China Shoto plc 06 December 2005 Press Release 6 December 2005 China Shoto plc ("China Shoto" or "the Group") First day of dealings China Shoto plc, a leading Chinese producer of industrial batteries and power supply systems, today announces the commencement of dealings of its Ordinary Shares on the AIM market (AIM) of the London Stock Exchange. Seymour Pierce is acting as Nominated Adviser and as Broker to China Shoto. The stock market EPIC is CHNS.L Admission Statistics Issue Price 130p Number of Placing Shares being issued 4,615,385 Proportion of the enlarged issued Share Capital being issued under the Placing 23 % Number of Ordinary Shares in issue at Admission 20,000,000 Gross proceeds of the Placing £6 million Market capitalisation of the Ordinary Shares on Admission at the Issue Price £26 million Estimated net proceeds of the Placing to be received by the Company £5 million Placing and Use of Proceeds The net proceeds of the Placing will be used by the Group to construct a new Power VRLA battery plant; to increase its holding in FTD to 51 per cent. and to provide working capital. The Directors believe that the Company has reached the stage where the admission of its shares to trading on AIM will significantly assist it in achieving its objective of growing revenue and profitability both in China and abroad. Cao Guifa, Executive Chairman of China Shoto plc, said: "We are delighted that the AIM flotation of the Group has been completed successfully. The timing of our AIM Admission makes both strategic and commercial sense for the Group as it will allow us to increase our penetration of our domestic market and for us to expand sales overseas. We now look forward to working with our new institutional shareholders and taking the Group to the next stage of its development." - Ends - For further information: China Shoto plc Cao Guifa, Executive Chairman Tel: +44 (0) 20 7398 7700 www.chinashoto.com Seymour Pierce Limited Stuart Lane / John Depasquale Tel: +44 (0) 20 7107 8000 stuartlane@seymourpierce.com www.seymourpierce.com Media enquiries: Abchurch Henry Harrison-Topham / Katherine Murphy Tel: +44 (0) 20 7398 7700 henry.ht@abchurch-group.com www.abchurch-group.com Information on the Group Introduction China Shoto is one of China's leading companies engaged in the design, development, manufacture and sale of industrial batteries and power supply systems. China Shoto operates from extensive modern facilities in Jiangyan City which is in Jiangsu Province, some 220 kilometres from both Shanghai and Nanjing, and has a large research and development facility in Nanjing. The Group also has a significant interest in FTD, a leading turbine design and refurbishment service provider in China. Significant investment in new factories and equipment has been made over the last three years and the Group has a comprehensive distribution and service network covering the whole of mainland China. The Group's products are widely used in telecommunications, electrical power, the UPS market, electrical bicycles, railway locomotives and passenger trains and other markets. China Shoto is a leading supplier of VRLA batteries to major Chinese companies such as China Telecom, China Mobile, China Unicom, China Netcom and China Tietong. China Shoto intends to target those domestic markets which have significant growth potential, such as the telecommunications market where it is the leading supplier, and use its competitive position to exploit opportunities outside China. China Shoto has begun to develop its overseas sales through an agent in Russia and directly to North America, Europe, Australia and Asia. The Group's Products China Shoto is principally involved in the production of rechargeable lead acid batteries which are sold as individual units or as battery systems for a wide range of industrial applications. It also supplies related products such as chargers, power equipment and battery accessories. The Group owns all the intellectual property in respect of the products designed, manufactured and sold by the Group. Services include systems design, configuration and integration, and the development of related computer control programmes. Rechargeable lead acid batteries represent the most mature technology, have the widest industrial application and have well understood manufacturing processes. Nevertheless, there is scope to improve production processes and the performance of batteries through innovation in, for example, the design of electrolytes and electrodes and the shape of certain components. Batteries can be designed and manufactured with different characteristics for different applications. Rechargeable lead acid batteries can be utilised in three main categories of application: • reserve power batteries, for example for telecommunications and computer back up systems; • starter batteries, for example for rail locomotives; and • power batteries, for example for electric bicycles and tools. Reserve power batteries are used for back