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| Name | Symbol | Market | Type |
|---|---|---|---|
| -3x Short China | LSE:CHNS | London | Exchange Traded Fund |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.4748 | 3.4685 | 3.481 | 0 | 00:00:00 |
From Jan 2020 to Jan 2025
TIDMCHNS
RNS Number : 8732D
China Shoto plc
30 March 2011
China Shoto plc
("China Shoto", the "Company" or "the Group")
Final Results & Notice of AGM
China Shoto plc (AIM: CHNS), a leading Chinese producer of industrial batteries and power supply systems, announces its final results for the year ended 31 December 2010.
Highlights
Hot Features
Premium
-- Group sales revenues decreased by 7.3% to GBP196.95 million
(2009: 212.57 million)
-- Sales to Huawei Technology and ZTE Corporation up 134.5
% to GBP 35.79 million
(2009: GBP15.26 million)
-- Awarded Huawei Technology Core Provider status
-- Completed two new production lines
-- Successfully granted 71 new patents, bringing the total
number held to 197
-- Net profit attributable to equity holders of the parent
decreased by 33.9% to GBP15.4
million (2009: GBP23.30 million)
-- Full year dividend of 5 pence per share recommended by
the Board
-- Proposed de-listing and tender offer of 380 pence per
share representing a premium
of 54.2% to the closing mid-market share price on 29
March 2011
Notice of AGM
Notice is hereby given that the Annual General Meeting of China Shoto plc will be held at the 8(th) Floor, 131 Finsbury Pavement, London EC2A 1NT at 11.00 a.m. on 26 April 2011.
A full version of the Annual Report and Accounts, including Notice of Annual General Meeting, is set out below and is also available for download from the Company's website at www.chinashoto.com.
For further information:
China Shoto plc Tel: +44 (0) 20 7242 2666 / +86
Yang Shanji, Executive Chairman 159 6108 0515
www.chinashoto.com
Seymour Pierce Limited Tel: +44 (0) 20 7107 8000
Stewart Dickson/ David Foreman www.seymourpierce.com
Media enquiries: Tel: +44 (0) 20 7242 2666 / +852
Allan Piper/ Jiang Lei 2854 2666
lei@firstcitypr.com www.firstcitypr.cn
China Shoto plc A Green Energy Solution Provider
Company Number: 05448599
2010 Annual Report and Accounts
Contents
Directors, Secretary and Advisers
Highlights
Company Overview
Chairman's Statement
Finance Director's Report
Board of Directors
Directors' Report
Corporate Governance
Directors' Responsibility Statement
Remuneration Report
Independent Auditor's Report
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statements
Notes to the Financial Statements
Directors, Secretary and Advisers
Directors
Yang Shanji (Executive Director)
Zhou Ping (Executive Director)
Qian Shangao (Executive Director)
Zhou Yuezhang (Executive Director)
Zhou Weigang (Executive Director)
Bernard Harry Asher (Non-Executive Director)
Peter Maurice Crystal (Non-Executive Director)
Li Shuang (Non-Executive Director)
Company Secretary
Peter Maurice Crystal
Registered Office
The Broadgate Tower
20 Primrose Street
London EC2A 2RS
Registered Number
05448599
Auditor
BDO LLP
Emerald House East Street Epsom Surrey KT17 1HS
Nominated Adviser and Broker
Seymour Pierce Limited
20 Old Bailey London EC4M 7EN
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Solicitors
Reed Smith LLP
The Broadgate Tower
20 Primrose Street
London EC2A 2RS
Highlights
-- Group sales revenues decreased by 7.3% to GBP196.95 million
(2009: GBP212.57 million)
-- Sales to Huawei Technology and ZTE Corporation up 134.5 %
to GBP35.79 million (2009: GBP15.26 million)
-- Awarded Huawei Technology Core Provider status
-- Completed two new production lines
-- Successfully granted 71 new patents, bringing the total number
held to 197
-- Net profit attributable to equity holders of the parent decreased
by 33.9% to GBP15.40 million (2009: GBP23.30 million)
-- Full-year dividend of 5 pence per share recommended by the
Board
-- Proposed de-listing and tender offer of 380 pence per share
representing a premium of 54.2% to the closing mid-market
share price on 29 March 2011
Company Overview
Business introduction
China Shoto plc (the "Company") and its subsidiaries (together the "Group") are mainly engaged in the production of back-up batteries and power type batteries. The back-up batteries are used primarily by telecommunications operators, but also by customers in the power, railway and other sectors. The power type batteries are mainly used by the electric bicycle manufacturer and retail sectors. During the year ended 31 December 2010, the Group maintained its market share as a leading back-up battery supplier to China's three major telecom operators, China Mobile, China Unicom and China Telecom and was awarded Huawei Technology Core Supplier Status.
Total revenue decreased by 7.3% to GBP196.95 million in 2010 (2009: GBP212.57 million). Revenue from the back-up battery business decreased by 15.8% to GBP165.57 million (2009: GBP196.53 million) and the gross profit margin decreased from 13.2% in 2009 to 11.5% in 2010. At the same time, revenue from the power type battery business increased 95.5% to GBP31.36 million (2009: GBP16.04 million) helping to narrow the negative profit margin from -4.17% in 2009 to -0.55% in 2010.
Acquisition and disposal of subsidiaries
In January 2010, the Group acquired a controlling equity interest in Rugao Tianpeng Metallurgy Co., Ltd (Rugao Tianpeng) for a total consideration of GBP1.82 million. Rugao Tianpeng is mainly engaged in battery recycling and is located in Rugao City, Jiangsu Province, China, within easy reach of the Group's existing production facilities in Jiangyan.
The Company disposed of its shareholding in Yangzhou Zhenghe Power Supply Co., Ltd in December 2010 for a cash consideration of RMB 4 million, yielding a profit on disposal of RMB 820,000 against the original purchase price in 2006.
Strategic Objective
The Company has become the largest back-up battery producer in China. As a China environment friendly enterprise, the Company intends to become a green energy storage products provider through enhancing its R&D effort and in particular, to progress the development of green energy storage products.
Products
AGM VRLA Battery ("AGM Battery")
GEL VRLA Battery ("GEL Battery")
Flooded Lead Acid Battery ("Flooded Battery") and
Power Type Battery ("PTB")
Manufacturing
The Group's factories are conveniently located in Jiangyan, Jiangsu Province, two hours from Shanghai, with easy access to well-developed transportation networks.
The Group now has eight back-up battery and two power type battery production lines including two new lines built in 2010 for 12V back up battery to satisfy increased market demand. Key manufacturing equipment includes a TBS casting machine from the UK, and a concasting system from USA, both designed for the production of Front Terminal batteries and Spiral Wound batteries. The designed annual capacity for Front Terminal batteries is 1 million KVAH (830,000 pcs), and 108,000 KVAH (180,000 pcs) for spiral wound batteries.
Products are manufactured according to international and domestic industrial standards and comply with the network license requirements of major countries in Europe, America and South Asia. The Group has also met the international authentication standards of other countries such as Indonesia, Russia and Nigeria and of the International Electrotechnical Commission.
Research and development
The Company established the Nanjing Shuangdeng Science & Technology Academy and Post Doctoral Research Workstation, a key laboratory for research into new power type batteries in Jiangsu Province. It is also cooperating with more than 10 large domestic universities, including Nanjing Normal University and the China Academy of Science, in product development, technical innovation and talent training. In addition, the Group has equipped itself with high-tech instruments from the UK, Germany and the USA so as to maximise the quality of its R&D and production.
The Company's R&D centre is mainly responsible for developing new types of GEL, AGM and Spiral Wound batteries, as well as the technological development of all existing products.
Sales and Market
Market sectors served include telecommunications, electrical power, railways and electric bicycle sectors.
Key Customers
Back-up battery business
Domestic market: China's three major telecom operators remain our key customers, with sales of GBP109.7 million (2009: GBP159.68 million), accounting for 66.3% (2009: 81.2%) of the total back-up battery business during the year. Other major customers include ZTE Telecom and Huawei Technology, who awarded the Company "Huawei Technology Core Supplier Status" during the year. Sales to these two customers increased to GBP35.79 million (2009: GBP15.26 million), accounting for 21.6% (2009: 7.8%) of total back-up battery revenue during the year.
Foreign markets: Back up battery sales to FAAM and Indus Tower Ltd totalled GBP2.03 million (2009: GBP4.54 million), accounting for 26.9% (2009: 47.1%) of total foreign sales.
Power type battery
Changsha Zhongxiang Electric Bicycle Co., Ltd, Jiangsu Xinri Electric Bicycle Co., Ltd, and Tianjin Taifeng Xiaoniao Electric Bicycle Co., Ltd were the top three customers for power type batteries, generating sales of GBP10.64 million (2009: GBP4.48million), and accounting for 33.9% (2009: 14.3%) of total power type battery business.
Sales and Service Network
The Group now has 89 domestic sales offices and five overseas offices in Dusseldorf, Dubai, Moscow, Singapore and South Africa which opened in 2010.
Chairman's Statement
Against the backdrop of continuing complications both in China's domestic markets and internationally, marked in particular by a huge decrease in infrastructure construction spending by China's three telecom operators, 2010 proved to be a challenging year for China Shoto. In spite of these difficulties, the Company implemented developments that we believe position us strongly to expand the business as we continue working to create value for our shareholders. During the year, the Company successfully completed the acquisition of Rugao Tianpeng, providing us with a battery recycling operation that enables the Group to meet environmental criteria imposed by key customers. We also continued working to maximise our existing technology advantages and customer relationships and focused our sales strategy to maintain market share and remain the largest back-up battery supplier to China's huge telecoms sector. Further, our strong R&D capabilities resulted in the successful development of new battery types, providing opportunities into other domestic markets, such as the electric power, railway and bicycle sectors. Considerable progress in our exploration of key customer potential has been made in overseas markets. We have also continued working hard to control costs and evaluate more efficient production methods whilst maintaining overall production levels. At the end of the year, the Company disposed of its entire shareholding in Yangzhou Zhenghe for a cash consideration of RMB 4 million, yielding a profit on disposal of RMB 820,000.
Results and Dividend
Significant decreases in the central purchasing budgets of China's three telecom operators, higher lead prices, and wider global competition resulted in a significant decrease in Group sales compared with 2009. Revenue decreased 7.3% to GBP196.95 million (2009: GBP212.57 million), whilst net profit attributable to equity holders of the parent decreased by 33.9% to GBP15.40 million (2009: GBP23.30 million).
The Board is not recommending any increase in the full year dividend which will be maintained at 5 pence per share for the year ended 31 December 2010. If approved by shareholders at the Annual General Meeting on 26 April 2011 the dividend will be paid on 4 May 2011 to shareholders on the register at the close of business on 8 April 2011, with the shares going ex-dividend on 6 April 2011.
Operating Overview
Market Overview
Business segments
Back-up batteries
Sales revenue from the back-up battery business in 2010 decreased 15.8% to GBP165.57 million (2009: GBP196.53 million).
Power type batteries
Sales from the power type battery business in 2010 increased 95.5% to GBP31.36 million (2009: GBP16.04 million).
Geographical segments
Domestic sales
Although the Company successfully increased its sales to ZTE and Huawei by 134.5% to GBP35.79 million (2009: GBP15.26 million), domestic sales still decreased 6.6% to GBP189.43 million (2009: GBP202.93 million). Sales to the Group's three key customers, China's telecom operators decreased 31.3% to GBP109.7 million.
