SCT - Scott Tech [Archive] - Page 3

Snoopy

01-12-2015, 05:56 PM

As usual when the AGM is held in Dunedin, the Otago daily Times covers it well.

http://www.odt.co.nz/news/business/364855/jbs-australia-gains-control-scott-tech

So how to forecast future profits for FY2016? This excerpt from Chris Hopkins AGM address is significant.

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Superconductivity

This covers the activities undertaken by our business, HTS-110, based at Lower Hutt. Two key market segments that continue to show promise is the hard disk drive sector and mobile NMR (Nuclear Magnetic Resonance imaging). Most of the hard disk drive manufacturers in the world, including Seagate, Hitachi and Western Digital, are utilising our magnets in their development of new generation hard disk drives. Once through the development phase we expect significant volumes will be required for their production facilities.

In addition, our mobile NMR systems continue to gather interest with advanced trials at pharmaceutical companies and scientific laboratories. With improving sales, cost containment and improving margins, we expect a positive contribution in the year ahead.

-----

p50 of the Annual Report shows High Temperature Superconducting Revenues increased from $1.817m (FY2014) to $2.059m (FY2015). This was apparently enough to start covering costs. Not a big deal in the overall picture. But important in the sense that HTS-110 will no longer be a drag on the company.

Also this from Hopkins:

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Americas

The Americas remain our largest end market for our equipment and technologies. Total sales through RobotWorx, which was acquired in May 2014, are at levels nearly twice of that when the company was purchased. (edit from AR2015 p11 - Robotworx sold 187 robots, which was an increase of 58% on the prior year). We are progressively adding Scott management and capability to our American operations as well as building relationships with manufacturing companies looking for automation partners. Opportunities continue to arrive on a regular basis as US manufacturing rebounds with a thirst
for automation and robotics.

-----

Looking on p49 and p50 of the annual report, NPAT from 'Americas Manufacturing' has gone from $328k to $1.807m. With interest rates set to rise in the US, I am not sure we will see such a strong contribution from Robotworx in FY2016. Robotworx was acquired on 14th May 2014. So only 3.5 months of Robotworx results were consolidated into the FY2015 results. p45 of AR2014 states that NPAT from Robotworx for FY2014 was $492k. This means the rest of the SCT business in the USA must have lost money in FY2014.

$0.328m - $0.492m = -$0.164m

Again from p45 FY2014

"Had these acquisitions (edit- very largely Robotworx) been effected at 1 September 2013, the revenue of the Group from continuing operations would have been approximately $67 million, and the profit for the year after taxation and non controlling interests from continuing operations would have been $3.25 million."

From the income statement for FY2014:

Total comprehensive income is attributable to: Members of the parent entity + Non controlling interest was $2.925m. So we can conclude the Robotworx profit for FY2014 was:

$3.250m - $2.925m = $0.325m

One more point of note is the acquisition of MAR in Australia. The total cost of acquisition was $14.224m (AR2015 p45). Included in AR2015 p46 is the (from 31-01-2015 statement that for the period owned the contribution from NPAT by MAR was $165k.

Further down the same page it states that

"Had this acquisition been effected at 1 September 2014, the revenue of the Group from continuing operations would have been approximately $80 million, and the profit for the year after taxation and non-controlling interests from continuing operations would have been approximately $6 million."

Total comprehensive income is attributable to: Members of the parent entity + Non controlling interest was $4.764m. So we can conclude the full year MAR profit for FY2015 was:

$6.000m - $4.764m = $1.236m

All this stuff is 'grist' for the 'forecast mill'.

SNOOPY

Snoopy

01-12-2015, 06:17 PM

SSH notice from Fisher Funds today; they've sold completely to JBS.

Yet another buy high sell low escapade for Fishers. Glad to see them gone personally - I think they are terrible managers of financial assets. But this is a very good omen for the remaining investors. Doing the opposite of what Fishers do is usually very successful.

SNOOPY

Snoopy

02-12-2015, 04:51 PM

So what about FY2013?

Sales growth at Rocklabs has been 19.8%, 48% and 56% over the last three calendar year comparisons. I am expecting slower growth in FY2013 ( +10%, or $3.5m of incremental sales) But due to the 'standard nature of products' I think Rocklabs will have high margins on these new earnings, as high as 50%. This equates to $1.7m of new NPBT.

The meat industry robots I believe will at last make some real money for SCT. Management have forecast sales to double and I am looking at a NPBT increase of $1.1m. That is calculated assuming a 10% margin..

The Appliance line production business I believe will make $0.5m in FY2013, up from nothing in FY2012. This is based on the amount earned by SCT when turnover in that division dropped to $15m ish in 2001.

I am predicting a fall in earnings from 'other automation' as resources are redirected to meat industry robotics. If turnover halves to $2m (still up 100% on FY2011) then NPBT will fall by $0.2m here.

So to summarize:

Profit Increment = 0.72x ($1.7m+$1.1m+$0.5m-$0.2m) = $1.6m.

Of course we have to remove from that the one off exchange rate gain that will probably not be repeated.

$1.6m - 0.72($0.846m) = $1.0m.

That sums to a forecast FY2013 profit of $6.1m + $1.0m = $7.1m

However, unlike the last two years this profit is all real and repeatable. A 16% gain YOY is not be be sneezed at. However I don't see the share price gaining 16% as the PE based on last years results is already a heady 18.5 (sp=$2.50). Time for that PER to come back a bit to better reflect potential forward growth, I believe.

Always interesting to look back to see how good a forecaster you were. Actual adjusted profit was $5.384m for FY2013. While I predicted further growth for Rocklabs, actual 'mining' revenue decreased from $34.0m to $28.8m.

So removing my $1.7m forecast before tax profit increment for Rocklabs:

$7.1m - 0.72($1.7m) = $5.9m

Given Rocklabs sales actually decreased in FY2013 (the above assumes level sales YOY), the probable decrease in the profitability of Rocklabs seems the main source of my forecasting error. My prediction about the share price coming back from $2.50 odd was correct though.

Fast forward to FY2016. Taking the base level profit of FY2015 (adjusted to $4.725m NPAT) how do I see things developing over the current year?

AmountDescriptionCalculation

$4.725mBaseline Profit FY2015

+$0.800mInterest saved from recapitalisation$1.132m x 0.72

+$0.194mInterest earned from surplus capital$9m x 0.03 x 0.72

+$0.226mHTS-110 elimination of losses$2.1m x 0.15 x 0.72

+$1.490mMeat industry Robotics (incremental)($15m-$1.201m) x 0.15 x 0.72

-$1.000mAppliance Production LinesBased of $13m sales, down yoy

+$1.075mMAR sales annualisation adjustment (sales steady)$1.236m-$0.161m

-$0.230mAdjust profit between FY2014 acquistion year & FY2015 peak

$7.280mForecast NPAT Total

Other Assumptions:

1/ No change in the contribution of Rocklabs YOY.
2/ No benefit from decrease in exchange rate YOY. I am assuming that due to the weak mining and appliance line outlook some discounting will be required to acquire overseas work.
3/ No benefit from the new 'scale' that new capital was meant to bring. Benefits from scale should come. But I am not expecting any in the next twelve months.

In theory (assuming scheme of arrangement is approved by the court) there are now 74.8m shares on issue.

So NPAT eps for FY2016 will be: $7.28m/74.8m = 9.7cps

Last year the dividend was 8cps. So there is room to hold the dividend steady on the increased number of shares. Good for those pensioner shareholders (7.8% gross yield).

At $1.42, SCT trades on a perspective PE of $1.42/9.7 = 14.5

Given the hoped for growth potential with JBS as a partner, this sounds about right. However, the market will be watching to see some tangible benefit from the 'scalling up' of operations. That will take a couple of years to emerge, and one year for the market to price it in. Consequently I see little share price movement over the next 12 months.

Snoopy's recommendation: hold at $1.42, buy only on weakness.

Criticisim welcome :-)

SNOOPY

Snoopy

03-12-2015, 07:01 PM

You certainly are consistent in your dogged refusal to recognise the importance of keeping on the right side of market trends, Snoopy. "Selling into market strength" is just as foolish as the "buying into market weakness" that you were doing all the way down! I have plotted a few of your comments on the chart below and it is painfully obvious that you would have done far better keeping your money in your pocket, rather than averaging down as you did. Buying an obviously downtrending stock is not a good idea - and you provide a perfect example of what happens to anyone foolish enough to do this. Certainly you were able to reduce your average entry price, but all the time you were doing this, your capital was being eroded as you were adding to your SCT shareholding taking positions that, years later, are still under water.

You are selling a few now? The time to sell was when I did - way back in 2005 when SCT stopped rising and started falling. Currently, SCT is in an uptrend but hitting consistent resistance at around $1.42.

Snoopy, you made a huge gain on SCT - and gave nearly all of it back to the market. Having tripled your money in just 3 years, you have ended up with a 10 year average gross yield of just 5.6%. How? By holding on to (and buying more of) a downtrending stock.

You say that "you have to be prepared to hold shares across the ups and downs of the business cycle" and here we see a graphic illustration of the folly of doing just that.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/SCT15.gif

Interesting to look back on this post by Phaedrus, castigating me for my SCT investment strategy. It is also interesting to see SCT in what is now 2015 on that resistance line of $1.42 -again. Not that I believe any of that T/A stuff of course :-).

So what has happened since that time? One thing that has varied a lot over the time I have held SCT shares (mostly because I have been steadily building up my holding) is the number of shares I have held. If I were to start from my median holding level on this share to date, my investment time-frame would start towards the end of this chart (EOCY2008). Since then:

1/ I managed to buy some more shares at 70c in April 2009 (at least Phaedrus would have approved of that - oh wait he wouldn't, things were still downtrending then).
2/ Then in March 2010 I got some shares at 0c (because of a bonus issue).
3/ Roll into 2011 and a proposed rights issue was announced at the end of March, although no price was announced at that time. So shortly afterwards I sold some SCT shares at $1.49 to free up funds for that coming issue.
4/ The issue price ended up being $1.20, a price which I was happy to reinvest at.
5/ With the price on a roll and the dividend yield reducing, I took some capital off the table at $1.80 and
6/ when it continued to rise, some more capital came out at $2.60.
7/ When the price came back and the yield improved I bought back some of those shares at $1.75
8/ and $1.51.
9/ Finally and most recently I subscribed to bought new shares at $1.39, just prior to the recent rights issue.
10/ I took up my rights in that issue as well. So I expect another parcel of shares at $1.39 in the new year.

Phew! This is quite a lot of activity for a 'buy and hold' investor (clue: Being a buy and hold investor doesn't mean you can't adjust your portfolio weightings when appropriate)! Nevertheless it all seems to have paid off, despite doing almost everything wrong from a trading perspective. Of course the fallacy with trying to trade SCT is that because of the very low liquidity, the theoretical exit and entry points on the chart are not achievable. This is because buying even a minmum sized parcel of shares would typically double or more the actual number of shares traded on the market and upset the supply demand balance that the chart showed. The only way I found to get the volume required was to buy or sell against the trend. This is why buying into weakness and selling into strength (the exact opposite of what traders do) has worked well for me here.

Come the new year my average entry price will increase to 83.2c. I have simplified my analysis slightly by assuming no dividends would have been paid from acquistions before those companies were part of SCT.
I have complicated by analysis by discounting the dividends based on the ever increasing number of shares available (because of bonus issues, rights issues and the DRP) over my median holding period (sum of dividends over 7.5 years: 44c). Using today's $1.42 offer price, my compounding return (r) is calculated as follows:

83.2(1+r)^7.5 =(142+44) => r= 11.3% (net) [15.7% gross, based on 28c tax rate]

That kind of return may not stand out over one year. But compounding over 7.5 years makes for a very satisfactory investment from my perspective.

SNOOPY

Snoopy

04-12-2015, 11:12 AM

Come the new year my average entry price will increase to 83.2c. I have simplified my analysis slightly by assuming no dividends would have been paid form acquistions before those companies were part of SCT.
I have complicated by analysis by discounting the dividends based on the ever increasing number of shares available (because of bonus issues, rights issues and the DRP) over my median holding period (sum of dividends over 7.5 years: 44c). Using today's $1.42 offer price, my compounding return (r) is calculated as follows:

83.2(1+r)^7.5 =(142+44) => r= 11.3% (net) [15.7% gross, based on 28c tax rate]

That kind of return may not stand out over one year. But compounding over 7.5 years makes for a very satisfactory investment from my perspective.

Financial YearDividend (Final + Interim)No. Shares on Issue EOFYShare Dilution Correction FactorAdjusted Dividend (Summed)

2HFY20080c28.277m0.62180c

FY20090c+0c28.475m0.62620c

FY20101c+1.25c31.322m0.68881.55c

FY20114c+2c39.721m0.87355.24c

FY20125c+2.5c40.689m0.89466.71c

FY20135.5c+2.5c41.422m0.90437.23c

FY2014(5.5c+2c)+2.5c44.009m0.96789.68c

FY20155.5c+2.5c45.474m1.08.00c

1HFY20165.5c45.474m1.05.50c

Total43.91c (44c)

The above calculation was IMO necessary because Scott Technology has been acquiring companies (like HTS-110) for future growth that are currently unprofitable. This means the earnings base of the parent company is being diluted on a per share basis (at least for now). And this means that any share you hold today would not have received the headline value of the historical dividend, had you held the same share 'back then'. This retrospective earnings dilution is 'corrected for' with my adjustment factor.

SNOOPY

Note: This correction is nothing to do with a time value of money discounted cashflow analysis. DCF is another factor again which I tend not to use for simplification, because I don't need to know the actual future value of any investment. I just need to know if one investment is comparatively better than another.

Snoopy

05-12-2015, 03:36 PM

Using today's $1.42 offer price, my compounding return (r) is calculated as follows:

83.2(1+r)^7.5 =(142+44) => r= 11.3% (net) [15.7% gross, based on 28c tax rate]

That kind of return may not stand out over one year. But compounding over 7.5 years makes for a very satisfactory investment from my perspective.

I need to add the postscript 'past returns are not necessarily indicative of future returns' to the above post.

In theory (assuming scheme of arrangement is approved by the court) there are now 74.8m shares on issue.

So NPAT eps for FY2016 will be: $7.28m/74.8m = 9.7cps

Last year the dividend was 8cps. So there is room to hold the dividend steady on the increased number of shares. Good for those pensioner shareholders (7.8% gross yield).

At $1.42, SCT trades on a perspective PE of $1.42/9.7 = 14.5

Given the hoped for growth potential with JBS as a partner, this sounds about right. However, the market will be watching to see some tangible benefit from the 'scalling up' of operations. That will take a couple of years to emerge, and one year for the market to price it in. Consequently I see little share price movement over the next 12 months.

'Little price movement over the next twelve months' still means a gross yield of near 8% though. As an investor that kind of return will not test my patience.

My investment strategy for SCT has not changed. The existing business justifies the yield. The growth from HTS-110 (superconducting technology) and the 'scaling up' of the meat processing robots comes for free. This is why IMO, SCT remains a compelling technology sector growth investment. Sadly though, we minority investors have had about 40% of our future growth pie simply handed over to JBS 'for free'. And that is very sad :-(!

OK not quite for free.

JBS put

(17,339,239+ 10,000,000) x $1.39 = $38m

of new capital into SCT. But $38m is still small change compared to the over $500m JBS will gain by rolling out SCT's meat processing technology across just JBS's Australian operations and operating them for ten years. I have previously expressed the view that SCT directors sold out small shareholders to JBS far too cheaply, and I hold to that. The counter argument is that without the $38m JBS cash injection, much of the meat processing IP would be wasted as overseas competitors caught up with SCT's world leading position. Never has 'executing the business plan' been more important for SCT than going forwards from here.

SNOOPY

Under Surveillance

06-12-2015, 10:11 PM

I've found some of the views in your recent posts interesting, Snoopy. To the extent that I understand them, and they seem to matter, I accept most.

There seems to be the odd underlying assumption that isn't underpinned by public expressions of intention by JBS. One is that inherited dividend policy/recent dividend payments will be maintained. JBS seem to be looking for a return on equity of at least 15%, and if that is sooner achieved or exceeded by paying no dividends and reinvesting all NPAT, or by returns of capital, the interests of pensioner shareholders are unlikely to hold sway.

Executing the business plan will certainly be important, but presumably H1 2016 will be as good as done before the plan is formalised by a JBS dominated board. From what I can make out that board is to number 5, of whom JBS will appoint 3 including the chairman, the other 2 being independent of JBS. Of the 5 existing directors Batts is standing down, Hopkins is not independent, and one at least of Staynes, McLauchlan and Waller will be farewelled. If all 3 remain available presumably Oakwood, now holding 14.4% of non-JBS shares if it has maintained the number as at 17 September 2015, will play a major part in deciding who leaves to pursue other interests?

Snoopy

07-12-2015, 09:16 AM

There seems to be the odd underlying assumption that isn't underpinned by public expressions of intention by JBS. One is that inherited dividend policy/recent dividend payments will be maintained. JBS seem to be looking for a return on equity of at least 15%, and if that is sooner achieved or exceeded by paying no dividends and reinvesting all NPAT, or by returns of capital, the interests of pensioner shareholders are unlikely to hold sway.

I was aware that JBS wanted to improve the profitability of SCT asap U.S.. I wasn't aware JBS had a specific 15% return on equity target. Where did you get that figure from?

I think at the roadshow either Hopkins or McLauchlan (can't remember which), mentioned they look for a 15% return on their new investments. But whether that has been a long established policy (I got the impression it was) or a new target hinted at by JBS, this I don't know. By way of an aside I look for an ROE of 15%+ from my own sharemarket investments (doesn't always happen), or at least the 'growth' ones. So I am very happy that the SCT board has a similar policy.

A 15% ROE does not mean that profits are automatically retained of course. You could still have a 15% ROE and pay out all profits as dividends. So I don't think pensioners in need of income have a particular need to worry, when you might argue that SCT will be 'overcapitalised' particularly when the scheme of arrangement goes through.

Executing the business plan will certainly be important, but presumably H1 2016 will be as good as done before the plan is formalised by a JBS dominated board.

Yes I think so. I would doubt if JBS can make much difference to company policy for a couple of years at the earliest. Having accepted an order for lamb processing robots from Alliance here in NZ, I don't think JBS can break that contract and tell Scott's to put those robots into JBS Australian operations instead. Further down the track though, I do see JBS Australia claiming the lions shares of meat industry robotics installations, while our own meat processors in New Zealand are hung out to dry.

From what I can make out that board is to number 5, of whom JBS will appoint 3 including the chairman, the other 2 being independent of JBS. Of the 5 existing directors Batts is standing down, Hopkins is not independent, and one at least of Staynes, McLauchlan and Waller will be farewelled. If all 3 remain available presumably Oakwood, now holding 14.4% of non-JBS shares if it has maintained the number as at 17 September 2015, will play a major part in deciding who leaves to pursue other interests?

I too am bit baffled at the board composition going forwards U.S.. Batts is stepping down after 60 years with the company to a retirement well earned. I understood that JBS will appoint two to the board (Eastwood and Alvares).

So the board next year will look like:

Stuart McLauchlan, Chairman (defacto JBS man now?, although nominally independent)
Chris Staynes, independent director
Mark Waller, independent director
Brent Eastwood, CEO JBS Australia
Edison Alvares, CFO JBS Australia

Of course that doesn't include Hopkins, but maybe being an 'employee' of Scotts he doesn't count?

I see that Staynes has some health issues:

http://www.odt.co.nz/news/dunedin/352590/staynes-getting-life

So he may be forced to step down at some point? That would further tip the chairs in JBS's favour.

SNOOPY

Sideshow Bob

07-12-2015, 09:27 AM

Snoopy

07-12-2015, 09:57 AM

Where does the joint venture between Silver Fern Farms and Scott's sit? (Robotic Technologies). Does half of the profit through the joint venture go to SFF? Our does the JV just cover the development?

Bob, the RTL joint venture with Siver Fern Farms owns all the IP relating to lamb processing that SFF have expressed an interest in. Any new IP is offerred to the joint venture first. If SFF are not interested, then that IP becomes owned by Scotts on its own. RTL I think is more of a 'paper company' in that they don't have many (any?) staff that are exclusively RTL.

If you go to note 26 of AR2015 you will see that Scott's carried out $1.201m of manufacturing work for RTL in FY2015. Scott's will have a made a 'contracting margin' on this work (perhaps 15%, Scott's ROE target?). RTL AFAIK, have no independent workshop of their own. So to answer your question directly I think that RTL is basically a development company that holds the relevent lamb industry intellectual property. In theory JBS do not have free access to RTL IP, despite controlling Scotts, because Silver Fern Farms has 50% of the shares in RTL.

But how would RTL get their contracting work done independently of Scotts (aka JBS) in the future? No independent staff! I don't think they can!

SNOOPY

Sideshow Bob

07-12-2015, 12:42 PM

Thanks Snoop Dog. Seems like an interesting one, as presuming holding the IP should give it some revenue when Scotts sell and manufacture the robotic cutting technology.

Guess everyone thought JBS were in town to see SFF, but end of the day it was Scott's they got into!

Under Surveillance

07-12-2015, 01:51 PM

I was aware that JBS wanted to improve the profitability of SCT asap U.S.. I wasn't aware JBS had a specific 15% return on equity target. Where did you get that figure from?

I think at the roadshow either Hopkins or McLauchlan (can't remember which), mentioned they look for a 15% return on their new investments. But whether that has been a long established policy (I got the impression it was) or a new target hinted at by JBS, this I don't know.

SNOOPY
I got that figure mistakenly from the Wellington roadshow video. Now that I've looked at the video again, Hopkins used the figure as SCT's yardstick going forward (in response to a question as to how SCT with JBS aboard would discipline itself in applying the incoming capital). The JBS participants, Eastwood and Alvares, made no comment on the matter.

By the bye, seeing the video again three things struck me, apart from my mistake. The first was how emphatically Eastwood stated and repeated the need for innovators like SCT to get on with commercialising their intellectual property and scaling up production. Eastwood said "We [JBS] are very much an aggressive growth company."

The second was how Hopkins foresaw JBS putting in further money [than the 50.1%, as it has transpired] down the track. As an illustration, he suggested that further JBS money could be put in to support the share price and give liquidity, specifically in the event it became evident that sellers in volume would knock the price about. Presumably such involvement by JBS would be within the 5% creep JBS is allowed per year after year 1 [3.74 million shares on total shares of 78.8 million].

The third was the pace at which SCT meat processing sales have been, and are, accelerating in Australia independent of any new business deriving from JBS as majority owner of SCT. Hopkins went very close to quantifying the rate of growth before backing off.

Snoopy

05-02-2016, 03:06 PM

My investment strategy for SCT has not changed. The existing business justifies the yield. The growth from HTS-110 (superconducting technology) and the 'scaling up' of the meat processing robots comes for free. This is why IMO, SCT remains a compelling technology sector growth investment. Sadly though, we minority investors have had about 40% of our future growth pie simply handed over to JBS 'for free'. And that is very sad :-(!

OK not quite for free.

JBS put

(17,339,239+ 10,000,000) x $1.39 = $38m

of new capital into SCT. But $38m is still small change compared to the over $500m JBS will gain by rolling out SCT's meat processing technology across just JBS's Australian operations and operating them for ten years. I have previously expressed the view that SCT directors sold out small shareholders to JBS far too cheaply, and I hold to that.

Shareholders who exited the company vis the JBS Offer in early December are facing a long delay for their pay out!

-------

Update on Approval Requested from the Overseas Investment Office.

We are yet to receive approval of the Scheme of Arrangement from the OIO which is delaying final High Court approval. OIO approval relates primarily to the Kaikorai Stream which passes through our Dunedin property and is classified as reserve land under Dunedin city’s proposed district plan. The application was lodged with the OIO on 17 September 2015.

The OIO has requested supplementary information which was provided by Scott and JBS. We have requested an estimated date for completion of the approval process but the OIO has not provided a definitive timeframe. We are led to believe that the application is progressing well and we are hopeful of approval in March. We will provide a further update to the market as soon as we can obtain an indication of timing from the OIO or we receive the required OIO approval.

We are told that the final High Court approval shouldn’t take long and settlement will take place within 5 business days following final High Court approval.

-----

SNOOPY

Carpenterjoe

23-03-2016, 11:01 PM

Why is this company being sold so cheaply?

Is it directors wanting to leave a mark or to aggressively grow a company ?

Do shareholders need this aggressive acquisition approach? I like the acquisitions but not at the expense of half the company.

statements show..

Cash up

No contract work in progress! this means none? future payment of works in question?

Seems we got paid for a big job? hence the RO's being up?

Ppe down by 4mil?
How do intangibles go from 12 mil to 1.7 within 12 months?

All non trading debts down?

And still paying a large div with so much debt?

I hope snoops has the answers for all my questions!

Under Surveillance

24-03-2016, 08:55 AM

I hope snoops has the answers for all my questions!

You might have to be patient, as I reckon he will be sulking in the corner of his kennel. He will not be getting a dividend from shares from the rights issue he paid for 4 months ago.

For mine, the H1 result, and especially the outlook, were very pleasing.

Snoopy

24-03-2016, 03:42 PM

Why is this company being sold so cheaply?

Is it directors wanting to leave a mark or to aggressively grow a company ?

Do shareholders need this aggressive acquisition approach? I like the acquisitions but not at the expense of half the company.

Quite right Carpenterjoe. I reckon the acquisition by JBS of a monopoly section of the Kaikouri Valley Stream could pose a serious threat to the Dunedin city whitebait supply. Courts: Can the JBS agreement and let shareholders negotiate a better deal than giving half the company away. The recapiatlisation deal is ultimately far more valuable for JBS Inc than it is for Scotts. Jumping the queue (Silver Fern Farms will have to change their name to Bronze Fern Farms soon) and installing robots all over JBS Australia's meat works and the associated productivity gains is where the real money will start flowing. And with all that cash flowing in right now, Scotts are no longer in such desparate need of the JBS money.

I hope snoops has the answers for all my questions!

Working on them!

SNOOPY

Snoopy

24-03-2016, 06:59 PM

Cash up

Apart from the increase in cash signifying completion of projects, a large amount of cash -$2.75m- (including my rights issue subscription money, as U.S. points out!) is sitting on deposit as cash pending approval of the JBS Australia capital injection.

No contract work in progress! this means none? future payment of works in question?

The work of SCT is lumpy. So having quite large variations of work in progress is not that unsual.

e.g. EOHY2016 $0m, EOFY2015 $3.048m, EOHY2015 $7.946m , EOFY2014 $8.858m

On second thoughts that does look like things are declining doesn't it? One way to have absolute certainty of being paid for your future work is to not do any. In that case there is a 100% guarantee that you will be paid nothing for your nil effort. Remember, the sharemarket likes certainty, so maybe this is the reason that the share price rose today :-)

Looking back to the full year report, note 29(i), shows the Forward Foreign Exchange Rate Contracts. These do look a bit light in USD and EURO terms going forwards. Absolutely nothing over one year out. And pretty skinny coverage in the 6 to 12 month range (this means six months from the February 29th interim balance date just gone). So yeah we could be looking at a light second half performance from SCT.