up power applications to ensure continuous power supply in case of main power failure or outage. Further examples of where reserve power batteries are used to provide back-up power include switchgear and control systems used in electricity transmission, hospitals, process control, air traffic control, security systems, utility, railway and military applications. Reserve power batteries also serve as uninterruptible power supplies in computer installations for banks, airlines and back-up servers for wireless networks. Other telecommunications applications include central and local switching systems, satellite stations, optical fibre repeating boxes, cable TV transmission boxes and radio transmission stations. There are two primary lead acid battery technologies: valve-regulated (VRLA, or sealed) and Flooded (vented). Two types of VRLA technologies exist, Gel and AGM. VRLA batteries have replaced other types of reserve power batteries because they enhance safety, are more environmentally acceptable, need less maintenance and can be used in both vertical and horizontal positions. The construction of VRLA batteries is designed to prevent electrolyte loss through evaporation or spillage and this in turn prolongs the life of the battery and reduces maintenance. VRLA batteries have high energy transferring efficiency, fast charging acceptability and low self discharge and are considered to be safer, more reliable and environmentally friendly. • VRLA: AGM - uses an electrolyte immobilized in an absorbent glass mat (AGM) separator. AGM batteries require low maintenance, are sealed against fumes, hydrogen, leakage, and are non-spilling even if they are broken. Charging voltages are standard for most AGM batteries so there is no need for special charging adjustments or problems with incompatible chargers or charge controls. Since the internal resistance is extremely low, there is almost no heating of the battery even under heavy charge and discharge currents. AGM batteries have a very low self-discharge rate so they can remain in storage for much longer periods without requiring charging. The plates are tightly packed and rigidly mounted, and therefore will withstand shock and vibration. • VRLA: Gel - uses a gel electrolyte. The gel product range offers a wide range of capabilities such as heat resistance, deep discharge resistance, long shelf life and high cyclic performance. Gel batteries offer more stability of capacity over the battery life than AGM, and a longer service life. However, the gel electrolyte costs more than the glass mat separators, and the manufacturing process is more sophisticated. Gel batteries are particularly appropriate, for example, for critical office based computer control rooms and railway signalling systems. • Flooded (vented) - used in applications requiring high reliability but with the ability to allow for regular maintenance. Liquid is stored in an unsealed container. Transparent containers and accessible internal construction are features of these batteries that allow end users to check the battery's physical condition. Due to cheaper production costs, there is still a place for the standard Flooded deep cycle battery. In many installations, where the batteries are set in an area where there is no concern about fumes or leakage, a flooded battery can be a more economic choice. AGM Batteries AGM batteries, which have a mature technology, are widely used throughout China. Their low maintenance, high reliability and low cost have led to them being used as the principal back up power supply in many industries. The Group has been providing AGM batteries since 1995 and the Group's AGM range now comprises 28 products. The Group has recently developed the power type VRLA battery, a type of AGM battery, of which China Shoto produces 6 different versions. The telecommunications market, which continues to grow strongly, is a key market for the Group. This market is served mainly by AGM 2v batteries and China Shoto is the largest supplier to the domestic Chinese market. The VRLA batteries are also sold to the electrical bicycle market. The Group has also developed a 12v battery aimed principally at producing an uninterruptible power supply for commercial applications such as finance, banking and security and also for telecommunications sub stations. Gel Batteries Gel batteries are a newer technology, providing stable performance, high reliability and long service life. Gel batteries are commonly used in North America and Europe but the Directors believe there is significant potential in China where Gel batteries currently have a small share of the overall battery market. The Directors believe that Gel batteries will become more widely used in China and that the Group is well positioned to exploit this market. The Group was the first manufacturer of Gel batteries in China and is currently the leading one of only three domestic manufacturers. It is the largest Chinese manufacturer of a full range of 2v and 