Foreign sales
Foreign sales decreased 22.1% to GBP7.52million (2009: GBP9.64 million) mainly due to lower sales to our biggest overseas market, India, which cut imports from China following an increase in domestic Indian suppliers. Sales to India alone decreased 78% to GBP1.25 million (2009: GBP5.70 million). However, the Group is working to broaden its international presence, and successfully captured new sales in Korea, Russia, Malaysia and Brazil during 2010.
Key customers
Back-up batteries
Sales to China's three largest telecom operators decreased 31.3% to GBP109.7 million (2009: GBP159.68 million), although the Group remains the largest single back-up battery supplier to China's three telecom operators. Mitigating the affect of the revenue drop, sales to ZTE and Huawei Technology increased 134.5% to GBP35.79 million (2009: GBP15.26 million).
During the year, the Group's back-up batteries were used successfully in the China Mobile Pavilion, the Pacific Pavilion, and the Joint Pavilion of International Organizations at the Shanghai EXPO 2010. This endorsement has improved the recognition of our brand in the key markets in which the Group operates.
Power type batteries
Following the Company's market development activities over the past three years, sales of power type batteries improved significantly during 2010. Sales to the primary market (where customers include e-bike manufacturers) increased 114.8% to GBP13.22 million (2009: GBP6.15 million), whilst sales to the secondary market (where the customers are e-bike accessory distributors, repair shops and retailers) increased 103.4% to GBP18.14 million (2009: GBP8.87 million).
The Group continues to strengthen its communications with customers through improvements to its technical support and after-sale services.
In 2010, the Group also strengthened its presence at key international telecom fairs, such as the Singapore Telecom Fair, the Brazil International Telecommunications Exhibition, the Russia Telecom Exhibition, the South Africa Telecom Exhibition, the China International Telecom Fair and the International Engineer Machine Exhibition, as well as increased media advertising and other marketing strategies.
Lead Acid Battery Recycling Project
In January 2010, the Company acquired Rugao Tianpeng, which now enables the Group to meet internally, the battery recycling requirements of its key customers. Rugao Tianpeng mainly produces lead alloy as required by the Group. The Group is now undertaking research on the selection of smelting equipment and technical demonstrations.
Research and Development
The R&D centre is responsible for developing new types of GEL, AGM and Spiral Wound batteries, and for the technical development of existing types of these batteries and of super capacitors. New products developed in 2010 include a full series 12V front terminal 100AH with concasting technology, a 2V flat plate gel battery, a 12V front-terminal gel battery, and a 12V 100AH AGM specially designed for UPS.
Patents Granted
During 2010, the Group was granted 71 new patents, bringing the total number of patents awarded by the China Intellectual Property Bureau to 197, including 15 invention patents.
Directorate Changes
There were no changes to the Board of Directors in the year ended 31 December 2010 or up to the date of signing the annual report.
Social Responsibility
As a China environmentally friendly enterprise, we remain committed to commercial development in parallel with the Group's wider social responsibility. Balancing the requirements of our shareholders, staff, customers, suppliers, and social and environmental demands, we are committed to pursuing value for the benefit of the whole community.
The Group has attained ISO14001 environment management system certification and GB/T18001 vocation health and safety management certification. Further, the Group's products have passed CE Verification, UL Verification and EU RoHS tests.
Outlook
As foreseen in the 2009 Annual Report, the Group's management faced severe commercial pressures and challenges in 2010. The year ahead will undoubtedly bring further uncertainties, in particular in relation to the:
reduced 7% GDP target set in the Chinese Government's "12(th) Five Year Plan" (against average annual GDP growth of 11.2% achieved during the period of the 11th Five Year Plan); commitment to energy saving and emission reduction made by the Chinese Government at the Copenhagen Climate Summit; focus on social and occupational health; increasing labour costs; government-imposed restraints on high energy consumption industries; continuing decline of infrastructure investment by the Chinese telecom industry; adjustments to China's finance and currency policy; anticipated global inflation; and further appreciation of the Chinese currency, the Renminbi (RMB)
All are expected to affect the Group's business and impact profit margins. In the face of these challenges, the Group will continue to explore new opportunities in both the international and domestic markets. The newly built production lines for front terminal and spiral wound batteries will contribute towards growing the business going forward. The Group will also continue to focus on cost savings, ensuring tighter risk controls and maintaining environmental compliance in line with its objective of becoming a key green energy solution provider.
Following a challenging year for the Group, the Directors have conducted a detailed review of the Group's strategic options. This review has included evaluating the benefits and disadvantages of the admission of the Company's shares to trading on AIM. The Directors have concluded that it is in the best interests of the Company and shareholders as a whole for the admission of the Company's ordinary shares to trading on AIM be cancelled. The Company has issued a circular to shareholders on 30 March 2011 which provides further details of the proposed cancellation of admission of the Company's ordinary shares to trading on AIM, a tender offer by Seymour Pierce Limited to purchase certain of the Company's Ordinary Shares as well as a Notice of Annual General Meeting.
Following the cancellation of the Company's admission to trading on AIM, the Directors will consider various strategic options which may include a listing on the Hong Kong Stock Exchange, the Shanghai Stock Exchange or any other Stock Exchange. It should be noted that there can be no certainty of another listing on any Stock Exchange.
Yang Shanji
Chairman
30 March 2011
Finance Director's Report
Results
The Board regards the following measures as key performance indicators:
-- Sales revenue decreased by 7.3 % to GBP196.95 million (2009:
GBP212.57 million).
-- Operating profit decreased by 25.8% to GBP19.53 million (2009:
GBP26.34 million).
-- Pre-tax profit decreased by 26.3% to GBP18.49 million (2009:
GBP25.07 million).
-- Gross profit margin decreased by 8.8% to 23.1% (2009: 31.9%),
which is mainly due to a decrease in sales prices.
-- Distribution expense decreased GBP14.22 million to GBP17.43
million (2009: GBP31.65 million), which is mainly due to the
decrease of sales bonuses as a result of lower revenues and
profits.
-- Net profit attributable to equity holders of the parent company,
decreased by 33.9% to GBP15.40 million (2009: GBP23.30 million).
-- Diluted earnings per share from continuing operations in 2010
decreased by 34.6% to 64.27p (2009: 98.34 p).
Income Tax
China Shoto plc
China Shoto plc is a non-resident company registered in England and Wales and only subject to UK corporation tax for activities undertaken in the UK.
According to the latest taxation laws of the Peoples' Republic of China, which came into effect on 1 January 2008, the Group and its significant subsidiary undertakings are subject to income tax at the following tax rates:
Jiangsu Shuangdeng Group Co., Ltd ("JSG Co")
As a foreign enterprise, JSG Co enjoys a preferential policy of a five-year transition period between the new and old enterprise income tax laws. A half-relief tax rate of 12.5% will be applied from 2010 to 2012; the full applicable income tax rate will be 25% from 2013.
Jiangsu Fuste Power Supply Co., Ltd
The full income tax rate of 25% is applied according to the latest taxation laws of the Peoples' Republic of China.
Nanjing Shuangdeng Science and Technology Development Academy Co., Ltd
A half relief tax rate of 12.5% is applied from 2010 to 2012. From 2013, the applicable income tax rate will be 25%.
Jiangsu Best Power Supply Co., Ltd
The applicable income tax rate is 12.5% according to the latest taxation laws of the Peoples' Republic of China. Since 2011, the applicable income tax rate has been 25%.
Rugao Tianpeng Mettallurgy Co., Ltd
The applicable income tax rate is 25% according to the latest taxation laws of the Peoples' Republic of China.
Earnings and Dividends
Diluted earnings per share decreased 34.6% to 64.27p (2009: 98.34p).
The Board is not recommending any increase in the full year dividend, which will be maintained at 5 pence per share for the year ended 31 December 2010.
Shareholders' Equity
The proportion of equity of the Company attributable to shareholders of the parent increased by 26.9% to GBP91.64 million in 2010 (2009: GBP72.22 million). Retained earnings of the Group increased by 31.6% to GBP43.47 million (2009: GBP33.03 million).
Cash Flow
The net cash inflows from operating activities is GBP5.98million (2009: GBP14.36 million).
Borrowing
In 2010 the Group entered into credit facility with the Jiangyan branch of China Construction Bank, the Jiangyan branch of Agricultural Bank of China, the Jiangyan branch of Industrial and Commercial Bank of China and the Jiangyan branch of Bank of China. On 31 December 2010, the Group's short term bank borrowing stood at GBP35.40 million compared with GBP40.99million as at 31 December 2009.
Cost management
The Group reduced manufacturing waste through product technological innovation, enhanced cost estimates and control, and more precise cost audits and management.
Liquidity Risk
Liquidity risk arises from the Group's management of working capital. The Group has financed its operations primarily through a mix of short-term and long-term borrowings. Liquidity risk was significantly reduced by increasing the banking facilities available to the Group.
Foreign Exchange Risk
Foreign sales in 2010 were GBP7.52 million (2009: GBP9.64 million), accounting for 3.8% of total revenue (2009: 4.5%).
The Group effectively reduced and controlled risks regarding export payment through the application of export credit insurance, letters of credit and advance payments, among other measures, alongside the application of forward settlement method to reduce foreign exchange risks.
Interest Rate Risk
With the adjustment of Chinese currency policy, anticipated interest rate increases in 2011 may affect purchasing costs and thus profitability. The main interest rate risk is the rate of return on short term cash deposit and bank borrowings.
Zhou Weigang
Finance Director
30 March 2011
Board of Directors
Yang Shanji, Executive Chairman
Yang Shanji has a Master's Degree in Administration and the title of Senior Economist. He is the main founder and the largest shareholder of the Company. He is Chairman of the Board and CEO of the Company. Mr. Yang is one of the pioneers of China's battery industry and is the Vice Director of both the China Battery Industry Association and China Industrial Association of Power Sources. He has more than 30 years of senior enterprise management experience and has a strong reputation in the battery industry. Mr. Yang is regularly recognised for his work in the industry, receiving titles such as National Model Worker, an honour that the Chinese Government grants to individuals who have provided significant contributions to the Chinese economy.
Zhou Ping, Executive Director
Zhou Ping holds a Master's Degree, the title of Senior Economist and is the Chief Marketing Officer of the Company. He is an economist with 17 years' experience in the battery and industrial power supply sector, spent entirely with the Group. For the past 12 years he has been responsible for Group marketing and sales.
Qian Shangao, Executive Director
Mr. Qian Shangao has a Master's Degree. He is a senior engineer, and holds the title of Senior Economist. He is one of the founders of JSG Co. He worked as a plant supervisor in Jiangsu Taixian Electric Cooking Utensils Factory from February 1975 to 1990. Between 1990 and 1995, Mr. Qian was the Deputy Director of the Jiangyan Sealed Storage Battery Factory (Jiangyan Factory). He joined JS Power as Deputy General Manager when it was set up in 1995 and has been Vice President of JSG Co since 2003.
Zhou Yuezhang, Executive Director
Zhou Yuezhang holds a Master's Degree and is one of the founders of JSG Co. From 1990 to 1995, he was the Deputy Director of the Jiangyan Factory. He joined JS Power as Deputy General Manager when it was set up in 1995 and has been the Vice President of JSG Co. since 2003. Mr. Zhou has extensive experience in several management fields in the power supply industry.