Seems we got paid for a big job? hence the RO's being up?

RO's = Return on Operations?

At the very least the revenue is up 46% on the first half last year, but more or less flat with the second half of last year

Ppe down by 4mil?

Compared to a year ago, yes. Compared to six months ago, about the same. They may have sold a prototype production line (the result of some expensed R&D) , converted it to satisfy the requirement of a real customer and flicked it off. That kind of thing would reduce the Property Plant and Equipment on the books.

How do intangibles go from 12 mil to 1.7 within 12 months?

That $12m in intangibles looks like a 'blip', which only appeared in the HY2015 accounts. Something to do with finalising the purchase of MAR in Australia and 'bedding down' Robotworx in the U.S.? I can't explain it. 18 months ago, the intangibles were only $1.733m.

All non trading debts down?

And still paying a large div with so much debt?

Management must be very convinced the big cash injection from JBS is imminent! But also clearing out some imputation credits that would otherwise be lost is the explanation for the larger than expected dividend.

I hope snoops has the answers for all my questions!

Have done my best!

SNOOPY

Carpenterjoe

31-03-2016, 10:57 AM

Good stuff. Thanks, Snoopy

Not sure if I'm excited about the future of this company or just confused.

sb9

31-03-2016, 11:00 AM

Dipped my toes on this one today, let's see how it plays out.

Bjauck

31-03-2016, 04:35 PM

Snoopy

31-03-2016, 04:43 PM

A relative has shares in Scott. Her broker does not know much about Scott Tech. She is a long term portfolio investor and did not participate in the rights issue. If she continues to hold the shares (and does not voluntarily participate in the scheme of arrangement) are there any drawbacks (tax or otherwise?) I read the scheme booklet and quickly realised I was out of my depth due to lack of comprehension skills! Cheers.

The choice about whether or not to participate in the 'scheme of arrangement' (aka takeover by stealth) was made at the last AGM. All shareholders will now participate, and no more decisions on this by shareholders are required. There will be no further calls for more money. Nothing to do for your relative but to sit tight now.

SNOOPY

PS participating in the rights issue at the time was a 50/50 call, because SCT shares were avialable 'on market' at or below the rights price.

Under Surveillance

31-03-2016, 05:09 PM

Dipped my toes on this one today, let's see how it plays out.
You chose a good day!! Up 11% from 152 to 169.

sb9

31-03-2016, 05:19 PM

You chose a good day!! Up 11% from 152 to 169.

Yeah, paid bit more than the open though. Still quite happy and I reckon this is one of dark horses on NZX at the moment. Extra funds they got thro' JBS should give big boost to their expansion plans in Europe and US.

Sideshow Bob

02-04-2016, 01:26 PM

http://viewer.zmags.com/publication/182c1aa3#/182c1aa3/17

Farmers Weekly article

Snoopy

02-04-2016, 03:04 PM

http://viewer.zmags.com/publication/182c1aa3#/182c1aa3/17

Farmers Weekly article

I was interested to see Hopkins say that the as yet unamed European acquisition will allow them to take their meat industry robotics into Europe. Given Scott's have a good five years of solid work just automating JBS Australia, I wonder if new majority shareholder JBS will allow the distraction of putting meat industry robots into Europe? This is shaping up as a test to see if Scott's managment really will remain independent, as they claimed they would after the JBS takeover (whoops 'scheme of arrangement') was approved by shareholders.

SNOOPY

sb9

07-04-2016, 03:39 PM

https://nzx.com/companies/SCT/announcements/280517

Another formality completed, high court approval of scheme of arrangement with JBS.

sb9

12-04-2016, 04:50 PM

Divvy paid into the bank a/c, sweet... :)

Snoopy

27-04-2016, 12:25 PM

https://nzx.com/companies/SCT/announcements/280517

Another formality completed, high court approval of scheme of arrangement with JBS.

The Scott Technology shareprice has had a rocket under it in recent days. Even today the price is up 7.1% so far. Bidders are above the last sale price of $1.80 already.

According to the NZX website, SCT is - despite the recent price rises - still only on a PE of 10.7. Superficially that looks cheap for a (now) debt free exporter with strong interests in the international markets of industrial automation.

However, I am fairly sure that this 'modest' PE does not take into account that there are now 74,680,754 shares on issue. Not the 45,473,890 that were on issue before the high court approved controlling stake takeover by JBS Australia.

SCT have issued new shares several times over the last few years as a result of business acquisitions. But this time no new business has been acquired. Just more capital to expand the existing business. So suddenly all of SCT's profits must be spread over a lot more shares. This means the real historic PE on the market today is not 10.7 but:

10.7 x (74.7/45.7) = 17.5

Even 17.5 is not a hugely demanding growth multiple for a well funded growth company. But any scaling up of the meat industry robotics division will not be instant. Furthermore, the traditional 'appliance line manufacturing' operating business appears to be in one of their periodic lulls. And the mining assistive technology business is flatlining.

I will be very happy to be proved wrong. But I think 'earnings' will be down, and particularly 'earnings per share' will dip significantly for FY2016. And that means those buying in at $1.80 or more today might not be getting the bargain they think. Be careful out there in this market!

SNOOPY

discl: hold SCT - not a seller, but not a buyer either

Under Surveillance

27-04-2016, 07:53 PM

[QUOTE=Snoopy;617592] I will be very happy to be proved wrong. But I think 'earnings' will be down, and particularly 'earnings per share' will dip significantly for FY2016. And that means those buying in at $1.80 or more today might not be getting the bargain they think. Be careful out there in this market!

Whether $1.80 or so represents a bargain could depend on the depth of one's vision. For those looking short term, say as far out as the FY 2016 announcement, there might be no compelling bargain. Those looking further ahead, mindful of the difficulty of easily picking up shares in an illiquid company if/once profitability bounces, might be paying very sensible prices.

Snoopy

28-04-2016, 08:59 AM

Whether $1.80 or so represents a bargain could depend on the depth of one's vision. For those looking short term, say as far out as the FY 2016 announcement, there might be no compelling bargain. Those looking further ahead, mindful of the difficulty of easily picking up shares in an illiquid company if/once profitability bounces, might be paying very sensible prices.

I agree with the above comment by U.S., which is why I am not selling!

At the road show, Chairman Stuart Mclauchlan said that the most profitable part of what SCT currently does is the repeat installations of meat industry robotics. But oddly, Robotic Technologies Limited and NS Innovations Pty limited, the meat industry robotics joint ventures both report their contribution to Scott Technology's profit as 'Nil' in AR2015 (page 38). This does not line up against what the Chairman said in the road show!

Subsequently at the special general meeting to approve the JBS merger, Chairman Mclauchlan revealed that the meat industry robotics profit was generated because the actual engineering work was farmed out to the parent Scott Technology company, and not kept within the respective joint venture. IOW, there is 'transfer pricing' going on. That makes the true profitability of meat industry robotics less than transparent. And it makes it very difficult to guess what sort of profit a 'scaled up' meat industry robotics program might generate. That is my cautionary note, and why I don't like overpaying for SCT shares! The one's I bought at cash issue time for $1.39 late last year are looking good though!

SNOOPY

sb9

28-04-2016, 10:40 AM

Not fully conversant with industry trends that SCT supplies to, however fact that JBS decision to invest further is a vote of confidence as far as I'm concerned. Happy holder for now, see how it plays out over next 12 months.

sb9

05-05-2016, 05:00 PM

https://nzx.com/companies/SCT/announcements/281889

Very positive acquisition in my opinion.

Snoopy

05-05-2016, 07:21 PM

https://nzx.com/companies/SCT/announcements/281889

Very positive acquisition in my opinion.

So the acquisition in Germany has finally been revealed:

A brief history of Somako, recorded here before the old website is wiped away!

-----

SOMAKO COMPANY HISTORY

Founded in 1981 by Manfred Hirsch and Ludwig Attig in Oberderdingen, plant and automation concepts and designs and electrical control systems for chipless metalworking were initially created.

Today SOMAKO is with over 100 employees at locations in Germany and Portugal, a leading provider of flexible production lines and special machinery for various industries the sheet metal working industry.

The area SOMAKO control technology is a competent developer and supplier of control systems and electronics for many plant engineers of different industries at home and abroad.

As new business SOMAKO took over the BMD molding technique for molding plants and sand preparations of DISA of 2007. This area is dedicated to the supply of spare parts with original BMD replacement parts, service, plant modernization and plant expansions.

In order to respond quickly and efficiently to customer requirements, 2009, the new service area "Task Force" was set up.

Encouraged by the success of the BMD-molding technique, this field was in 2013 transferred to an independent Gesellschft. At the same time new molding machines and plants were included in the sales program.

-----

Scott's announced today that they have employed 36 ex Somako staff, so the 'new' Somako is rather smaller. No mention of any secondary Somako branch in Portugal any more.

------

"The total consideration, including the necessary investment in working capital, is expected to be less than €1million. We expect annual revenues for Scott Technology GmbH to be approximately €8million and we have already secured several contracts for automated systems that provide confidence we can achieve our business objectives for Europe."

Price paid is a price revenue multiple of 8. Sounds OK.

"The agreement is for Scott’s fully owned subsidiary, Scott Technology GmbH, to acquire selected business assets, consisting of plant and machinery, stock and work in progress, along with all the intellectual property which includes the designs and drawings for past, current and future projects."

"We are negotiating a lease that enables Scott to operate from the existing premises in Kurnbach, Germany. Scott Technology GmbH commenced trading in April 2016."

SNOOPY

ari

02-06-2016, 05:29 PM

https://www.nzx.com/files/attachments/236821.pdf

Snoopy

02-06-2016, 07:45 PM

https://www.nzx.com/files/attachments/236821.pdf

Who is it ARI? A $5m order, with possible multiple orders to follow fits the bill of a meat processing robot line. Is someone in NZ raising capital to do it?

SNOOPY

sb9

03-06-2016, 08:23 AM

Who is it ARI? A $5m order, with possible multiple orders to follow fits the bill of a meat processing robot line. Is someone in NZ raising capital to do it?

SNOOPY

Sounds very positive...

sb9

03-06-2016, 11:44 AM

Looks like the big seller(s) lot at 180 has been filled in. Will be interesting to see how it goes from here...

sb9

13-06-2016, 10:36 AM

Marching on the way to $2 mark....:t_up:

Snoopy

13-06-2016, 03:31 PM

Marching on the way to $2 mark....:t_up:

It is interesting that as SCT hits $2, nothing has really changed since capital raising time when some shareholders were balking at paying $1.39. Hopefully those shareholders are off the register now. Personally I think the medium term prospects of SCT are very bright. But I don't see any quick turnaround in profit fortunes here. So in the short term I think SCT is staring to look overdone at $2. Maybe new shareholders are willing to take a longer term view?

SNOOPY

Under Surveillance

13-06-2016, 08:53 PM

It is interesting that as SCT hits $2, nothing has really changed since capital raising time when some shareholders were balking at paying $1.39. Hopefully those shareholders are off the register now. Personally I think the medium term prospects of SCT are very bright. But I don't see any quick turnaround in profit fortunes here. So in the short term I think SCT is staring to look overdone at $2. Maybe new shareholders are willing to take a longer term view?

SNOOPY

The manner in which the price has forged upwards over the last 3 weeks suggests strong conviction on the part of those buying. Hindsight alone will tell whether prices at 200 plus are overdone.

Maybe new shareholders are advantaged by the ability to cast aside the baggage of SCT’s past, and are focussed on its future with $25 million in the bank and intellectual property aplenty to be exploited?

Perhaps they see JBS as bringing an overdue boardroom emphasis on seizing opportunities and aggressively pursuing growth prospects, rather than wallowing in nostalgia about SCT”s 102 year history and interminably worrying about helping large shareholders cash up their holdings?

Perhaps they envisage the new model SCT in 5 years or so as somewhat like FPH is today, a market darling after a series of pleasing results exploiting self-researched and -developed high tech products (though perhaps not quite with a PE ratio in the 50s)?

sb9

16-08-2016, 02:22 PM

Strong buying today...136k shares @VWAP of 1.999....

Marilyn Munroe

08-09-2016, 01:36 AM

From the Otago Daily Times;

"Pukeuri boners get robotic workmates"

https://www.odt.co.nz/business/farming/pukeuri-boners-get-robotic-workmates

Boop boop de do
Marilyn

sb9

08-09-2016, 10:06 AM

From the Otago Daily Times;

"Pukeuri boners get robotic workmates"

https://www.odt.co.nz/business/farming/pukeuri-boners-get-robotic-workmates

Boop boop de do
Marilyn

Thanks kindly for that MM.

Alliance could be the customer Scott referring to from their announcement from 2nd Jun as per extract from the release:

"Re:
MARKET INFORMATION UPDATE
Scott Technology Ltd (“Scott”) has been made aware that an existing customer engaged in possible
equity fundraising has advised investors that a use of some of the funds being raised is to purchase
machinery from Scott.
Scott has a heads of agreement with this customer for an initial supply of equipment for a total
consideration of approximately NZ$5 million. Scott considers that the initial supply is within the normal
course of trading. However, Scott is in discussion with respect to subsequent orders over the next 18
months which, if eventuate, would result in a significant lift in Scott’s total revenue over that period"

sb9

15-09-2016, 02:45 PM

Good accumulation happening around current price level, someone might have good clue about year end numbers.

Guess will have to until next month when they announce FY results, unless they're compelled to give an update before that.

sb9

22-09-2016, 02:33 PM

https://nzx.com/companies/SCT/announcements/289575

Anyone from this forum happen to be here by any chance...appreciate your further input on this.

Snoopy

23-09-2016, 03:23 PM

https://nzx.com/companies/SCT/announcements/289575

Anyone from this forum happen to be here by any chance...appreciate your further input on this.

I didn't go to the presentation. But there are a few gems to be drawn from the slides released to the NZX.

We already know that the total number of shares now (post JBS capital injection) on issue is 74.788m

Previous Substantial holder, Fisher Funds, sold out as previously announced.

Oakwood Securities (associated with Graeme Marsh) now owns 7.36% of those 74.788m shares.

0.0736 x 74.788m = 5.50m shares

Prior to the 1:8 rights issue, Oakwood held 5.379m shares. Oakwood would have been entitled to 0.672m rights. It looks like they only took up 0.121m rights. So it looks like Marsh no longer has the capital nor the desire to support Scott Technology's continued expansion. No real surprise there as at capital raising time Chairman McLauchlan said the major shareholders at the time wanted to 'sit back'.

Field and Palmer, trustees of the Urquart family trust, have 2.68% of the shares.

0.0268 x 74.788 = 2.000m shares

Prior to the 1:8 rights issue, Urquart family trust held 3.399m shares. So it looks like the Urquart trust sold some 1.4m shares to JBS. Once again, no real surprise there as the Urquart family trust have been selling down for some time. What is a surprise is that they have decided to keep 2m shares and stay in , albeit at a much reduced level.

Similarly 'Southern capital' now hold 0.0068 x 74.788m = 510,000 shares (the same as before the capital raising).

So all in all, a miserable response to the cash issue from the four previously largest shareholders. With the share price now up by more than 50% since the capital raising, the trustees of all those holdings must be kicking themselves. Proof, if any was needed, that the so called 'smart money' doesn't always get it right.

I saw no mention made of the much touted 'automated milking system' that is on the brink of commercialisationin in the Forsyth-Barr presentation . You could read between the lines that with the drop in milk prices worldwide, this development partnership could be dead.

Nevertheless $25m of real cash is in the SCT bank cash account. That should be enough to more than cover the upcoming final dividend that I will call at 4cps.

0.04 x 74.788 = $3m

4cps final will keep total dividend for the year at 8cps, the same as last year.

Actually that $25m to spend on 'one or two' acquisitions is a bit of a worry. Do SCT have the management nous to spend it wisely?

SNOOPY

Snoopy

23-09-2016, 04:15 PM

Snoopy

23-09-2016, 07:18 PM

Referring to my post 160, the actual profit for FY2012 of $5.5m was a little shy of my prediction of $7m. Nevertheless Mr Market didn't mind and the share price has been bid up to $2.60 today, a post dividend high.

There are now 40,983,443 shares on issue. So historical earnings per share is now 13.4c. At $2.60 this represents a PE of 19.4. This looks close to full value to me based on past results. So over the last week I have taken the opportunity to 'peel another layer off the onion'. Despite what I sold being barely an economical parcel to sell it has taken a week to get my order through. There are real pitfalls in holding a share where the liquidity is as low as this one! My back of the envelope calculation now shows that I have an average entry price of just 70c.

SCT has been a sensationally good investment for me, and I expect it will continue to be so into the future. In a years time there is every chance that $2.60 will not look so expensive. Yet I will sleep a little better at night now knowing that my portfolio has been brought more into balance.

I thought I had better come clean for all you 'Scot-tech-eers' out there. I confess I have been selling some SCT over the past couple of weeks. Got an average price of $2.10, which is 50% more than the same money I put into the rights issue shares just under a year ago. It looks like that if I had waited, I might have got a few cents more. But with the dividend yield diminishing, time to take some risk off the table and redeploy some of that capital elsewhere. Don't worry. I am still a 'Scot-tech-eer' at heart and intend to hold the balance of my shares (which is most of them). Average holding price is now 65c. So that is an improvement in comparison with my 2012 sell down four years ago. ' Buy into weakness' 'sell into strength' is my mottow with this thinly traded share!

SNOOPY

sb9

27-09-2016, 10:24 AM

Snoopy

27-09-2016, 01:25 PM

https://nzx.com/companies/SCT/announcements/289790

Looks like the FY results are going to be great plus the guidance for future with these kind of announcements. The new owners JBS are onto a winning strategy here...

Sb9, Scott's have a habit of announcing positive news around annual result time. They mentioned the six extra extrusion and press systems for Range International. However, to my knowledge, Scott's have never specifically mentioned the two full production lines previously ordered before. This is odd, because I would have thought those two big production line orders would have been far more significant news than this latest 'add on' announcement. The Appliance Production Line business is expertise intensive and capacity intensive. Previously all of this work was done at Scott's Christchurh plant. Around ten years ago. IIRC, they took on too much work and had to subcontract a lot of it out. The result was good work, but almost no money for shareholders as all of the potential profits went to sub-contractors!

Roll forwards to today and the Auckland, Christchurch and Dunedin workshops are more flexible with job sharing for the wider group. But now Scott's have their factory facility in China, and possibly MAR in Australia to keep busy too. Thus while the announcement is positive, there are a couple of things I can say for certain:

1/ This announcement will have no impact at all on the FY2016 result, as the financial year has already closed off.
2/ Given the known lack of large project work in the pipeline before this announcement, there is no way to know whether this 'Range International' announcement will even create enough work for SCT to break even in the appliance business, let alone make any kind of profit. I would be looking for a far busier forward work book order than this!

I expect JBS wil if anything be mildly annoyed with this announcement. The big game for them is getting more meat industry robotics into Australia. Thsi announcement does nothing for them, except distracting Scott management away from JBS interests.

SNOOPY

sb9

27-09-2016, 01:49 PM

Thanks for your detailed analysis and explanation Snoopy. Will wait and see for their commentary around FY results time next month.

sb9

05-10-2016, 03:49 PM

Under Surveillance

05-10-2016, 04:09 PM

For benefit of fellow Scott Tech shareholders, have emailed CFO re the FY results release date and prompt came back reply saying they're aiming for end of next week subject to Audit and Board formalities.
Thanks sb9. "Late" probably translates to "Thursday", given the dates for the last 4 years: Thursday 8 October 2015, Thursday 9 October 2014, Thursday 10 October 2013, Thursday 11 October 2012.

sb9

13-10-2016, 03:23 PM

https://nzx.com/companies/SCT/announcements/290792

Here are the results, some solid growth and backed by even stronger cash flow and balance sheet. 5.5c fully imputed final divvy, happy holder :t_up:

Snoopy

13-10-2016, 04:06 PM

Fast forward to FY2016. Taking the base level profit of FY2015 (adjusted to $4.725m NPAT) how do I see things developing over the current year?

AmountDescriptionCalculation

$4.725mBaseline Profit FY2015

+$0.800mInterest saved from recapitalisation$1.132m x 0.72

+$0.194mInterest earned from surplus capital$9m x 0.03 x 0.72

+$0.226mHTS-110 elimination of losses$2.1m x 0.15 x 0.72

+$1.490mMeat industry Robotics (incremental)($15m-$1.201m) x 0.15 x 0.72

-$1.000mAppliance Production LinesBased of $13m sales, down yoy

+$1.075mMAR sales annualisation adjustment (sales steady)$1.236m-$0.161m

-$0.230mAdjust profit between FY2014 acquistion year & FY2015 peak

$7.280mForecast NPAT Total

Other Assumptions:

1/ No change in the contribution of Rocklabs YOY.
2/ No benefit from decrease in exchange rate YOY. I am assuming that due to the weak mining and appliance line outlook some discounting will be required to acquire overseas work.
3/ No benefit from the new 'scale' that new capital was meant to bring. Benefits from scale should come. But I am not expecting any in the next twelve months.

In theory (assuming scheme of arrangement is approved by the court) there are now 74.8m shares on issue.

So NPAT eps for FY2016 will be: $7.28m/74.8m = 9.7cps

Last year the dividend was 8cps. So there is room to hold the dividend steady on the increased number of shares. Good for those pensioner shareholders (7.8% gross yield).

At $1.42, SCT trades on a perspective PE of $1.42/9.7 = 14.5

Given the hoped for growth potential with JBS as a partner, this sounds about right. However, the market will be watching to see some tangible benefit from the 'scaling up' of operations. That will take a couple of years to emerge, and one year for the market to price it in. Consequently I see little share price movement over the next 12 months.

Net interest charge for FY2015 was: $0.032m - $1.134m = -$1.102m
Net interest charge for FY2016 was: $0.299m - $0.773m = -$0.474m

Improvement year to year was $0.628m (vs forecast $0.8m +$0.194m =$0.994m (behind my forecast, maybe some extra costs in there to terminate existing loan facility early?)

No specific mention of HTS110 superconductive technologies. But annual summary says:

"we are starting to see early signs of commercialisation success with greater uptake of our developed technologies." So I am going to assume the elimination of the $0.226m loss as forecast was 'ballpark correct'.

I was predicting a 15% margin in meat industry robotics sales. Scott's share of the 50% joint venture with Silver Fern Farms (RTL) has produced a profit up $0.264m to $0.264m. Taking account the loss from the NSL Australia, the meat industry joint venture, this reduces to a profit gain of $0.250m. Actual result from the meat industry showed 'all revenues' up 256%, but off a low base. Note 26 in the results shows RTL revenue up from $0.293m to $9.689m, which is an increase of 3200%. Work farmed out by the joint ventures to the Scott Technology parent is not included in that combined joint venture $0.250m profit. Work done for JBS in Australia is not included either. So this is why 'real' meat industry revenues, across all of SCT, 'only' increased by 256%. Nevertheless that is substantially more than I was expecting, even if the increase in profitability with such a large increase in revenue may still be within the ballpark of my +$1.490m 'profit adjustment' prediction, based on a 120% increase in business. This could mean that

1/ My assumed 15% gross profit margin was too high (real margin closer to 8%). OR
2/ Some of the work being tackled is still 'work in progress' (part of revenue is not yet billed) OR
3/ Some of the work has been distributed around the new production facilities in Australia, which has increased my assumed production costs, and consequently reduced profits.

OR perhaps a combination of 1,2 and 3?

Appliance sector revenues were up 48%. That was a surprise. This is an increase from $13.606m to $20.137m. Sounds impressive, although I note this is well below the $28.828m of revenue from FY2014. I was assuming a $1m decrease in profitability for appliances over FY2016. But let's assume the actual result profitability was the same as last year.

No mention specifically on Machinery and Robotics (MAR) in Australia, so I will assume my steady as she goes annualised assumption is correct. I am also assuming it is 'steady as she goes' for Robotworx in the USA and the the Rocklabs business based from NZ.

Put all those corrections into my profit forecast table and what happens?

AmountDescriptionCalculation

$4.725mBaseline Profit FY2015

+$0.628mNet Interest Improvement(Actual Result)

+$0.226mHTS-110 elimination of losses$2.1m x 0.15 x 0.72

+$1.490mMeat industry Robotics (incremental)($15m-$1.201m) x 0.15 x 0.72

$0.000mAppliance Production LinesBased on steady YOY profit result

+$1.075mMAR sales annualisation adjustment (sales steady)$1.236m-$0.161m

$8.144mTotal Estimated Actual NPAT Breakdown

Actual profit for the year was $8.134m (after tax). So I am picking I am not too far off base with those 'year to year' changes. There are 74.681m SCT shares now on issue. So historical 'eps' is

$8.134m / 74.681m = 10.9cps

At a share price of $2.10, SCT is sitting on an historic PE ratio of:

210 /10.9 = 19.3

Of course we need to recognise that all of this information is now historical. Nevertheless 19.3 means SCT is very much 'priced for growth'. The question now is, can SCT meet the market expectations for this growth? I think it is possible. But I also think the implied increase from the much crowed about upscaled meat industry robotics expansion is disappointing to date. The Mr Market value at $2.10 looks fair. I won't be either increasing nor decreasing my SCT holding on the basis of this result.

SNOOPY

discl: hold SCT

sb9

14-10-2016, 10:47 AM

Thanks Snoopy for your detailed analysis.

littletramp

14-10-2016, 11:39 AM

This is a whole new ball game compared to SCT of the past. They are cashed up, ambitious with regional and global expansion plans in place, rich in Intellectual Property and expertise, should enjoy currency tailwinds now and for the forseeable future, and the board/decison makers are showing vibrance in their governance and direction. IMHO SCT looks poised to become a significant force in a market sector with real scope in the modern world. A good start by the new management and from an investors perspective it was pleasing to see the dividend/ growth balance. Appreciate hearing any other opinions.

Snoopy

14-10-2016, 04:22 PM

This is a whole new ball game compared to SCT of the past. They are cashed up, ambitious with regional and global expansion plans in place,

I might argue that 'cashed up' and 'with regional and global expansion plans in place' is a good description of Scott's position since it listed in the 1990s!