12v Gel batteries with 22 types of products. The barriers to entry for the manufacture of Gel batteries are higher than those for AGM batteries, reflecting the more complex technology and production process. The Directors consider that Gel batteries also offer significant market opportunities outside China, where the Group can benefit from the quality and price competitiveness of its products. The Group takes care to ensure that its products match the quality of products produced outside China, meeting the relevant international product standards. Flooded Batteries Flooded batteries, although a mature technology, are still widely used at present and the Group has therefore maintained an updated and complete product range comprising 23 products. The Directors believe that maintaining a comprehensive product range, encompassing both mature and newer technologies, is important in addressing the varied requirements of its customer base. The Group's Markets The Chinese economy has been growing strongly with an average growth rate over the last 27 years of 9.4 per cent. Much of this growth has occurred and continues to occur in areas where the Group's products are widely used including transport, telecommunications, industrial processes, banking and finance and power generation. The stationary and motive industrial battery markets are dominated by lead acid batteries. The markets are well established, and whilst competitive technologies emerge in certain applications, the demand for lead acid batteries in both these markets is expected to exhibit growth on a five year view. Industry data shows that the stationary and motive lead acid battery markets were valued at US$1.6 billion and US$1.5 billion respectively in 2004. Almost 85 per cent. of the motive market is accounted for by heavy duty equipment and tractors, where Flooded batteries are the most common type, and which are not sectors currently targeted by the Group. Global demand for batteries is increasing in areas such as fixed and mobile telephony and data transmission, the internet, critical electrical operations where power supply cannot be interrupted, and in transportation. The applications for uninterruptible power are increasingly dependent on the stored electrical energy in batteries, with high market growth forecast for the battery market for the foreseeable future. China Shoto intends to benefit from this growth both domestically and abroad. In 2004, the SLA battery market generated globally approximately US$1.60 billion in revenue and this is forecast to rise to US$2.53 billion by 2010. The Asia Pacific region accounted for some 25 per cent. of global SLA revenue in 2004 and its contribution is forecast to increase by some 9.5 per cent. compounded annually during this decade. Revenues arise from the supply of original equipment and from the after-market where margins are usually higher. The replacement of batteries for existing capital equipment such as network devices and telecom switches is expected to account for some one third of total SLA battery sales. Telecommunications account for approximately 50 per cent. of the global SLA battery revenues. Demand for consistent power for electronics has increased with the dependence on micro-processor based applications world wide. Grid failures and downtime can lead to major commercial losses. Rechargeable lead acid batteries provide electrical power to systems and networks during power outages, and have proven to be the preferred choice for applications ranging from UPS, DC power systems, emergency lighting, security alarms and switch gears. For example, DC power systems are the key back up energy devices used to power telecom networks, in wireline or wireless base stations, central offices and private branch exchanges. The drivers of demand for stationary batteries can be summarised as: • Growth rates in telecommuncations investment, including wireless, 3G and VOIP, with particularly high growth rates in the Asia Pacific region; • Increased load requirements throughout the telecommunications sector driven by additional services such as messaging and gaming; • Growth in data centres, driving demand for UPS systems; • Growth in demand for electricity generation and therefore utility back up power supplies; • Increased dependence on network automation and requirement for increased back up times for real time processing; and • Demand for energy storage systems for the growing renewable energy sector, in particular solar power. The global MLA battery market generated revenues of some US$1.42 billion in 2003 and is forecast to grow at approximately 3.9 per cent. compounded annually over the remainder of this decade. The Asia Pacific region accounted for some 17.3 per cent. of the 2003 global revenues, and is expected to rise by 4.9 per cent, compounded annually during the period to 2010. Some 60 per cent. of MLA revenues are attributable to the supply of original equipment with the balance attributable to the