Zhou Weigang, Executive Director
Zhou Weigang, holds a Master's Degree, the title of Senior Economist and is an accountant. He is the Chief Finance Officer of the Group. He has been awarded the title "Provincial Advance Chief Financial Officer" by the Finance Office of Jiangsu Province, China. Mr. Zhou has 30 years' management experience in senior financial positions with Chinese industrial companies. He has served the Group for 13 years, most recently as the Group's Financial Controller, with responsibility for risk control. He was part of the team involved in the listing of the Company on the AIM market in December 2005.
Bernard Harry Asher, Non-Executive Director
Mr. Asher, who lives in London, was an Executive Director of HSBC Holdings from 1986 to 1998 and Chairman of HSBC Investments. In 1997 Mr. Asher became Non-Executive Vice Chairman of the Legal & General Group and Vice Chairman of the London School of Economics. He has been a Non-Executive Director of Morgan Sindall, Seymour Pierce, Chairman of Liontrust. Currently, Bernard Asher is a Director of Hansard Global, China Shoto and BMC Bank International.
Li Shuang, Non-Executive Director
Li Shuang is a Professor in the Central University of Finance and Economics. Professor Li acted as the Deputy Secretary-General of the Chinese Institute of Certified Public Accountants (CICPA) from 1999 to 2002, following which he acted as an advisor to the organisation from 2002 to 2004. In 2010, he was selected as the "Senior Certified Public Accountant". He is currently a member of the Accounting Society of China (ASC), a Director and member of CICPA and China Audit Society, and a member of Academic Committee of Audit Society. He is also a Non-Executive Director of two companies listed in China, and an External Supervisor of a listed company.
Peter Maurice Crystal, Non-Executive Director
Mr. Crystal is a Solicitor and has over 30 years' experience advising Directors and companies whose shares are listed on the London Stock Exchange and AIM. Founder of law firm Memery Crystal, he specialises in matters relating to listed companies and advising on flotations, takeovers, mergers and other corporate finance activities. He is a graduate of Oxford and McGill Universities, a former Law Society Examiner, Director of several companies and a known speaker on corporate finance and corporate governance.
Directors' Report
The Directors are pleased to submit the annual report and financial statements for the year ended 31 December 2010.
Principal Activities
The principal activity of China Shoto plc is that of a holding company. Its subsidiaries mainly devote themselves to the design, development, manufacture and sale of back-up or power type batteries.
Business Review
The Group has performed satisfactorily during the year and the trading performance achieved the budget established at the beginning of the year.
The Income Statement of the Group shows revenue of GBP196.95 million and profit attributable to equity holders of the parent of GBP15.40 million for the year ended 31 December 2010.
Total Group revenue decreased by 7.3% compared with 2009. Back-up battery revenue decreased by 15.8% to GBP165.57 million in 2010 (2009: GBP196.53 million). Further details of revenue by product type are set out in note 26 to the accounts.
The Group signed a share transfer agreement in January 2010 for total consideration of GBP1.82 million for the entire share capital of Rugao Tianpeng. The company mainly produces lead alloy as required by other companies of the Group.
In December 2010, the Group disposed its total shareholding of 51% in Yangzhou Zhenghe Power Co., Ltd for a cash consideration of RMB 4 million which represented a profit on disposal of RMB 820,000.
Further details of the Group's operations, performance and key performance indicators are set out in the Chairman's Statement and the Finance Director's Report.
Principal Risks and Uncertainties
The acquisition of Rugao Tianpeng in 2010 could expose the Group to potential risks, including risks associated with the management of new operations, technologies and personnel. The Company will recruit a related expert management team and technician to control the risk.
The Company's exports markets are exposed to fluctuating foreign exchange rates, and any appreciation of RMB may influence the Company's foreign sales and profitability overseas. Other forms of financial risk are discussed further in note 23 to the financial statements. The Company will consider the use of financial instruments to manage any material exposure to foreign currency.
With the adjustment of Chinese currency policy, anticipated interest rate increases during 2011 may affect financing costs and thus profitability. The Company will pay close attention to the trend of Chinese currency policy, enhance management on trade receivables, increase the trade receivable velocity and improve the capital utilization efficiency to control finance cost.
The Chinese Government's increased requirements on environmental protection measures expose the Company to greater pressure on energy conservation and emission controls, associated vocational health and increase of labour costs. The Company will increase input in environmental facility, R&D and commercialization progress of green environmental product, promote the industry to control this pressure caused by such cost increase.
Dividend
The Board is not recommending any increase in the full year dividend, which will be maintained at 5 pence per share for the year ended 31 December 2010. If approved by shareholders at the Annual General Meeting on 26 April 2011 the dividend will be paid on 4 May2011 to shareholders on the register at the close of business on 8 April 2011, with the shares going ex-dividend on 6 April 2011.
Substantial Shareholders
The Company has not been notified of any beneficial interests, other than those of the Directors of 3% or more of the issued share capital of the Company.
Directorate Changes
There were no changes to the Board of Directors in the year ended 31 December 2010 and up to the date of signing of the annual report.
Employee Policy
As a China environment friendly enterprise, we seek to identify and minimise all health and safety risks in daily operations and in the production process. We also provide regular physical examinations and occupational health and safety training for all employees. The Group also pays for endowment, medical, and unemployment insurance, as well as providing a housing fund for all employees in accordance with relevant national regulations.
The Group is committed to equal opportunities for its employees regardless of gender, age and religion and rejects other forms of discrimination. Personnel are selected on the basis of merit and capability.
Environmental Policy
The Group passed the certification of ISO14001 and GB/T18001 vocation health and safety management, and its products passed the CE Verification, UL Verification and EU RoHS test. Its subsidiary, JS Power., successfully signed a strategic cooperation agreement, the "Green Action Program", with China Mobile. As a China environment friendly enterprise, environment protection is always integrated into the Group's strategies which are demonstrated in our purchasing policies for equipment and raw materials, recycling of waste residue and purification of waste water.
Creditor Payment Policy
The Group pays for the main raw material (lead ingot) by cash on delivery. The payment for other raw materials is by bank acceptance with six months' maturity. The number of average days purchases of the Group represented by trade creditors at 31 December was 62 days (2009: 45 days).
Financing
The Group currently uses bank borrowings of one year's maturity to provide finance for working capital requirements. Given the trading performance, the Directors expect the Group to continue to operate as a going concern for the foreseeable future.
Financial Instruments
The Group has its own cash resource and foreign exchange account which is managed to reduce exchange rate risk from transactions not denominated in RMB. The Group has not undertaken any transactions in financial derivatives. For further information on financial instruments please see note 23 to the financial statements.
Communication with Shareholders and the Market
The annual report and financial statements and interim statements are the primary vehicles for communication with shareholders. Meetings with significant shareholders are arranged through our Nominated Advisor and Broker, Seymour Pierce Limited, and take place after the Final and Interim Financial Statements are published. Such meetings may also take place after other significant announcements, if any, are made to the market.
Research reports published by the Group's broker are another means of communication with shareholders and the market. General information about the business is also available on the Company's website: www.chinashoto.com.
Annual General Meeting
The Annual General Meeting of the Company ("AGM") will be held on 26 April 2011 in London. Full details of the AGM and the resolutions to be put to the AGM will be distributed in a separate circular to shareholders accompanying this Annual Report.
Auditors
All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the auditors for the purposes of their audit and to establish that the auditors are aware of the information. The directors are not aware of any relevant audit information of which the auditors are unaware.
By order of the board
Peter Maurice Crystal
Company Secretary
Corporate Governance
Introduction
The Board of Directors is accountable to the Company's shareholders for good corporate governance. Although the Company's shares are traded on AIM, the Directors plan to comply with the Combined Code where practicable and appropriate.
Below is a brief description of the role of the Board and its committees, followed by a statement regarding the Group's system of internal financial control.
The Board and its Committees
The Board
The Board comprises eight Directors, five of whom are Executive Directors and three of whom are Non-Executive Directors. The Board believes this balance to be appropriate. The Board is responsible to shareholders for the proper management of the Group and it meets not less than four times a year, sometimes by telephone, in order to review trading performance, ensure adequate funding, set and monitor strategy, examine acquisition opportunities and capital expenditure projects, report to shareholders and to consider any other major issues that arise.
Audit Committee
The Audit Committee, which is chaired by Li Shuang, comprises the three Non-Executive Directors only. It meets at least once a year.
The Audit Committee receives and reviews reports from management and the Group's auditors relating to the Interim and Annual Financial Statements and the accounting and internal control systems in use throughout the Group. The Audit Committee has unrestricted access to the Group's auditors.
The Audit Committee advises the Board on the appointment of external auditors and their remuneration and discusses the nature and scope of the audit with the external auditors.
A formal statement of independence is received from the external auditors each year.
Remuneration Committee
The Remuneration Committee is chaired by Peter Maurice Crystal and includes Bernard Asher and Qian Shangao. It meets at least once a year.
It is responsible for reviewing the scale and structure of the Executive Directors' and senior employees' remuneration and the terms of their service or employment contracts including share option schemes and bonus arrangement. The remuneration and terms and conditions of the employment contracts of the Non-Executive Directors are set by the entire Board.
Internal Control and Risk Management
The Board is responsible for establishing and maintaining the Group's system of internal control. The key procedures, which the Directors have established with a view to providing effective internal controls, are as follows:
l Management structure
The Board has overall responsibility for the Company. Executive Directors together with key senior executives at the Company's level meet monthly to discuss sales and day to day operational matters. The subsidiary undertakings of the Group also hold monthly management meetings to summarise operating activities, as well as additional meetings on matters such as quality analysis and control, and financial cost analysis.
l Identification of business risks
The Board is responsible for identifying the major business risks faced by the Group and for determining the appropriate course of action to manage those risks.
The Board has established a sound risk evaluation and control system and ensures that directed measures be taken to manage such risks after identifying and evaluating them. In addition, the Directors take responsibility for monitoring changes in economic activity and the external environment, and communicate with members of the Company internal and external auditors.
The Board and the Audit Committee have reviewed the effectiveness of the internal control system.
l Budgetary process
Each year the Board approves the annual budget, and key risk areas are identified. Performance is monitored and relevant action is taken throughout the year through the quarterly reporting to the Board of variances from the budget, updated forecasts for the year and information on the key risk areas.
Directors' responsibilities statement
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards ("IFRS"s) as adopted by the European Union. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Remuneration Report
Remuneration Policy
The aim of the Company's remuneration policy is to reward the performance of the employees and thereby enhance shareholder value. Remuneration of the Executive of the Company is designed to provide rewards that will attract and retain high quality executives capable of achieving the Group's performance targets on both an annual and a long term basis.
At the time of the listing of the Company, it was decided that the remuneration policy then in operation would remain in place, and that adjustments to that policy would be made at the appropriate time.
The Remuneration Committee
The principal functions of the Remuneration Committee are to review the remuneration packages of Directors and senior employees of the Group and its subsidiaries. The Remuneration Committee can modify and draft the remuneration terms or, if appropriate, suggest changes and reports to the Board for approval.
The Committee also reviews all service contracts for senior staff.
The Board (excluding the Non-Executive Directors) determines the remuneration of Non-Executive Directors.
Directors' Remuneration
Executive Directors
The main components of Executive Directors' remuneration are:
Salary
The basic salary of each Director is determined by taking into account the Director's experience, responsibility and value to the Company.
