% of the Group's total revenues. Profit before tax was £3.3 million in H1 2007 an increase of 65% when compared with £2.0 million in H1 2006.

 

China Mobile, China Unicom, China Telecom, China Netcom and China Tietong remain the major customers of the Group.  Sales revenues to these telecommunication service operators continued to grow in H1 2007, up 51.3% to £17.4 million from £11.5 million in H1 2006 contributing 71% of the total back up battery business revenues.

 

Power Type Batteries: The revenue of power type batteries was £13.5 million in H1 2007, contributing 32.5% of the total revenues and increasing by 105% compared with £6.6 million in H1 2006; the profit before tax was £0.73 million in H1 2007, an increase of 7.4% when compared with £0.68 million in H1 2006.

 

During the period, the daily production capacity for power type batteries increased from 18,000 units to 24,000 units. This is the result of the completion in May 2007 of the second phase of construction of a new production facility undertaken by Best Co., the first phase having been completed in July 2006. The Group's primary market for these batteries is the electrical bicycle manufacturers in Tianjin, Jiangsu and Zhejiang provinces. In this market, we have targeted large manufacturers with an annual production of over 100,000 bicycles. In addition, the sales revenue from the retail market for electric bicycles and accessories was £3.4 million in H1 2007, contributing 25.2% of the total PTB revenue which represents a six fold increase on the £0.48 million reported in H1 2006.  The Group intends to develop the retail market for the Group's power type batteries business in the future.

 

Turbine Business: The sales revenue of the turbine business was £3.6 million in H1 2007 (compared with £6.6 million in H1 2006) representing 8.7% of Group revenues and a marginal contribution to Group profits.  The turbine business is not expected to make a material contribution to the Group this financial year.

 

Against a background of growing demands for its products, the Company has invested significantly in expanding its manufacturing capacity. The directors believe that investing for continued growth rather than distributing profits is in the best interests of the Company and its shareholders at the current time. Accordingly the directors are not recommending an interim dividend. A decision concerning the sum to be paid in respect of the final dividend will be taken at the end of the financial year.

 

In the period there have been some changes to the Board; Zhu Shiping reached retirement age and stepped down from the Board, Wang Zhaobin retired by rotation, and David Thomas left the Board as non-executive director and Company Secretary. On 12 July 2007 the Board appointed Zhou Weigang and Zhou Ping as executive directors and Peter Crystal as a non-executive director to the Board with immediate effect.  These directors will be subject to retirement by rotation at the AGM in 2008 at which time they will be eligible for re-election by the shareholders.

 

We will continue to focus on strategic fast growing sectors of the Chinese market.  The intention is to both increase the Company's own production capacity and where appropriate make selective acquisitions.  We look forward to reporting continued progress for the whole year as a whole.

 

 

 

 

All amounts relate to continuing operations.

 

 

		Attributable to equity holders						Minority interests	Total
	Share	Share	Other	Statutory	Retained	Currency	Total
	capital	premium	reserves	reserves	earnings	translation
						reserve
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Balance as at 1 January 2006	2,000	3,875	2,916	4,024	3,837	(590)	16,062	-	16,062
Net profit for the financial period	-	-	-	-	2,045	-	2,045	259	2,304
Foreign currency translation	-	-	-	-	-	(556)	(556)	-	(556)
Total recognized income and expense							1,489		1,748
Acquisition of subsidiary	-	-	-	-	-	-	-	878	878
Issue of ordinary shares on  placing	314	4,716	-	-	-	-	5,030	-	5,030
Share issue costs	-	(201)	-	-	-	-	(201)	-	(201)
Exercise of share options	20	240	-	-	-	-	260	-	260
Share based payment expense
Employee share options	-	-	-	-	163	-	163	-	163
Balance as at 30 June 2006 (unaudited)	2,334	8,630	2,916	4,024	6,045	(1,146)	22,803	1,137	23,940
Net profit for the financial period	-	-	-	-	1,958	-	1,958	10	1,968
Foreign currency translation	-	-	-	-	-	(1,126)	(1,126)	(7)	(1,133)
Total recognized income and expense							832		835
Transfer to statutory reserves	-	-	-	1,047	(1,047)	-	-	-	-
Share based payment expense
Employee share options	-	-	-	-	163	-	163	-	163
Dividends paid	-	-	-	-	(350)	-	(350)	-	(350)
Balance as at 31 December 2006 (audited)	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		2,328
Share based payment expense
Employee share options	-	-	-	-	163	-	163	-	163
Dividends paid to external shareholders	-	-	-	-	(700)	-	(700)	-	(700)
Dividends paid to minority	-	-	-	-	-	-	-	(246)	(246)
Balance as at 30 June 2007(unaudited)	2,334	8,630	2,916	5,071	9,102	(2,960)	25,093	1,040	26,133