aftermarket, where margins are higher. This growth is expected to reflect demand from the manufacturing sector coupled with demand for environmentally friendly equipment and vehicles. The Domestic Market Telecommunications This is a key market for the Group where it has already achieved high penetration levels. On a global basis, the telecoms sector suffered a cyclical downturn following 2000. This downturn led to a curtailment in investment spend, which in turn impacted industrial battery manufacturers supplying the sector world wide. In 2003, the market showed early signs of improvement which has gathered pace since. The demands of networking technology based on Internet protocol and a proliferation of new services including gaming, multi media messaging and data streaming and the deployment of 3G are driving growth in the market. In developing countries, particularly in China, the growth in wireline and wireless networks is expected to be particularly strong, driven by overall economic growth and the government's plans to increase penetration of the population. China has one of the largest and fastest growing telecommunications industries in the world, with the highest number of fixed phone users. In addition, mobile phone usage is growing rapidly. From 2002-2004, mobile subscribers in China increased annually by over 60 million, an average annual increase of 30 per cent. The Directors believe that the strong growth of the sector will give rise to increasing demand for VRLA batteries such as those manufactured and sold by China Shoto. There has been a marked shift in the structure of the industry since 1996. As compared to a share of 11.1 per cent. in the total connections in 1996, wireless now accounts for more than half of the market share at 51.5 per cent. This trend is likely to continue into the future as wireless penetration is expected to increase to 34 per cent. by 2010. In addition, the Directors believe that this growth will be supported by the development of the Chinese telecommunications industry towards the deployment of 3G. The Group has approximately 20 per cent. market share of VRLA batteries supplied to the telecommunications industry in China. (Source: "Battery World", China Industrial Association of Power Sources, Jan 2005) and the Group intends to maintain its market position as the sector grows. Demand from the Group's five largest customers (China Telecom, China Unicom, China Mobile, China Netcom and China Tietong) has increased consistantly since 2003. Electric Power AGM, Gel and Flooded batteries can all be used in the electric power market. Applications include power generators, power substations, and control and switchgear equipment. Utilities are the major purchasers of back up power systems, including batteries, which ensure that electrical power is continuously provided to customers. The power industry in China is expected to register strong growth in the foreseeable future, driven by the continuing trend of rapid industrialization and ongoing capacity shortages. Under the "Tenth Five Year Plan" the electrical power industry is expected to see high investment over the coming years. This is expected to encompass the expansion and upgrading of electricity transferring networks and a near doubling of network capacity by 2010. Flooded batteries are most commonly used for industrial applications as they perform better at higher temperatures and are tolerant to abuse. Although usage of Gel batteries is expected to increase in this sector, the Directors believe that the Flooded batteries are likely to remain dominant over the next few years. The Group's products are already widely used and accepted in the sector and the Directors expect an increased market share over the coming years. Locomotives and Vehicles The Group has the largest market share in this sector using its locomotive AGM MLA battery. The Directors believe that railway communications will provide an opportunity to grow revenue in this sector. UPS Back Up System The growth of UPS systems is determined by the growth in critical computing and network equipment capacity. Demand for UPS systems in turn stimulates demand for energy storage devices of which rechargeable lead acid batteries form a major portion. The Group seeks to target those areas of the market where reliability and service levels are important rather than those driven solely by price. The UPS market represents an opportunity particularly for the Group's newer Gel batteries. Solar Energy System Alternative sources of energy have been growing and finding an increased level of acceptance in many applications. Many schemes utilising wind, tide and solar energy receive government subsidies and are part of environmental programmes designed to address global concerns over climate change. Solar energy is generated using light from the sun. Photovoltaic cells are complemented by batteries to provide electrical power, often to facilities that cannot access power grids. Rechargeable lead