It is only in recent times, with the acquistion of Robotworx (USA) and MAR (Oz) that the balance sheet has been looking strained. Now fixed of course with the cash issue. Scott's need a strong balance sheet, because they need to be able to fund projects with a time lag from many months to one to two years between 'receiving an order' and 'delivery and payment'. In this business having access to plenty of cash is a necessity. 'Ambitious' I will grant you, although Scott's have been 'pushing the limits' in engineering terms right back to the early production systems days.

rich in Intellectual Property and expertise,

...with the key point being they now have the financial capital to leverage their intellectual capital. As you say though Littletramp, very dependent on having engaged skilled employees to push the barrow.

should enjoy currency tailwinds now and for the forseeable future,

That comment has been made before too. I remember the self appointed advisor to the Minister of Finance, Graham Marsh (ex SCT chairman) standing up at an AGM suggesting that GST should be variable and raised periodically to constrain consumer demand to give exporters some relief, rather than use the blunt tool of using higher reserve bank interest rates. The idea might have even worked. Yet the dollar just keeps going up. Scott's are somewhat insulated from currency these days by having capability in other non NZD home domiciled markets in which they operate.

and the board/decison makers are showing vibrance in their governance and direction.

So far the only home run hit by the board has been the Rocklabs acquisition. And my understanding is that Rocklabs found the SCT board, not the other way around. SCT have been involved in various other high technology ventures that, although technologically sound, (the automated milking system and superconductive electromagnets come to mind), have shown no return for shareholders as yet! However, fire a gun off in all sorts of directions and eventually you will hit the target. I would describe the board as more 'scattergun' than 'directional' in approach! Not that this is necessarily a bad thing.

Meat industry Robotics has been a pie in the oven 'long time cooking'. Whether when finally dished up to shareholders that pie contains gravy remains to be seen. It has been good for the employment of engineers though.

SNOOPY

littletramp

14-10-2016, 04:47 PM

Appreciate the feedback Snoopy.

Snoopy

14-10-2016, 04:58 PM

Some solid growth and backed by even stronger cash flow and balance sheet. 5.5c fully imputed final divvy

Half year surplus was a NPAT of $2.096m. Full year profit was $8.134m. So 2HY2016 profit was $6.038m.

$6.038m / 74.681m = 8cps

However, long term shareholders will know that SCT earnings tend to be lumpy. So the fact that SCT was able to reward shareholders with a juicy final dividend of 5.5c per share may owe as much to good luck as good management.

As for the exceptionally strong cashflow, I am picking the $40.369m injection of new capital from the cash issue might have had something to do with it! Take out that and cashflow is negative $6.125m for the year. However, with such a strong cash pile waiting for investment, an underlying negative cashflow is not a problem, for now.

SNOOPY

Under Surveillance

15-10-2016, 01:55 PM

Half year surplus was a NPAT of $2.096m. Full year profit was $8.134m. So 2HY2016 profit was $6.038m.

$6.038m / 74.681m = 8cps

However, long term shareholders will know that SCT earnings tend to be lumpy. So the fact that SCT was able to reward shareholders with a juicy final dividend of 5.5c per share may owe as much to good luck as good management.

As for the exceptionally strong cashflow, I am picking the $40.369m injection of new capital from the cash issue might have had something to do with it! Take out that and cashflow is negative $6.125m for the year. However, with such a strong cash pile waiting for investment, an underlying negative cashflow is not a problem, for now.

SNOOPY
Grateful for the products of your rummagings, Snoopy.

If you check you'll find H1 NPAT was $1.948m [page 4 2016 Half Year Report], making H2 6.186M.

SCT earnings certainly do tend to be lumpy. There is lumpiness from year to year. And there is lumpiness within each FY. In each of the last 8 FYs, the biggest lumps within the year have fallen in H2. Indeed over the 8 years the average ratio of NPAT H2:H1 is 2.6:1. In FY 2016 the ratio was 3.2:1, and in FY 2015 4.3:1. The lowest ratio was 1.3:1, in FY2013. I offer no explanation as to why H2s are relatively so profitable year in year out (and I'm not sure that it matters for long term holders so long as the auditors are satisfied).

I think your comments on underlying cash flows being negative are a wind up. Paying off debt to zero is not an ongoing activity.

sb9

25-10-2016, 05:03 PM

https://nzx.com/companies/SCT/announcements/291423

Bolt in another acquisition into mix from across the ditch...sweet!!!

sb9

04-11-2016, 11:46 AM

Fellow SCT holder on the forum, any thoughts on recent weakness and big seller at current 195 level. I know general market sentiment is weak and also liquidity an issue for this scrip.

Snoopy

04-11-2016, 07:11 PM

Fellow SCT holder on the forum, any thoughts on recent weakness and big seller at current 195 level. I know general market sentiment is weak and also liquidity an issue for this scrip.

It is interesting that 7000 shares at $1.95 is thought of as a 'big seller'. But for SCT it's true! SCT closed at $1.87 today, down 6.5% - but still cum a 5.5c dividend. To me $1.87 looks closer to fair value. It looks like the recent share price peak was $2.24. So at $1.87, we are down 17% from that peak. Nevertheless we shareholders are still showing a good gain for the year, even with the latest decline. The only company specific thing I can think of is the exchange rates. We are pretty strong against Oz which is where the most growth is. Getting high against the USD too. Of course SCT do hedge their contracts once won. So don't expect any flow through from adverse exchange rates in the near future. But sometimes markets look out further than that!

SNOOPY

Snoopy

02-12-2016, 10:15 AM

As usual when the AGM (for 2015) is held in Dunedin, the Otago daily Times covers it well.

http://www.odt.co.nz/news/business/364855/jbs-australia-gains-control-scott-tech

The Christchurch based 2016 AGM meeting, held at the Maces Road workshops, opened with the usual health and safety briefing, and the instruction "in the event of an earthquake sit tight." The usual apologies, the most notable being new board member Andre Nogueira, CEO of JBS North America and Australia, were made. Chairman McLauchlan introduced the rest of the board and senior staff and asked if any members of the media were present. 'Stunned silence' was the result: a disgrace for the NZ media in general I thought. So it looks like my own private report will be the only write up (bar regurgitation of the press release) that shareholders will get!

I won't regurgitate the press releases myself. Instead I will concentrate on the shareholder questions, the tour of the workshop by the site manager, and tit bits from the senior staff I spoke to over a glass of wine post meeting.

I was pleased to hear that number one on CEO Chris Hopkins investment priorities was people. The Maces Road workshop was strangely silent, with even the site manager saying that the current workload was a little lighter than ideal. Nevertheless the AGM announcement of another new production line order worth $6m from North America will soon have things humming again. Working hours at Maces Road are from 7am to 3:30pm, with overtime if required finishing by 5:30pm. Special permission is reqiured from higher up the management chain if workers are required to be engaged for longer hours than that. I guess this generally means 'no traffic jams' for employees and the chance to get back home when their secondary school children return from school. Mention was made of the loyal but ageing workforce during the walkabout. Middle aged people are less inclined to view 'work travel', for site installations, as a bonus. So a real push is being made to reinvigorate the workforce with young blood. Mechatronics graduates, a combined electro-mechanical discipline that didn't exist until a few years ago are being targeted. Sometimes Scotts lose these people to the big OE, but often they come back. According to the Maces road manager, the staff reinvigourment program is working.

A shareholder commented on the lack of recognition of senior staff in the annual report. In other companies the senior managment got their picture and at least a small write up in acknowledgement. "Point taken" said Chairman Maclauchlan and resolved to fix it.

The main job in progress in the Maces Road workshop was a large order of presses for Indonesia, for manufacturing shipping pallets out of recycled plastic bags. Scotts are much more open to sub contracting these days, having not rebuilt their Maces Road staff up to previous levels attained before the last appliance market downturn. But really heavy engineering like this is done in Christchurch, because Christchurch won a worldwide tender to build these items. Yes, Christchurch was cheaper than China for the manufacture of eight identical units! I love the back story behind this particular 'heavy duty press' project. Apparently someone was busy stuffing plastic bags inside a sandwich toasting machine and cooking them (no I don't understand the mentality behind it either). The result was a slightly globby plastic brick, and the same person thought " I wonder if I can use this?" Fast forward to the shipping pallet industry. 'Globby platic' recycled bricks are fed into a stamping press and at the touch of a button, a plastic shipping pallet is produced. In the past pallets have been made of wood, tended to be 'one use', and carried the threat of 'bug incursion' in the wood from their country of origin. Plastic pallets do not contain a bug incursion threat and are reusable!

A shareholder questioned the 'no comment' on the annual report and addresses on the Milktech robotic milking system. CEO Hopkins replied that it was still in its development phase and taking longer to develop than expected. Little progress had been made over what has been a near 18 month hiatus, but conversely few resources had been committed during the year, with most creative attention being focussed at Meat Industry proicessing. Hopkins admitted one option was cancellation of the Milktech project. But he quickly added that all new ventures like this were constantly subject to the business case being re-evaluated and stacking up, so the final destiny of Milktech really is undecided.

Meat processing was unsurprisingly a big focus for shareholder questioning. A shareholder asked why, when around $40m worth of new capital raised, the head count in Dunedin - the home of meat industry robotics - had only increased by four people? Andrew Arnold, the chief meat industry development man, answered that during the year Scotts had built and delivered three X-ray and Primal Cutting Machines and four Middle Section machines. Yes he was happy with that output, a record for the company. And yes he had all the people he needed and the other resources he needed to keep output at that level. I found out later that the much touted expansion of the Kaikouri road workshop in Dunedin had not happened, and that the increase in staff was more likely to reflect a growth in office positions than on the floor development and manufacturing positions. Hats off then to Andrew Arnold and his team who achieved 'record meat industry sales', without the deployment of any of that new JBS cash or more staff!

I continue to be surprised as to how long the 'product development' to 'sales', 'meat industry robotics' timeline is. The X-ray Primal and Middle system announced at the AGM as an order for a New Zealand customer had been eight years in the making! Separate to that, the new Chinese partners in Silver Fern Farms have been out in New Zealand inspecting the SFF Finegand plant in Central Otago. After the tour, I was reliably informed they went back to pay particular attention to the automated lamb boning room! Despite being a partner with Scotts since the early days of meat industry robotics, SFF has been somewhat 'lazy in pace' in adopting this technology themselves. But with Chinese cash now bolstering the formerly stretched SFF balance sheet, readers can join the dots. The other partner with Scotts in Meat industry robotics that doesn't get much of a mention is 'NS Innovations', the joint venture with Northern Co-operative Meat Company of Australia. The problem here is that the champion for the technology inside the Northern Co-operative has left the business. So things have ground to a virtual standstill. This highlights how importance the personal relationships are, despite apparently compelling economics, in getting meat industry robotics projects off the ground. It is often the smaller unlisted sometimes family controlled firms that see the benefits and don't have the corporate bureaucratic systems to navigate that get this market leading technology installed first!

Unlike other Christchurch AGMs, Senior management and directors were in no hurry to rush away and catch the last flight back to Dunedin. It turns out they were staying in town for a dinner to commemorate the retirement of Rocklabs General manager Ross Garrick, himself down from Auckland for his last AGM as an employee. This speaks volumes for the camaraderie of the board and the senior management team. The JBS boys too, on the board, have fitted right in to the SCT friendly but no nonsense business culture at board and senior management level. Everyone seems to get on and the vibe was overwhelmingly positive for the future. Good to see.

SNOOPY

sb9

02-12-2016, 10:28 AM

Thanks for your reporting of ASM snoopy, did read the presentation docs, looks very positive.

Marilyn Munroe

02-12-2016, 11:53 AM

Snoopy

02-12-2016, 12:19 PM

The chairman or managing director(can't remember which) during their presentation said they are increasingly being asked if their lamb processing technology can be adapted to handle cattle or pigs

Boop boop de do
Marilyn

Interesting you should mention this Marilyn. I was curious as to why the transition from the 'automated lamb boning room' to the 'automated beef boning room' is taking so long. Both are four legged ruminants, with four legs and a 'middle section'. A lamb is 'so big' so the machinery to handle it is 'so big'. A calf is 'sooo big'. So all you have to do is to design machinery 'sooo big' to match right?. I figured this out in my shower one evening. So I was surprised that all those boffins at Scott Technology in Dunedin apparently couldn't see it. But it turns out things are not quite so simple.

The problem is that lambs are strung up and processed as a 'whole animal', while cows and pigs are hung up and priocessed as 'half animals'. My guess is that this is because:

1/ of the physical size difference of the different kinds of carcases, and the practicality of human handlers being able to 'handle' the sheer size of the 'assembled' and 'dismembered' product. AND
2/ for 'packing reasons'. Transport half carcases of beef means that the same truck can transport far more animals in much less space.

The whole point here is that picking up and processing a 'cow carcase' is not the same as just scaling up the same job on a 'lamb carcase'. Where does the robot hold it? How is the carcase balanced when it is being handled? The good thing is, when these questions are answered for beef cattle, it shouldn't take nearly as long to adapt the robotics to pig processing. Pigs are also processed in halves.

I think only prototype testing for beef is scheduled for the FY2017 financial year. So I don't have any great expectations for the further expansion of 'meat industry robotics' in FY2017. The prize when Scotts do finally figure out the 'automated beef boning room' will be very large though. Apparently there are studies out there that show that with accurate cutting to avoid waste, and direction to achieve exactly the right cuts of meat, the potential increase in value of each individual beef caracse will be as much as $13 per animal! Think of those big meat plants in Australia where thousands and thousands of beef cattle are slaughtered each year and you can see why JBS are now on board with Scotts!

SNOOPY

percy

02-12-2016, 12:25 PM

Interesting you should mention this Marilyn. I was curious as to why the transition from the 'automated lamb boning room' to the 'automated beef boning room' is taking so long. Both are four legged ruminants, with four legs and a 'middle section'. A lamb is 'so big' so the machinery to handle it is 'so big'. A calf is 'sooo big'. So all you have to do is to design machinery 'sooo big' to match right?. I figured this out in my shower one evening, so I was surprised that all those boffins at Scott Technology in Dunedin couldn't see it. It turns out things are quite so simple.

SNOOPY

This post must be this year's Share Trader "Classic of The Year."
I will not comment further about thinking of boners while in the shower, for fear of being banned.!!.lol.

Snoopy

02-12-2016, 12:49 PM

This post must be this year's Share Trader "Classic of The Year."
I will not comment further about thinking of boners while in the shower, for fear of being banned.!!.lol.

Left myself wide open for that one, eh Percy! I sure you are right though. It was the shortage of showers 'at work' at Scott's Dunedin Kaikouri Valley road home that arrested their product development!

SNOOPY

percy

02-12-2016, 12:52 PM

Left myself wide open for that one, eh Percy! I sure you are right though. It was the shortage of showers 'at work' at Scott's Dunedin Kaikouri Valley road home that arrested their product development!

SNOOPY
I am sure you are right??..!!!..lol.

Sideshow Bob

02-12-2016, 05:26 PM

The chairman or managing director(can't remember which) during their presentation said they are increasingly being asked if their lamb processing technology can be adapted to handle cattle or pigs

Boop boop de do
Marilyn

PS: Nibbles afterwards were of the usual high standard

I think Scott's are doing some work on beef, and would make sense with JBS as majority shareholder. However I think there are some fully automatic pig plants out there.

ace5715

02-12-2016, 09:23 PM

Thanks for the update Snoopy.

Did they mention who the North American appliance customer was?

Snoopy

03-12-2016, 03:03 PM

Thanks for the update Snoopy.

Did they mention who the North American appliance customer was?

No specific North American customer was mentioned in either the Chairman's or CEO's address Ace. No-one asked for more details at question time either. My recollection is that SCT usually don't reveal their customer, even if they did with the sale of the manufacturing lines to "RANGE INTERNATIONAL" (Australia) on September 27th 2016. I guess the US market is more competitive and US Appliance Makers don't want their competitors to know what they are up to?!

SNOOPY

kiwidollabill

06-12-2016, 03:05 PM

Very small in the grand scheme of things but anyone notice that Tye Husheer is no longer down as CEO of HTS-110? Doesnt have a good track record with small tech companies.

sb9

08-12-2016, 01:07 PM

Very small in the grand scheme of things but anyone notice that Tye Husheer is no longer down as CEO of HTS-110? Doesnt have a good track record with small tech companies.

Excuse my ignorance for this question, but does your post relate to Scott Tech, if so in what way?

kiwidollabill

08-12-2016, 02:39 PM

Excuse my ignorance for this question, but does your post relate to Scott Tech, if so in what way?

Scott Tech owns HTS-110

sb9

09-12-2016, 08:55 AM

Scott Tech owns HTS-110

Ahh...thanks for that.

sb9

03-02-2017, 10:39 AM

Interesting trade depth this morning, any thoughts from fellow holders??

Snoopy

03-02-2017, 10:27 PM

Interesting trade depth this morning, any thoughts from fellow holders??

If you tell us what you found 'interesting', maybe we can comment?

SNOOPY

sb9

03-02-2017, 10:53 PM

If you tell us what you found 'interesting', maybe we can comment?

SNOOPY
Well, if you looked at trade depth at time of my post, you would know what I meant 'interesting'.

Large spread between bid and ask which changed during course of trade later on.

Well, my point was that there's something in the air as it often happens with tightly held stock like SCT, Was expecting some sort of (positive) announcement from company looking at today's trade pattern.

Hope it helps.

Snoopy

03-02-2017, 11:04 PM

Well, if you looked at trade depth at time of my post, you would know what I meant 'interesting'.

Large spread between bid and ask which changed during course of trade later on.

Well, my point was that there's something in the air as it often happens with tightly held stock like SCT, Was expecting some sort of (positive) announcement from company looking at today's trade pattern.

Hope it helps.

I am happy to ride this one a bit higher. But as a long term holder, and with the much vaunted ramp up in meat processing going slower than anticipated, I can't help thinking that we are in slightly overvalued territory. It looks like we are pushing through four year highs in terms of share price.

Then again with that spare capital on the books SCT may be on the brink of announcing a 'game changing' acquisition? I can't help thinking that the board must be under some 'institutional imperative' pressure to spend that money. Will they buy the right thing? At least with Mark Waller, the master acquisitor for Ebos, on the board, they have a fighting chance of making a good decision.

SNOOPY

percy

04-02-2017, 07:05 AM

You are right about Mark Waller.
He will not be a party to any acquisition that does not add real value.
Never has,never will.

ace5715

07-03-2017, 04:00 PM

sb9

08-03-2017, 11:29 AM

Anyone know what is going on with the Scott Tech share price? Up 13c or 5.2% on volume of 95,158 today. Up 38c since the 22nd of February and approaching highs not seen since 2013.

Over valued now? Or something happening that hasn't been announced yet.

Been an interesting month or so if you look at trading pattern over that timeframe.

One or two things I'm speculating, someone has got wind of some news or JBS looking to take full control of the company.

May be Snoopy has some view or any other fellow holders.

Snoopy

08-03-2017, 11:28 PM

Anyone know what is going on with the Scott Tech share price? Up 13c or 5.2% on volume of 95,158 today. Up 38c since the 22nd of February and approaching highs not seen since 2013.

Over valued now? Or something happening that hasn't been announced yet.

On a projecting today's earnings forwards method, $2.60 is looking on the high side for a fair valuation. But maybe I am missing a 'step change' going forwards? Mention was made in the AGM address about the emerging use 'collaborative robots'. No numbers were given, so I didn't think much of it. But I went to the 'Robotworx' subsidiary website and found this:

https://www.robots.com/articles/viewing/market-projections-suggest-incredible-collaborative-robot-growth

A few words from this article:

"The global robotic market consists of a wide range of technologies that are advancing at light speed paces and expecting huge growths. This is especially seen within the collaborative branch. The collaborative robot market is expecting an incredibly high growth rate over the next few years. It is expected to grow at a compound annual growth rate of 60.04% between 2016 and 2022, from 110 million USD in 2015 to 3.3 billion USD in 2022."

A 60% growth rate over six years is incredible. Granted this is for the 'collaborative robot market (robots working alongside humans)' not the whole robotics market. Yet I wonder if 'collaborative robot sales' are starting to match the hype?

Meanwhile, looking at the whole robot market

https://www.robots.com/blog/viewing/global-predictions-for-robotics-in-2017

"The research that IDC (International Data Corporation) brings to the robotic world holds very exciting and promising information; it reassures the well known fact that the robotics world has grown considerably over the past several years and will continue to do so. The market is showing an estimated 17% compound annual growth rate and a value that will reach around $135 billion by 2019."

In addition, Trump's plans to put more manufacturing jobs back into the USA look good for Robotworx. Not sure if this really explains the jump in SCT share price. But it all helps!

SNOOPY

Snoopy

09-03-2017, 09:10 AM

On a projecting today's earnings forwards method, $2.60 is looking on the high side for a fair valuation. But maybe I am missing a 'step change' going forwards?

Have done some more internet trawling and found the website below.

https://www.scottautomation.com/

This is the old 'Machinery Automation and Robotics' website in Australia, now rebranded as 'Scott Automation and Robotics'.

The news section there lead me to the 'AUSPACK' website, where Scott is currently participating in this biennial exhibition.

http://www.auspack.com.au/exhibition/exhibitor-list/

You can find 'Scott' in the alphabetical listing.

Once again there is a strong emphasis on 'Co-operative Robots' or 'Cobots'. Emphasis is made on their usefulness to small manufacturers. So maybe 'Scott Automation and Robotics' won't be so badly affected by various large profile manufacturing shut downs, headlined by the Australian media, as I feared?

Once again Scott's are promoting heavily their meat processing abilities. This is odd because I would have thought that with JBS as a cornerstone shareholder, Scott's already had a ten year pipeline of jobs in Australia that would tie up all of their capability in this market sector.

SNOOPY

sb9

09-03-2017, 09:40 AM

percy

09-03-2017, 11:22 AM

Thanks Snoopy for your insight.

Looking at lower NZD against USD and AUD, could be bit of tailwind for SCT and hence the stock has been rerated perhaps....

In any case, very happy holder and manufacturing is still alive and kicking in NZ at least in SCT's case, not a dead duck!!!

Always pleased to be proved wrong.
With the share price up 84.40% in the past year, shareholders are [currently]having the last laugh.!

Marilyn Munroe

09-03-2017, 02:34 PM

<speculation type="wild">Maybe the Mandarins from Shanghai who now run Silver Fern Farms are willing to sell their share of the meat processing joint venture. This will clear a path for a rationalisation of JBS interest in meat processing technology and SCT. JBS are contemplating an IPO of their non Brazilian interests. Automation of meat processing might be just the thing the lead managers of such a float need to get the numpties holding mandates over our KiwiSaver funds act with irrational enthusiasm.</speculation>

Boop boop de do
Marilyn

kiwidollabill

09-03-2017, 02:51 PM

Was fortunate enough to see the new primal cutting setup Alliance group has installed. Very impressive gear and results have been positive so I have been told.

Snoopy

09-03-2017, 10:36 PM

Divisional Profit (NPAT)Explanation

Robotworx USA$0.817m(From FY2014 acquisition year)

I have concluded that 'Robotworx' just might be the hidden star in the FY2017 results. But how much might they make? If you look at the segmented results for FY2016 (note 27b, AR2016), I believe that 'Robotworx' is part of 'Americas Manufacturing.' No doubt the Dallas Texas based service facility results are rolled up into this market segment too.

The 'cleanest' figures to be found in the annual report are from AR2014 under section 23f titled "Impact of Acquisitions on the Results of the Group.' The following quote is from that section:

"Included in the Group financial statements is revenue of $2.6 million and a net profit after tax of $492,000 attributable to the additional margin generated by RobotWorx, and revenue of $113,000 and a net loss after taxation of $69,000 attributable to the purchase of Applied Sorting Technologies Pty Limited."

"Had these acquisitions been effected at 1 September 2013, the revenue of the Group from continuing operations would have been approximately $67 million, and the profit for the year after taxation and non controlling interests from continuing operations would have been $3.25 million."

I have rearranged this information (and other information from the income statement) into a more useful tabular form below.

FY2014RobotWorxApplied Sorting TechnologiesOtherTotal

NPAT (Operating) & Controlling Interests$0.492m-$0.113m]$2.546m$2.925m

FY Annualising Correction for Net Profit$0.325m(e)$0m (e)$0m$0.325m

Total$0.817m$3.250m

Acquisition Price$9.004m$1.292m

There was no break down given as to how much each new acquisition unit would have contributed to profit. However, because:

1/ the price paid for 'RobotWorx' was close to ten times that paid for 'Applied Sorting Technologies' AND
2/ 'Applied Sorting Technologies' was not profitable during the holding period we know about.

I have assumed that all of the incremental profit, had both units been owned for all the financial year FY2014, would have come from RobotWorx. An assumption is indicated in the table by the letter 'e' in brackets following an assumed figure. (e) means 'estimate'.

This table shows how I calculated the NPAT for RobotWorx in FY2014, the $0.817m that I previously published. In FY2015 the segmented results were reclassified and 'Americas Manufacturing' showed a total profit of $0.325m. This is below the $0.429m booked by RobotWorx on its own. So it follows that the other 'Americas Manufacturing' business units must have been loss making overall in FY2014. This seems realistic, because the Dallas Branch is really a service centre that has the job of seeing that the appliance production system lines built in NZ and China run smoothly after their installation in the United States. So it is probably a net cost for SCT to run the Dallas branch.

I used the $0.817m same figure in my FY2017 NPAT estimate for RobotWorx profit, as I had assumed no growth for three years. But if real profit growth has followed predicted industry revenue growth (17% compounding per year) then I expect I have underestimated profits from RobotWorx for FY2017.

So what is the actual RobotWorx profit for FY2017 likely to be? Try this:

$0.817m x 1.17 x 1.17 x 1.17 = $1.309m

SNOOPY

Snoopy

10-03-2017, 12:33 AM

MAR stands for 'Machinery Automation and Robotics', the Australian business acquired by Scott Technology in FY2015. This company has now been rebranded 'Scott Automation and Robotics'. SCT paid out $14.224m for this company. That is around $5m more than they paid for 'RobotWorx'. So as a shareholder I would hope MAR contributes significantly to the profitability of SCT going forwards.

The results of MAR are submerged in the Segmental Analysis of 'Australasia Manufacturing'. This business unit includes all the Meat Processing Robotics made in Dunedin, the Material Mining Equipment made by Rocklabs and the Appliance Production Lines manufactured in Christchurch and the HTS Electromagnets made in greater Wellington. This results in a collection of results so jumbled, it is impossible to assess how well MAR is doing.

The purest MAR figures we have can be found in AR2015, under section 23 'Acquisition of Subsidiaries and Businesses'. Quoting from that section:

"Included in the Group financial statements is revenue of $13 million and a net profit after tax of $161,000 attributable to the additional margin generated by MAR. Had this acquisition been effected at 1 September 2014, the revenue of the Group from continuing operations would have been approximately $80 million, and the profit for the year after taxation and non controlling interests from continuing operations would have been approximately $6 million."

These figures can be used to help draw up a 'before acquisition' and 'after acquisition' profit table comparison.