Bonus awards
In addition to the salary, all Executive Directors were eligible for a performance-related bonus. The bonus was based on the annual budget and linked to achieving specified executive tasks during the year ended 31 December 2010. Detailed information can refer to Note 5. The targets were designed to ensure that the total remuneration varies in line with company performance.
Benefits
Benefits for the Executive Directors include medical insurance, and contribution by the Company to State Pension Scheme (which is subject to stipulations of the State).
Non-Executive Directors
The fees of the Non-Executive Directors reflect the time that they are required to commit to their duties.
Remuneration
The remuneration of the Directors for the year ended 31 December 2010 is set out in note 5 to the Financial Statements.
Share Options
The following Directors had interests in options to subscribe for ordinary shares of the Company as set out below:
As at 31
Dec 2010 % of
and 31 Issued Exercise Date of Exercise
Name Dec 2009 Capital price grant period
Dec
Yang 30 Nov 2008-Dec
Shanji 500,000 2.14% GBP1.30 2005 2015
Dec
30 Nov 2008-Dec
Zhou Ping 100,000 0.5% GBP1.30 2005 2015
Dec
Qian 30 Nov 2008-Dec
Shangao 100,000 0.5% GBP1.30 2005 2015
Dec
Zhou 30 Nov 2008-Dec
Yuezhang 200,000 0.86% GBP1.30 2005 2015
Dec
Zhou 30 Nov 2008-Dec
Weigang 100,000 0.5% GBP1.30 2005 2015
Contracts of Service
The service agreements with each of the Executive Directors are terminable on 12 months' notice by either party.
The Non-Executive directors all have letters of appointment with an initial fixed term of 12 months. The appointment may be terminated at any time thereafter by six months' written notice.
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF CHINA SHOTO PLC
We have audited the financial statements of China Shoto plc for the year ended 31 December 2010 which comprise the consolidated income statement, the consolidated and company balance sheet, the consolidated and company statements of changes in equity and the consolidated and company cash flow statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
-- the financial statements give a true and fair view of the state
of the group's and the parent company's affairs as at 31 December
2010 and of the group's profit for the year then ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union and
as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by
law are not made; or
-- we have not received all the information and explanations we
require for our audit.
Kevin Cook (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
Epsom
United Kingdom
30 March 2011
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Consolidated Income Statement
For the year ended 31 December 2010
2010 2009
For the year ended 31 December 2010 Notes GBP000 GBP000
Revenue 3 196,948 212,569
Cost of sales (151,424) (144,547)
----------- -----------
Gross profit 45,524 68,022
Other operating income 3 7,301 4,540
Distribution expenses (17,436) (31,653)
Administrative expenses (10,305) (11,766)
Other operating expenses (5,551) (2,804)
Profit from operations 4 19,533 26,339
Finance income 3 497 440
Finance costs 6 (1,541) (1,705)
----------- -----------
Profit before tax 18,489 25,074
Tax expense 7 (3,199) (1,610)
----------- -----------
Profit for the year 15,290 23,464
----------- -----------
Other comprehensive income
Exchange differences on translating
foreign operations 5,182 (2,855)
----------- -----------
Total comprehensive income for the
year 20,472 20,609
----------- -----------
Profit for the year attributable to:
Owners of the parent 15,398 23,304
Non-controlling interests (108) 160
----------- -----------
15,290 23,464
=========== ===========
Total comprehensive income attributable
to:
Owners of the parent 20,580 20,521
Non-controlling interest (108) 88
20,472 20,609
----------- -----------
Earnings per share for profit
attributable to the equity shareholders
of the parent during the year
-Basic 9 65.96p 99.83p
-Diluted 9 64.27p 98.34p
Consolidated Balance Sheet
As at 31 December 2010
Company Number: 05448599
Group Company Group Company
Notes 2010 2010 2009 2009
Assets GBP000 GBP000 GBP000 GBP000
Non-current assets
Property, plant and
equipment 10 35,009 - 26,791 -
Intangible assets 12 2,957 - 2,565 -
Long term deferred
expenses 482 - - -
Deferred tax assets 20 301 - 198 -
Investment in
subsidiary
undertaking 11 - 20,977 - 20,977
Due from related
companies 19 - 9,939 - 11,238
38,749 30,916 29,554 32,215
--------- --------- --------- ---------
Current assets
Inventories 13 49,459 - 36,875 -
Trade and other
receivables 14 54,830 - 47,079 -
Short-term investments 15 3,249 - 5,685 -
Cash and cash
equivalents 16 56,156 69 63,995 254
163,694 69 153,634 254
--------- --------- --------- ---------
Total assets 202,443 30,985 183,188 32,469
========= ========= ========= =========
Liabilities
Current liabilities
Bank borrowings 17 35,400 - 40,991 -
Trade and other
payables 18 67,614 - 59,511 52
Income tax payable 1,094 - 60 -
---------
104,108 - 100,562 52
--------- --------- --------- ---------
Non-current liabilities
Bank borrowings 17 1,468 - 1,366 -
Long term
payable-Payroll 4,752 - 7,775 -
Deferred income 478 - 455 -
Due to related
companies 19 - 369 - 369
---------
6,698 369 9,596 369
--------- --------- --------- ---------
Total liabilities 110,806 369 110,158 421
--------- --------- --------- ---------
Consolidated Balance Sheet (Cont'd)
As at 31 December 2010
Company Number: 05448599
Group Company Group Company
Notes 2010 2010 2009 2009
GBP000 GBP000 GBP000 GBP000
Capital and reserves
Share capital 2,334 2,334 2,334 2,334
Share premium 8,630 8,630 8,630 8,630
Other reserve 2,916 18,462 2,916 18,462
Share option reserve 977 977 977 977
Statutory reserves 18,322 - 14,529 -
Retained earnings 43,471 213 33,033 1,645
Foreign currency translation
reserve 14,987 - 9,805 -
Total equity attributable
to equity holders 91,637 30,616 72,224 32,048
--------- --------- --------- ---------
Non-controlling
interests - - 806 -
Total equity and liabilities 202,443 30,985 183,188 32,469
========= ========= ========= =========
The financial statements were approved and authorised for issue by the Board of Directors on 30 March 2011 and signed on its behalf by:
Shanji Yang
Chief Executive
The accompanying notes 1 to 30 forman integral part of the consolidated financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2010
Group Attributable to equity holders
Non-
Share Foreign controlling
Share Share Other option Statutory Retained currency Total interests Total
translation
capital premium reserves Reserve Reserves Earnings reserve
Note Note
21 Note 22 22 Note 22 Note 22 Note 22 Note 22
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance as at 1
January 2009 2,334 8,630 2,916 977 9,252 15,823 12,588 52,520 973 53,493
Total
comprehensive
income - - - - - 23,304 (2,783) 20,521 88 20,609
Transfer to
statutory
reserves - - - - 5,277 (5,277) - - - -
Dividends paid
(note 8) - - - - - (817) - (817) (255) (1,072)
Balance as at 1
January 2010 2,334 8,630 2,916 977 14,529 33,033 9,805 72,224 806 73,030
Total
comprehensive
income - - - - - 15,398 5,182 20,580 (108) 20,472
Transfer to
statutory
reserves - - - - 3,793 (3,793) - - - -
Dividends paid
(note 8) - - - - - (1,167) - (1,167) (175) (1,342)
Disposal of a
subsidiary - - - - - - - - (523) (523)
--------- --------- ---------- --------- ----------- ---------- ------------- --------- ------------- ---------
Balance as at
31 December
2010 2,334 8,630 2,916 977 18,322 43,471 14,987 91,637 - 91,637
--------- --------- ---------- --------- ----------- ---------- ------------- --------- ------------- ---------
The accompanying notes 1 to 30 form an integral part of the consolidated financial statements.
Statement of changes in equity
For the year ended 31 December 2010
Company Share Share Other Share Retained Total
capital premium reserves option earnings
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance as at
1 January
2009 2,334 8,630 18,462 977 394 30,797
Total
comprehensive
income - - - - 2,068 2,068
Dividends paid - - - - (817) (817)
Balance as at
1 January
2010 2,334 8,630 18,462 977 1,645 32,048
Total
comprehensive
income - - - - (265) (265)
Dividends paid - - - - (1,167) (1,167)
--------- --------- ---------- --------- ---------- ---------
Balance as at
31 December
2010 2,334 8,630 18,462 977 213 30,616
--------- --------- ---------- --------- ---------- ---------
The accompanying notes 1 to 30 form an integral part of the consolidated financial statements.
Consolidated cash flow statements
For the year ended 31 December 2010
Notes 2010 2009
GBP000 GBP000
Cash flows from operating activities
Profit before tax from continuing
operations 18,489 25,074
Adjustments for:
Amortisation of intangible assets 12 81 79
Depreciation of property, plant and
equipment 10 2,285 1,947
Loss on disposal of property, plant and
equipment 4 202 558
Impairment loss on loans and receivables 4 387 763
Impairment on inventories 4 232 93
Financial income 3 (497) (440)
Financial expense 6 1,541 1,705
Loss on disposal of a subsidiary 4 430 -
Cash flow from operating activities before
changes of working capital and provisions 23,150 29,779
---------- ----------
Working capital changes:
Increase in inventories (12,816) (8,559)
Increase in trade and other receivables (7,183) (12,831)
Increase in trade and other payables 5,079 7,868
---------- ----------
Cash generated from operations 8,230 16,257
Income tax paid (2,254) (1,895)
----------
Net cash flows from operating activities 5,976 14,362
---------- ----------
Cash flows from investing activities
Financial income 3 497 440
Purchase of property, plant and equipment (8,278) (7,461)
Long term deferred expenses (482) -
Additions of intangibles (93) -
Funds placed on deposit 2,436 (1,739)
Acquisition of a subsidiary 28 (765) -
Proceeds from disposal of property, plant
and equipment and land use right - 1,490
Proceed from disposal of a subsidiary 29 383 -
Cash flows used in investing activities (6,302) (7,270)
---------- ----------
Consolidated cash flow statements (Cont'd)
For the year ended 31 December 2010
Notes 2010 2009
GBP000 GBP000
Cash flows from financing activities
Increase in bank borrowings 97,424 62,537
Decrease in bank borrowings (102,912) (49,768)
Interest paid 6 (1,541) (1,705)
Dividends paid 8 (1,342) (1,072)
Cash flows (used in)/generated from
financing activities (8,371) 9,992
Net (increase) /decrease in cash and
cash equivalents (8,697) 17,084
Cash and cash equivalents at beginning
of year 63,995 50,797
Foreign exchange differences 858 (3,886)
Cash and cash equivalents at end of
year 16 56,156 63,995
=========== ==========
The accompanying notes 1 to 30 form an integral part of the consolidated financial statements.
Company cash flow statement
For the year ended 31 December 2010
Notes 2010 2009
GBP000 GBP000
Cash flows from operating activities
(Loss)/profit before income tax (265) 2,068
Investment income from subsidiary - (2,334)
Cash used by operations before working
capital changes (265) (266)
Working capital changes:
Decrease in amounts due from subsidiary
undertakings 19 1,299 1,140
Decrease in trade and other payables (52) -
--------- ---------
Net cash from operating activities 982 874
Cash flows from financing activities
Dividends paid to external shareholders 8 (1,167) (817)
Cash flow from financing activities (1,167) (817)
Net (decrease)/increase in cash and
cash equivalents (185) 57
Cash and cash equivalents at beginning
of year 254 197
Cash and cash equivalents at end
of year 16 69 254
--------- ---------
The accompanying notes 1 to 30 form an integral part of the consolidated financial statement.