acid batteries are appropriate for this application. Photovoltaic batteries are at present mainly used in Western China where a series of solar system stations have been built under a government sponsored project. The Group is participating in this project and supplying AGM and Flooded batteries. The growth in demand for photovoltaic systems represents a growth opportunity for the Group, which has a range of products already supplied to the domestic market. Electric Bicycle Market Batteries for electric bicycles form part of the motive, rather than stationary, market segment and represent a new market opportunity for China Shoto. The market opportunity has arisen through China Shoto designing a battery appropriate for what is perceived to be an exponentially growing demand cycle. The Directors consider this opportunity to be specific to the Chinese domestic market. The power battery 12 volt VRLA/AGM technology that Shoto has developed for electric bicycles is appropriate for scooters, cars and electrical power tools. In China, the market for electrical vehicles is dominated by electric bicycles where annual production has increased from some 54,000 bicycles in 1998 to an estimated 6 million bicycles in 2005. This growth has created significant demand for power type lead acid batteries with an estimated market value of some £1 billion within the next decade. The electric bicycle can run for 80 kilometres after charging the battery for about 8 hours, normally overnight, at speeds of up to 40 kilometres per hour. An electric bicycle costs between 1,000 Yuan and 2,000 Yuan (£65-£130) and its battery service life is about one year. The battery set for a bicycle represents revenues of approximately £15 for the battery supplier. The Directors believe the Group will be able to achieve significant revenue growth in this rapidly growing market. In addition to the new bicycle market there is very strong demand for replacement batteries given that bicycle batteries typically last only one or two years. The Directors believe that success in this market will depend on sustaining profitability through large scale efficient production, brand recognition and strong service networks, all of which China Shoto has. International Markets The Group has historically focused on its domestic markets but believes it is now in a position to exploit market opportunities outside China. The Group's products are designed and manufactured to meet international standards. The costs of production are also materially lower than those achieved by manufacturers in Europe, Australia and North America. The Group's product range is also capable of addressing the varying needs of different international markets. In North America and South East Asia, for example, AGM batteries still dominate with Gel battery demand growing strongly. In Europe, Gel batteries are more widely used with an estimated market share of some 70 per cent. The Group has only recently started to put in place its plans to address overseas markets but in 2004 export sales already accounted for 2.6 per cent. of total sales. This largely represented Gel battery sales in North America, Europe, Russia and South East Asia. The Group is licensed to export to the key international battery markets and the Directors intend to increase the level of export sales with the key driver expected to be its Gel batteries. As in China, the telecommunications sector is being targeted for significant growth. Competition There are many battery manufacturers in China. The larger identified AGM manufacturers that supply the telecoms industry and other industrial markets, in addition to China Shoto, are Coslight, Narada and Huada. Coslight is a Hong Kong listed company, Narada is a subsidiary of a large private conglomerate, and Huada is a subsidiary of Enersys. The Directors believe that China Shoto has the largest share of the Chinese telecommunications market. The three major global players are Exide Technologies, Enersys and C&D Technologies. All three are quoted on US stock markets. In Asia, the market leader is GS Yuasa. Sales and Marketing In China the Group sells primarily through a direct sales team, using a network of 30 offices covering mainland China. The sales team comprises sales staff (accounting for 2/3) and after-sales service staff (accounting for 1/3). The Group provides advice on client requirements, consulting services and bespoke system design as well as installation and maintenance services. The Directors consider that direct relationships with its customers, coupled with an efficient after sales service, are important for the continued growth of the Group. The Group also has a marketing team based in the head office which is responsible for general marketing, liaising with key domestic and international customers and product training. The Group attends relevant telecommunications exhibitions and attended international exhibitions in Turkey and Malaysia (September 2005) and plans to attend