FY2015MAR
OtherTotal

NPAT (Operating) & Controlling Interests$0.161m$5.952m$6.113m

FY Annualising Correction for Net Profit-$0.113m$0m-$0.113m

Total$0.048m$6.000m

Acquisition Price$14.224m

The net result of the transaction then is that shareholders shelled out just over $14m to reap a mere $48k profit. Expressed in another way, the investment yield on MAR in the year it was acquired was:

$0.048m / $14.224m = 0.34%

0.34% represents just $3.40 of profit for every $1,000 of outlay. Putting that same money in the bank at 3% interest would earn nearly ten times that amount! Can anyone explain why SCT management would have agreed to this transaction and bought such an apparent dog?

It would appear from the limited information in the FY2015 annual report that at the time of purchase no meaningful profit from MAR was being made (or will ever be made?)

SNOOPY

Snoopy

10-03-2017, 05:14 PM

MAR stands for 'Machinery Automation and Robotics', the Australian business acquired by Scott Technology in FY2015. This company has now been rebranded 'Scott Automation and Robotics'.

<snip>

The net result of the transaction then is that shareholders shelled out just over $14m to reap a mere $48k profit. Expressed in another way, the investment yield on MAR in the year it was acquired was:

$0.048m / $14.224m = 0.34%

0.34% represents just $3.40 of profit for every $1,000 of outlay. Putting that same money in the bank at 3% interest would earn nearly ten times that amount! Can anyone explain why SCT management would have agreed to this transaction and bought such an apparent dog?

It would appear from the limited information in the FY2015 annual report that at the time of purchase no meaningful profit from MAR was being made (or will ever be made?)

Have gone back to the SCT 14th December 2014 announcement about the MAR acquisition.

"We have completed our due diligence on MAR and will now work toward signing the agreement and finalising the transaction with a target settlement date of 31 January 2015. The transaction has a value of 13 million Australian dollars, subject to final adjustments, and is expected to contribute to the bottom line from day one."

I remember reading this in period and thought it sounded good. But "to contribute to the bottom line from day one" just means it is making money, which must be more than the cost of the debt incurred to buy it.

How much was SCT paying on that $14.224m debt facility in those days? According to note 15 'Bank Facilities' in AR2014 (31st August 2014) the interest rate being charged was 5.94% for the NZ part of the loan. That reduced to 5.31% in AR2015 (31st August 2015). I will go with the higher rate as that is closer to the period leading up to 30th January 2015, when the MAR settlement was signed.

0.0594 x $14.224m = $0.845m

This means the underlying MAR must have been making in the region of that amount if Scott management were not lying. So what reduced the actual profit in FY2015 to just $0.045m? Maybe MAR shelled out $800k to some high powered consultants to evaluate the Scott's offer, thus cutting their earnings for the year to virtually nothing?

SNOOPY

Snoopy

11-03-2017, 10:32 AM

Can anyone explain why SCT management would have agreed to this transaction and bought such an apparent dog?

To partially answer my own question, here is a quote from the FY2015 Annual Report

-------

23(e) Goodwill Arising on Acquisition

The consideration paid for the acquisition of the MAR business effectively included amounts in relation to the benefit of expected synergies, revenue growth, current product development and knowhow, future marketing development and its assembled workforce. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured and they do not meet the definition of identifiable intangible assets.

-------

When Scott's was independently valued during the JBS takeover, zero value was assigned to:

1/ The company's joint venture development subsidiaries (because they had been financially engineered to make no profit) AND
2/ Intellectual property, the patent portfolio in particular.

I wonder if MAR was in a similar situation?

In effect there was product development at the Sydney MAR HQ in the pipeline that will likely have serious economic value going forwards, but had not created any profit to date. SCT recognised this and were prepared to pay what looked like an 'over the odds' price for MAR to a casual observer.

Then were have this excerpt from Scott's 30-01-2015 press release

-------

About the Potential

MAR’s strengths in electrical, programming and controls, complements SCOTT’s strengths in mechanical design and vision.

-------

What Scott's are saying here is that combining Scott Technology with MAR is a case of 1+1=3. Paying 'over the odds' for MAR at the time was not as stupid as it looked.

SNOOPY

Snoopy

11-03-2017, 11:06 AM

Well that was a clanger of a recommendation wasn't it? 'Buy only on weakness', below $1.42, and the price has increased steadily to $2.18! Yet maybe not so bad as there was a period between December 2015 and mid March 2016 when SCT shares were available sub $1.40. I hope some of you out there got some. The 2016 result has not yet been released. But it is already history, and it is now time to turn our attention to FY2017.

Divisional Profit (NPAT)Explanation

Superconductor Magnets$0m(Increased sales offset by costly new HQ)

Meat Industry Robots$6.400m(20% NPAT margin on $32m sales, equiv 4 big installations)

Appliance Production Lines$2.099m(Mirror of FY2013 segment result based on $16.3m turnover)

Mining Services$2.981m(Adjusted from FY2014 segment result based on $17m turnover)

Robotworx USA$0.817m(From FY2014 acquisition year)

Interest From Cash Balance$0.630m(based on 3.5% taxed at 28%)

less Head Office Costs($3.500m)(Unallocated FY2014 costs +30%)

Total$9.427m(addition)

With 74.788m shares on issue this gives a projected 'eps' of 12.6cps

At $2.18, SCT is on a projected PE ratio for FY2017 of 17.3.

That sounds reasonable, although there must be some execution risk and currency headwinds (we have really gone up against Australia) to overcome. So maybe the huge run up in share price made by Mr Market is justified? I guess time will tell!

More information is available subsequent to the FY2016 result being declared. I will add to that my own sleuthing on likely contributions from RobotWorx and MAR earlier this month. So what is my best guess for the outlook for SCT over FY2017 now?

Divisional Profit (NPAT)Explanation

Superconductor Magnets$0m(Increased sales offset by costly new HQ)

Meat Industry Robots$6.400m(20% NPAT margin on $32m sales, equiv 4 big installations)

Appliance Production Lines$2.099m(Mirror of FY2013 segment result based on $16.3m turnover)

Mining Services$2.981m(Adjusted from FY2014 segment result based on $17m turnover)

RobotWorx USA$1.309m(From my post 593)

MAR Australia$0.845m(From my post 595)

Interest From Cash Balance$0.739m(based on 3.0% of $34.244m taxed at 28%)

less Head Office Costs($3.515m)(Unallocated FY2015 costs)

Total$10.858m(addition)

(Note: I have used FY2015 heads office costs are these are not corrupted by the JBS takeover one off effects.)

With 74.788m shares on issue this gives a projected 'eps' of:

$10.858m / 74.788m = 14.5cps

At $2.60, SCT is on a projected PE ratio for FY2017 of:

$2.60 / $0.145 = 17.9

A PE of 17.9 generally implies a 'growth premium'. Given:

1/ the long pipeline of JBS work ahead (provided the proven lamb carcass robotics can be successfully adapted to beef), AND
2/ the continued progress of the superconductive magnet business, which should eventually make a contribution to the bottom line.

THEN that $2.60 share price looks reasonable, if no longer a bargain. There is still the possibility of a capital return too, if management can't find a good use for the proceeds of their last capital raising. I still can't think of another growth share, except perhaps Skellerup, listed on the NZX that I would rather own.

SNOOPY

discl: hold SCT and SKL

okay

15-03-2017, 09:56 AM

JBS in the news today, another acquisition:

In fresh deal news, shares of Brazil's JBS rose, up 2.5% in afternoon trading in Sao Paulo, after the world's top meat processor says it has agreed to buy US-based Plumrose, which produces ham and bacon, for $US230 million.

The acquisition, a deal between JBS USA and Danish Crown, includes five prepared foods facilities located in Indiana, Iowa, Mississippi and Vermont and two distribution centres located in Indiana and Mississippi, JBS says in a securities filing.

"The acquisition of Plumrose is a continuation of JBS' strategy of expanding its portfolio of branded, high value prepared foods, and strengthens its customer base and geographical distribution in the United States," JBS says.

sb9

15-03-2017, 10:04 AM

Schrodinger

15-03-2017, 11:20 AM

THEN that $2.60 share price looks reasonable, if no longer a bargain. There is still the possibility of a capital return too, if management can't find a good use for the proceeds of their last capital raising. I still can't think of another growth share, except perhaps Skellerup, listed on the NZX that I would rather own.

SNOOPY

discl: hold SCT and SKL

Being a SKL SH this comment amused me. Not sure of your definition of growth stock but Skellerup is definitely not one. If you want to be generous an extended 5yr historical graph would illustrate the point.

Under Surveillance

15-03-2017, 03:34 PM

Being a SKL SH this comment amused me. Not sure of your definition of growth stock but Skellerup is definitely not one. If you want to be generous an extended 5yr historical graph would illustrate the point.
I agree.

Snoopy loves to get up to his armpits in detail, and is very generous in posting the products of his diligent work. Whether the downside is loss of perspective is a matter of opinion.

Last September, in his post #549, he told us he had trimmed his SCT holding at an average of 210 to remove risk from the table. Now, on no company announcements of substance, but a rising share price, he thinks 260 is about right.

Snoopy bagged HBL all the way down to 43, and all the way up to 163. Meantime, as well as applying tests to HBL, he posted extensive comparisons between HBL and ANZ, HBL and TNR, etc. For all of that work he has rigidly failed to see value in HBL.

I hold SCT, SKL, HBL and TNR (and others).

Snoopy

15-03-2017, 06:52 PM

Being a SKL SH this comment amused me. Not sure of your definition of growth stock but Skellerup is definitely not one. If you want to be generous an extended 5yr historical graph would illustrate the point.

If you look back in the SKL thread, I did quite a bit of work before I bought in a couple of years ago and decided it was a 'growth share'. Then after last years somewhat disappointing result I decided it was a 'dividend share'. This flip flop had no financial implication for me as I only paid 'dividend share' prices for SKL and figured the growth would be free. As it has turned out (so far), the reason for the growth being 'free' was because there wasn't any! However, when I said SKL was a 'growth share', all of this was not what I was referring to. I was referrig to my reading of ten yeras of SKL annual reports, understanding where they had been and understanding where they want to get to. In my assessment the transformational SKL 'growth plan' is still credible. Of course, if you only looked at what has happened to the SKL share price you would not see this. What you would you see is the result of big slumps in the dairy and iron ore markets, two key sectors where SKL operate. But the fundamental strategy of relocating production of mature products to low cost Vietnam, and rebuilding the factory that makes the high tech stuff at Wigram in Christchuch remains. Commodity markets cycle and dairy and iron ore are coming back. So I expect demand for the SKL products to eventually turn and the share price, in the end, to reflect that.

Eighteen months ago you could have looked at the SCT share price chart, seen it was at five year lows and walked away. As it turned out, that turned out to be a strategically catestrophic decision, as the share price has subsequently risen about 80%. I don't believe that the SKL share price will rise 80%. I do expect it to be rerated though. Effectively I am calling it a 'growth share' in advance of the share price rise, just as I did with SCT.

SNOOPY

Baa_Baa

15-03-2017, 07:13 PM

Who cares about SKL here, take it to the appropriate thread.

SCT on the other hand has had a boomer past 12-18 months after a sustained bad patch since Feb 2013. Might be a bit toppy now though.

Snoopy

15-03-2017, 07:29 PM

Last September, in his post #549, he told us he had trimmed his SCT holding at an average of 210 to remove risk from the table.
Now, on no company announcements of substance, but a rising share price, he thinks 260 is about right.

I usually don't post definitive valuations in the sense that I always qualify those with the assumptions behind them. The $2.10 valuation assumed no growth in 'Robotworx' since acquisition and no profit from 'MAR' (my post 548). I changed the earnings forecasts for both of those divisions to come up with the $2.60 valuation. Depending on which assumptions you think are correct, depends on what valuation you accept as better.

Just to clarify the sequence of events....

The rising SCT share price to $2.60 was a catalyst for me to look further, as it could be a sign that 'Mr Market' knew more than I did. It was after this that I discovered the inconsistent information of the profitability of MAR, and the information of the general growth profile of the industrial robotics market. I decided a higher SCT valuation could be justified after that. I did not consider the mere fact that the SCT share price had risen to $2.60 as sufficient in itself to change my own valuation to about $2.60.

Far from trying to hide my change of valuation, I emphasised it by quoting the first valuation, and the building blocks that made it, as the quoted text in my second valuation (post 597). So the changes are right there for all to see.

SNOOPY

PS I don't regret taking some risk capital off the table at $2.10.

percy

15-03-2017, 07:48 PM

Fascinating reading.......lol.

Baa_Baa

15-03-2017, 09:02 PM

I usually don't post definitive valuations in the sense that I always qualify those with the assumptions behind them. The $2.10 valuation assumed no growth in 'Robotworx' since acquisition and no profit from 'MAR' (my post 548). I changed the earnings forecasts for both of those divisions to come up with the $2.60 valuation. Depending on which assumptions you think are correct, depends on what valuation you accept as better.

Just to clarify the sequence of events....

The rising SCT share price to $2.60 was a catalyst for me to look further, as it could be a sign that 'Mr Market' knew more than I did. It was after this that I discovered the inconsistent information of the profitability of MAR, and the information of the general growth profile of the industrial robotics market. I decided a higher SCT valuation could be justified after that. I did not consider the mere fact that the SCT share price had risen to $2.60 as sufficient in itself to change my own valuation to about $2.60.

Far from trying to hide my change of valuation, I emphasised it by quoting the first valuation, and the building blocks that made it, as the quoted text in my second valuation (post 597). So the changes are right there for all to see.

SNOOPY

PS I don't regret taking some risk capital off the table at $2.10.

From a TA perspective, which I know you're not into, but nevertheless, SCT has over shot the 12 month uprising trend line by quite a few clicks and faltered at 2.60, so 2.20 would be a baseline TA viewpoint for a retrace, which is a smidge above your FA. It depends only on what the market thinks, in terms of capital value, 2.25 looks like decent buyer support as well.

sb9

16-03-2017, 07:58 AM

For what its worth, I think Snoopy's input and analysis is invaluable. You just have to use it in the manner that's right for you...

Schrodinger

16-03-2017, 09:50 AM

If you look back in the SKL thread, I did quite a bit of work before I bought in a couple of years ago and decided it was a 'growth share'. Then after last years somewhat disappointing result I decided it was a 'dividend share'. This flip flop had no financial implication for me as I only paid 'dividend share' prices for SKL and figured the growth would be free. As it has turned out (so far), the reason for the growth being 'free' was because there wasn't any! However, when I said SKL was a 'growth share', all of this was not what I was referring to. I was referrig to my reading of ten yeras of SKL annual reports, understanding where they had been and understanding where they want to get to. In my assessment the transformational SKL 'growth plan' is still credible. Of course, if you only looked at what has happened to the SKL share price you would not see this. What you would you see is the result of big slumps in the dairy and iron ore markets, two key sectors where SKL operate. But the fundamental strategy of relocating production of mature products to low cost Vietnam, and rebuilding the factory that makes the high tech stuff at Wigram in Christchuch remains. Commodity markets cycle and dairy and iron ore are coming back. So I expect demand for the SKL products to eventually turn and the share price, in the end, to reflect that.

Eighteen months ago you could have looked at the SCT share price chart, seen it was at five year lows and walked away. As it turned out, that turned out to be a strategically catestrophic decision, as the share price has subsequently risen about 80%. I don't believe that the SKL share price will rise 80%. I do expect it to be rerated though. Effectively I am calling it a 'growth share' in advance of the share price rise, just as I did with SCT.

SNOOPY

Yes agree thanks for the reply. I know its not easy but SKL has to further diversity its product line so the dairy/ore cycles dont impact it like it currently does. There are dairy booms going on outside NZ which should counter the NZ side but I am thinking they are buying from other companies. I wont derail this thread anymore=).

sb9

22-03-2017, 04:26 PM

More accumulation today in decent chunks...

1
3
4:03:36 pm
255
50,000
$127,500
Off Market

2
2
2:29:59 pm
250
100,000
$250,000

3
1
10:03:04 am
255
150,000
$382,500
Off Market

Snoopy

24-03-2017, 07:03 PM

SCT has had a boomer past 12-18 months after a sustained bad patch since Feb 2013. Might be a bit toppy now though.

Sold some more of my shares today at $2.60. The problem was I have been 'too successful' and SCT became my third biggest NZX holding and worth a ridiculous amont in dollar terms (given the typically low trading volumes). Given this normally difficult liquidity (although there has been much buying interest in recent days), I have decided to 'sell into strength' and, in the process, reduce my average SCT holding price to just 33c. This makes SCT near enough to an 'eight bagger' for me in just capital terms at today's $2.60 closing price. Add in the dividends over the years and my returns are significantly greater than that. I am now back to holding the same number of shares I did nine years ago, so even though pleasing, the exercise was hardly an overnight success.

So how did I do it? Not with buy and hold. My main method was to support all the capital raisings at depressed prices (and then some) over the years. Then when the share price recovered and the dividend yields correspondingly reduced I sold down back to the level I had before the capital raising. I repeated that exercise two or three times. I have never been out of SCT completely in nearly twenty years (for the first ten years my holding was quite small) and have recovered from an early position where on paper I had lost half my capital. Coming back from that, for SCT to be - I think - my biggest NZX success (in percentage terms) is very satisfying.

I can see the SCT share price rising above $2.60 in the medium term. I said in post 597, I thought that SCT was 'fair value' at $2.60. But if you read through that valuation, there are some quite aggressive assumptions which by selling today I will bank. Expanding that meat industry robotics division, I believe, is now limited by personnel. And the fact that the 'fullly automated beef boning room' (the holy grail) is still a development project means profits from that are not there. This is despite the fact that SCT's controlling shareholder has a ten year pipeline of work, just in Australia, when the technical hurdles are overcome. I am not sure that all shareholders realise this 'meat industry growth engine' is short term limited. The rest of the business is notoriously cyclical and I think in the medium term better dividend returns will be found for me elsewhere.

There is still the possibility of a game changing acquisition too. But SCT have a mixed record with acquisitions, so I wouldn't (and never have) banked on those.

My problem is, even after my share sale today, SCT is still my third biggest NZX holding (shows how overweight I had become)! So if the share price continues to improve I may yet have to sell some more :-(.

SNOOPY

discl: Hold SCT and disappointed, yet relieved, to have sold some down.

sb9

25-03-2017, 08:51 PM

Marilyn Munroe

27-03-2017, 10:10 AM

Snoopy

27-03-2017, 06:30 PM

Nice one snoops, good on ya for locking in some profits. I probably would've done the same if I'm in that situation as well. Hey but am happy with my 70% odd gain since mid last year or so, not too shabby isn't it...:) however my holding is bit modest compared to your oversized position.

<snip>

Anyway, sorrry to digress from SCT but thought it would be nice to share few good stories of mine.

Well done again on your nice gains....you deserve them :t_up:

Investors are always quick to let you know of their success, but are often not so forthcoming about their losses. Here is my less happy prequel to my SCT success story. The capital that formed most of my investment in SCT came when I sold some Air New Zealand Shares around the time that Ansett collapsed. I think it was just before Helen Clark and Michael Cullen bailed Air NZ out. That little exercise cost me half my capital that I had invested in Air New Zealand. So when I eventually reinvested what was left in SCT and it halved again, I began to entertain the theory that maybe it was 'cursed capital' that I was doomed to lose. I had lost 3/4 of my 'Air NZ' capital at that point!

Ultimately the 'capital curse' must have lifted as over the next ten years or so my formerly cursed rump multiplied eight times over. But the net result of all of this was that my capital multiplied four times over twenty years (plus dividends). That is still a good result, but nothing like the outperformance of eight times over ten years, which is the impression I gave from reading only the Scott Technology chapter of this investment story!

SNOOPY

Snoopy

28-03-2017, 09:47 AM

SCT substantial shareholder JBS entangled in meat quality scandal back in home country Brazil.

http://www.economist.com/news/business/21719416-chile-china-and-eu-have-banned-some-or-all-countrys-meat-meat-scandal-brazil

JBS parent owns JBS USA
JBS USA owns JBS Australia
JBS Australia majority owns Scott Technology

I hope this means that SCT is far enough away from the JBS axis of troble in Brazil for things here to carry on as normal.

What is of more concern to me is the ever present cloud of 'excess capital' at SCT (the indirect result of JBS insisting on a 50.1% controlling stake as a condition of the capital raising) and the directors at SCT looking to deploy that money by making an acquisition that demonstrates how clever they are. While Mark Waller is on the board, I don't think this will happen. But maybe with JBS's latest attempt to rasie funds (the partial float of JBS USA) derailed by the Brazilian beef scandal, at least for now, JBS might push SCT to make a pro-rata capital return to all shareholders. If that happened it would finally put to bed any 'game changing grand scheme' the current board might have. Then the board could get on with managing the promising portfolio of businesses that they already have! And that IMO would be no bad thing.

SNOOPY

sb9

31-03-2017, 10:53 AM

1
6
10:32:16 am
265
433,411
$1,148,539
Off Market

winner69

06-04-2017, 08:59 AM

Solid half year result
https://www.nzx.com/files/attachments/256226.pdf

'Well positioned' / 'positions' us mentioned 3 times - that's good and should add a few cents to the share price

No mention of 'profit after tax' - that's bad on will raise the ire of Roger

All those new shares saw EPS fall from 4.5 cents last year to 3.3 cents this year - that's OK

Snoopy

06-04-2017, 03:13 PM

Solid half year result
https://www.nzx.com/files/attachments/256226.pdf

'Well positioned' / 'positions' us mentioned 3 times - that's good and should add a few cents to the share price

It did. Shares up 7c today.

No mention of 'profit after tax' - that's bad on will raise the ire of Roger

It may not have been mentioned in the press release, but it was in the accounts:

Net profit after tax was $2.887m for HY2017, up 48% from the $1.948m HY2016 figure. I guess a 50% rise in earnings before tax sounds better than a 48% rise in earnings after tax?

All those new shares saw EPS fall from 4.5 cents last year to 3.3 cents this year - that's OK

We have to allow things to bed in to the new capital structure.

SCT earnings certainly do tend to be lumpy. There is lumpiness from year to year. And there is lumpiness within each FY. In each of the last 8 FYs, the biggest lumps within the year have fallen in H2. Indeed over the 8 years the average ratio of NPAT H2:H1 is 2.6:1. In FY 2016 the ratio was 3.2:1, and in FY 2015 4.3:1. The lowest ratio was 1.3:1, in FY2013. I offer no explanation as to why H2s are relatively so profitable year in year out (and I'm not sure that it matters for long term holders so long as the auditors are satisfied).

If we use U.S's eight year average 'half year on half' year adjustment, then we can estimate the full year profit as:

$2.887m + (2.6 x $2.887m)= $10.393m

$10.393m / 74.680m shares = 13.9c full year eps

At $2.87, SCT is on a projected PE ratio of:

287/ 13.9 = 20.6

Value? You be the judge.

SNOOPY

Snoopy

06-04-2017, 03:27 PM

Under Surveillance

06-04-2017, 03:51 PM

If we use U.S's eight year average 'half year on half' year adjustment, then we can estimate the full year profit as:

2.6 x $2.887m = $7.506m

$7.506m / 56.123m shares = 13.4c full year eps

At $2.87, SCT is on a projected PE ratio of:

287/ 13.4 = 21.4

Value? You be the judge.

SNOOPY

The current number of shares issued is 74,680,754. Has been so since 14 April 2016.

sb9

06-04-2017, 04:01 PM

https://www.nbr.co.nz/article/scott-technology-sweet-spot-says-ceo-hopkins-b-201612

winner69

06-04-2017, 04:21 PM

Snoopy

It may not have been mentioned in the press release, but it was in the accounts

It being NPAT

It wasn't a press release - it was an announcement to the NZX, the headline stuff that punters read. Yes the accounts were filed separately but not all punters bother with those.

I only pointed it out that recently the FMA expressed concern about companies announcing 'profit' numbers which differed from the NPAT shown in the proper accounts. All the FMA was wanting was a consistent approach by all companies.

SCT - a minor indiscretion but we'll forgive them a little bit because they didn't try to normalise things

winner69

06-04-2017, 04:27 PM

The current number of shares issued is 74,680,754. Has been so since 14 April 2016.

So snoops numbers should be projected eps of 10 cents a share - at 287 a forward looking PE of 28.7

Snoopy also said - Value? You be the judge.

Under Surveillance

06-04-2017, 05:19 PM

So snoops numbers should be projected eps of 10 cents a share - at 287 a forward looking PE of 28.7

Snoopy also said - Value? You be the judge.
No, as Snoopy fouled up the application of the H2:H1 ratio, and should have added his $7.506m to the $2.887m, so getting $10.393m.

Dividing $10.393m by the 74.681m shares gives a prospective NPAT of 13.9 cps and a prospective PE at 287 of 20.6.

As to value at 20.6, I reckon it might be there. Depends on Waller staying on the board, and the JBS directors keeping the acid on for the full exploitation of SCT's opportunities.

Over the last 12 months [H2 1016 and H1 2017] NPAT has been $9.073m, and Hopkins says SCT is in a sweet spot, so with $32m of cash sitting idle there will be few excuses if recent growth wanes.

Under Surveillance

06-04-2017, 05:24 PM

Does anyone know what progress there has been on the mooted doubling in size of SCT's premises on Kaikorai Valley Road?

Snoopy

08-04-2017, 01:39 PM

Does anyone know what progress there has been on the mooted doubling in size of SCT's premises on Kaikorai Valley Road?

Not sure if matters if the extension is built if there are no new industrial robotics employees to boost production. Andrew Arnold said they were happy with current staffing Kaikouri Valley at 2016 AGM time. After the meeting I cornered the said Mr Arnold. He said they hadn't taken on any new staff in the industrial robotics team in Dunedin since all the JBS new capital rolled in. That was 3.5 months ago.

SNOOPY

Under Surveillance

11-05-2017, 05:23 PM

The euphoria/madness which saw the SCT price scorch up to touch 326 (before the 4 cent dividend) seems long gone.

Transactions today were (for SCT) at a frantic volume, 74 trades. However the total shares crossed were a mere 8,701. Someone is working like a navvy to prop the price up.

sb9

20-06-2017, 03:29 PM

https://nzx.com/companies/SCT/announcements/302837

Details re expansion of existing facilities and acquisition of DC Ross which is in receivership.

Lewylewylewy

20-06-2017, 09:15 PM

Earnings accreditive or increasing capacity?

Sideshow Bob

20-06-2017, 10:37 PM

Earnings accreditive or increasing capacity?

Would expect main reason is space, and manufacturing capacity/ability, as close to their HQ. Can't see it being earnings accreditive when they were in receivership, owing I think $19m.

sb9

21-06-2017, 09:47 AM

Earnings accreditive or increasing capacity?