Notes to the Financial Statements
For the year ended 31 December 2010
1. General information
China Shoto plc is a company incorporated in the United Kingdom on 10 May 2005. The address of the registered office is given above, and the principal place of business is Shuangdeng Science and Industrial Zone, Liangxu Town, Jiangyan City, Jiangsu Province, China. Details of the Group's reporting and functional currencies are disclosed in note 2 below.
The Group financial statements consolidate those of the company and its subsidiaries (together referred to as the Group). The parent company financial statements present information about the company as a separate entity and not about its group. The nature of the Group's operations and its principal activities are set out in the directors' report.
2. Accounting policies
The consolidated financial statements of China Shoto plc and its subsidiary undertakings (the 'Group') and the individual financial statements of China Shoto plc (the 'Company') have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force ('IFRS'), as adopted by the European Union, and those parts of the Companies Act 2006 applicable to companies preparing financial statements under IFRS.
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its income statement in these financial statements. The Company loss for the year is GBP265,000 (2009 profit GBP2,068,000), which is dealt with in the financial statements of the Company.
Standards effective but not yet adopted
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the group's accounting periods beginning on or after 1 January 2011 or later periods and which the group has decided not to adopt early and are not expected to have a material impact on the group's accounts. These are:
Name Effective
date
------- ------------------------------------------------------ -------------
1 Revised IAS 24 Related Party Disclosures 1 January
2011
------- ------------------------------------------------------ -------------
2 Amendments to IFRIC 14 IAS 19 - Limit on a Defined 1 January
Benefit Asset, Minimum Funding Requirements and 2011
their Interaction
------- ------------------------------------------------------ -------------
3 Improvements to IFRSs (2010) 1 January
2011
------- ------------------------------------------------------ -------------
4 Disclosures - Transfers of Financial Assets 1 July 2011
(Amendments to IFRS 7)
------- ------------------------------------------------------ -------------
5 Severe Hyperinflation and Removal of Fixed Dates 1 July 2011
for First-time Adopters (Amendments to IFRS 1)
------- ------------------------------------------------------ -------------
6 Deferred Tax: Recovery of Underlying Assets 1 January
(Amendments to IAS 12) 2012
------- ------------------------------------------------------ -------------
7 IFRS 9 Financial Instruments 1 January
2013
------- ------------------------------------------------------ -------------
Estimates and assumptions
The Group makes certain estimates and assumptions regarding the future. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimate and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
a) Useful lives and depreciation of intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods. Details of the estimated useful lives are shown in the policy note for depreciation. While the estimated useful life of an asset is determined on acquisition, using best estimates, both residual values and estimated useful lives are monitored on an annual basis. More details including carrying values are included in Notes 10 and 12.
b) Inventory
The Company reviews the net realisable value of, and demand for, its inventory on a quarterly basis to provide assurance that recorded inventory is stated at the lower of cost and net realisable value. Factors that could impact estimated demand and selling prices include the timing and success of future technological innovations, competitor actions, supplier prices and economic trends. Changes of the expected net realisable value of inventory could potentially result in an increase or reduction in the profit for the year.
c) Allowance for doubtful trade receivables
The Group makes sales on credit. A proportion of the outstanding credit sales may prove uncollectable in due course. An estimate is made of the uncollectible portion of accounts receivables using a percentage based on the ageing profile of the amounts outstanding, and also individually confirmed according to the customers' accrual credit conditions. Historically the Group has not born losses exceeding 1% of gross book value of trade and other receivables but has increased its allowance for doubtful trade receivables during this period to reflect tightening monetary policy in China, in particular.
There is a degree of uncertainty as to actions the Group is able to undertake to enforce collection of doubtful debts, which may impact the eventual recoverable amounts. Accordingly, the Directors have assessed their best estimate of the recoverability of such debts as nil. More details of the allowance for doubtful trade and other receivables are provided in Note 14.
d) Income taxes
The Group is subject to income tax in several jurisdictions within the People's Republic of China and significant judgment is required in determining the provision for income taxes. The carrying amount of the group's income tax payable at 31 December 2010 was GBP1,094,000 (2009: GBP60,000). The company believes that its provision for tax liabilities are adequate for all of its years of operations based on the assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the company recognises tax liabilities based on best estimates of whether additional taxes and interest may be due.
Subsidiaries
A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors.
In the Company's separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses.
Principles of consolidation
The consolidated financial statements comprise the financial statements of the China Shoto plc and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances.
All inter-group balances, transactions, income, expenses, profits and losses resulting from inter-group transactions that are recognised are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases.
Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. For acquisitions prior to 1 January 2010, cost directly related to the acquisition were included as part of the cost of an acquisition, thereafter cost directly attributable have been expensed. Identified assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date.
Any excess of the cost of the business combination over the Group's interest in the net fair value of the identified assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated below.
Non-controlling interests represent the portion of net assets in subsidiaries not held by the Group. These are presented in the consolidated balance sheet within equity, separately from the parent shareholder's equity, and the share of profit or loss is separately disclosed in the consolidated income statement.
The acquisition of Leadstar Enterprises Limited by China Shoto plc on 30 November 2005 has been accounted for using the principles of reverse acquisition accounting, in accordance with IFRS 3 'Business Combinations', on the basis that the management, who are the former majority shareholders of Leadstar Enterprises Limited, retained effective control of the Group. The fair value of the assets of China Shoto plc at the date of the business combination were equivalent to the fair value of the notional number of equity instruments which would have been issued by Leadstar Enterprises Limited to acquire China Shoto plc, and therefore no goodwill arose in respect of this transaction.
Foreign currencies
As sales and purchases are denominated primarily in RMB and receipts from operations are usually retained in RMB, the functional currency of the subsidiary undertakings is Renminbi ("RMB"). Monetary assets and liabilities maintained in currencies other than RMB are translated into the RMB at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than RMB are translated at rates ruling on the transaction dates. All resulting exchange differences are dealt with in the income statements.
The consolidated results are presented in Sterling reflecting the Company's UK quotation and investor base. Assets and liabilities of subsidiaries 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 reserve within equity.
Revenue recognition
Revenue from the sale of goods is recognised upon significant risks and rewards of ownership of the goods being transferred to the customer, which coincides with acceptance of the goods sold and the quality inspection by clients, being a contractual requirement of the Group's customers.
Government grants
Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When a grant relates to an expense item, it is recognised in the consolidated income statement over the period necessary to match it on a systematic basis to the costs that it is intended to compensate. Where a grant relates to an asset, it is included in deferred income and amortized to the consolidated income statement in equal annual installments over the expected useful life of the relevant asset.
Employee benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statements as incurred.
Bonuses for staff are accrued when the Group has an obligation to settle the liability for staff's past performance at the financial year end. The bonus accrual is stated at the present value of the discounted cash flows based upon the expected timing of bonus payments.
Borrowings costs
The Group does not incur any interest costs that qualify for capitalization under IAS 23 'Borrowing costs', and are therefore expensed as incurred.
Share-based payments
Where equity settled share options are awarded to employees for services provided in respect of the flotation, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The fair value of the award is recognised over the vesting period as an increase in the cost of investment in the subsidiary in the company balance sheet. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received.
Income tax
Income tax for the financial year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case such tax is recognised in equity.
Current tax is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous financial years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences as at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for differences arising on the initial recognition of goodwill and goodwill for which amortisation is not tax deductible.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Dividends
Equity dividends are recognised when they become legally payable. In respect of interim dividends to equity shareholders, this is when they are paid. In respect of final dividends to equity shareholders, this is when they are approved at the annual shareholders' meeting. The Company will recognise investment income when the subsidiaries' dividend is approved by their shareholders' meetings.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
Depreciation is calculated using the straight-line method so as to write off the cost of property, plant and equipment reduced by the estimated residual value of the assets over their estimated useful lives. The estimated residual value and annual depreciation rates used for this purpose are as follows:
Estimated residual Useful Annual depreciation
Item value life rates
Building 10% 40 2.25%
Machinery 10% 10 9%
Motor vehicles 10% 5 18%
Office equipment 10% 5 18%
Fully depreciated plant and equipment are retained in the financial statements until such time that they are no longer in use. Construction in progress represents property, plant and equipment under construction and is stated at cost. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for use.
Intangible assets
a) Land use rights
Land use rights arise when the Bureau of the Land and Resources of People's Republic of China grants the group rights to develop, use and operate land during a limited period of time. Land use rights are measured initially at cost and subsequently amortised on a straight-line basis over the life of the asset. The life of the land use right is taken to be the length of time for which the right has been granted (42 to 50 years). The carrying values of land use rights are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
b) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary or associated undertaking at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement, through administrative expenses, and is not subsequently reversed.
c) Other intangible assets
The cost of intangible assets acquired in a business combination is their value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Intangible assets are amortised through administrative expenses on a straight-line basis over their estimated useful economic lives and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and amortisation method for intangible assets are reviewed at least at each financial year-end.
The estimated useful economic lives for the Group's intangible assets are as follows:
Trademark & Patents 10 years
Investment in subsidiary undertakings
Investments in subsidiaries are stated at cost less provision for impairment.
Impairment of assets
The carrying amounts of non-current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of the asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised through administrative expenses in the income statement.
The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Fair value is the amount obtainable from the sale of an asset in an arm's length transaction less costs to sell. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash generating unit.
An impairment loss for an asset other than goodwill is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. Reversals of impairment losses are recognised in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. The cost of finished goods comprises raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity. Unless otherwise stated, book value of financial assets is not materially different from their fair values.
a) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provision is recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being made based on past experience after analysis of the ageing of the receivables.
For trade receivables such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that trade receivables will not be collectable, the gross carrying value of the assets is written off against the associated provision.
The Group's loans and receivables comprise trade and other receivables, amounts due from related parties, short-term investment and cash and cash equivalents in the balance sheet.
The short-term investments are bank deposits with original maturities of more than three months but within a financial year. The short-term investments are security for export sales or notes payables with an initial maturity of more than three months. The short-term investments are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash and cash equivalents comprise cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Financial liabilities and equity
The Group classifies its financial liabilities into one of the categories discussed below:
Financial liabilities of the Group include trade and other payables, amounts due to related parties and bank borrowings.
Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and repayable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Equity instruments are recorded net of direct issue costs.
Research and development expenditure
Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an asset when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention and availability of resource to complete the asset, the ability to measure reliably the expenditure during development, and whether the asset will generate future economic benefits.
If development expenditure cannot be distinguished from the research phase of an internal project to create an intangible asset, the research and development expenditure of internal projects is recognised in the income statement as incurred.
Following initial recognition, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. During the period of development, the asset is tested for impairment annually.
No costs in the current or prior period meet the criteria required for capitalisation.
3. Revenue
Group Group
2010 2009
GBP000 GBP000
Revenue
Sale of goods 196,948 212,569
Other operating income
Waste disposal and sale
of by-products 1,546 1,403
Government grant income 1,569 1,879
Rental Income 128 160
Material sale 3,417 143
Penalty income 57 360
Electricity income from
third parties 374 402
Others 210 193
7,301 4,540
========= =========
Finance income
Interest income 497 440
Total income 204,746 217,549
========= =========
Government grant income is a direct subsidy which is received by the Group from the Finance Bureau and other government departments.