the forthcoming international exhibition in Germany (March 2006). For the overseas market, the Group has to date used head office staff and local agents where appropriate. The Group intends to grow its export markets using both local agents and direct sales and intends to recruit a new director or senior executive with responsibility for international marketing. Production Facilities Production is undertaken in three factories on the Company's site in Jiangyan City. The overall site area is 437,000 square metres which contains office space of 1,933 square metres, production and warehouse facilities of over 47,000 square metres and associated accommodation facilities. Three suppliers have premises on this land, and an electric cable manufacturer managed by China Shoto is also based there. The Group currently operates six production lines with current production capacity of 800,000 battery units per year with a further six to be established in two new factories which are expected to be constructed and completed during 2006 using part of the proceeds of the Placing. The site has adequate room for further factory facilities to be built. The Group's premises and equipment are of a high specification with modern equipment imported from Germany, UK and US. The factories operate seven days per week, closing only for national holidays. The Group pays close attention to employee training including health and safety issues. Attention is also given to operating high quality standards, the Group having achieved ISO9001 Quality Systems Accreditation and ISO14001 Environmental System Accreditation. Quality standards are set and maintained by a dedicated team and the customer return rate was less than 0.1 per cent. in 2004. The manufacturing process is key to lead acid battery performance, requiring consistency in manufacturing to maintain quality over time. The numerous steps of the manufacturing process require human intervention despite the use of modern equipment therefore the skills and experience of the staff engaged in production are particularly important to maintaining a reputation for quality. The Group is periodically inspected for compliance with environmental issues. The Directors are not aware of any existing or pending environmental issues which may affect the Group. Suppliers The main raw materials used in the production of the Group's batteries are lead ingots, separators and battery cases. Lead ingots are the major element, representing approximately 70 per cent. of material costs and around 60 per cent. of the Group's cost of sales. Lead is sourced domestically. Industry data suggests that China is one of the world's largest lead producers and also one of its largest consumers. The Group purchases from seven of the largest domestic producers. In common with all battery manufacturers, the Group is exposed to fluctuations in raw material prices. A key feature over the last 18 months has been a 60 per cent. rise in the price of lead. In 2005, the price increase has moderated and is below its peak, but nevertheless is expected to remain at high levels this year. The higher price of lead has to a large extent been passed on by the Group in increased product prices. A central purchase team is responsible for all purchases, using tendering to ensure competitive prices and quality. All materials are multi-sourced with no reliance on any one supplier and alternative suppliers are available. FTD FTD is a leading turbine design and refurbishment service provider. It is based in Beijing and was incorporated in 1995, originally as a joint venture by Beijing High Tech Industry Development Centre and Hong Kong Zhonglian Electric Power Finance Co Ltd. The following year several large Chinese turbine manufacturers and universities all became shareholders. FTD's own research and development ability is complemented by its connection with the research department of the Institute of Engineering Thermaphysics, part of the Chinese Academy of Sciences. The Group currently holds 30 per cent. of the issued share capital of FTD. Post Admission, China Shoto intends to subscribe for further shares in FTD which will bring its total shareholding to approximately 51 per cent. Historically, FTD has concentrated on the redesign and reconstruction of older turbines to improve their efficiency and reduce their emissions and has to date reconstructed over 100 such turbines. The Directors believe that FTD has approximately 70 per cent. of the share of the turbine refurbishment market. FTD is also engaged in blade design. FTD has utilised its turbine expertise to develop its own 150MW turbine. This competes with 135MW turbines and is cheaper to install and operate. FTD has entered into an agreement with Shanghai Turbine Company to manufacture five turbine units, one of which has already been delivered and is in operation with two more expected to be in operation by the end of the year. FTD's Market Demand for electricity in China continues to rise and