	Notes	Six months ended 30 June 2007	Six months ended 30 June 2006	Year ended 31 December 2006
		(Unaudited)	(Unaudited)	(Audited)
		£000	£000	£000
Net cash from operating activities		(10,941)	(3,011)	1,606
Cash flows from investing activities
Purchase of associate		-	-	-
Purchase of land use right		(241)	-	(807)
Purchase of property, plant and equipment		(1,106)	(1,025)	(4,905)
Purchase of subsidiary undertakings		-	(499)	666
Purchase of investment		-	-	(130)
Purchase of short-term investment		375	(88)	1,664
Proceeds from disposal of property, plant and equipment		288	-	186
Cash flows used in investing activities		(684)	(1,612)	(3,326)
Cash flows from financing activities
Net cash inflow from share placing		-	5,163	5,089
Increase in short-term bank borrowings		6,454	1,350	153
Interest paid		(493)	(319)	(822)
Dividends paid		-	-	(350)
Cash flows from financing activities		5,961	6,194	4,070
Net increase in cash and cash equivalents		(5,664)	1,571	2,350
Cash and cash equivalents at beginning of year		9,937	8,300	8,300
Foreign exchange differences		58	403	(713)
Cash and cash equivalents at end of period		4,331	10,274	9,937

¡¡	Six months ended 30 June 2007	Six months ended 30 June 2006	Year ended 31 December 2006
¡¡	£000	£000	£000
¡¡	(Unaudited)	(Unaudited)	(Audited)
Profit before tax	3,469	2,705	5,061
Adjustments for:	¡¡	¡¡	¡¡
Amortisation of  other intangible assets	7	1	14
Amortisation of land use right	34	65	29
Allowance for doubtful trade debts	546	-	104
Allowance for doubtful non-trade debts	10	-	200
Depreciation of property, plant and equipment	560	719	820
Losses on disposal of property, plant and equipment	(10)	-	21
Gain on disposal of short-term investment	-	-	-
Profit on acquisition of subsidiary undertaking	-	287	-
Share based payment expense	163	163	326
Financial income	(48)	(27)	(91)
Financial expense	493	319	822
Operating profit before working capital changes	5,224	4,232	7,306
Working capital changes:	¡¡	¡¡	¡¡
(Increase)/decrease in:	¡¡	¡¡	¡¡
Inventories	(6,990)	(3,479)	(6,392)
Trade receivables	(8,572)	(8,098)	714
Other receivables, deposits and prepayments	(2,243)	(3,300)	(115)
Due from related parties	937	(1,047)	952
Increase/(decrease) in:	¡¡	¡¡	¡¡
Trade payables	3,710	2,943	444
Other payable and accruals	(2,480)	5,190	(593)
Notes payables	(153)	1,516	(85)
Due to related parties	-	(585)	(109)
Cash generated from/(used in) operations	(10,567)	(2,628)	2,122
Interest received	48	27	91
Income tax paid	(422)	(410)	(607)
Net cash from operating activities	(10,941)	(3,011)	1,606
¡¡	¡¡	¡¡	¡¡

1.  General information

2.  Accounting policies

	Period-end rates	Average rates
30 June 2006	£1 = RMB 14.6280	£1 = RMB 14.2700
31 December 2006	£1 = RMB 15.3232	£1 = RMB 14.7505
30 June 2007	£1 = RMB 15.2455	£1 = RMB 15.1841

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

Six months to June 30 2006	Back up Batteries	PTB	Turbine	Eliminations	Consolidated
	£000	£000	£000	£000	£000
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
Revenue:
Sales to external customers	15,088	6,637	6,642	-	28,367
Inter-segment sales	176	-	-	(176)	-
Total revenue	15,264	6,637	6,642	(176)	28,367
Results:
Segment profit	1,952	683	620	-	3,255
Unallocated corporate expenses					(550)
Profit from operations before taxation					2,705
Income taxation					(401)
Profit for the year					2,304

Twelve months to December 31 2006	Back up Batteries	PTB	Turbine		Eliminations	Consolidated
	£000	£000	£000		£000	£000
	Audited	Audited	Audited		Audited	Audited
Revenue:
Sales to external customers	39,218	20,326	6,910		-	66,454
Inter-segment sales	1,706	1,166	-		(2,872)	-
Total revenue	40,924	21,492	6,910		(2,872)	66,454
Results:
Segment profit	3,961	1,566	552		-	6,079
Unallocated corporate expenses						(1,018)
Profit from operations before taxation						5,061
Income taxation						(789)
Profit for the year						4,272

	Six months		Six months		Year
	ended		ended		ended
	30 June		30 June		31 December
	2007		2006		2006
	(Unaudited)		(Unaudited)		(Audited)
	£000		£000		£000
Income tax expense is as follows:	¡¡		¡¡		¡¡
Current income tax	509		406¡¡		778
Deferred income tax	(51)		(5)¡¡		11
	458		401¡¡		789

	Six months ended 30 June 2007		Six months ended 30 June 2006		Year ended 31 December 2006
	£000		£000		£000
	(Unaudited)		(Unaudited)		(Audited)
Interim dividends	700		-		350

	Six months ended 30 June 2007	Six months ended 30 June 2006	Year ended 31 December 2006
	£000	£000	£000
	(Unaudited)	(Unaudited)	(Audited)
Number of ordinary shares
Weighted average number of ordinary shares - basic	23,343,770	20,388,348	21,880,671
Dilutive effect of share options	411,971	320,746	441,050
Weighted average number of ordinary shares - diluted	23,755,741	20,709,094	22,321,721

	30 June 2007	30 June 2006	31 December 2006
	£000	£000	£000
	(Unaudited)	(Unaudited)	(Audited)
Authorised 100,000,000 Ordinary shares of 10p each	10,000	10,000	10,000
Allotted, called up and fully paid:
23,343,770 (2005 : 20,000,020) Ordinary shares of 10p each	2,334	2,334	2,334

END