4. Profit from operations
Group Group
2010 2009
GBP000 GBP000
Profit from operations is arrived
at after charging / (crediting):
Cost of inventories recognized
as an expense 151,424 144,547
Auditors' remuneration
- audit of Group accounts 49 33
- audit of individual accounts
of subsidiary undertakings 59 51
Amortisation of intangible assets 81 79
Depreciation of property, plant
and equipment 2,285 1,947
Loss on disposal of property,
plant and equipment 202 558
Loss on disposal of subsidiary 430 -
Allowance for doubtful receivables 387 763
Research and development expenditure 1,237 717
Foreign exchange gains (18) (9)
Inventory written down to net
realizable value 232 93
========= =========
5. Information regarding directors and employees
2010 2009
Average number of employees of the
Group Number Number
Management and administration 133 171
Sales 328 311
Manufacturing 1,696 2,069
Total 2,157 2,551
======== ========
2010 2009
GBP000 GBP000
The aggregate payroll costs of these
employees were as follows:
Wages and salaries 10,388 20,700
Social security costs 283 693
Pension costs 263 247
-------- --------
10,934 21,640
======== ========
Directors' remuneration was as follows:
2010 2010 2010 2010 2009
Total Total
Salary Welfare Bonus emoluments Emoluments
GBP000 GBP000 GBP000 GBP000 GBP000
Yang Shanji 30 - 423 453 649
Zhou Yuezhang 20 1 134 155 194
Zhou Weigang 20 1 172 193 194
Zhou Ping 20 1 148 169 175
Qian Shangao 20 1 175 196 196
Li Shuang 15 - - 15 15
Bernard Asher 15 - - 15 15
Peter Maurice
Crystal 15 - - 15 15
Cao Guifa - - - - 77
Total 155 4 1,052 1,211 1,530
======== ========= ======== ============= =============
There wereno payments for post-employment benefits, other long-term benefits or termination benefits in respect of directors.
6. Finance costs
Group Group
2010 2009
GBP000 GBP000
Interest expense
on bank and other
loans 1,541 1,705
======== ========
7. Income tax
Group Group
2010 2009
GBP000 GBP000
Income tax expense is as follows:
Prior year under provision 75 299
Current income tax 3,211 1,492
-------- --------
Total current tax 3,286 1,791
Deferred income tax:
Origination and reversal of temporary
differences (87) (181)
3,199 1,610
======== ========
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax applied to profits for the year are as follows:
Group Group
2010 2009
GBP000 GBP000
Profit before tax 18,489 25,074
Expected tax charge based on
the standard tax rate of individual
group companies 5,255 6,763
Effect of reduction in tax rate (2,084) (5,189)
Tax effect of non-deductible
expenses and non-taxable revenue (44) (263)
Difference in tax rate of tax
rate relief (3) -
Adjustment for under provision
in prior year 75 299
3,199 1,610
========= =========
The Company and significant subsidiary undertakings are subject to income tax on the following bases and at the following rates:
China Shoto plc
The Company is a non-resident UK company, subject to UK corporation tax at the standard rate of 28% (2009: 28%) on UK profits.
Jiangsu Shuangdeng Group Co. Ltd
In 2005 the company reregistered as a foreign enterprise and is entitled to exemptions from PRC income tax for the two years commencing from its first profit-making year of operation and to a 50% relief from PRC income tax for another three years thereafter.
In accordance with the latest PRC taxation laws which came into effect on 1 January 2008, its standard applicable tax rate is 25%. Enterprises who once enjoyed a preference on taxation exemption or relief on certain periods such as "exemption from tax in the first two years and half of the tax in the next three years" or "exemption from tax in the first five years and half of the tax in the next five years", will apply the original taxation law and administration law regulation as well as the preferential system and preferential term till the end of the period regulated in the relevant regulation after the implementation of the new taxation. However, those who haven't enjoyed the taxation preferential because of no profit-making will account for it from 2008. Since 2008 is the company's first profit-making year, it is free from income tax in 2008 and 2009, and a half tax rate of12.5% will be imposed in 2010, 2011 and 2012.
Jiangsu Fuste Power Supply Co. Ltd and Jiangsu Best Power Supply Co. Ltd
The companies are located in an area designated as an Economic Development Coastal Region in accordance with PRC tax regulations. In accordance with the PRC tax legislation applicable to foreign investment enterprises each company is entitled to exemptions from PRC income tax for the two years commencing from their first profit-making year of operation (2004 for Jiangsu Fuste Power Supply Co. Ltd and 2006 for Jiangsu Best Power Supply Co. Ltd) and for another three years thereafter they are entitled to a 50% relief from PRC income tax. Its applicable tax rate is 25% according to the latest taxation laws which came into effect on 1 January 2008. So the actual tax rate of Jiangsu Fuste Power Supply Co. Ltd is 25% and Jiangsu Best Power Supply Co. Ltd is 12.5% in 2010.
Nanjing Shuangdeng Science and Technology Development Academy Co. Ltd
In 2005 the company re-registered as a foreign investment enterprise and meanwhile it is a production enterprise located in a development zone in accordance with the PRC income tax legislation so it is entitled to exemptions from PRC income tax for the two years commencing from its first profit-making year of operation and thereafter it is entitled to a 50% relief from PRC income tax for the next three years.
In accordance with the latest PRC taxation laws which came into effect on 1 January 2008, its standard applicable tax rate is 25%. Enterprises who once enjoyed a preference on taxation exemption or relief on certain periods such as "exemption from tax in the first two years and half of the tax in the next three years" or "exemption from tax in the first five years and half of the tax in the next five years", will apply the original taxation law and administration law regulation as well as the preferential system and preferential term till the end of the period regulated in the relevant regulation after the implementation of the new taxation. However, those who haven't enjoyed the taxation preferential because of no profit-making will account for it from 2008. Since 2008 is the company's first profit-making year, it is free from income tax in 2008 and 2009, and a half tax rate of 12.5% will be imposed in 2010, 2011 and 2012.
Yangzhou Zhenghe Power Supply Co. Ltd
The company is a production enterprise and in accordance with the PRC tax legislation applicable to foreign investment enterprises the company is entitled to exemptions from PRC income tax for the two years commencing from its first profit-making year of operation (2007 for Yangzhou Zhenghe Power Supply Co., Ltd) and for another three years thereafter they are entitled to a 50% relief from PRC income tax. Its applicable tax rate is 25% according to the latest taxation laws which came into effect on 1 January 2008. The period from 2009 to 2011 is for half-relief, so its applicable tax rate is 12.5%. From 2012, its applicable tax rate is 25%.
Rugao Tianpeng Metallurgy Co.Ltd
The company is a production enterprise and in accordance with the PRC tax legislation applicable for domestic enterprises, its applicable tax rate in 2010 is 25%.
8. Dividends
Group Group Company Company
2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000
Dividends paid 1,167 817 1,167 817
======== ======== ========= =========
China Shoto plc declared an annual dividend of 5p per ordinary share amounting to GBP1,167,188.50 on 28 April 2010, which was approved by the shareholders on the AGM on 22 June 2010 and was paid on 30 June 2010.
China Shoto plc declared an annual dividend of 3.5p per ordinary share amounting to GBP817,031 on 28 April 2009 which was approved by the shareholders on 16 June 2009.
9. Earnings per share from continuing operations
Earnings for the purpose of basic and diluted earnings per share are the net profit for the financial year attributable to equity holders of the parent of GBP15,398,000 (2009: GBP23,304,000).
The profit from continuing operations for the financial year attributable to equity holders of the parent is as follows:
Group Group
2010 2009
GBP000 GBP000
Profit attributable to equity holders
of the parent 15,398 23,304
======== ========
The weighted average number of ordinary shares used in the calculation of earnings per share from continuing operations has been derived as follows:
Group Group
Number of ordinary shares 2010 2009
Weighted average number of ordinary
shares - basic 23,343,770 23,343,770
Dilutive effect of share options 614,623 353,832
------------ ------------
Weighted average number of ordinary
shares - diluted 23,958,393 23,697,602
============ ============
10. Property, plant and equipment
Motor Office Construction
Group Buildings Machinery Vehicle Equipment in progress Total
Cost GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2009 14,626 15,622 543 2,252 1,850 34,893
Additions 1,763 441 119 1,327 3,805 7,455
Reallocation 3,565 1,269 - - (4,834) -
Disposals (741) (1,395) (51) (133) (2) (2,322)
Exchange adjustments (1,393) (1,150) (52) (148) (192) (2,935)
At 31 December
2009 17,820 14,787 559 3,298 627 37,091
Additions 199 2,150 38 211 5,413 8,011
Reallocation 1,216 400 - 379 (1,995) -
Acquired on
acquisition of
subsidiary
-Tianpeng 1,380 708 27 5 - 2,120
Disposals (233) (1,559) (15) (114) (14) (1,935)
Other transfer - - - - (174) (174)
Disposal of
subsidiary-Zhenghe (541) (266) - (9) - (816)
Exchange
adjustments 1,373 1,134 41 255 123 2,926
At 31 December
2010 21,214 17,354 650 4,025 3,980 47,223
Accumulated depreciation
At 1 January 2009 1,821 6,309 248 1,266 - 9,644
Charge for the
year 328 1,133 82 404 - 1,947
Disposals (197) (695) (33) (45) - (970)
Exchange adjustments (82) (98) (22) (119) - (321)
At 31 December
2009 1,870 6,649 275 1,506 - 10,300
Acquired on
acquisition of
subsidiary
-Tianpeng 108 194 8 3 313
Charge for the
year 474 1,311 96 404 - 2,285
Disposals (97) (953) (3) (112) - (1,165)
Disposal of
subsidiary-Zhenghe (156) (151) - (5) - (312)
Exchange
adjustments 147 504 23 119 - 793
At 31 December
2010 2,346 7,554 399 1,915 - 12,214
=========== =========== ========= =========== ============== =========
Net book value
At 1 January 2009 12,805 9,313 295 986 1,850 25,249
=========== =========== ========= =========== ============== =========
At 31 December
2009 15,950 8,138 284 1,792 627 26,791
=========== =========== ========= =========== ============== =========
At 31 December
2010 18,868 9,800 251 2,110 3,980 35,009
=========== =========== ========= =========== ============== =========
Assets pledged as security
As at 31 December 2010, building and machinery with a carrying amount of GBP7,312,350 (2009: GBP4,283,413) are subjected to a first charge to secure the Group's bank borrowings.
11. Investment in subsidiary undertakings
Company Company
2010 2009
GBP000 GBP000
Cost:
At the beginning and end of the financial
year 20,977 20,977
-------- --------
20,977 20,977
======== ========
12. Intangible assets
Group Group Group Group
Land use Trade
Cost: rights Others mark Total
GBP000 GBP000 GBP000 GBP000
At 1 January 2009 3,273 89 30 3,392
Disposal of subsidiaries (240) - - (240)
Additions 6 - - 6
Exchange adjustments (322) (9) (1) (332)
---------- -------- -------- --------
At 31 December 2009 2,717 80 29 2,826
Acquired on acquisition
of subsidiary -Tianpeng 203 - - 203
Additions - 93 - 93
Exchange adjustments 206 8 1 215
---------- -------- -------- --------
At 31 December 2010 3,126 181 30 3,337
Accumulated amortization:
At 1 January 2009 255 3 11 269
Disposal of subsidiaries (56) - - (56)
Amortisation for the financial
year 57 14 3 74
Exchange adjustments (25) (1) - (26)
---------- -------- -------- --------
At 31 December 2009 231 16 14 261
Acquired on acquisition
of subsidiary -Tianpeng 16 - - 16
Amortisation for the financial
year 63 15 3 81
Exchange adjustments 19 2 1 22
---------- -------- -------- --------
At 31 December 2010 329 33 18 380
Net book value:
At 31 December 2009 2,486 64 15 2,565
---------- -------- -------- --------
At 31 December 2010 2,797 148 12 2,957
========== ======== ======== ========
The Group's land use rights have a remaining amortisation period of between 35 and 47 years.