in the last five years has increased by an average of over 7 per cent. per annum. The Chinese Government is committed to increasing power generation capacity and reducing emissions. The Directors believe that the utilization of FTD's technology can make a substantial contribution to the achievement of this objective, both by refurbishing existing turbines to increase their efficiency and electricity output whilst cutting their emissions and coal consumption building new turbines utilizing FTD's technology. FTD intends to generate revenues in both areas of activity. Research and Development China Shoto's research and development facilities are based in Nanjing, employing approximately fifty highly qualified scientists and other professionals. The facility is responsible for the development of new products and technologies as well as the continuous development of production processes to improve quality, cost effectiveness and the sustainable development of the Group's core technologies. The Group has also developed strong relationships with leading Chinese universities, thereby supplementing the technological expertise available to it and benefits from a level of government funding. Current research projects include super capacitors, lithium batteries and direct methanol fuel cells. Research carried out by FTD is carried on from its own premises in Beijing. Intellectual Property The Group prides itself on being at the forefront of technological innovation in its industry, both in respect of its products and its manufacturing processes. Accordingly, the Company takes particular care to ensure that its intellectual property is properly protected. The Group owns all intellectual property in respect of the products manufactured and sold by the Group. 66 patents, registered in the PRC, are held by the Group with a further 60 patents in the process of application. Of the patents in place 64 relate to batteries and two relate to FTD's turbines; of those in application 58 relate to batteries and two relate to FTD's turbines. The patent application process typically takes some 26 months for a new invention and some 8 months for design patents. Staff The Group employs over 600 personnel, the majority whom are engaged in production, sales and research and development. Salary levels are adjusted to reflect the level of profitability achieved by the Group. The Group has not lost any key employees in recent years and attributes this primarily to the following reasons: • China Shoto is a fast growing company providing opportunities for career progression; • with a strong corporate identity; and • providing competitive salaries and benefits linked to performance. In accordance with relevant state pensions laws, all employees are entitled to join a pension scheme. This scheme does not provide a guarantee in respect of future pension benefits and the Group has no obligations in respect of any deficits. The Group has historically over-provided for pension contributions and the pension provision in the balance sheet as at 31 December 2004 was £345,000. The Directors do not expect any charge to the profit and loss account in respect of pension provision for at least the next two years. Current Trading and Prospects Summary profit and loss 6 month period Year ended Year ended Year ended ended 31 December 31 December 31 December 30 June 2002 2003 2004 2005 £000 £000 £000 £000 Revenue 15,859 16,415 18,688 11,760 Cost of sales (8,226) (9,513) (12,750) (7,872) Gross profit 7,633 6,902 5,938 3,888 Other operating income 271 530 569 517 Selling and distribution expenses (4,239) (3,851) (3,003) (1,450) Administrative expenses (2,383) (2,131) (1,147) (738) Other operating expenses (69) (25) (37) (16) Profit from operations 1,213 1,425 2,320 2,201 Finance income 531 40 45 28 Finance costs (502) (305) (590) (393) Profit before income tax 1,242 1,160 1,775 1,836 Income tax (89) (245) (269) (284) Net profit for the year 1,153 915 1,506 1,552 In late 2003, the Group was restructured under the current management to achieve greater operating efficiencies. In addition, significant investment has been made since 2003 in new factory premises and equipment. These changes assisted the Group in achieving high sales growth over the period, particularly reflecting: • high growth in the Chinese telecommunications market; • launch of the new Gel and Flooded batteries, • development of the AGM 12v to complement the existing AGM 2v telecoms range. The audited figures to 30 June 2005 show trends in production sales and the costs of sales which continue to be reflected in the period from the end of the last fianancial year to the date of this document. The current high lead price is being reflected in higher product prices in the current financial year. The Directors believe that the investments and changes referred to above, coupled with the introduction of new products, will enable the Group to benefit from its strength in the telecommunications market, the growing revenue