Well, market release says increasing capacity basically and nothing about earnings....Guess if they're increasing capacity demand must be strong for their products. Which means better earnings going forward, that's how I read it but then again being a holder I'm bit biased to look at positive side of things.

percy

21-06-2017, 09:53 AM

I read it as very positive.
They are buying equipment and most importantly "staff" very cheaply.
It is not an act of charity.

sb9

21-06-2017, 10:30 AM

https://www.nbr.co.nz/article/scott-technology-buys-dunedin-engineering-firm-dc-ross-out-receivership-b-204348

More from NBR...not pay walled.

kiwidollabill

21-06-2017, 12:00 PM

Yea, just buying the gear. Maybe a few of existing supply contracts will come with it (but DC Ross was highly exposed to the Australian auto industry).

Snoopy

21-06-2017, 02:54 PM

Yea, just buying the gear. Maybe a few of existing supply contracts will come with it (but DC Ross was highly exposed to the Australian auto industry).

SCT are paying $500,000 for the assets of 'DC Ross' and creditors the BNZ and Aorangi Laboratories are owed a combined $18.1m? That is one hell of a haircut for 'DC Ross' creditors. I looked at the deal and thought that the real asset was the twelve skilled staff. $500,000 could be less than Scott's might pay a recruitment agency to find such skilled staff, people that Scott's will need as they gear up their Kaikouri Valley site. Take out the staff and it looks like Scott's has acquired the DC Ross business for nothing! It doesn't take much new business to create a spectacular return on equity result from a business acquisition like that!

SNOOPY

kiwidollabill

21-06-2017, 03:46 PM

SCT are paying $500,000 for the assets of 'DC Ross' and creditors the BNZ and Aorangi Laboratories are owed a combined $18.1m? That is one hell of a haircut for 'DC Ross' creditors. I looked at the deal and thought that the real asset was the twelve skilled staff. $500,000 could be less than Scott's might pay a recruitment agency to find such skilled staff, people that Scott's will need as they gear up their Kaikouri Valley site. Take out the staff and it looks like Scott's has acquired the JC Ross business for nothing! It doesn't take much new business to create a spectacular return on equity result from a business acquisition like that!

SNOOPY

I think Aorangi Laboratories is an entity owned by the family shareholders of DC Ross. So yea, a pretty big haircut. Think some of the senior DC Ross staff also had skin in the game....

sb9

27-07-2017, 11:53 AM

Hello..anyone notice big crossing as below, also at higher price of $3.40 a piece.

6
3
11:29:07 am
340
482,000
$1,638,800
Off Market

sb9

09-10-2017, 02:53 PM

FY results should be out anytime now, price tracking well as reflected on trading depth.

HITMAN

13-10-2017, 07:16 AM

A pretty strong result.

2017 Full Year Announcement4:02pm, 12 Oct 2017 | FLLYR12 October 2017
RE: SCOTT TECHNOLOGY LIMITED 2017 FULL YEAR ANNOUNCEMENT
Highlights
2017 2016
Revenue $132.6m +18% $112.0m
Net surplus before tax $14.9m +35% $11.0m
Cash flow from operating activities $13.4m $16.1m
Net cash / (overdraft) $26.7m $34.2m
Shareholder equity $97.2m $94.6m
Final dividend - fully imputed 6.0 cps 5.5 cps
Full year dividend 10.0 cps 9.5 cps

sb9

13-10-2017, 09:56 AM

A pretty strong result.

2017 Full Year Announcement

4:02pm, 12 Oct 2017 | FLLYR

12 October 2017
RE: SCOTT TECHNOLOGY LIMITED 2017 FULL YEAR ANNOUNCEMENT
Highlights
2017 2016
Revenue $132.6m +18% $112.0m
Net surplus before tax $14.9m +35% $11.0m
Cash flow from operating activities $13.4m $16.1m
Net cash / (overdraft) $26.7m $34.2m
Shareholder equity $97.2m $94.6m
Final dividend - fully imputed 6.0 cps 5.5 cps
Full year dividend 10.0 cps 9.5 cps

Exactly, another solid performance from a quiet performer. Well Done SCT and Team.

HITMAN

16-10-2017, 10:06 AM

Awesome to see the jump today, is it going to get to $4

sb9

09-11-2017, 10:16 AM

Awesome to see the jump today, is it going to get to $4

Getting close to that magical $4 mark....can it be lower for a lil while until the DRP price is determined as I've opted for the DRP :)

What a quiet achiever, marching along nicely. Can't believe this my second biggest gainer in my portfolio behind ATM.

Snoopy

09-11-2017, 02:33 PM

Getting close to that magical $4 mark....can it be lower for a lil while until the DRP price is determined as I've opted for the DRP :)

What a quiet achiever, marching along nicely. Can't believe this my second biggest gainer in my portfolio behind ATM.

Why does the DRP exist sb9? Have you thought about that?

IMV Scott Technology has far too much capital. Indeed CEO Hopkins said that if they couldn't find a good use for the capital raised as a result of bringing JBS on board, they would return capital to shareholders. So it makes no sense to me to be raising more capital at this time ......unless.....there is a really big acquisition about to be announced that management are not at liberty to reveal!

Maybe all will become clear at the AGM?

SNOOPY

sb9

09-11-2017, 03:24 PM

Why does the DRP exist sb9? Have you thought about that?

IMV Scott Technology has far too much capital. Indeed CEO Hopkins said that if they couldn't find a good use for the capital raised as a result of bringing JBS on board, they would return capital to shareholders. So it makes no sense to me to be raising more capital at this time ......unless.....there is a really big acquisition about to be announced that management are not at liberty to reveal!

Maybe all will become clear at the AGM?

SNOOPY

Snoops, guess you answered your own question as per my highlighted bit in your response.

Sure management have aspirations to grow further supported by strong balance sheet. Let's wait and see what their plans are either thro' NZX releases or updates at ASM.

Snoopy

06-12-2017, 11:56 AM

Sure management have aspirations to grow further supported by strong balance sheet. Let's wait and see what their plans are either thro' NZX releases or updates at ASM.

The meeting opened with around fifty shareholders attending. A strong share price rally from the JBS capital raising time in early 2016 (price then $1.39) to $3.70 today made for a positive vibe. As customary, Chairman Stuart McGlauchlan announced the recently inked contracts: $21m of new business. But one good month does not a boom year make. Perhaps more indicative of relative future prosperity is the next twelve months of foreign exchange purchases that represent ‘deals in the bag’. AR2017, section D1, shows these up 32% to $24.976m. Yet I believe the best encouragement for future business comes from those senior managers (almost all of them) not at the AGM - because they were away negotiating new deals. Alan Prince from the Christchurch Maces Road site did attend, and the banter was “he is allowed one day off.”

Over ‘after meeting eats’, I discussed with senior management the segmentation of results into ‘Australasian Manufacturing’, ‘Americas Manufacturing’ and ‘Asia and Europe Manufacturing’. The current segmentation was vigorously debated at senior management level and may not be perfect. The puzzling Asia/Europe link can be explained by following the career path of appliance line manufacturing guru Ken Snowling. From heading Maces Road Christchurch, Ken oversaw the development of Scott Technology in China. Now he may be found bedding in Scott’s new European headquarters in Germany. The latest $17.5m of appliance line jobs will be manufactured in China. Europe and New Zealand. This clearly crosses market reporting segment boundaries. But Christchurch, China and Germany have always been associated with Appliance Line Production work. So the linking Asia and Europe is not such a surprise.

The AGM presentation publicity photo (slide 14) shows a smiling Cathy Smart, Scott’s first Chinese born (?) head, leading a train of happy employees. Two children holding the Scott’s banner at the head of the train are extended family. Chairman McLauchlan was quick to point out that Scott’s support family values, not child labour!

Further in the ‘post match discussion’, I asked about the absent director Andre Noguiera, who only attended two of the six board meetings held. Being head of JBS USA, Andre obviously has wide JBS group responsibilities. But the real benefit of having Andre on the board is the direct connection to JBS operations in the Americas. Having managed JBS Australia for a year on his way up in 2012, Andre is very aware of the detail of the day to day detail of running the Australasian division.

The Dunedin Kaikouri valley base will be doubled in size with earthworks starting early in CY2018. Construction will be managed by now unretired pensioner Graham Batts, a former managing director of Scotts and most recently a retired non executive director. Jobs for the boys? It was Graham who planned the move to Kaikouri valley in earlier years (completed in 2008) and had the foresight to build the new HQ such that future expansion was possible. There is no-one better qualified to fulfill the ultimate expansion plan. Dunedin is where most of the meat industry robotics systems have been built.

Eleven lamb boning systems have been delivered throughout Australasia. Ireland is most likely the next untouched lamb boning market. But internationally, lamb processing is a niche industry. Beef processing is of most interest to controlling shareholder JBS. JBS’s first plant processing beef sides is now working at JBS Dinmore in Queensland. Beef processing automation has a great future throughout the Americas and Europe, both inside and outside JBS. Pork and Chicken processing are areas where robotic expertise will be expanded. Indeed, a $3.5 million order from the United States for an X-Ray Pork Primal Cutting system was announced at the AGM. The key intellectual property (IP) that makes these developments superior is Scott’s DEXA (Dual Energy X-ray Absorptiometry) system. This not only allows a precision cut to be made in exactly the right place in each individual carcass. It can also simultaneously calculate meat fat and bone ratio – or lean meat yield.

Scott’s has on the balance sheet $26m of ‘excess capital’ (amounting to 33.5cps). Thirty acquisition targets were considered over the year. But only a couple, with the ability to significantly enhance an existing business unit or seriously disrupt it are still under active consideration. The ‘institutional imperative’ suggests that if a business has money in the bank they will spend it. Thankfully Scott’s is showing a much more disciplined approach to utilising shareholder cash. More opportunities will come up. Yet after the meeting, it was made clear to me that returning excess capital to shareholders was very much a continuing option.

Question time, and a shareholder asked about the absorption of two separately registered associated companies into the parent ‘Scott NZ Limited’ fold.

1/ Scott Milktech Limited, developing automated cow milking technology, was 61% owned. Is the former 39% equity partner still involved? Answer: No. Scott’s have bought out the former development partner to assume 100% ownership.

2/ HTS-110 Limited, the super-conductive magnet business, has made two high profile international installations ( one to a major US pharmaceutical company and another neutron and X-ray analysis tool into Germany – the sixth there). Yet revenue for the year was down nearly 50% (AR2017, p34). Should we shareholders be worried? Answer: No. This kind of variation in business is not inconsistent with the nature of HTS-110. It is part of the overall balanced business mix where not every Scott business unit does well every year.

A second shareholder railed against the Fisher Funds sell down of Scott shares around ‘JBS capital reconstruction time’ in early 2016. The missed opportunity of the ensuing capital gain has proved a disastrous misjudgment for Fisher Funds stakeholders, he pointed out. This same shareholder praised the reintroduction of the dividend reinvestment plan . Particularly that JBS and other independent directors and senior managers showed confidence in the future direction of Scotts by reinvesting with it.

Following the meeting, the workshop was opened up to all-comers prepared to wear safety glasses. My diversity observation of the day was that there was at least one woman in overalls in the workshop – good to see. There were two ‘active projects’ to inspect.

1/ The “Bladestop” safety bandsaw gave we shareholders a working demonstration. It works via the operator wearing a wire belt around their waist. This completes an electrical circuit should any part of the operator’s body touch the blade. An air actuated cylinder can fire off the brake that halts the saw blade in 9 milliseconds. A back up camera system that senses the operator mandated blue gloves provides a back up switch. Fingers and tendons will be saved.

2/ Development for a new manufacturing technique for LED lights. Essentially a high pressure plastic welding system, the job was to connect the soft printed circuit board that flashed the LED light to the plastic lens that cover it. The previous manufacturing process used an ultimately unwanted plastic sheet manufacturing by product which, if it didn’t come free, could contaminate the finished LED unit. Productivity gains plus less waste equals good business.

Finally it was time to adjourn back to the food and drink spread, and Scott’s did not disappoint. There were crumbed fish bites , mini spring rolls, mini meatballs on the end of a toothpick ready for the tomato sauce dip and a varied array of gourmet club sandwiches.
As for the drinks, what kind of wine would you like? Or beer? I don’t know if it was the time of day (4pm) or the audience. But the orange juice ran out first.

SNOOPY

sb9

06-12-2017, 12:09 PM

Nicely summarised there snoops, very invaluable input.

Jerry

27-01-2018, 09:39 PM

What was the $1.36M off-market trade on Friday all about? :ohmy:

sb9

21-02-2018, 10:21 AM

https://www.nzx.com/announcements/314520

Another nice strategic acquisition, good stuff...

Snoopy

26-02-2018, 04:12 PM

More information is available subsequent to the FY2016 result being declared. I will add to that my own sleuthing on likely contributions from RobotWorx and MAR earlier this month. So what is my best guess for the outlook for SCT over FY2017 now?

Divisional Profit (NPAT)Explanation

Superconductor Magnets$0m(Increased sales offset by costly new HQ)

Meat Industry Robots$6.400m(20% NPAT margin on $32m sales, equiv 4 big installations)

Appliance Production Lines$2.099m(Mirror of FY2013 segment result based on $16.3m turnover)

Mining Services$2.981m(Adjusted from FY2014 segment result based on $17m turnover)

RobotWorx USA$1.309m(From my post 593)

MAR Australia$0.845m(From my post 595)

Interest From Cash Balance$0.739m(based on 3.0% of $34.244m taxed at 28%)

less Head Office Costs($3.515m)(Unallocated FY2015 costs)

Total$10.858m(addition)

(Note: I have used FY2015 heads office costs are these are not corrupted by the JBS takeover one off effects.)

With 74.788m shares on issue this gives a projected 'eps' of:

$10.858m / 74.788m = 14.5cps

At $2.60, SCT is on a projected PE ratio for FY2017 of:

$2.60 / $0.145 = 17.9

A PE of 17.9 generally implies a 'growth premium'. Given:

1/ the long pipeline of JBS work ahead (provided the proven lamb carcass robotics can be successfully adapted to beef), AND
2/ the continued progress of the superconductive magnet business, which should eventually make a contribution to the bottom line.

THEN that $2.60 share price looks reasonable, if no longer a bargain. There is still the possibility of a capital return too, if management can't find a good use for the proceeds of their last capital raising. I still can't think of another growth share, except perhaps Skellerup, listed on the NZX that I would rather own.

I like to review last year’s predictions, before working out where I think profits will be going in FY2018. The headline NPAT figure for FY2017 was $10.265m. But to get the underlying net profit, I have added on the following adjustment:

0.72 x($0.001m -$0.001m -$0.269m - $0.143m) -$0.936m - $0.073m = -$1.306m

Explanations for the six items that form the complete my normalising adjustment are in order as follow

1/ Fair value losses on firm commitments ($0.001m, p31)
2/ Fair value gains on derivatives held as fair value hedges ($0.001m, p31)
3/ Foreign Exchange Gains ($0.269m, p31)
4/ Unrealised fair value gains on foreign exchange derivatives ($0.143m, p31)
5/ Fair value gain on purchase of business (reflecting inventories plant and equipment of DC Ross purchased at less than market value) ($0.936m, p30, assumed not taxable)
6/ Gain on sale of property plant and equipment ($0.073m, p30, assumed not taxable)

‘Adjusted Net Profit After Tax’ is therefore: $10.265m – $1.306m = $8.959m

My prediction last year was $10.858m, so what went wrong? It is impossible to say for sure. That’s because I was making my profit predictions based on the profits in different ‘industry sectors’. ‘Industry sector’ profits are no longer reported. The following observations may prove useful though (page numbers referenced from AR2017).

1/ Assumed head office costs $3.515m. Actual head office costs $4.985m.

2/ Assumed appliance line turnover $16.3m. Actual appliance line turnover $26.308m. Have I underestimated Appliance line revenue and hence profits? Turnover is not necessarily related to profitability because workloads above normal can be farmed out to subcontractors which increases costs and reduces profits.

3/ Assumed meat industry robotics turnover $32m. Actual turnover $39.581m. Possible underestimate of profits assuming a 20% margin: $1.516m

4/ Assumed Mining Services turnover $17m. Actual mining services turnover $26.461m. Possible underestimate of profit $1.659m.

5/ Assumed superconductor magnet sales: $3.335m+. Actual sales $1.747m. Together with the increased costs of a brand new bigger and brighter head office, this division could have made a substantial loss (my predictive assumption was $0m profit) that wiped out all the increased profits from meat industry robotics and mining services.

6/ Assumed Interest earned from cash balance $0.739m. Actual interest earned $0.664 x 0.72 = $0.478m

I note that the difference between observations and reality of item1 and 6 only is a NPAT difference of: -$1.470m -$0.261m = -$1.731m. This accounts for almost all of the difference between what I predicted and what actually occurred.

SNOOPY

Snoopy

26-02-2018, 04:21 PM

https://www.nzx.com/announcements/314520

Another nice strategic acquisition, good stuff...

The acquisition of the Alvey Group in Europe has been treated favourably by the market. But what difference will this make in ‘earnings per share’ terms? Unlike other substantive purchases over the last few years, no new shares have been issued as a result of the takeover. The purchase was made from cash reserves. At balance date these were $26.7m. Take away the cash paid for Alvey Group and the cash reserves left on Scott’s books are:

$26.7m – (12.1euro/0.6) = $6.5m

We know that $0.664m (after tax) was the cashflow earned on this balance over FY2017. So post purchase, the annual interest earned is likely to come down in proportion:

$0.664m x ( $6.5m/$26.7m ) = $0.162m

This will lead to a reduction in annual NPAT of:

$0.664m - $0.162m = $0.502m

Now we know what is likely to be lost. But what is the concomitant gain NPAT gain from the Alvey purchase? There isn’t enough information in the press releases to know this for sure. But I can make an educated guess.

Alvey’s last year’s annual revenue was $56.5m. That price represented an EBITDA multiple of approximately 4.5 times. So EBITDA for Alvey’s most recent year must have been:

$56.5m / 4.5 = $12.5m

To calculate the NPAT of the acquisition under Scott’s ownership, we need to subtract the ‘ITDA’ bits from this. Let’s do that.

‘I’ (Interest payable): Because the Alvey purchase was made by cash, the ongoing interest bill associated with the purchase is zero
There is no information on Alvey’s depreciation or amortisation bills. But because the business looks like a smaller version of Scott’s, (combining intellectual property and spread international manufacturing facilities), I have decided to treat it as a small version of Scott’s and work out the depreciation and amortisation by scaling the Scott figures in proportion to the revenue of both companies before the merger.

‘D’ (Depreciation ) for Scott’s was $1.694m. Scaling according to company revenue, I estimate the annual depreciation at Alvey to be:

$1.694m x ($56.5m/$132.5m) = $0.722m

‘A’ (Amortisation) for Scott’s was $1.293m. However, on closer inspection, almost all of this ($1.261m) was a result of amortizing the recently acquired ‘Bladestop’ technology. IMO it is not reasonable to assume that Alvey has similarly spent a large amount of money on externally acquired intellectual property which must be similarly amortised. If I remove the ‘bladestop adjustments‘ from Scott’s accounts, I get a representative amortisation for Alvey of :

($1.293m - $1.261m) x ($56.5m/$132.5m) = $0.014m

So now we have enough information to calculate EBT for Alvey.

EBT = EBITDA –I –D –A = $12.5m - $0m - $0.722m - $0.014m = $11.764m

Assuming a New Zealand tax rate of 28% (Note: this is likely a wrong assumption, but I don’t want to make an uninformed guess about EU tax rates and tax subsidies that may exist), I get an incremental NPAT for the soon to be Scott owned Alvey of:

$11.764m x 0.72 = $8.470m

This is the kind of gain in net profit after tax I would expect once it is bedded in, and I must say it looks very juicy!

SNOOPY

Snoopy

26-02-2018, 04:28 PM

We know that $0.664m (after tax) was the cashflow earned on this balance over FY2017. So post purchase, the annual interest earned is likely to come down in proportion:

$0.664m x ( $6.5m/$26.7m ) = $0.162m

This will lead to a reduction in annual NPAT of:

$0.664m - $0.162m = $0.502m

<snip down to underlying Alvey profitability>

$11.764m x 0.72 = $8.470m

This is the kind of gain I would expect once it is bedded in, and I must say it looks very juicy!

If we add to this the underlying profitability of Scott Technology today, I get an underlying profitability for the combined ‘Scott’ and ‘Alvey’ group of:

$8.959m -$0.502m + $8.470m = $16.927m

This projection assumes no profit growth or decline from either company.

I do not expect the Scott Technology result for FY2018 to be this high, because Alvey will have only been owned for part of FY2018. Nevertheless I believe this figure is representative of the ongoing profitability of the group and should be used to assess value ahead of whatever the actual FY2018 result turns out to be.

With 74.681m shares on issue, Scott/Alvey should have ‘eps’ figures of:

$16.927m / 74.681m = 22.7cps

With a share price of $3.50, this means Scott’s is currently trading on a projected PE of:

$3.50/ 0.227 = 15.4

Note that this projection does not include the expected future ramp up of Meat Industry Robotics work to be done in association with major shareholder JBS. Compared to some of the sky high valuations on the market at the moment and with much growth to come, something around $3.50 is looking reasonable

SNOOPY

sanctus671

05-04-2018, 06:38 PM

What's your thoughts on the half year result released today, Snoopy?

Snoopy

06-04-2018, 04:13 PM

Net profit after tax was $2.887m for HY2017, up 48% from the $1.948m HY2016 figure. I guess a 50% rise in earnings before tax sounds better than a 48% rise in earnings after tax?

We have to allow things to bed in to the new capital structure.

If we use U.S's eight year average 'half year on half' year adjustment, then we can estimate the full year profit as:

$2.887m + (2.6 x $2.887m)= $10.393m

$10.393m / 74.680m shares = 13.9c full year eps

At $2.87, SCT is on a projected PE ratio of:

287/ 13.9 = 20.6

Value? You be the judge.

SNOOPY

What's your thoughts on the half year result released today, Snoopy?

Net profit after tax was $3.155m for HY2018, up 9.3% from the $2.887m HY2017 figure.

We still have to allow things to bed in after the Alvey acquisition. The acquisition date was 4th April, so nothing from Alvey has contributed to this latest half year reporting period.

If we use U.S's eight year average 'half year on half' year adjustment, then we can estimate the full year profit as:

$3.155m + (2.6 x $3.155m)= $11.358m

I am looking for a 5/12 months profit from Alvey of:

5/12 x $8.470m = $3.529m

($11.358m + $3.529m) / 74.680m shares = 19.9c full year eps

At $3.50, SCT is on a projected PE ratio for FY2018 of:

350/ 19.9 = 17.6

I am quite happy with that, considering that next year we should have a twelve month profit contribution from Alvey, up from just five. Of course I am assuming, using the U.S. formula that the profit contribution will be much greater in the second half year. There is no particular reason why this should happen, apart from the fact that historically it has! This year looks to be no different from the half year comments:

"Growth in the sale and uptake of our meat processing technologies is expected to accelerate in the second half of the year following a longer than expected completion time for previous projects and a period of reduced activity in Australia caused in part by the ongoing discussions and uncertainty over the Red Meat Industry roll out of DEXA systems into all Ausmeat accredited facilities."

SNOOPY

sb9

17-04-2018, 11:39 AM

2
1
11:10:35 am
335
1,313,445
$4,400,040
Off market

Biggie....

Snoopy

19-04-2018, 02:21 PM

2
1
11:10:35 am
335
1,313,445
$4,400,040
Off market

Biggie....

A squiz at the latest published share register (AR2017) indicates there are only three outfits that could sell that many shares in one transaction.

1/ Majority sharehodler JBS (very unlikely, if they wish to remain a majority shareholder. It would also be inconsistent with them acquiring more shares in last years DRP).
2/ Oakwood Securities owned by former CEO Graeme Marsh. Oakwood reduced their percentage holding during the JBS takeover, and they may be looking to reduce it some more now that Graeme marsh is getting on a bit and there is no Mrash representation at Scott operating company level.
3/ The "JI Urquart Family A/C" estate who disastrously reduced their holding just at the wrong (capital raising ) time. Since Ian Urquart , a great Scott Tehnology stalwart, died they have gone on record as not being supportive of the company.

My pick is that it is 3. If we don't get a substantial security holders notice soon, then that will be confirmed by a process of elimination (both JBS and Oakwood would have to issue one, if it was them selling).

SNOOPY

sb9

19-04-2018, 02:46 PM

A squiz at the latest published share register (AR2017) indicates there are only three outfits that could sell that many shares in one transaction.

1/ Majority sharehodler JBS (very unlikely, if they wish to remain a majority shareholder. It would also be inconsistent with them acquiring more shares in last years DRP).
2/ Oakwood Securities owned by former CEO Graeme Marsh. Oakwood reduced their percentage holding during the JBS takeover, and they may be looking to reduce it some more now that Graeme marsh is getting on a bit and there is no Mrash representation at Scott operating company level.
3/ The "JI Urquart Family A/C" estate who disastrously reduced their holding just at the wrong (capital raising ) time. Since Ian Urquart , a great Scott Tehnology stalwart, died they have gone on record as not being supportive of the company.

My pick is that it is 3. If we don't get a substantial security holders notice soon, then that will be confirmed by a process of elimination (both JBS and Oakwood would have to issue one, if it was them selling).

SNOOPY

Thanks for taking time to explain it Snoops, I think it could be no.3 as well.

Snoopy

24-04-2018, 07:27 PM

You are right about Mark Waller.
He will not be a party to any acquisition that does not add real value.
Never has,never will.

Mark Waller has done his dash with Scotts! A late announcement to the market today sees him resign his directorship from the end of April! This will be a huge loss to the company, as Mark was the disciplined acquisitions master. Hopefullly Scotts won't need to do any more acquisitions for a while!

Chris Staynes retired at the last AGM. So Scott is in the unenviable position of having only one independent director left: Chairman Stuart McLauchlan. Curiously there has been no announcement on replacing the retiring independent directors. Does the NZX allow only one independent director of a listed company? Maybe the last independent director standing needs to call an independent directors conference to confer? McLauchlan could interview himself over porridge on one of those cold Dunedin mornings. Maybe they need to bring Graham Batts back as a director? After all, he is back on the payroll again already, so it would be a low cost option.

SNOOPY

Snoopy

02-05-2018, 11:16 AM

Scott is in the unenviable position of having only one independent director left: Chairman Stuart McLauchlan. Curiously there has been no announcement on replacing the retiring independent directors. Does the NZX allow only one independent director of a listed company? Maybe the last independent director standing needs to call an independent directors conference to confer? McLauchlan could interview himself over porridge on one of those cold Dunedin mornings. Maybe they need to bring Graham Batts back as a director? After all, he is back on the payroll again already, so it would be a low cast option.

Wow, I have never seen an announcement quite like this! Scott's battling to fulfill their legal obligations!