Assets pledged as security
As at 31 December 2010, land use rights with a carrying amount of GBP1,757,516 (2009: GBP1,242,879) are subject to a first charge to secure the Group's bank borrowings.
13. Inventories
Group Group
2010 2009
GBP000 GBP000
Raw materials 13,971 7,211
Work in progress 7,417 5,635
Finished goods 28,071 24,029
49,459 36,875
======== ========
14. Trade and other receivables
Group Group
2010 2009
GBP000 GBP000
Trade receivables 45,068 40,880
Notes receivable 4,200 3,978
Other receivables 3,322 1,006
-------- --------
Total financial assets other than
short term investments and cash
and cash equivalents classified
as loans and receivables 52,590 45,864
Advances to suppliers 2,207 964
Prepayments 33 251
54,830 47,079
======== ========
Loans and receivables shown above are stated net of an allowance for doubtful receivables, the movements on this account being summarized below:
Group Group
2010 2009
GBP000 GBP000
Balance at beginning of financial
year 1,598 948
Disposal of a subsidiary undertaking (220) -
Allowance for the financial year 387 763
Receivable written off during the
year as uncollectable (56) -
Exchange adjustments 120 (113)
1,829 1,598
======== ========
The allowance account for doubtful receivables includes an amount of GBPnil (2009: GBPnil) in respect of related parties.
Trade receivables are generally on 90 day terms. The ageing analysis of loans and other receivables which are past due, but impaired is as follows:
Group Group
2010 2009
GBP000 GBP000
1-90 days overdue 5,978 9,108
91-270 days overdue 8,047 10,902
271-630 days overdue 4,703 2,523
631-990 days overdue 139 130
Over 990 days overdue - -
-------- --------
18,867 22,663
======== ========
Loans and receivables that are neither past due nor impaired amount to GBP33,723,806 (2009: GBP23,201,000). The credit quality of these receivables is considered to be satisfactory.
15. Short term investments
Group Group
2010 2009
Cost: GBP000 GBP000
Deposits with an initial maturity of
more than 3 months
-Deposits secured for notes payable 2,763 285
-Deposits for export sale 466 5,400
-Deposits secured for environment 20 -
3,249 5,685
======== ========
16. Cash and cash equivalents
Group Company Group Company
2010 2010 2009 2009
GBP000 GBP000 GBP000 GBP000
Cash 50,588 69 41,508 254
Deposits-secured for Notes
Payables with an initial
maturity of 3 months or
less 5,568 - 22,487 -
56,156 69 63,995 254
======== ========= ======== =========
Cash earns interest at a fixed rate of between 0.36% and 1.17% in 2010 (2009: 0.15% and 1.17%).
17. Bank borrowings
Group Group
2010 2009
GBP000 GBP000
Short-term bank borrowings 35,400 40,991
Long-term borrowings 1,468 1,366
36,868 42,357
======== ========
Bank borrowings are all at fixed rates and are secured by a first mortgage over the Group's main property, plant and equipment and land use right (notes 10 and 12). The Group has no defaults and breaches of principal or interest on bank borrowings.
Short-term bank borrowings have an average maturity of 6 months from the end of the financial year (2009: 6 months). The maturity of long term borrowings is November 27(th) 2012. Bank borrowings incur interest rates ranging from 0.3% to 5.6% (2009: 0.3% to 4.86%). The weighted average interest rate is 3.18% (2009: 2.58%).
The Group did not breach any of its covenants and did not default on payments of interest and principal on its bankborrowings.
18. Trade and other payables
Group Group Company Company
2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000
Trade payables 25,809 17,640 - -
Notes payable 9,902 14,751 - -
Staff costs payable 6,927 9,692 - -
Amount due to employees 7,867 5,250 - -
Due to related parties 1 100 - -
Other payables 14,606 10,544 - 52
Total other financial
liabilities excluding
bank borrowings 65,112 57,977 - 52
Advances from customers 2,258 1,181 - -
Other tax payable 244 353 - -
67,614 59,511 - 52
======== ======== ========= =========
Including bank borrowings, the Group's total other financial liabilities amounts to GBP107,210,000 (2009: GBP108,774,000).
19. Related parties
The group companies set out in note 24, the directors and the following related parties have been identified:
Related parties Relationship Jiangsu Shuangdeng Electric Appliance Significant influence by and Cable Co. Ltd the Chief Executive
Directors' remuneration is disclosed in note 5. Amounts due from and to related parties are as follows:
Group Group Company Company
2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000
Due from subsidiary undertakings
- Non-trade - - 9,939 11,238
Due from related parties
-due from Jiangsu Shuangdeng
Electric Appliance and
Cable Co. Ltd 94 - - -
-------- -------- --------- ---------
94 - 9,939 11,238
======== ======== ========= =========
Due to related parties
-due to Chief Executive
Shanji Yang - 41 - -
-due to the directors - 59 - -
-due to Jiangsu Shuangdeng
Electric Appliance and
Cable Co. Ltd 1 - - -
Due to subsidiary undertakings
- Non-trade - - 369 369
1 100 369 369
======== ======== ========= =========
Significant transactions during the financial years with related parties, all of which were negotiated at arms' length, were as follows:
Group Group Company Company
2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000
Sale of goods:
Jiangsu Shuangdeng Electric
Appliance and Cable Co. Ltd 1 118 - -
1 118 - -
======== ======== ========= =========
Other operating income:
Jiangsu Shuangdeng Electric
Appliance and Cable Co. Ltd 257 237 - -
257 237 - -
======== ======== ========= =========
Purchases:
Jiangsu Shuangdeng Electric
Appliance and Cable Co. Ltd 493 83 - -
493 83 - -
======== ======== ========= =========
Declared dividend
Leadstar Enterprises Limited - - - 2,334
- - - 2,334
======== ======== ========= =========
The key management at the Group are considered to be the Board of Directors and their remuneration is described in Note 5.
Amounts due to the Company from subsidiary undertakings represent net proceeds from the listing on AIM, which have been advanced to the trading subsidiaries to invest in new plant and working capital. Amounts due to subsidiary undertakings represent costs paid on the Company's behalf by its subsidiary undertakings. In the opinion of the directors, the Group is controlled by Mr. Shanji Yang, General Manager and Director, who owned 55.36% of the issued share capital of China Shoto plc at 31 December 2010 (2009: 55.36%).
20 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a respective companies' tax rate. The movements in deferred tax assets and liabilities during the period are shown below:
Group Group
2010 2009
GBP000 GBP000
Deferred tax assets
At beginning of the financial year 198 43
Transfer to/(from) income statement 87 181
Exchange differences 16 (26)
At end of the financial year 301 198
21 Share capitals
2010 2009
GBP000 GBP000
Authorised
100,000,000 Ordinary shares of 10p
each 10,000 10,000
Allotted, called up and fully paid:
23,343,770 Ordinary shares of 10p
each 2,334 2,334
22 Reserves
Share premium account
Share premium represents the amount subscribed for shares in excess of the nominal value less expenses incurred on the issue of shares.
Other reserves
In accordance with IFRS 3, the principles of reverse acquisition accounting have been applied in the consolidated financial statements in respect of the business combination of the Company and Leadstar Enterprises Limited. The fair value of the Company's net assets and business were assessed at GBP2, being the book value of its assets, and therefore no goodwill arose on this transaction. In accordance with company's legislations, the difference between the fair value of Leadstar Enterprises Limited's net assets on acquisition and the nominal value of the ordinary shares issued by the Company on consolidation also has been credited to other reserves.
In the Company's financial statements, the difference between the fair value of the shares paid and the nominal value of the 10p ordinary shares issued to the vendors of Leadstar Enterprises Limited have been credited to other reserves.
Share option reserve
The share option reserve represents the cumulative share based payment charge for options issued by the Group.
Statutory reserves
Statutory reserves comprise the following:
Statutory surplus reserve Under People's Republic of China ("PRC") regulations and the Articles of Association of the relevant companies, companies within the Group registered in the PRC are required to transfer 10% of their profit after income tax, as determined under PRC GAAP, to the statutory surplus reserve until the reserve balance reaches 50% of its registered capital. The transfer to this reserve must be made before the distribution of dividends to equity owners. The statutory surplus reserve can be used to make up previous years' losses, if any, and may be converted into paid-in capital in proportion to the existing interests of equity owners, provided that the balance after such conversion is not less than 25% of the registered capital.
Statutory public welfare fund
According to the relevant PRC regulations and the Articles of Association of the relevant companies, companies within the Group registered in PRC are required to transfer 10% of their profit after income tax, as determined under PRC GAAP, to the statutory public welfare fund. The statutory public welfare fund is incorporated for the purpose of providing employee facilities and other collective benefits to its employees.
Retained earnings
The retained earnings reserve comprises the cumulative net gains and losses recognised in the consolidated income statement.
Foreign currency translation reserve
The foreign currency translation reserve comprises the gains and losses arising on translating the net assets and the results of overseas operations into pounds Sterling.
23 Financial instruments
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. The parent company has neither significant financial instruments nor significant exposure to such risks.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
-- Trade and other receivables -- Short term investment -- Cash and cash equivalents -- Trade and other payables -- Bank borrowings
All financial assets are designated as loans and receivables (note 14). Available-for-sale asset, all financial assets and liabilities are carried at amortised cost.
General objective, policies and procedures
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's Finance Director.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:
a) Credit Risk
Credit risk arises principally from the Group's trade and other receivables.
The carrying amount of financial assets represents the group's maximum exposure to credit risk. A significant proportion of the group's credit risk relates to trade receivables. The Group distinguishes its clients by two kinds of credit line. One is 100% credit and the other is nil credit. The Group controls the credit risk from the clients of nil credit through prepayment before goods are transferred to them. The Group also receives a monthly sale and gathering report detailing all customers. In this report if the debt is collected outside the credit period interest is charged.
Management review all debtors for impairment and are comfortable that all un-provided debts are fully recoverable.
Quantitative disclosures of the credit risk in relation to trade and other receivables are disclosed in note 14.
b) Liquidity Risk
Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group's policy as regards liquidity is to ensure sufficient cash resources are maintained to meet short-term liabilities. To achieve this aim, the Group seeks to reduce liquidity risk by obtaining high credit ratings from banks in order to get ease of access to finance when required. The Group has no defaults orbreaches on its financial liabilities.
A maturity analysis of liabilities, including bank borrowings and interest is given below:
Group Group
2010 2009
GBP000 GBP000
Repayable within 1 month 22,654 22,104
Repayable within 2-3 months 16,223 50,864
Repayable within 4- 6months 47,554 16,511
Repayable 7-12 months 11,758 8,821
Repayable over 1 year 8,544 9,810
Total 106,733 108,110
========= =========
c) Market risk
Market risk arises from the Group's use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) and price of lead ingot (price risk). The policy for each of these risks is discussed below:
d) Currency Risk
The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with cash generated from their own operations in that currency.