from the sale of Gel batteries and rising export revenues. Directors The Company has a Board with strong operational and industrial expertise complemented by international experience. Executive Directors Cao Guifa (aged 51) Executive Chairman Cao Guifa became the chairman of the former holding company of China Shoto in 2002 and he is a substantial shareholder of the Group through Wit Invest Limited. From 1979 to 1993 he served as a research fellow and then doctoral supervisor in the Chinese Academy of Sciences ("CAS"), which is a leading Chinese academic institution and comprehensive research and development centre for science and technology. Between 1988 and 1995 Mr. Guifa held several positions as a local consultant to the World Bank on development projects in China. He has more than 10 years of investment banking experience gained at a subsidiary of CAS, where he was general manager. Yang Shanji (aged 52) Chief Executive Yang Shanji became the general manager of JS Power in 1995 before becoming the general manager of the former holding company of China Shoto in 2002. He is a substantial shareholder of the Group through Two Stars Invest Limited. He first became involved in the rechargeable battery industry in 1990 and he has more than 25 years of management experience in a number of manufacturing enterprises. He also has a masters degree in administration from the University of Canberra. Zhou Yuezhang (aged 47) Finance Director From 1990 to 1995 Zhou Yuezhang was the factory deputy director of the Jiangyan Sealed Storage Battery Factory. Mr. Zhou is also one of the founders of the Shuangdeng Group. He joined JS Power as deputy general manager in 1995 when it was set up. He has been appointed as the deputy general manager of the Shuangdeng Group since September 2003 when the Shuangdeng Group formally came into existence. He has nearly 15 years of management experience in storage battery industry and holds a masters degree in administration from the University of Canberra. Zhu Shiping (aged 64) Zhu Shiping is a graduate of Nhui University and has been a Senior Engineer since 1989. From 1963 to 1987, Mr. Zhu worked in the fourteenth research institute of the Government's former Electronic Department. Having worked for Shenzhen Huada Power Supply Co., Ltd. from 1987 to 1993 Mr. Zhu became the chief engineer of the Jiangyan Sealed Storage Battery Factory. He has served as deputy general manager of JS Power and Shuangdeng Group and as a director of Shuangdeng Group since September 2003. Wang Zhaobin (aged 42) Wang Zhaobin, is a graduate of Suzhou University. He served as civil servant from 1989 to 2003. In September 2003 Mr. Wang joined the Group and was appointed as deputy general manager in March 2004. Non-Executive Directors Bernard Asher (aged 69) Bernard Asher, who resides in London, was an Executive Director of HSBC Holdings from 1986 to 1998 and Chairman of HSBC Investment Bank. In 1998 Bernard became Non-executive Vice Chairman of Legal & General Group, Chairman of Lonrho Africa plc, and a Non-executive director of Morgan Sindall plc, IMH (formerly Seymour Pierce Group plc) and TIR Capital Protection Fund. Mr. Asher is the chairman of Liontrust, a UK based equity investment fund. Li Shuang (aged 61) Li Shuang is a professor in the Central University of Finance and Economics. Professor Li was appointed as the deputy secretary-general of the Chinese Institute of Certified Public Accountants ("CICPA") from 1999 to 2002, and then an advisor to CICPA from 2002-2004. He is currently a director of the Accounting Society of China, and a director of the China Audit Society. As a representative of CICPA Professor Li was also a member of the Education Committee of the International Federation of Accountants, a member of the Institute of Internal Auditors and a member of the American Accounting Association. He is also an independent non-executive director of three companies listed in China. David Thomas (aged 51) David Thomas, who resides in London, has a degree in Law from Oxford University. He is an English solicitor and has more than 20 years working experience in the fields of international enterprise financing, law, and quoted companies. Between 1985 and 2000, he was a partner in several major law firms specialising in corporate finance and finance law. Between 2000 and 2002 he was a Director of Beeson Gregory Limited and company secretary of Beeson Gregory Group plc. Mr. Thomas is currently an independent non-executive director of three AIM public companies whose shares are traded on AIM and whose businesses are based in China. Dividend Policy The Directors intend to pay a dividend in respect of the financial year ending 31 December 2006 and intend thereafter to adapt a progressive dividend policy commensurate with its available distributable reserves whilst retaining sufficient profits for re-investment in the Group. - Ends - This information is provided by RNS The company news service from the London Stock Exchange