------------

INTERIM DIRECTOR APPOINTMENT & INDEPENDENCE DETERMINATION

Interim Director Appointment

The Board has appointed Mr John Thorman as a Director effective from 1 May 2018. The Board has determined that Mr John Thorman is an Independent Director.

Following the retirement of Mr Mark Waller, the Board commenced a search for a suitable replacement Independent Director with the appropriate skills and experience. To date the search has been unsuccessful and to ensure the Company complies with the requirements for independent and New Zealand based Directors, this interim appointment has been made.

-----------

The board has appointed a new director and gone on record as saying he is not up to the task! Extraordinary! I wonder if Mr Thorman will be adding 'incompetant interim director' to his resume?

SNOOPY

Sideshow Bob

02-05-2018, 11:20 AM

Doesn't read well does it!

sanctus671

02-05-2018, 02:25 PM

Feel bad for John Thorman. Better that they are strict with who they eventually appoint than settling for mediocre though. Just hope they find someone soon.

forest

02-05-2018, 02:54 PM

John Thorman is likely a very capable director who might just have skills different to what SCT like to add to the board.

sb9

31-05-2018, 03:41 PM

Business Acquisition - Transbotics
https://www.nzx.com/announcements/318776

Another acquisition to bolster growth.

Snoopy

10-06-2018, 09:40 PM

Business Acquisition - Transbotics
https://www.nzx.com/announcements/318776

Another acquisition to bolster growth.

Fairly light on detail with this announcement. We have thirty new members in the Scott's team as a result of buying Transbotics. Transbotics do Automotive Vehicle Guidance systems. The completion of the transaction announcement on 8th June says Transbotics has revenues of US$4.5m to US$11.0m over the past five years. Yet no mention of how much Scott's paid for the business? The fall out from having a new incompetent director on the board? I guess ultimately we will find out when the AR comes out at the end of the year?

SNOOPY

sanctus671

09-08-2018, 02:48 PM

share price getting beaten up lately. possibly something negative on the horizon or is this just the result of a low volume stock?

Snoopy

10-08-2018, 03:23 PM

If we add to this the underlying profitability of Scott Technology today, I get an underlying profitability for the combined ‘Scott’ and ‘Alvey’ group of:

$8.959m -$0.502m + $8.470m = $16.927m

This projection assumes no profit growth or decline from either company.

I do not expect the Scott Technology result for FY2018 to be this high, because Alvey will have only been owned for part of FY2018. Nevertheless I believe this figure is representative of the ongoing profitability of the group and should be used to assess value ahead of whatever the actual FY2018 result turns out to be.

With 74.681m shares on issue, Scott/Alvey should have ‘eps’ figures of:

$16.927m / 74.681m = 22.7cps

With a share price of $3.50, this means Scott’s is currently trading on a projected PE of:

$3.50/ 0.227 = 15.4

Note that this projection does not include the expected future ramp up of Meat Industry Robotics work to be done in association with major shareholder JBS. Compared to some of the sky high valuations on the market at the moment and with much growth to come, something around $3.50 is looking reasonable

Share price getting beaten up lately. possibly something negative on the horizon or is this just the result of a low volume stock?

I see nothing to change my valuation based on the data released to the market Sanctus. That means an underlying profit of around $17m based on 12 months ownership of Alvey) or $12.5m (based on the actual 6 months ownership of Alvey). My forecast is very sensitive to the Alvey acquisition. It is based on the profits from Alvey in its last year of independence carrying on into the future. Forecasting like this based on one year of Alvey earnings data is not a robust way of forecasting. If things deteriorate year on year, my forecast could be seriously wrong. But I am not changing it unless I can see a big downturn in building new appliance production lines in China and Europe.

At $3.30 my forecast 'underlying'(*) PE for SCT FY2018, based on where the market trades today is now:

$3.30/ 0.227 = 14.5

This seems very modest PE ratio considering I haven't factored in any growth from the soon to be expanded (doubled in size) Dunedin manufacturing site, to meet that very secure future pipeline of work in meat industry robotics for majority shareholder JBS.

SNOOPY

(*) The profit is underlying because Alvey has only been owned for half the financial year. To see if I am on track with this guess you need to look for an actual net profit of:

$16.927m -($8.470 / 2) / 74.681m = 17.0cps

$3.30/ 0.17 = 19.4

But that PE is not meaningful when you consider that Alvey profits will be on the books forever going forwards.

sanctus671

11-08-2018, 01:44 AM

Thanks Snoopy. Appreciate your insights. I look forward to seeing what the full year results bring.

sb9

29-08-2018, 04:46 PM

Hmmm...bit perplexed with the continued sell off over past few days, wonder why??

Snoopy

29-08-2018, 07:27 PM

Hmmm...bit perplexed with the continued sell off over past few days, wonder why??

It has been a while since it has traded under $3 hasn't it? (closing price today $2.95).

SCT is a thinly traded share and the share price has been dropping on tiny volume. If you want to sell a reasonable number of shares, you have to take 'market' price. I wouldn't read anything more into it than that.

It could be that all the international trade disruptions have made applicance manufacturers coy about installing new applaince line production facilities. That could hurt SCT over the next couple of years. But this is pure speculation on my part. Certainly when production line orders start coming in again, SCT will be well positioned because they have facilities in China, Europe and the Americas and Australia/NZ. So they will able to get around any trade barriers that exist by directing their work flow accordingly.

Meanwhile SCT are ramping up the meat industry automation robotics division by doubling the size of their Dunedin facility. The pipeline of work in the bag for JBS should see shareholders well rewarded in the medium term. I would guess the mining support business is on the up too!

SNOOPY

Sideshow Bob

21-09-2018, 09:10 AM

From todays ODT:

https://www.odt.co.nz/business/expansion-will-double-scott-technology

sb9

21-09-2018, 09:52 AM

From todays ODT:

https://www.odt.co.nz/business/expansion-will-double-scott-technology

Thanks for the link bob, exciting times ahead :)

kiwidollabill

24-09-2018, 10:01 AM

I see they have also shifted the ex DC Ross operation to a site out at Mosigel (at least that is what the sign says...)

Jerry

04-10-2018, 08:45 AM

SCT falling again. Still puzzled. It hasn't done well share-pricewise since the start of the year and especially since July. I can't see the Annual Report out yet. What is going on?

winner69

04-10-2018, 08:58 AM

SCT falling again. Still puzzled. It hasn't done well share-pricewise since the start of the year and especially since July. I can't see the Annual Report out yet. What is going on?

Patience

Annual results sometime this month. Year end was 31 August so they have to the end of October if they need that long but probably come out before then

Scott not renowned for making many announcements ...just the necessary ones and no more

What you expecting?

sb9

10-10-2018, 10:40 AM

SCT falling again. Still puzzled. It hasn't done well share-pricewise since the start of the year and especially since July. I can't see the Annual Report out yet. What is going on?

Results should be out sometime this week, I think. In the meantime big crossing this morning should take out that seller keen to offload over past few days.

1
1
10:04:07 am
300
950,000
$2,850,000
Off market

sb9

17-10-2018, 03:13 PM

Bit surprised to see that FY results are not released yet...thought they would've been out by now.

sanctus671

17-10-2018, 03:38 PM

sb9

17-10-2018, 04:09 PM

It does seem like it is a bit delayed. Historically speaking it seems to be middle of October and on a Thursday so would've expected it last week, but perhaps they were aiming for tomorrow. Guess we will see. Probably a good thing given all the drama going on in the markets last week.

Got this reply from Greg (CFO) re the FY results.

****
Thank you for your email. Earlier in the year we acquired a significant business in the Alvey Group in Europe and the increased size of the business now requires additional audit work to be undertaken. We hope to release our result early next week, depending on audit signoff and getting the Board together to approve the result and the release.

Kind regards

Greg Chiles
Chief Financial Officer
Scott Technology Ltd
p: +64 3 478 8439
m: +64 21 564 703
*****

sanctus671

17-10-2018, 04:49 PM

Got this reply from Greg (CFO) re the FY results.

****
Thank you for your email. Earlier in the year we acquired a significant business in the Alvey Group in Europe and the increased size of the business now requires additional audit work to be undertaken. We hope to release our result early next week, depending on audit signoff and getting the Board together to approve the result and the release.

Kind regards

Greg Chiles
Chief Financial Officer
Scott Technology Ltd
p: +64 3 478 8439
m: +64 21 564 703
*****

Good to know. Thanks for getting that info!

sanctus671

25-10-2018, 04:46 PM

2018 results out today:

Revenue $181.8m +37% $132.6m
Operating EBITDA $19.8m +21% $16.4m
Net surplus before tax $15.0m +1% $14.9m
Cash flow from
operating activities $0.6m $13.4m
Net cash on hand $12.5m $26.7m
Shareholder equity $102.9m $97.2m
Final dividend -
fully imputed 6.0 cps 6.0 cps
Full year dividend 10.0 cps 10.0 cps

winner69

25-10-2018, 05:01 PM

Hey Sanctus what’s going on ....huge increase in revenues but stuff all increase in profit ....doesn’t seem good

And that cash flow figure is pretty abysmal

Is SCT still a gunna company

BlackPeter

26-10-2018, 09:20 AM

Hey Sanctus what’s going on ....huge increase in revenues but stuff all increase in profit ....doesn’t seem good

And that cash flow figure is pretty abysmal

Is SCT still a gunna company

Well yes - huge jump in revenue, admittedly some increase in earnings (14.3 cts/ share) compared to last year. However - earnings per share not a significant deviation from the historic long term average of 13 cts / share and, as it looks - fully paid out of cashflow.

On the flipside - a huge drop in NTA. Did they buy too much "goodwill" coming with their recent aquisitions?

They might make cool stuff, but the historic financial performance was not really exciting ... and this years result is not different. Risks appear to increase.

shareholder returns (dividends) exciting like a bank account, just less secure .... and never mind the principle (share price);

winner69

26-10-2018, 10:18 AM

Well yes - huge jump in revenue, admittedly some increase in earnings (14.3 cts/ share) compared to last year. However - earnings per share not a significant deviation from the historic long term average of 13 cts / share and, as it looks - fully paid out of cashflow.

On the flipside - a huge drop in NTA. Did they buy too much "goodwill" coming with their recent aquisitions?

They might make cool stuff, but the historic financial performance was not really exciting ... and this years result is not different. Risks appear to increase.

shareholder returns (dividends) exciting like a bank account, just less secure .... and never mind the principle (share price);

Decrease in NTA ...maybe too much goodwill?

Pretty richly valued at 2 times book value for a company that has a RoIC about its cost of capital

urns its

pg0220

26-10-2018, 12:04 PM

BlackPeter

26-10-2018, 12:17 PM

Looks like an increase in expenses came from costs broadly involved in acquisitions.... Also notice that they mentioned that they initiated new projects, it looks there has been an increase in R&D too.... I would like to know more about applications they are currently working on, sounds quite exciting!

I am sure the projects will be exciting ... from a technical perspective! Love software driven robots as well - great to play with!

It is just that this is an investors- (or traders-) forum, and from a financial perspective they so far managed to underwhelm ... just look at the SP if you don't want to read the books.

But who knows - maybe next time it is different?

BlackPeter

26-10-2018, 12:22 PM

Ah yes - and looking at the acquisitions - sure, that's where the cost came from. Unfortunately not really earnings accreditive (huge increase in revenue causes only a minor wiggle in earnings).

Question is - did they pay a good price for their aquisitions? ... and if they did, for whom (seller or buyer) was the price good ;)?

But sure - probably strategic long term investments ...

pg0220

26-10-2018, 12:23 PM

I am sure the projects will be exciting ... from a technical perspective! Love software driven robots as well - great to play with!

It is just that this is an investors- (or traders-) forum, and from a financial perspective they so far managed to underwhelm ... just look at the SP if you don't want to read the books.

But who knows - maybe next time it is different?
I know, when I saw the announcements yesterday and the numbers, I didn't quite like the bottom line not improving well as much as the top line. It just looks like that they are in the stage of further growth and spending more in developing their tech portfolio.... I have to admit that I was a bit disappointed that their NPAT wasn't so exciting but in the LT it is looking alright to me.

winner69

27-10-2018, 05:30 PM

From the Financials .....is f19 going to be a boomer? But the acquisitions not adding that much more to the bottom line relative to the extra sales

Included in the Group financial statements is revenue of $26.7 million and an operating EBITDA of $0.9 million attributable to the purchase of the Alvey business and revenue of $4.0 million and an operating EBITDA of $0.8 million attributable to the purchase of the Transbotics business.

Had these acquisitions been effected at 1 September 2017, the revenue of the Group from continuing operations would have been approximately $225 million and the operating EBITDA would have been approximately $22 million. The Directors of the Group consider these '‘pro-forma’ numbers to represent an approximate measure of the performance of the combined Group on an annualised basis and to provide a reference point for comparison in future periods.

winner69

27-10-2018, 05:52 PM

BlackPeter

27-10-2018, 06:32 PM

From those numbers above re acquisitions it appears the existing ebitda margin was 11.9% but the acquired businesses (on a full year basis) margin is only 5.4%

Acquired businesses margins seem a bit low?

In other words - they paid too much for the "goodwill"? Not the first company falling into that trap ...

Just so exciting for directors and CEO's to buy additional revenue. Great revenue pointers showing into exactly the right direction (top-right). Just don't talk about margins - I guess, who wants that much detail?

Maybe they can even consider to increase board fees thanks to their now much increased responsibility and company complexity? You never know ...

pg0220

28-10-2018, 01:57 AM

I think Alvey is fine. I tried to search financial information about Transbotic when the acquisition was announced but was able to find some figures a several years ago, looks like they dropped off the market and they were making losses then. It may be Transbotic that has contributed to a decrease in margin.

But it still seems that the company is in the right direction for growth and projects ahead, Alvey being a warehousing specialist company contributing to the warehousing automation project and also with the Transbotic's tech, there seem a way this can be well utilised in their automation project. Well, I know again that margin doesn't look overwhelming and it may disappoint the traders with the bottom line figures, but I am still in opinion that the company is doing what it is supposed to do......

Snoopy

22-11-2018, 06:32 PM

2
1
11:10:35 am
335
1,313,445
$4,400,040
Off market

Biggie....

We were advised of the above trade by sb9 on 17th April 2018. My attempt to identify who was doing the trade was as follows.

A squiz at the latest published share register (AR2017) indicates there are only three outfits that could sell that many shares in one transaction.

1/ Majority sharehodler JBS (very unlikely, if they wish to remain a majority shareholder. It would also be inconsistent with them acquiring more shares in last years DRP).
2/ Oakwood Securities owned by former CEO Graeme Marsh. Oakwood reduced their percentage holding during the JBS takeover, and they may be looking to reduce it some more now that Graeme Marsh is getting on a bit and there is no Marsh representation at Scott operating company level.
3/ The "JI Urquart Family A/C" estate who disastrously reduced their holding just at the wrong (capital raising ) time. Since Ian Urquart , a great Scott Tehnology stalwart, died they have gone on record as not being supportive of the company.

My pick is that it is 3. If we don't get a substantial security holders notice soon, then that will be confirmed by a process of elimination (both JBS and Oakwood would have to issue one, if it was them selling).

No substantial security notice was posted after 17-04-2018. So by elimination it looks like the answer was indeed 3.

Yet if we look at the Annual Report(s) for FY2017 and FY2018, it lists all the substantial shareholders as at 15th September 2017 and 17th September 2018. In both lists the number of shares held by the "JI Urquart Family A/C" estate is the same at 2,000,000.

How can this be explained?

SNOOPY

Snoopy

22-11-2018, 10:06 PM

Business Acquisition - Transbotics
https://www.nzx.com/announcements/318776

Another acquisition to bolster growth.

The above was recorded by sb9 on 31st May 2018

Fairly light on detail with this announcement. We have thirty new members in the Scott's team as a result of buying Transbotics. Transbotics do Automotive Vehicle Guidance systems. The completion of the transaction announcement on 8th June says Transbotics has revenues of US$4.5m to US$11.0m over the past five years. Yet no mention of how much Scott's paid for the business? I guess ultimately we will find out when the AR comes out at the end of the year?

AR2018 is now out and the 'grim details' are in Section E1. Cost of acquiring Transbotics is recorded at $4.873m. Keep on reading and we find:

"Revenue of $4.0m and operating EBITDA of $0.8m (is) attributable to the Transbotics business"

The acquisition was completed on 8th June, while the financial year ended on 31st August. So Transbotics was owned for only (30 - 8) + 31 +31 = 84 days OR 84/365= 0.2301 of one year.

So if we annualise Transbotic's results, an extrapolative procedure with all the dubiousness that implies, I get an annualised Transbotic contribution of:

Revenue = $4.0m/0.2301 = $17.4m

EBITDA = $0.8m/0.2301 = $3.5m

Since we know that actual revenue at Transbotics over the last five years have varied between US$4.5m to US$11.0m, it is likely my extrapolation is unrepresentative and the real annualised EBITDA contribution is lower too.

SNOOPY

BlackPeter

30-11-2018, 02:13 PM

I attended yesterday the 2018 AGM at their Christchurch venue. Roughly 40 shareholders present.

AGM presentation has been published, i.e. no need to repeat here, but some observations:

Low staff turnover (6% annually) indicating good staff retention. However – skill shortage is a problem for them;

The chair talked about the uncertainties Trumps trade war with China might bring (they do have a factory in China) but stressed as well a good project pipeline (9 months) and increasing sales to their majority shareholder JBS.

Major growth (through acquisitions) in Europe and the US … however reflected as well in the balance sheet through lower NTA but higher goodwill.

A number of questions from the audience:

Q: Great that revenue and earnings grow, but not so good that EPS are flatlining. Does the company expect EPS to grow in future as part of their growth strategy as well?

A: company does not make forecasts … however – after some dialogue offered the MD that they expect the EPS trend in the years to come to move upwards as well. You heard it here first (unless you've been on the AGM as well ;)!

Q: The company had in the recent years outstanding growth … and is now of a size where many other companies experience “growth pains”, often due to lack of process / communication issues - is this something Scott Technologies experiences as well?

A: Communication with the new aquired companies is good and Scott Technology actively manages this by bringing staff from all parts of the world for conferences and training together and having regular videoconferences (resulting in odd working hours given different time zones). Process is important to them (and owned by the Managing Director). Some of their venues are ISO9001 certified, but they put more emphasis on using lean methodologies including 6 Sigma.

Q: How is the New Zealand based business developing under the current government?

A: I heard some frustration about the inability of the New Zealand government so far to get waivers for NZ industry in Trumps trade war. Chris mentioned as well ongoing skill shortages; Oherwise – business as usual since the change of government.

Q: Is the company putting enough effort into internal staff training?

A: Chris mentiones dedicated training staff as well as the recent conferences- yes, he believes so.

Good opportunities to talk during the informal get together after the AGM with board and management and for a short factory tour.

Overall impression: It feels like a well managed company in an interesting industry. From a personal perspective - the SP feels currently still a bit dear ... but this is true for many other good NZ companies as well.

Joshuatree

30-11-2018, 07:12 PM

BlackPeter

01-12-2018, 09:49 AM

Thanks BP, thats a great summary of the meeting for sharetrader. i can be a bit cynical of presentations and AGM's and have my bull****e detector on high alert as these shows can have an advantage with our feel good "investor bias" and some of the CEO's have the psychological training to rev us up as they are such "nice " people with "our " interests at heart .One needs a little feral cynicism when investing.

Absolutely - and nobody should invest into anything based solely on one data set (like input from one AGM).

Not sure, though what you try to tell us here - do you think it is better to ignore input from AGM's / company presentations?

As well - is your comment specific to Scott Technology - or is this this just general advise?

Just for clarification - I went as proxy to the AGM. I do not hold (but could imagine buying in at the right price).

Joshuatree

01-12-2018, 03:48 PM

Just general , ive been to a few presentations lately and was impressed at your detail.

sb9

03-12-2018, 10:17 AM

Thanks BP for your input from ASM.

BlackPeter

11-12-2018, 10:48 AM

sb9

11-12-2018, 11:52 AM

Just noticed - JBS keeps increasing their stake - holding now 51.1%.

https://www.nzx.com/announcements/327865

Interesting - I woiuld have thought that the shares are (PE above 20 and no EPS growth) rather dear, but JBS may well have other plans for them - turn them into an in house widget manufacturer?

Here is the reason for increase in stake...

***
Details of transactions and events giving rise to relevant event:

Details of the transactions or other events requiring disclosure: JBS Australia Pty Limited was issued ordinary shares by Scott Technology Limited in accordance with its dividend reinvestment plan as follows:

Date of issue Number of shares Price per share

28 November 2017 616,461 NZ$ 3.6416

24 April 2018 445,073 NZ$ 3.4180

27 November 2018 789,371 NZ$ 2.9246

****

BlackPeter

11-12-2018, 11:57 AM

I have seen that it is DRP related. But than - if they would know something better to do with their dividend money, than they clearly would not stick in the DRP, wouldn't they?

It still shows that JBS values the shares higher than other shareholders do, who obviously prefer to take the money instead. Otherwise JBS' percentage would not rise.

sb9

11-12-2018, 12:03 PM

pg0220

28-12-2018, 03:27 PM

CEO loading up on market. He must think the SP is too cheap!

sb9

26-02-2019, 04:09 PM

Big crossing this arvo....

4
1
2:03:01 pm
260
522,932
$1,359,623
Off market

sanctus671

03-04-2019, 04:55 PM

BlackPeter

03-04-2019, 06:12 PM

"achieved revenues of $111.4 million for the six months to 28 February 2019, an increase of 65% on
the previous corresponding period (pcp) of $67.5 million. For this six month
period the company's operating EBITDA of $8.5 million increased 33% on the
pcp of $6.4 million while the net surplus before tax of $5.6 million was up
18%. "

Seems pretty good to me, but share price hasn't moved. Am I missing something?

I think you need to see this in context. Most of their revenue and earnings growth has been by acquisition. Their income is as well very patchy - and even this "good" 1st HY produced less (in earnings) than half of last years full year income. I guess it is good to see that their EPS did grow compared to 1HY18 (from 4.2 cts in 1 HY18 to 6.6 cts in 1HY19) but this is still less than half of their FY18 total of 14.3 cts / share. They better have (again) a very good second half, otherwise their annual EPS is dropping. Ouch. Wrong direction.

And actually - this is the problem with this company. They do produce sexy technology (toys for the boys and girls) and they do have good revenue growth. However their EPS was over the last 5 years basically unchanged around 13 to 14 cts. No indication so far that this year will be different.

A number of softeners in the report as well:

Australasia manufacturing sales were up 6% although, due to heavy R&D spend and some project cost overruns, contributions were down. One project for the meat industry suffered longer than expected commissioning times. Two projects for the mining industry faced challenges brought on by deployment of new advanced technology which were underestimated and has had a significant impact on this period’s contribution. The new technologies add to our overall capability and have application into the future. While disappointing, problems with projects are to be expected from time to time. However, with the business now well diversified, these instances can now be absorbed by the Group.

This must be the majority of their projects suffering under challenges ...

Given this fact - why would anybody be prepared to pay more for this share? A PE of nearly 20 without earnings growth is not cheap.

JayRiggs

03-04-2019, 07:54 PM

I think you need to see this in context. Most of their revenue and earnings growth has been by acquisition. Their income is as well very patchy - and even this "good" 1st HY produced less (in earnings) than half of last years full year income. I guess it is good to see that their EPS did grow compared to 1HY18 (from 4.2 cts in 1 HY18 to 6.6 cts in 1HY19) but this is still less than half of their FY18 total of 14.3 cts / share. They better have (again) a very good second half, otherwise their annual EPS is dropping. Ouch. Wrong direction.

And actually - this is the problem with this company. They do produce sexy technology (toys for the boys and girls) and they do have good revenue growth. However their EPS was over the last 5 years basically unchanged around 13 to 14 cts. No indication so far that this year will be different.

A number of softeners in the report as well:

This must be the majority of their projects suffering under challenges ...

Given this fact - why would anybody be prepared to pay more for this share? A PE of nearly 20 without earnings growth is not cheap.

Very good points BlackPeter.
I haven't looked at Scott Tech too much, but when I saw the HY report come out this afternoon, the headline numbers looked pretty good to me and my impulsiveness got the better of me, leading me to buy a small parcel without really doing any research!

True that the HY net profits was less than half of last year's full year profits, but it was very close and a big jump up in H1 compared to recent years.
And the profits have always been very heavily weighted to the 2nd half.
Looking at the H1/H2 profit splits from the last 3 years.

2016 ($000) %
H1 1,948 23.95%
H2 6,186 76.05%
FY 8,134
2017
H1 2,887 28.12%
H2 7,378 71.88%
FY 10,265
2018
H1 3,155 29.29%
H2 7,617 70.71%
FY 10,772

Assuming similar trend, let's say HY19 has 30% of FY profits, then FY19 net profits will be about $16.916m.
That would equal an EPS of 22cps based on current number of shares. Or maybe 21cps after DRP dillution. About a +40% increase in EPS.
Does that sound realistic?

BeeBop

03-04-2019, 09:15 PM

After many years of following this share, I finally bought in in January paying between 2.60 and 2.75 per share...a tiny parcel and even then it took days to fill. I want to hold them for the long-term....their share price has not moved for years. I like their strategy and am hoping that they can turn their output on.

BlackPeter

04-04-2019, 08:55 AM

Assuming similar trend, let's say HY19 has 30% of FY profits, then FY19 net profits will be about $16.916m.
That would equal an EPS of 22cps based on current number of shares. Or maybe 21cps after DRP dillution. About a +40% increase in EPS.
Does that sound realistic?

Hard to say. Don't know enough about Scott Technology, but used to work for a long time in a quite comparable organisation (high tech project work, lumpy sales, international subsidiaries, similar size of the organisation).

We had as well always a much better second half than first half no matter when the FY ended (they shifted it during my tenure) - clearly an indication that the focus on achieving agreed end of year goals (or the bonus schema for the sales people ;)) had a lot to do with when the sales have been made and booked in.

To assess whether your assumptions are realistic we would need to know how "challenging" their current projects are and the causes behind these challenges. I don't. Lets hope its not "FBU style" challenges. We would need to know as well their sales funnel - I don't either. And yes, we would need to know, whether they managed to shift some projects from last year into this, to make this a really good and bonus rich year (hence the better FY1) or what other reason they had for a better HY1 than last year.

So yes, if your model of a god given 30/70 earnings distribution is right, than SCT might be in for a really good year. What we don't know is - is it right and if yes, what are the reasons behind it? We don't know either whether this would be a one off or the start of a long overdue trend to rise the EPS.

Ah yes - and we don't know the agenda of the majority shareholder (meat processor JBS) which without doubt will guide the management team. I don't think that increased earnings would be their highest priority.