The Group has transaction currency exposures. Such exposure arises from sales by an operating unit in currencies other than its functional currency. Approximately 3.8% of the Group's sales are denominated in USD.
If the exchange rate were to move significantly between the year end and date of payment or receipt there could be an impact on the Group's net income. As all financial assets and liabilities are short term in nature, this risk is not considered to be substantial.
An analysis by currency of the group's financial assets is below:
Group Group
2010 2009
GBP000 GBP000
Financial assets
Renminbi 105,140 45,392
US Dollar 5,204 1,654
Other 642 33
110,986 47,079
========= ========
A 10% strengthening of the RMB against the USD would result in reported group profit being GBP732,000 (2009: GBP853,000) lower. Conversely, a 10% weakening of the RMB against the USD would result in reported group profit being GBP732,000 higher.
The group prepares its consolidated financial statements in sterling and therefore the group's net asset position is exposed to retranslation risk as a result of movements in the RMB and Sterling exchange rate.
e) Interest rate risk
Interest rate risk arises from the potential changes in interest rates that may have an adverse effect on the Group in the current reporting period and in future years.
The Group is exposed to interest rate risk through the impact of change in interest rates on interest-bearing debts and interest-bearing cash. Other than the bank deposits and borrowings, the Group has no other significant interest-bearing assets and liabilities. The Group's policy is to secure all its borrowings at fixed borrowing rates and is therefore only exposed to fair value interest rate risk. Similarly all deposits earn interest at a fixed rate.
If interest rates increased by a further 2% points, this would result in group profit being GBP737,000 (2009: GBP594,000) lower. Conversely, a decrease of 2% points would result in group profit being GBP737,000 (2009: GBP594,000) higher.
f) Price risk
The Group's balance sheet and income statement is exposed to the price of lead ingot, the main raw material used by the Group in its production process. In 2010, the price of the main raw material, lead ingot, changed between a month average price RMB 14,485 and RMB 17,656. The Group initiated negotiations with the telecommunications operators and its OEM customers, resulting in a linkage to the price of lead, which effectively alleviated pressure arising from the increase in the raw material price by passing it on to the customer, by agreement. The Group does not hedge the price of lead ingot.
Capital management
The Group considers its capital to comprise its ordinary share capital, share premium and accumulated retained earnings. In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. The group has historically considered a mix of debt and equity funding as the most appropriate form of capital for the group.
Fair values
The book value and fair value of all the Group's and companies financial assets and liabilities are the same.
24 Group companies
The companies comprising the Group are as follows:
Proportion (%)
of ownership
Name of the Place and date Principal interest at 31
companies of incorporation activities December 2010
Leadstar British Virgin,
Enterprises Islands Investment
Limited 18 March 2005 holding 100%
Jiangsu China,
Shuangdeng 16 September Investment
Group Co. Ltd 2003 holding 100%
Hong Kong Wealth Hong Kong,
Source China,
Development Co. 24 September Investment
Ltd 1997 holding 100%
Manufacturing
Jiangsu Fuste China, and sales of
Power Supply 23 October GEL and GFX
Co. Ltd 2001 batteries 100%
Nanjing
Shuangdeng
Science and Technology
Technology research and
Development development,
Academy Co. China, manufacture and
Ltd 18 June 2001 sales of UPS 100%
Manufacturing
and sales
Jiangsu Best China, power-aided
Power Supply 13 January bicycle
Co. Ltd 2006 batteries 100%
Hong Kong,
Glory Trinity China,
Engineering 26 February Investment
Ltd 2003 holding 100%
Recycling old
batteries and
Rugao Tianpeng China, producing and
Metallurgy Co., 25 January sales of alloy
Ltd 2010 materials 100%
The only direct subsidiary of the Company is Leadstar Enterprises Limited. All other investments in subsidiaries are held indirectly.
25 Share-based payments
Equity-settled share options
1,480,000 share options were granted to certain directors and employees on flotation of the Company, and a total of 320,000 share options were granted to Seymour Pierce Limited and FT International Corporate Advisory Limited for services provided in respect of the flotation. The options granted to the directors and employees are exercisable in the period December 2008 to December 2015 and lapse thereafter or if the employee leaves the Group. The options granted to Seymour Pierce Limited and FT International Corporate Advisory Limited are exercisable at any time up to 2 years from the date of listing on AIM; 200,000 of the options were exercised in 2006 and the remaining 120,000 options lapsed in December 2007.
All the options were granted at the placing price of GBP1.30 per share.
2010 2009 Exercise
Number of Number of price(GBP)
Options Options
Outstanding at the beginning
of the period 1,180,000 1,480,000 1.30
Lapsed during the period - 300,000 1.30
---------- ---------- -----------
Outstanding at the end of
the period 1,180,000 1,180,000 1.30
========== ========== ===========
Exercisable at the end of
the period 1,180,000 1,180,000 1.30
The Group recognised total expenses of nil (2009: nil) related to equity-settled share-based payment transaction during the year. All options had vested at 31 December 2008.
26 Segmental information
The Group's report segments reflect the internal reporting format provided to the Chief Operating Decision maker and are as follows:
l The Power Type Batteries segment is comprised of power-aided bicycle batteries. This segment contributes 16% (2009: 8%) to Group turnover.
l The Back Up Batteries segment includes Valve Regulated, Flooded and Gel batteries. This segment contributes 84% (2009: 92%) to Group turnover.
l The Lead Recycle segment includes lead recycle and recycling old and useless batteries and producing and sales alloy. This segment contributes 0% to Group turnover as the majority of sales are intergroup.
Measurement of operating segment profit or loss, assets and liabilities
The accounting policies of the operating segments are the same as those described in the summary of significant policies.
The Group evaluates performance on operating segment profit or loss from operations before tax not including non-recurring losses, such as restructuring costs and goodwill impairment, and also excluding the effects of share based payments.
Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of group resources at a rate acceptable to local tax authorities. This policy was applied consistently throughout the current and prior period.
Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Even though loans and borrowings arise from finance activities rather than operating activities, they are allocated to the segments based on relevant factors (e.g. funding requirements). Details are provided in the reconciliation from segment assets and liabilities to the group position.
Back up batteries Metallurgy PTB Eliminations Continuing
2010 2009 2010 2010 2009 2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue:
Sales to
external
customers 165,568 196,531 20 31,360 16,038 - - 196,948 212,569
Inter-segment
sales 1,192 - 6,866 306 9,676 (8,364) (9,676) - -
Total revenue 166,760 196,531 6,886 31,666 25,714 (8,364) (9,676) 196,948 212,569
========= ========= ============ ======== ======== ========= ========= ========= =========
Results:
Segment profit 19,085 26,011 284 (174) (669) - - 19,195 25,342
Unallocated (706) (268)
corporate
expenses
--------- ---------
Profit from
operations
before
taxation 18,489 25,074
Income
taxation (3,199) (1,610)
Profit for
the year 15,290 23,464
========= =========
Back up batteries PTB Metallurgy Eliminations Consolidated
2010 2009 2010 2009 2010 2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Assets and
liabilities:
Segment
assets 169,631 169,119 15,098 10,835 6,139 190,868 179,954
Unallocated
assets 11,575 3,234
Total assets 202,443 183,188
Segment
liabilities 97,498 104,141 10,110 5,454 227 107,835 109,595
Unallocated
liabilities 2,971 563
Total
liabilities 110,806 110,158
========= =========
Other segment
information:
Finance
income 465 440 30 - 2 - - 497 440
Finance costs 1,473 1,705 66 - 2 - - 1,541 1,705
Capital
expenditure:
Property,
plant and
equipment 7,551 7,417 356 38 104 - - 8,011 7,455
Intangible
assets 93 6 - - - - - 93 6
Depreciation
and
amortization 1,984 1,782 238 244 144 - - 2,366 2,026
========= ========= ======== ======== ============ ======== ======== ========= =========
Geographical segments
Geographical
segments
India Singapore Others Total
2010 2009 2010 2009 2010 2009 2010 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- -------- -------- -------- -------- -------- -------- --------
Export sales
to 1,254 5,704 1,074 1,032 5,187 2,908 7,515 9,644
======== ======== ======== ======== ======== ======== ======== ========
All export sales originate from the Back up batteries segment.
Revenue from three key customers in the Back up Batteries segment represents approximately 55% (2009: 75%) of the Group's revenue.
27 Construction commitments
Construction commitments as at 31 December 2010 but not recognized in the financial statements is GBP1,872,714 (2009: GBP3,422,068).
28. Acquisitions during the period
The company signed a share ownership acquisition with Jiangsu Tianpeng Lead Oxide Co., Ltd. and Jiangsu Tianpeng Chemical Industry Co., Ltd. regarding acquisition of Rugao Tianpeng Metallurgy Co., Ltd. (hereafter referred to as "Tianpeng Metallurgy"), and Tianpeng Metallurgy's 100% owned subsidiary Rugao Tiapeng Recycling Co., Ltd. on 19 December 2009. The principal reason for this acquisition was to secure a manufacturing operation for recycling lead and back-up battery, and to satisfy requests from the Group's major and largest back-up battery customers.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
Fair value
GBP'000
Property, plant and equipment 1,807
Land use right 187
Current liabilities (945)
Total net assets 1,049
Fair value of consideration paid
GBP'000
Cash 956
Contingent cash consideration -
Total consideration 956
Negative goodwill 93
The total consideration is GBP956k. The company paid GBP191k on 28 December 2009, and the balance GBP765k was paid prior to July 2010. As a result the cash flow consideration for the acquisition of this subsidiary for 2010 is GBP765k.
Since the acquisition date, Tianpeng Metallurgy has contributed GBP6.8 million to group revenues and GBP0.4 million to group profit.
29. Disposals during the period
The group had a subsidiary, Yangzhou Zhenghe Power Supply Co., Ltd. that manufactured, sold and developed GFM batteries. Given the tightening of investment scale from major back-up batteries suppliers in 2010, the group accordingly reduced the production capacity during 2010. As such, the management considered Zhenghe's activities do not fit with the overall strategic objectives of the group and therefore the directors decided to dispose of the groups share in the equity of this subsidiary in December 2010.
The net assets of that subsidiary at the date of disposal were as follows:
GBP'000
Net assets disposed 813
Loss on disposal (430)
Total consideration 383
Satisfied by:
Cash 383
Net inflow of cash and cash equivalents
in respect of
Disposal of a subsidiary 383
In accordance with relevant IAS regulation, the gain on disposal of a subsidiary is measured as the difference between the proceeds and the fair value of the subsidiary. Currently the loss is calculated as the difference between the proceeds and the carrying amount of the subsidiary.
30. Reclassification
GBP12,662,000 of notes payable included in trade and other payables in 2009 has been reclassified to short term loans as this correctly reflects the nature of the underlying instrument.
Note 2009 2009
Previously Restated
Reported Reclassification
GBP'000 GBP'000 GBP'000
Short term bank
borrowings 17 28,329 12,662 40,991
Notes payable 18 27,413 (12,662) 14,751
55,742 - 55,742
------------ ----------------- ---------
Cash flow statement
impact:
Net cash flows from
operating activities 27,024 (12,662) 14,362
Net cash flows from
financing activities (2,670) 12,662 9,992
------------ ----------------- ---------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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