Jerry

20-06-2019, 12:05 PM

BlackPeter

20-06-2019, 12:58 PM

Small tranches of SCT shares have been bought by directors and senior officers recently and Scott have bought Normaclass, a French based technology provider specialising in automated beef grading using machine vision.
https://www.nzx.com/announcements/333668
Their shares continue downwards despite these encouraging signs, but then, the market often seems to be contrary.

Not so sure ... I guess they are an interesting company doing stuff engineers like. I can sympathise. They bought as well a lot of additional revenue, but if you look at the earnings per share - they are flatlining now for a long time around 13 cents. PE around 19 with no (EPS-) growth at all.

So - it is clearly not a growth company (remember, its only EPS growth which counts for shareholders) and while their interests might be aligned with the interests of the majority shareholder (they are building tools for them) - for anybody else they are basically equivalent to a BB or less rated bond (they are neither a gentailer nor IFT) paying (at today's SP) in average 4.2% interest, which well may turn towards less or even nil when the next recession arrives.

While they are certainly worth something, there are many better dividend payers (if that's your thing) as well as much better growth games out in the market. And while they do have some sort of niche in meat processing - nothing they do is unique. Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.

Why should SCT's share price rise?

sanctus671

21-06-2019, 03:53 PM

sb9

21-06-2019, 04:21 PM

They have been acquiring a lot of companies to expand its global presence. Seems like a good thing long term assuming they did their due diligence before buying them. Revenues are steadily growing along with profits. As JayRiggs said, EPS growth should grow this year if historic revenue split is anything to go by. Of course, all depends on those "challenges" and how much of an impact that had. Ultimately I think robotics and automation is a huge industry that will only grow into the future. No other company on the NZX you can invest in for that as far as I am aware.

I can understand why the shareprice is going down though given the low yield with slower EPS growth than other companies. When I bought in, I did think Scott Tech had a lot of promise. By no means I am an expert so the declining shareprice does make me feel like I'm missing something. Hopefully things change in the coming years.

"Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.". That seems like a pretty ignorant statement, and same could be said for a lot of companies. Just because it could be done, doesn't mean a business would be willing to invest years of R&D to develop the same technology. That's why you pay a business that has already done it so you don't have to spend that money, time, and risk for R&D yourself.

Disc. holding and feeling salty because share price keeps going down :(

Share your sentiments there. For tightly held resister that's the problem, it works like s double edged sword.

Looking at recent trading pattern, it looks way oversold and I'm picking we might have reached bottom.

In the long term though JBS will take full control and here's hoping they offer good price for holders.

BlackPeter

21-06-2019, 04:40 PM

They have been acquiring a lot of companies to expand its global presence. Seems like a good thing long term assuming they did their due diligence before buying them. Revenues are steadily growing along with profits. As JayRiggs said, EPS growth should grow this year if historic revenue split is anything to go by. Of course, all depends on those "challenges" and how much of an impact that had. Ultimately I think robotics and automation is a huge industry that will only grow into the future. No other company on the NZX you can invest in for that as far as I am aware.

I can understand why the shareprice is going down though given the low yield with slower EPS growth than other companies. When I bought in, I did think Scott Tech had a lot of promise. By no means I am an expert so the declining shareprice does make me feel like I'm missing something. Hopefully things change in the coming years.

"Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.". That seems like a pretty ignorant statement, and same could be said for a lot of companies. Just because it could be done, doesn't mean a business would be willing to invest years of R&D to develop the same technology. That's why you pay a business that has already done it so you don't have to spend that money, time, and risk for R&D yourself.

Disc. holding and feeling salty because share price keeps going down :(

Look, if you think my statement is ignorant - be my guest.

My background is in electrical engineering. I spent several decades in the development of high tech equipment working both in Europe as well as in NZ and ... I have seen what SCT does (though never working for them).

I think they are a good company, but I don't see them as "special". Can't assess the quality of the companies they acquired, but from a statistical perspective - give me 5 NZ companies who have been successful in buying their international empire and I give you 10 who failed. I don't think the odds are in their favour, but there is always hope ;);

Snoopy

27-06-2019, 09:46 PM

Fairly light on detail with this announcement. We have thirty new members in the Scott's team as a result of buying Transbotics. Transbotics do Automotive Vehicle Guidance systems. The completion of the transaction announcement on 8th June says Transbotics has revenues of US$4.5m to US$11.0m over the past five years. Yet no mention of how much Scott's paid for the business? I guess ultimately we will find out when the AR comes out at the end of the year?

I have decided to tie up a few loose ends on this thread.

'Transbotics' supplies automated guided vehicles (AGVs) , and is based in North Carolina in the USA. The aim is to provide reliable automated material handling solutions for production and warehouse facilities.

From information from AR2018 p61 and p62, the total paid for Transbotics (USA) was $4.873m on 31st May 2018. $3.438m was paid in cash and $1.435m will be an earn out payment. The 31st May acquisition date means that Transbotics was on the books for just three months of FY2018 for Scott Technology. Extrapolating from this three month period to try and get an idea of revenue and EBITDA figures for the year:

Annualised Transbotics Revenue: 4 x $4.0m = $16m
Annualised Transbotics EBITDA: 4 x $0.8m = $3.2m
Last three months of FY2018 Transbotics EBITDA Margin: $0.8m/$4.0m = 20%

SNOOPY

Snoopy

28-06-2019, 08:52 PM

sb9 wrote:

2
1
11:10:35 am
335
1,313,445
$4,400,040
Off market

"Biggie...."

A squiz at the latest published share register (AR2017) indicates there are only three outfits that could sell that many shares in one transaction.

1/ Majority sharehodler JBS (very unlikely, if they wish to remain a majority shareholder. It would also be inconsistent with them acquiring more shares in last years DRP).
2/ Oakwood Securities owned by former CEO Graeme Marsh. Oakwood reduced their percentage holding during the JBS takeover, and they may be looking to reduce it some more now that Graeme marsh is getting on a bit and there is no Mrash representation at Scott operating company level.
3/ The "JI Urquart Family A/C" estate who disastrously reduced their holding just at the wrong (capital raising ) time. Since Ian Urquart , a great Scott Tehnology stalwart, died they have gone on record as not being supportive of the company.

My pick is that it is 3. If we don't get a substantial security holders notice soon, then that will be confirmed by a process of elimination (both JBS and Oakwood would have to issue one, if it was them selling).

My guess on what was going on with this big trade in April 2018 was wrong. I double checked all three of the largest shareholders year on year. Both 'Oakwood Securities' and the lawyers running the 'JI Urquart family A/C' held exactly the same number of shares at EOFY2017 and EOFY2018. Meanwhile the number of shares held by JBS Australia went up from:

38,476,592 - 37,415,058 = 1,061,534

This increase, I think, largely reflects the new shares issued under the DRP in the November 2017 dividend payment. So the 1,313,445 shares traded on 17th April 2018 remain a mystery.

SNOOPY

Snoopy

28-06-2019, 09:13 PM

Alvey’s last year’s annual revenue was $56.5m. That price represented an EBITDA multiple of approximately 4.5 times. So EBITDA for Alvey’s most recent year must have been:

$56.5m / 4.5 = $12.5m

To calculate the NPAT of the acquisition under Scott’s ownership, we need to subtract the ‘ITDA’ bits from this. Let’s do that.

‘I’ (Interest payable): Because the Alvey purchase was made by cash, the ongoing interest bill associated with the purchase is zero
There is no information on Alvey’s depreciation or amortisation bills. But because the business looks like a smaller version of Scott’s, (combining intellectual property and spread international manufacturing facilities), I have decided to treat it as a small version of Scott’s and work out the depreciation and amortisation by scaling the Scott figures in proportion to the revenue of both companies before the merger.

‘D’ (Depreciation ) for Scott’s was $1.694m. Scaling according to company revenue, I estimate the annual depreciation at Alvey to be:

$1.694m x ($56.5m/$132.5m) = $0.722m

‘A’ (Amortisation) for Scott’s was $1.293m. However, on closer inspection, almost all of this ($1.261m) was a result of amortizing the recently acquired ‘Bladestop’ technology. IMO it is not reasonable to assume that Alvey has similarly spent a large amount of money on externally acquired intellectual property which must be similarly amortised. If I remove the ‘bladestop adjustments‘ from Scott’s accounts, I get a representative amortisation for Alvey of :

($1.293m - $1.261m) x ($56.5m/$132.5m) = $0.014m

So now we have enough information to calculate EBT for Alvey.

EBT = EBITDA –I –D –A = $12.5m - $0m - $0.722m - $0.014m = $11.764m

Assuming a New Zealand tax rate of 28% (Note: this is likely a wrong assumption, but I don’t want to make an uninformed guess about EU tax rates and tax subsidies that may exist), I get an incremental NPAT for the soon to be Scott owned Alvey of:

$11.764m x 0.72 = $8.470m

This is the kind of gain in net profit after tax I would expect once it is bedded in, and I must say it looks very juicy!

Alvey specialises in palletising, conveying and warehouse automation and is based in Europe. Alvey was acquired by Scott Technology on 23rd April 2018.

From information from AR2018 p61 and p62, the total paid for Alvey (Europe) was $19.303m on 23rd April 2018. $14.522m was paid in cash and $4.781m will be an earn out payment. The 23rd April acquisition date means that Alvey was on the books for just one hundred days of FY2018 for Scott Technology. Extrapolating from this period to try and get an idea of revenue and EBITDA figures for the year:

Annualised Alvey Revenue: (365/100) x $26.7m = $97.5m
Annualised Alvey EBITDA: (365/100) x $0.9m = $3.3m
Last three months of FY2018 Alvey EBITDA Margin: $3.3m/$97.5m = 3.4%

This doesn't compare well with the previous one year result, as noted in the quoted post above, pre-acquisition.

Previous Year Alvey EBITDA Margin: $12.5m/$56.5m = 22.1%

SNOOPY

Jerry

30-06-2019, 08:17 AM

Things have really gone south since one year ago. It would be a much cheaper buy-out today for JBS if that was the overall plan. I feel like a minnow (or a mushroom) in this game.

Snoopy

30-06-2019, 08:52 PM

The acquisition of the Alvey Group in Europe has been treated favourably by the market. But what difference will this make in ‘earnings per share’ terms?

Alvey’s last year’s annual revenue was $56.5m. That price represented an EBITDA multiple of approximately 4.5 times. So EBITDA for Alvey’s most recent year must have been:

$56.5m / 4.5 = $12.5m

Alvey specialises in palletising, conveying and warehouse automation and is based in Europe. Alvey was acquired by Scott Technology on 23rd April 2018.

From information from AR2018 p61 and p62, the total paid for Alvey (Europe) was $19.303m on 23rd April 2018. $14.522m was paid in cash and $4.781m will be an earn out payment. The 23rd April acquisition date means that Alvey was on the books for just one hundred days of FY2018 for Scott Technology. Extrapolating from this period to try and get an idea of revenue and EBITDA figures for the year:

Annualised Alvey Revenue: (365/100) x $26.7m = $97.5m
Annualised Alvey EBITDA: (365/100) x $0.9m = $3.3m
Last three months of FY2018 Alvey EBITDA Margin: $3.3m/$97.5m = 3.4%

This doesn't compare well with the previous one year result.

Previous Year Alvey EBITDA Margin: $12.5m/$56.5m = 22.1%

From those numbers above re acquisitions it appears the existing ebitda margin was 11.9% but the acquired businesses (on a full year basis) margin is only 5.4%

Acquired businesses margins seem a bit low?

Winner, the EBITDA margin at Alvey over the first few months of Scott Technology ownership was only 3.4%. But Alvey's previous full year of results produced at EBITDA margin of 22.1%. I suspect that because the EBITDA margins at Alvey shrunk so much, even as revenue gained, we may have had some unusual costs to contend with.

In HYR2019, Scott's mentioned that Alvey, mainly based in Belgium, were being integrated with the Scott's existing European business 'Scott Technology GmbH' in Kurnbach Germany. If this process was stretching back into FY2018, this could have involved removing duplication of back office facilities, and some senior management redundancies and or property lease write downs. Or it could be a reflection of Alvey's earnings being lumpy, maybe even as a result of technical difficulties with a particular project. Either way, it looks like those last three months or so of earnings from Alvey incorporated into Scott's FY2018 result were not representative.

SNOOPY

Snoopy

01-07-2019, 09:46 AM

If we add to this the underlying profitability of Scott Technology today, I get an underlying profitability for the combined ‘Scott’ and ‘Alvey’ group of:

$8.959m -$0.502m + $8.470m = $16.927m

This projection assumes no profit growth or decline from either company.

I do not expect the Scott Technology result for FY2018 to be this high, because Alvey will have only been owned for part of FY2018. Nevertheless I believe this figure is representative of the ongoing profitability of the group and should be used to assess value ahead of whatever the actual FY2018 result turns out to be.

With 74.681m shares on issue, Scott/Alvey should have ‘eps’ figures of:

$16.927m / 74.681m = 22.7cps

With a share price of $3.50, this means Scott’s is currently trading on a projected PE of:

$3.50/ 0.227 = 15.4

Note that this projection does not include the expected future ramp up of Meat Industry Robotics work to be done in association with major shareholder JBS. Compared to some of the sky high valuations on the market at the moment and with much growth to come, something around $3.50 is looking reasonable

Normalised Profit Calculation FY2018 (Refer AR2018 p33)

Declared Net Profit for FY2018$10.772m

add Loss on Property Plant and Equipment Sales$0.021m

add Due Diligence Expenses0.72 x $0.271m

add Unrealised Forex Losses0.72 x $0.271m

add Fair Value Derivative Losses held as Fair Value Hedges0.72 x $1.579m

add Unrealised Interest Rate Swap Contract losses0.72 x $0.043m

less Foreign Exchange Gains0.72 x ($1.627m)

less Fair Value Gains on Firm Commitments0.72 x ($1.579m)

equals Normalised Net Profit$10.043m

My previous forecast profit in the post above assumes a full years contribution from Alvey which didn't happen. Adjusting for that, the forecast was:

= $16.927m - [ (365-100)/365 ] x $8.470m = $10.777m

To calculate this I had assumed a drop in profit, due to a net interest annual income drop to $0.162m

$0.664m - $0.162m = $0.502m

Actual interest income received was a little more, at $0.369m.

SNOOPY

BeeBop

01-07-2019, 04:52 PM

Which could mean a current share price track down to around 1.95 assuming a p.e of 15x?

BlackPeter

01-07-2019, 04:59 PM

Which could mean a current share price track down to around 1.95 assuming a p.e of 15x?

Hard to predict what the markets will do - however - I would put them more between PE 10 and 12.5 for a non (earnings-) growth company.

I'd be interested below $1.30 or so ...

BeeBop

01-07-2019, 07:33 PM

Ha! That is one share purchase I got wrong! But I didn’t get many, and after all, something has to have a negative return in the portfolio. It is nice having a share in a “local” company....and time turns many reds to green (not all, but some). I shall live in hope that they will be a growth company and someone will come in and drive them forwards.

Snoopy

03-07-2019, 04:44 PM

I see from Appendix 1 of the Northington report that JBS Australia has 11 processing facilities in Australia. From the presentation:

-----

Over the past two, JBS Australia and Scott have worked together installing an automated meat processing system for its lamb plant in Bordertown and elsewhere in Australia.

1/ The production line at Bordertown is running daily, at commercial line speeds (approx. 10 head of sheep per minute or approx. 8,000 per day). [Snoopy note: looks like two eight hour shifts per day]
2/ Rather than leading to redundancies, staff have been reloc'[/ated to other parts of the plant, with consequent expansion in throughput.
3/Scott’s automation equipment is also operating at JBS’s Brooklyn plant (lamb) and beef plants at Dinmore and Beef City.

This reads as though Bordertown has 'full automation' and Brooklyn (lamb) and for Beef Dinmore and 'Beef City' (Toowoomba) are partially automated.

The JBS Australia Website lists the following processing sites:

Queensland: Dinmore, Beef City (near Toowoomba), Rockhampton, Townsville
NSW: Rivernia (rural NSW)
Victoria: Brooklyn, Cobram
Tasmania: Devonport, Longford
South Australia: Bordertown

Late in 2014, JBS acquired the 'Primo' group, specialising in smallgoods and bacon. Primo has two abbatoirs. One in Port Wakefield (South Australia) , and the other at Scone in the Hunter valley (NSW)

Nine of the above facilities process beef, and one pork. However JBS also processes lamb (Brooklyn) and goats.

JBS Australia is the 'first line of growth' for Scott Technology. So I think it is worth itemizing the opportunity amongst the JBS Australia plants. Overall 85% of JBS Australia's meat cut output is exported. This means international cost competitiveness is paramount. Robotics is a good way to bridge the cost gap to low cost overseas competitor countries. For Scott Technology these robotic development opportunities are not quite 'cash in the bank'. But with JBS Australia as Scott's controlling shareholder they are the nearest thing to it.

JBS Australia Meat Processing Plants

LocationPlantAnimals Processed
Output Capacity per dayScott Robotics Installed?

QueenslandDinmoreCattle3400Yes (pre EOFY2015)

QueenslandBeef City (Toowoomba)Cattle (grain fed)1134Yes (pre EOFY2015)

QueenslandRockhamptonCattle (grass fed)1400

QueenslandTownsvilleCattle (grass fed)1800

New South WalesRiverinaCattle (grain fed)600

New South WalesSconeCattle (grass fed)650

VictoriaBrooklynCattle1400

and 'Small Stock'8200

VictoriaCobramLambs3200

South AustraliaBordertown'Small Stock'5000Yes (pre EOFY2015)

TasmaniaDevonportCattle (grass and grain fed)28

and Pigs85

and Lambs540

TasmaniaLongfordCattle450

and 'Small Stock'1600

Scotts have a policy of not referring to specific contracts in their reporting periods. Yet relevant commentary from subsequent reports follows:

HY2016 p1 "An uplift in projects for the meat processing sector, the company's Australasian sales were up over 70% from the previous year."

FY2016 p5 "the manufacture and sale of multiple repeat X-ray , Primal and Middle Systems for meat processors in Australia and New Zealand
FY2016 p51 "Meat Processing Revenue: FY2016 $38.875m, FY2015 $10.924m, +256% yoy

HY2017 p1 "Economies of scale gained through a of repeat builds for the food and industrial automation industries, together with a closer sharing of skills and resources on on projects between Australia and New Zealand resulted in the company's Australasian sales being up 34% from the previous corresponding period."
HY2017 p10: Australasia Manufacturing Revenues HY2017: $45.091m HY2016 $33.533m +34% yoy

FY2017 p7; "Scott is also working closely with the Australian industry as it determines the best way to implement a planned roll out of DEXA X-ray technology to approximately 80 'Ausmeat' accredited meat processing facilities. The total project is expected to be rolled out over the next three years and opens the possibility to utilise the X-ray rooms to to drive Scott's meat processing automation.'"

HY2018 p4 "Growth in the uptake and sale of our meat processing technologies is expected to accelerate in the second half of the year following a longer than expected completion time for previous projects and and a period of reduced activity in Australia caused in part by the ongoing discussions and uncertainty over the Red Meat industry roll out of DEXA systems into all Ausmeat accredited facilities."
"During the first half of the year we commenced substantial development projects for our meat processing customers, including a start in the Pork and Poultry sector in addition to our meat and lamb."

FY2018 p5 "Sales into our traditional markets of Appliances, Meat Processing and Mining sectors all achieved double digit growth. with the Appliance sector being the stand out with a 56% increase from the prior year."
FY2018 p6 "We have commenced significant projects aimed at transferring our technology from lamb deboning to other species. Scott currently has two significant projects underway in beef, one in pork and two in poultry."
FY2018 p7 "Bladestop bandsaw sales met our current year targets and combined with ongoing demand for lamb and boning automation solutions in New Zealand and Australia helped deliver record sales in our meat processing sector."

HY2019 "Australasia manufacturing sales were up 6% although due to heavy R&D spend and some project cost overruns contributions were down. One project in the meat industry suffered longer than expected commissioning times."

It looks like sales are rolling forwards, particularly in Australia. But what exactly is it in terms of specific projects that Scott are able to offer to the meat industry?

SNOOPY

Snoopy

04-07-2019, 09:26 AM

,

It looks like sales are rolling forwards, particularly in Australia. But what exactly is it in terms of specific projects that Scott are able to offer to the meat industry?

Scott's crown jewel Meat Industry project is the 'Automated Lamb Boning Room'. This can be broken down into six distinct units:

1/ X-ray Grading
2/ X-ray Primal Cutter
3/ Middle Machine (prepares rack and loin)
4/ Hindquarter leg de-boner
5/ Forequarter Processing
6/ Knuckle Tipper (removes knuckle top from hind leg).

Together 1-6 make up the 'automated lamb boning room', The design throughput speed is 10-12 carcasses per minute (equating to 8,000 per day), although I am not sure how many pieces of equipment operating in parallel at the same time this represents. The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry. But these other products are not fully automated and so represent sales along the path to automation. They are not themselves part of the automated boning room so I will not discuss these semi-manual tools further in this post.

Automating the breakdown of a lamb carcass is an easy task (easy being a relative term) in the labyrinth of dissection possibilities of all animals farmed for meat. This is because lambs are relatively small and more uniform in size than beef carcasses in particular. The automation potential in the beef industry is much greater. However due to the beef carcass being much heavier and processed in halves, rather than full animals, the full automation of this is a very different and harder task.

As far as I can make out the automated beef machines that Scott's currently consist of:

1/ the "Beef Rib Cutter / Scorcher"
2/ the "Beef Hock Cutter"

There is currently nothing commercially available for pork.

Scott's are busy with their R&D, filling the holes in their meat cut automation range: Even chicken and salmon is on the research list. But as things stand now, with the exception of lamb, the automated solutions for the most potentially lucrative market - beef - are limited.

SNOOPY

Sideshow Bob

04-07-2019, 09:47 AM

Scott's crown jewel Meat Industry project is the 'Automated Lamb Boning Room'. This can be broken down into six distinct units:

1/ X-ray Grading
2/ X-ray Primal Cutter
3/ Middle Machine (prepares rack and loin)
4/ Hindquarter leg de-boner
5/ Forequarter Processing
6/ Knuckle Tipper (removes knuckle top from hind leg.

Together 1-6 make up the automated lamb boning room, The design throughput speed is 10-12 carcasses per minute, although I am not sure how many pieces of equipment operating in parallel at the same time this represents. The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry. But these other products are not fully automated and so represent sales along the path to automation. They are not themselves part of the automated boning room so I will not discuss these semi-manual tools further in this post.

Once it goes through the primal cutter, then 3-5 could operate in parallel.

The robots are great for consistency of product and getting correct yields, especially the primal cutter.

Still need a reasonably number of staff - but there is automation/machinery out there already to reduce labour that these machines can work in with - ie boneless loin plough and a water 'Frenching' machine.

Beef would be the real prize - lamb is largely restricted to NZ and Australia.

Snoopy

04-07-2019, 10:45 AM

Not so sure ... I guess they are an interesting company doing stuff engineers like. I can sympathise.
And while they do have some sort of niche in meat processing - nothing they do is unique. Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.

I think you are underselling the ever growing line of patents that Scott have filed since entering the meat carcass processing robotics BP. If we go back to the November 2015 presentation when Scott's were busy selling shareholders on the tie up with JBS, look at pages 22 to 24.

"Scott's patent portfolio has increased fourfold (from 7 to 35) over the last six years. More than 20 patent applications are pending."

"23 patents have been secured across different processes and in different geographical regions."

The patent(s) granted in NZ in 2009 for 'Bone in Processing" (via three individual patents) were 'patent pending' in the US, China , Mexico, Canada, Australia and Brazil in 2015. This particular 'patent set', Scott expects will provide comprehensive protection for the automation process in the most important global markets going forwards.

While you are right BP in that there are other engineering companies that can do this work, in practice when one tried in Europe a few years ago they were issued with a cease and desist notice by Scott's which was honoured. I don't think you will see Scott's go soft on any outfit that infringes their patents! Scott's have a strong moat in the meat processing automation market.

SNOOPY

sanctus671

04-07-2019, 01:25 PM

BlackPeter

04-07-2019, 03:48 PM

I think you are underselling the ever growing line of patents that Scott have filed since entering the meat carcass processing robotics BP. If we go back to the November 2015 presentation when Scott's were busy selling shareholders on the tie up with JBS, look at pages 22 to 24.

"Scott's patent portfolio has increased fourfold (from 7 to 35) over the last six years. More than 20 patent applications are pending."

"23 patents have been secured across different processes and in different geographical regions."

The patent(s) granted in NZ in 2009 for 'Bone in Processing" (via three individual patents) were 'patent pending' in the US, China , Mexico, Canada, Australia and Brazil in 2015. This particular 'patent set', Scott expects will provide comprehensive protection for the automation process in the most important global markets going forwards.

While you are right BP in that there are other engineering companies that can do this work, in practice when one tried in Europe a few years ago they were issued with a cease and desist notice by Scott's which was honoured. I don't think you will see Scott's go soft on any outfit that infringes their patents! Scott's have a strong moat in the meat processing automation market.

SNOOPY

Not sure the sheer number of patents would impress me ... one relevant patent is much more important than hundreds of non-relevant; However - I must admit, I have not analysed their patents, i.e. you might be right and they might have a moat through them. Did anybody do the analysis?

BlackPeter

04-07-2019, 03:57 PM

sanctus671

04-07-2019, 05:26 PM

Scotts average EPS since 2012 is 13 cents per share. Last years EPS was 13 cents per share. Where exactly do you see the (slightly weaker) growth? Must be the impact of the endowment effect?

Markets still pays a nice premium given a PE of 16.5 for a non growth company. What premium do you think they should pay?

EPS figures over the years I pulled from Scott Tech's annual reports:
2009:1.1
2010:8.5
2011: 16.6
2012:16.7
2013:13.6
2014: 6.2
2015:13.8
2016:13.3
2017:13.2
2018: 14.3
2019: For first half of year is 6.6, last year it was 4.2 for first half of the year

Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.

You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.

Also, my point with my post is about how the share price has decreased so dramatically. I understand how you personally don't value Scott Tech's current share price, but I'm referring to the huge 40+% downtrend that has seemingly not been triggered by any major event within the company.

Snoopy

04-07-2019, 06:32 PM

Not sure the sheer number of patents would impress me ... one relevant patent is much more important than hundreds of non-relevant; However - I must admit, I have not analysed their patents, i.e. you might be right and they might have a moat through them. Did anybody do the analysis?

The idea of 'three key patents' defining 'a moat' that will make it difficult for other companies internationally to move on the robotization of meat processing in the way that Scott Technology has is not mine, I have copied this straight from p24 of the joint Scott & JBS presentation dated November 2015. This was the nationwide presentation taken around the country just prior to the approval of the JBS buy in. I haven't independently analysed these patents myself and am probably not qualified to make such a judgement on them in any case . But I have no reason to believe that Scortt's, with their 16 years in the meat automation business to that point, would make such a claim up.

SNOOPY

Snoopy

04-07-2019, 07:07 PM

.
Ah yes - and we don't know the agenda of the majority shareholder (meat processor JBS) which without doubt will guide the management team. I don't think that increased earnings would be their highest priority.

For those who came in late.....

Actually we do know the JBS agenda as it was fully disclosed at takeover time in November 2015. From p6 of the Northington report on the takeover proposal:

"We understand that JBS is attracted to Scott because of the potential to apply Scott's technology throughout its global operations., providing the potential to deliver higher efficiency, higher yields and productivity gains."

"In theory Scotts could provide its service to JBS under the existing ownership structure., without JBS taking an ownership position in the company. However Scott will be in a far stronger position to take advantage of opportunities if it is well capitalised and has the financial resources to scale operations as required."

Things have really gone south since one year ago. It would be a much cheaper buy-out today for JBS if that was the overall plan. I feel like a minnow (or a mushroom) in this game.

JBS want control so that they can consolidate SCT within their own company accounts A buy out is not on the agenda, or at least it wasn't in 2015. JBS gained control by buying 51% of the company for $1.39 per share. So even at $2 -from a JBS perspective, SCT doesn't look cheap.

I am going to say that one and one half of these 11 plants are now robotised, leaving 9.5 to go. A full robotised installation today (X-ray Primal & Grading, Middle, Forequarter and Hindquarter) will cost the customer (like JBS) $12m to $13m. Scott gives a 'payback guarantee' of 18 months. This payback is achieved via improved yield, because robotized cutting is more precise, and results in less waste that a 'human knife wielder'. Gains in productivity (because robots don't get tired) and fewer accidents (robots don't sue) are a bonus. JBS hasn't done enough trialling yet to know if the 18 month (1.5 year) payback will be achieved. But based on past experiece from other installations, I am guessing it will be.

So: 9.5 (no. installations in Oz to do) x $12.5m (average cost) = $120m that JBS will ultimately spend.

Annnual payback with everything up and running will be:

$120m /1.5 = $80m

JBS have indicated they will not be paying 'mates rates' for their installations, even if they become controlling shareholders of SCT (Do I believe that? I'll take the claim at face value for now).

So: Outlay $120m (a one off).
Savings over ten years $80m x 10= $800m

Net gain: $800m-$120m = $680m

Amount laid out to 'get to the top of the customer list' : $15.4m to $50.4m (depending whether 80% or 20% of share holders accept Scheme of Arrangement).

Worst realistic case return for JBS over 10 years (calculation slightly quick and dirty, because not all installations will be installed at year one, but then again neither will all the outlay be paid in year one- but still indicative) :

$50.4m(1+r)^10= $680m

r=29.7% compounding!

This is simply a staggering return on investment. No wonder JBS Australia are keen to seek a controlling position in SCT at what, in investment terms, is an incredible bargain basement price.

Above is my analysis from 2015. Admittedly I can now see some flaws in it. But if the idea is to save $680m in costs for JBS over ten years, then the JBS share of the Scott's profit over ten years is puny by comparison - in the vicinity of $70m perhaps. For JBS it is Scotts rolling out the robotics to their plants that matters. The actual profitability of Scott Technology on the way effectively makes no difference to JBS's overall investment objective.

SNOOPY

Snoopy

04-07-2019, 07:44 PM

JBS Australia Meat Processing Plants

LocationPlantAnimals Processed
Output Capacity per dayScott Robotics Installed?

QueenslandDinmoreCattle3400Yes (pre EOFY2015)

QueenslandBeef City (Toowoomba)Cattle (grain fed)1134Yes (pre EOFY2015)

QueenslandRockhamptonCattle (grass fed)1400

QueenslandTownsvilleCattle (grass fed)1800

New South WalesRiverinaCattle (grain fed)600

New South WalesSconeCattle (grass fed)650

VictoriaBrooklynCattle1400

and 'Small Stock'8200

VictoriaCobramLambs3200

South AustraliaBordertown'Small Stock'5000Yes (pre EOFY2015)

TasmaniaDevonportCattle (grass and grain fed)28

and Pigs85

and Lambs540

TasmaniaLongfordCattle450

and 'Small Stock'1600

Actually we do know the JBS agenda as it was fully disclosed at takeover time in November 2015. From p6 of the Northington report on the takeover proposal:

"We understand that JBS is attracted to Scott because of the potential to apply Scott's technology throughout its global operations., providing the potential to deliver higher efficiency, higher yields and productivity gains."

<snip>

Above is my analysis from 2015. Admittedly I can now see some flaws in it.

What is wrong with my 2015 analysis? If you expect the benefit of a fully automated beef boning room to be in place in the near future then nothing. However, as of right now, only the lamb plants can benefit from full automation. It would also appear that the Devonport plant in Tasmania is a boutique plant that probably wouldn't benefit from full automation.

With the capacity to process up to 8,000 small animals carcasses per day (equivalent to 4000 cattle), it looks like even the largest meatworks in Australia (like Dinmore) can be satisfied with one automatic boning room operation. The potential for further lamb processing operation installations would seem to be restricted to Cobram Victoria.

Breaking down the revenues involved in installing such automation could result in a bill something like this

1/ X-ray Grading ($3m)
2/ X-ray Primal Cutter ($12m)
3/ Middle Machine (prepares rack and loin) ($12m)
4/ Hindquarter leg de-boner ($8m)
5/ Forequarter Processing ($8m)
6/ Knuckle Tipper (removes knuckle top from hind leg) ($6m).

That represents a total outlay for JBS Australia of around $49m for a fully automated lamb boning room at Cobram.

For the beef processing plants, of which there are six not using meat slicing robotics yet, there are two potential machines to install at each site.

1/ the "Beef Rib Cutter / Scorcher" ($8m)
2/ the "Beef Hock Cutter" ($8m)
This represents a total outlay for JBS Australia beef processing of 6 x $16m = $96m

Installations already made for JBS show an 18 month (1.5 year) payback period is realistic. So potential incremental net savings for JBS Australia over a ten year period add up to:

10 x ( $49m + $96m) / 1.5 = $966m

Take away the installation costs and you get a net gain of: $966m - ($49m+$96m) = $821m, or over $80m per year. Not a bad incentive to keep everything on track from a JBS perspective!

SNOOPY

BlackPeter

05-07-2019, 08:12 AM

...
The actual profitability of Scott Technology on the way effectively makes no difference to JBS's overall investment objective.

SNOOPY

This is exactly what I meant. Great investment for JBS, but minority shareholders have the problem that their interests (a reasonable capital return either as dividends or as capital growth) is not high on the priority list of the majority shareholder. Explains why the SP is dropping.

BlackPeter

05-07-2019, 08:44 AM

EPS figures over the years I pulled from Scott Tech's annual reports:
2009:1.1
2010:8.5
2011: 16.6
2012:16.7
2013:13.6
2014: 6.2
2015:13.8
2016:13.3
2017:13.2
2018: 14.3
2019: For first half of year is 6.6, last year it was 4.2 for first half of the year

Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.

You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.

Also, my point with my post is about how the share price has decreased so dramatically. I understand how you personally don't value Scott Tech's current share price, but I'm referring to the huge 40+% downtrend that has seemingly not been triggered by any major event within the company.

Fair enough. My spreadsheet does not go that far back - and I guess with earnings growth it is similar as with share price trends - if you want to make a point you nearly always find a time window to support it. Remove in your list the first two years - and you can clearly see that EPS is actually dropping :p;

One other thing to consider with SCT is that their typical business is very "lumpy". They don't produce high numbers of comparable products which consumers buy evenly spread across the year, but their typical projects are worth millions or tens of millions of dollars, every project is different often unique and they often take more than a year to completion. This means one individual years EPS (whether it is higher or lower than the average) is quite meaningless and might just be due to them finishing (and billing) a large project at the end of one or in the beginning of the next FY. What does count is the long term average and the long term trend.

Makes it obviously a bit harder to see a trend change ...

Ah yes - and how can they have significant revenue growth without earnings growth? Possible explanations would be:
1) They buy growth (by increasing the capital and the number of shares) or
2) Their margins reduce or
3) some of their projects went pear shaped and needed additional money to secure (which is a subset of 2 - taking additional earnings to secure revenue);

I suspect in Scotts case at least 1 and 3 will apply. JBS made a capital injection - didn't they ... and there is obviously the DRP. Last AGM they talked about some projects which took longer and did cost more than planned .... Not sure about generic margins in the industry.

Obviously - they might as well invest earnings into future growth ... and I am sure management would argue that this is what they do (and it well might be true).

kiwidollabill

05-07-2019, 01:40 PM

What is wrong with my 2015 analysis? If you expect the benefit of a fully automated beef boning room to be in place in the near future then nothing. However, as of right now, only the lamb plants can benefit from full automation. It would also appear that the Devonport plant in Tasmania is a boutique plant that probably wouldn't benefit from full automation.

With the capacity to process up to 8,000 small animals carcasses per day (equivalent to 4000 cattle), it looks like even the largest meatworks in Australia (like Dinmore) can be satisfied with one automatic boning room operation. The potential for further lamb processing operation installations would seem to be restricted to Cobram Victoria.

Breaking down the revenues involved in installing such automation could result in a bill something like this

1/ X-ray Grading ($3m)
2/ X-ray Primal Cutter ($12m)
3/ Middle Machine (prepares rack and loin) ($12m)
4/ Hindquarter leg de-boner ($8m)
5/ Forequarter Processing ($8m)
6/ Knuckle Tipper (removes knuckle top from hind leg) ($6m).

That represents a total outlay for JBS Australia of around $49m for a fully automated lamb boning room at Cobram.

For the beef processing plants, of which there are six not using meat slicing robotics yet, there are two potential machines to install at each site.

1/ the "Beef Rib Cutter / Scorcher" ($8m)
2/ the "Beef Hock Cutter" ($8m)
This represents a total outlay for JBS Australia beef processing of 6 x $16m = $96m

Installations already made for JBS show an 18 month (1.5 year) payback period is realistic. So potential incremental net savings for JBS Australia over a ten year period add up to:

10 x ( $49m + $96m) / 1.5 = $966m

Take away the installation costs and you get a net gain of: $966m - ($49m+$96m) = $821m, or over $80m per year. Not a bad incentive to keep everything on track from a JBS perspective!

SNOOPY

To Add...

They do have customers in the pork and chicken space - apparently the EU/USA gear has issues with the variability in carcass sizes that you get in this part of the world (particuarly free-range reared).
I've been advised all but one (I suspect AFFCO) of the majors in NZ have at least 1x install. Their backstop strategy for customers who claim higher effiencies or dont have the volume to justify the larger gear is to sell the 'bladestop' bandsaws on purely an H&S perspective.
Apparently some of their patents are already being flouted by manufacturers in the EU, patents are only there to line the pockets of IP lawyers IMHO.

Snoopy

05-07-2019, 04:41 PM

Apparently some of their patents are already being flouted by manufacturers in the EU, patents are only there to line the pockets of IP lawyers IMHO.

By 'flouted' do you mean 'blatantly copied' ? Or do you mean the patent has been successfully designed around?

I have heard it said that a patent is a very expensive way to put your ideas in the public domain so that those with deeper pockets than you can copy those ideas in a way such that it becomes cost prohibitive for you to sue them. For many, putting their 'great idea' behind a new recognizable 'brand' and relying on trademark protection going forwards is a better way to go.

The above might be true for an individual. But companies can afford lawyers. So the fear of 'Scott Technology' 'breathing down a competitors neck' probably has more deterrent value than saying 'Mr A Arnold from Dunedin' half-way-around-the-world might sue you.

Of course such conflicts do not necessarily end in 'cease and desist' battles. Scott's may be amenable to licensing their technologies at a modest charge. IIRC one of the Scott joint venture companies that held one of these patents received a royalty of 10c per carcass processed. It might be well worth someone interested in exploiting one of the patents to pay that as the improvement in meat yield would no doubt be well north of 10c per carcass in value.

SNOOPY

Snoopy

05-07-2019, 10:13 PM

,
The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry.

'The Real Pet Food Company' has bought three new Scott 'Baldestop' bandsaws in 2017 (two in NZ and one in Australia) for $NZ89,000 each. One replaced a three month old bandsaw that cost $NZ25,000.

This is a good example of a customer willing to pay top dollar to obtain a safer working environment. The replacements were the response to a staff member losing the tip of a finger while using the old equipment.

SNOOPY

kiwidollabill

08-07-2019, 08:23 AM

By 'flouted' do you mean 'blatantly copied' ? Or do you mean the patent has been successfully designed around?

I have heard it said that a patent is a very expensive way to put your ideas in the public domain so that those with deeper pockets than you can copy those ideas in a way such that it becomes cost prohibitive for you to sue them. For many, putting their 'great idea' behind a new recognizable 'brand' and relying on trademark protection going forwards is a better way to go.

The above might be true for an individual. But companies can afford lawyers. So the fear of 'Scott Technology' 'breathing down a competitors neck' probably has more deterrent value than saying 'Mr A Arnold from Dunedin' half-way-around-the-world might sue you.

Of course such conflicts do not necessarily end in 'cease and desist' battles. Scott's may be amenable to licensing their technologies at a modest charge. IIRC one of the Scott joint venture companies that held one of these patents received a royalty of 10c per carcass processed. It might be well worth someone interested in exploiting one of the patents to pay that as the improvement in meat yield would no doubt be well north of 10c per carcass in value.

SNOOPY

Blatently copied....

Snoopy

08-07-2019, 09:20 PM

Great summary Snoopy, it definitely gives me confidence in Scott Tech in the long term. I don't get it though. Everything seems really promising as far as potential growth for this company. They have strong revenue and profit growth, albeit slightly weaker EPS growth (so far anyway), yet the share price has dropped more than $1.5 over the past year (50c in the past 2 weeks). That is an FBU type disaster but yet there is no apparent major issues at scott tech as far as we know. Anyone have an thoughts to explain the weak share price? Is it just the weak EPS grwoth + market conditions favouring high yield, larger companies vs smaller growth companies right now?

Sanctus, you ask a very poignant question. i think part of the answer is because Scott's business is so heavily weighted into overseas markets, some of the issues affecting Scotts are not reported here. After a fair bit of internet trawling, I believe I have found at least a partial answer to your question.

1/ Delayed Roll Out of DEXA in Australia

DEXA (Dual-Energy X-ray Absorptiometry) is an X-ray system that has found a use within the meat industry to estimate the yield of an animal carcass. DEXA technology is used by Scotts as a potential first key to unlocking a full automatic boning room project. At one stage, an industry lead internal roll out to every Australian red meat abattoir site looked on the cards.

An industry time line of what has happened, as regards the DEXA roll out, is here:

https://www.beefcentral.com/processing/dexa-timeline-of-events

Meat and Livestock Australia (MLA) got very keen on DEXA in November 2016, recommending a fast roll out to all industry members. They made plans to borrow $150m to fast track rolling out DEXA equipment to 90 abattoirs in Australia. However after an Ernst & Young review, by May 2017 a materially smaller $10m roll out at just four plants (three lamb and one beef) was commenced. A smaller trial program was deemed prudent because DEXA is unproven in beef in a commercial setting. And beef is by far the largest meat processing market in Australia. Ernst & Young were in favour of a three year delay in initiating a wider roll out, meaning industry players are having to largely fund their own installations for now. The estimated cost of buying and installing each unit outlined in MLA’s initial funding proposal is $1.45 million per unit ($1m for smaller units for sheep and goat plants, $2m for larger units for cattle plants). Notwithstanding these costs do not include other likely, and potentially considerable, expenditure such as plant modifications that may be needed to accommodate a DEXA unit. For some plants these costs will be substantial, in particular older plants that are already cramped for space. Future industry development funding has now switched away from the $150m loan proposal to implementing an industry levy. But no coherent plan had been signed off by March 2019. As a result, all such developments are still plant owner funded, with some government R&D assistance.

The whole evaluation process seems to have been caught up in a wider Australian Senate Report on "The effect of market consolidation on the red meat processing sector". This was finally published in September 2017. The slower any trial, the further down the track benefits of Scott's being able to build on the DEXA technology are pushed. A July 2018 report highlights slow progress

https://www.beefcentral.com/processing/slow-progress-in-dexa-beef-carcase-yield-analysis/

If alternative scanning technology, the European E+V whole carcase yield camera, ends up preferred, this does not integrate with Scott's add on robotic systems. That could deal a serious blow to Scott's being able to transfer their lamb boning knowledge into the beef industry.

As a current window on industry progress, there was a March 19 2019 announcement: Three new lamb installations will include one unit in Western Australia, a second unit in Victoria and one in NSW. Company identities have not yet been disclosed. All will be retro-fitted into existing lamb plants, and some are expected to be linked to robotic lamb carcass cutting systems (the robotic bits presumably made by Scotts).

2/ Underperformance from Alvey in Europe

We don't hear much about it, but the size of Scott's business in Europe (made up of mainly Alvey) now matches, in staff numbers at least, those working in Australasia. This means the performance of the European business has a large effect on how the Scott's group as a whole is traveling. My post 717 provides evidence that Alvey's contribution since acquisition by Scotts in FY2018, as reported in AR2018, has deteriorated. Europe is having a difficult time, what with trade wars with Trump and uncertainty caused by Brexit. This could very well be the cause of a continuing significant decline in palletising, conveying and warehouse automation solutions, specialised in by Alvey, being bought and sold within Europe. The only comment in the Scott half year report letter in March, regarding Europe, was that Alvey was being integrated with Scott's German division. There was no market comment on Europe, although in the same paragraph it was noted that Transbotics in the United States was providing a good growth platform. Reading between the lines: Europe in the doldrums; No growth to speak of?

SNOOPY

Snoopy

09-07-2019, 12:06 PM

2/ Underperformance from Alvey in Europe

We don't hear much about it, but the size of Scott's business in Europe (made up of mainly Alvey) now matches, in staff numbers at least, those working in Australasia. This means the performance of the European business has a large effect on how the Scott's group as a whole is traveling.

I am finding it difficult to get a feel for the reach of Alvey. To assist with this, I have been perusing the Alvey website ( www.alvey.eu ) and have produced some 'summary information' for the brands they are palletising, conveying and warehousing.

Consumer Goods

Frozen Vegetables (Multi-line palletisation)

Ardo Dujardin, McCain, Bergia Frites, Mydibel, Clarebout, Pasfrost, Farm Frites, Pinguin, Lamb Weston Meijer

Potato Snacks (Multi-line palletisation) Gentle handling a key requirement

Lamb Weston Meijer, PepsiCo, Roger & Roger, Veurne Snack Foods

Dairy Products ('An absolutely key market segment' Work in all geographical markets with an Alvey presence. Challenge: open trays with delicate products.)

Danone, Maitres Laitiers du Cotentin, NOM UK, Yoplait, Friesland Campina, MilkLink, Olma, Fromagerie Bel, Molkerei, Alois Müller, Royal A-ware, Glanbia Müller UK, Savencia Fromage & Dairy

Ice Cream (Special expertise for low temperatures)

Haagen Dasz, Rosen Eiscream, SGS Frigicrème, Thiriet

Drinks (high capacity packing lines)

Coca Cola, Chaudfontaine, Emig, Korunní, Kuracjusz

Beer (Crates and Kegs, strong in Czech Republic)

Budweiser Budvar, Litovel,, Carlsberg, Pilsner Urquell, Heineken, Guinness

Coffee (Operate in largest coffee factory in Europe)

Douwe Egberts, Kraft Foods, La Maison du Café

Bakery & Flour Products (palletise 1kg packs, use robots for larger bags)

Brioche Pasquier, Panavi, Chateau Blanc, Penam, Délifrance, Puratos, Harrys, Vandemoortele

Poultry (client one of world's biggest poultry suppliers)

LDC, SNV

Feminine and Baby and Incontinence Paper Hygiene Products

Essity Germany, Essity Netherlands, Essity Poland, Essity Russia

Home Detergents

McBride, Procter & Gamble, Vandeputte

Cosmetics (few customers)

Clarins, Gols Mediterranée

Industrial Goods

Hospital Laundry System (France only, Sorting and picking linen for departments)

Assistance Publique Hôpitaux de Marseille, Centre hospitalier de Lagny, CHU De Reims, SIH Caudan, Assistance Publique Hôpitaux de Paris, Hôpitaux de Toulouse, Jensen, CHU Clermont FerrandColruyt

Automotive (includes 'Maestro' software for 'just in time' delivery)

Deldo, Doyen Auto, MC Syncro, Volvo

General Manufacturing

Autajon, Sagem, Eternit, SEW, Isover, Schneider, Knauf, PGB

Alcyon, Durand Production, Saunier, Altadis, EPC Newspapers, Schulman Plastics, Bio c´Bon, Monsanto, Synerlab, Daikin, Nestlé Purina, Vandeputte, De La Ballina, Philip Morris, Western Newspapers

Logistics (including pioneered drive by collection of internet ordered retail goods)

Atlas Copco, Eandis, Geodis, SB Logistics, bpost ,Eriks, Nationale Loterij Belgium, Spicers, CL Group, Euroterminal. Oesterbank, Spie, CNH, Fournial, Paul Boyé, Velleman, Colart, Franky Vleeswaren, PGB, Vergeer Kaas

Colruyt, Morrisons, Darty, Ubaldi, Décathlon. Delhaize. Leclerc

SNOOPY

Snoopy

09-07-2019, 07:41 PM

If alternative scanning technology, the European E+V whole carcase yield camera, ends up preferred, this does not integrate with Scott's add on robotic systems. That could deal a serious blow to Scott's being able to transfer their lamb boning knowledge into the beef industry.

A couple of excerpts from the 24th April 2019 letter to the stock exchange outlining the arrival of this newest member of the Scott family.

"Normaclass is the leading provider of a grading technique to meat processors in both France and Uruguay. The system uses digital cameras to collect data and measurements of each carcass (while in motion on the production line) which is then analysed by software in real-time to determine a carcass classification. This classification, in conjunction with carcass weight and market prices, determines the carcass price paid to the farmer."

"Normaclass will also provide SCOTT with a complementary technology to DEXA for those customers who simply want an objective carcass grading tool."

Effectively 'Normaclass' allows Scott to have a 'bet each way' with meat industry players, if DEXA 'doesn't cut it' as a grading tool for the beef industry. Yet if both systems work for grading, would an abattoir that has just installed a 'Normaclass' system (cheaper than DEXA because there is no requirement for shielding to isolate the X-rays as used in DEXA), then proceed to order a fully automated meat room? Perhaps not, which means that each 'Normaclass' sale represents 'business lost' to that fine automation team in Scott's Dunedin base.

'Normaclass' profits supposedly equate to 1-2% of Scott group profits before the acquisition. Group NPAT for FY2018 was $10.772m. So 'Normaclass' profits must be $0.107m to $0.215m. If we work on EBITDA of $19.305m, then ongoing Normaclass EBITDA is about $0.193m -$0.386m.

The initial payment for 'Normaclass' was 1.1m euro. On the 30th May 2019 settlement date $NZ1 = 58.5 euro, This means the $NZ purchase price was: 1.1 / 0.585 = $NZ1.88m. The purchase price equates to an EBITDA margin of:

($0.107m - $0.215m) / $1.88m = 5.7% to 11.4%

SNOOPY

sb9

19-07-2019, 05:11 PM

Strange price jumps (big) today on low volume, interesting if something's up as with tightly held stocks either way up or down.

emveha

23-08-2019, 08:16 AM

Strange, I can't find their 2019 half-year report on the SCT web site. Am I blind, or has anyone here an obvious explanation before I write them?

MVA

percy

23-08-2019, 08:20 AM

Go to www.stocknessmonster.com
type in SCT
then news
scroll down and you will find it.
Can also bring up previous year's news.
It's a free service.

Snoopy

23-08-2019, 08:45 AM

Strange, I can't find their 2019 half-year report on the SCT web site. Am I blind, or has anyone here an obvious explanation before I write them?

MVA

Hi emveha,

You won't find the half year report for Scott's for FY2019 because it doesn't exist! It is all due to the new stock exchange rules that the NZX listed companies are gradually adopting which does away with the requirement to produce a half year report. Of course when shareholders vote to adopt these new rules, no mention is made of the half year report being dropped. We are sold all the streamlining benefits of bringing reporting into the modern age and reducing compliance costs blah blah blah.

We now have to make do with a rather less informative 'half year announcement' which is no longer sent to shareholders. You can find the half year announcement for HY2019 here:

https://www.scottautomation.com/assets/Announcements/2019-Investor-Relations-Announcements/2019-Half-Year-Announcement.pdf

This dropping of half year reports doesn't apply to just Scott Technology. You will quite soon find no more half year reports will be issued for any NZX company. A retrograde step in my view.

SNOOPY

P.S. I note you are based in London, and that Scott's, through their acquisition of Alvey, have greatly increased their presence in Europe. Have you noticed an increased profile for Scott's in Europe that has piqued your interest as an investor?

BeeBop

23-08-2019, 08:50 AM

Strange, I can't find their 2019 half-year report on the SCT web site. Am I blind, or has anyone here an obvious explanation before I write them?

MVA

I can’t see it on the website either.

emveha

23-08-2019, 08:59 AM

BeeBop

23-08-2019, 09:07 AM

Snoopy

25-08-2019, 08:46 AM

Thank you Snoopy, I didn't know about that aspect in the change of rules and I agree that's a step backwards. I guess all the same information is in the HY Announcement + HY financial statement, but without the convenience of a single document.

To answer your question, even though I am based in London, I am a Kiwi at heart and my investments are very much NZX-based. That's how I came to Scott.

I am through London a lot....Gulf based though...if you ever want to chat about NZ shares (and Scott), do let me know.

Emveha and Beebop. I hereby bestow the honour on you both of 'honourary roving hound' with the mission of sniffing out whatever Scott/Alvey is doing in the northern hemisphere. I have to admit to feeling a bit disconnected now that nearly half of Scott's business is European based. The press releases on what was the Alvey website have slowed to a trickle. There wasn't exactly much detail in the Scott's half year 2019 non-report nzx letter either.

The overall impression I have is that the justification for the Alvey purchase is to provide a packaging and final distribution add on to the 'automated boning room' concept. Robots from go to whoa. However, at least in New Zealand, there was a previous loose synergistic arrangement with 'Millers Mechanical', also Dunedin based, to do this. I imagine this relationship is still intact as Scott's have taken over the international spare parts arm of Millers. How Millers will fit in with the Alvey operation going forwards, I am not sure. I wonder how many Alvey production finishing lines will find their way into the JBS Australia Meat Processing sites over the next few years? And on that last thought, given what I see as doubtful synergies and the apparently positive reputation of Alvey, I wonder if the northern hemisphere rebranding of 'Alvey' to 'Scott' really makes sense?

SNOOPY