SCT - Scott Tech [Archive] - Page 5

Sideshow Bob

31-05-2022, 08:38 AM

Scott announces record USD $35m deal into North America - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/392993)

SCOTT ANNOUNCES RECORD USD $35M DEAL TO EXPAND MATERIALS HANDLING BUSINESS INTO NORTH AMERICA

Project with JBS Canada will see first Scott end-to-end MHL system installed in the region

Auckland, New Zealand: Scott Technology (NZX:SCT) is pleased to announce that it has signed a non binding memorandum of understanding to deliver its first fully automated warehousing system for JBS Canada’s Brooks plant in Alberta, which has an estimated value of USD $35 million (NZD $56m).

The project will be the largest ever in Scott’s history and will see them integrate existing technology from across the group, together with systems from its joint venture partner Savoye to design and build a complete end-to-end material handling solution capable of handling 85,000 cartons.

Scott Technology CEO John Kippenberger says he is excited to combine their proven technology, with Savoye’s proprietary components to deliver a world-class solution for JBS. “In 2020 we signed a joint venture agreement with Savoye to use their automated carton storage and retrieval technology to expand our Scott material handling system offering. With this JBS transaction, we will deliver a truly end-to-end solution, integrating the Savoye tech seamlessly with Scott’s own conveying, sorting and palletising applications.

“As part of our Scott 2025 strategy, we committed to expanding our proven materials handling business outside of its European stronghold and into the North American market, with a particular focus on frozen foods and meat processing. Our partnership with Savoye was the first step and today’s announcement demonstrates that we are delivering on our plan,” says Kippenberger.
The JBS facility in Brooks city is one of the largest beef processing facilities in Canada, employing over 2,800 people. The new Scott automated solution will replace a fully manual system, increasing product handling efficiencies by allowing more flexible, high speed carton sortation and management.

“Like New Zealand, North America continues to experience labour supply issues, particularly in the meat processing space,” says Kippenberger. “The new system will not only address this challenge, but it will also improve safety as one carton can weigh up to 50kgs, reduce storage costs, errors, and deliver improved inventory turns. It represents significant efficiencies and cost savings for JBS Canada.”

Specifically, the system will manage 600 SKUs (Stock Keeping Units) in a highly flexible manner, allowing for optimised order management. It will enable picking of 3,000 cartons per hour, shipping of 40,300 cartons per day, high-speed palletising of 120+ pallets per hour and provide high-density storage for 85,000 cartons. It will integrate with Warehouse Execution Software for complete monitoring, management, and control of goods.

The project will be supplied from Scott’s facilities in Europe, the company’s centres of excellence for materials handling technology. Scott’s AGV components will be supplied out of Scott USA.

Entry into the JBS transaction is being undertaken without shareholder approval in reliance on a waiver from NZX Listing Rule 5.2.1 granted by NZ RegCo on 31 May 2022.

BlackPeter

31-05-2022, 08:59 AM

percy

14-09-2022, 03:48 PM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/398746/378958.pdf

Sideshow Bob

18-10-2022, 12:38 PM

https://www.nzx.com/announcements/400761

SCOTT TECHNOLOGY ANNOUNCES FY22 RESULTS: FOCUS ON CORE STRATEGIC PRIORITIES DELIVERS GROWTH

• The Engineering Scott to High Performance 2025 strategy continues to provide momentum and guide the business focus on its core sectors of meat, materials handling and logistics and mining, where it has proven world class technology with strong commercials

• The sales and services of these three core sectors delivered 75% of group revenue and 90% of margin

• Group revenue (from continuing operations) was up 8% to $222m, margins grew to 24% despite inflationary and supply chain pressures. EBITDA increased 14% to $24m while net profit after tax (from continuing operations) was up 51% to $12.7m

• Record $190m of forward work across on-strategy meat and mining solutions, combined with demand for the higher margin mining products, BladeStop and service businesses

• Dividend of 4.0 cents per share declared to take full year total to 8.0 cents

Snoopy

12-11-2022, 02:18 PM

CEO of two years, John Kippenberger , has certainly made his mark on Scott Technology. JK is the architect of the "Scott 2025" vision, and its three pronged 'Systems', 'Products' & 'Services' approach. Gone is the ambition to be 'the global leader in automation'. Instead Scott's is re-orientating, looking at niche project areas, where Scotts have achieved success (rather than taking on any challenge - which technically they could do - but at an unforecastable cost).

Products

There is a big new emphasis on 'standard products', and Scotts have identified three 'core standard products'.

a/ Rock crushing and pulverizing equipment and supplying what is termed 'reference material'. This is selling equipment central to 'medium scale mining' lab analysis (testing what is actually being dug out of the ground) - a truly globally market. This 'product' is from the 'Rocklabs' business unit, based in Auckland, New Zealand.

b/ The 'Bladestop' safety bandsaw, features dual acting switching technology, to all but eliminate the possibility of maiming the bandsaw operator. This was developed for the meat industry, but has other potential applications. The technology was developed in Australia, and the IP was subsequently bought by Scotts in 2016. 'Bladestop' is manufactured by Scott’s Australian subsidiary, Scott Automation & Robotics Pty Limited.

https://www.nzx.com/announcements/291423

c/ Selling new and refurbished industrial robots under the 'RobotWorx' brand, both in the USA and Australia.

The thinking behind this 'product' strategy: if you have technically superior product, then you have 'brand recognition' and 'pricing power'.

Systems

'New thinking' has rolled into the manufacture of production lines for the world's appliance manufacturers (long a mainstay of Scott revenue) as well. From p21 AR2021 "Our goal is for production lines in the future to be at least 80% standardised."

Certainty = Cost Control = Predictable Profits

is the new Scott 'equation'.

Services

More new thinking has gone into the servicing arm of the business. From AR2021 p18

"We`re proactively seeking to become a service business, verses re-actively doing it where we can. This means we are introducing servicing earlier in the project process (at the point of sale), rather than it being an after thought." (includes regular servicing and preventative maintenance.)

This isn't just words. Scott's are about to increase the number of service technicians in each country in which they operate.

Selecting the markets in which you have greatest advantage, and successfully executing that strategy, makes answering the question at the head of this post easy.

Conclusion: Pass Test

3M, the NYSE listed multinational corporate is known as a 'clever tech innovator' in the business space. Now New Zealand has their own 3M in the form of listed company 'Scott Technology'. The eMs in this case refer to Material handling, the Meat Processing Industry and Mining Adjunct Equipment. These are the three 'standard product' industries where Scott's have 20 years or more of specialist industry expertise.

1/ Material Handling

This is the old Alvey group business, purchased as a going concern by Scott's in FY2018 and headquartered in the Belgium and the Czech Republic in Europe. Much of the Alvey division's work is with palletising and packaging food for international brands such as McCain, Danone and Friesland Campina (a Dutch dairy multinational). Acquisition by Scott's has allowed branching out into new geographic markets with materials handling installations in Canada and New Zealand. In terms of revenue, this is the largest part of the Scott business (about one third).

Added to Alvey is the US based Transbotics business unit, which specialises in self guided automated trackless transportation trolleys for industrial use.

2/ Meat Processing

Meat processing's flagship project, the now successfully integrated 'automatic boning room', is built around processing of lamb carcasses. Globally lamb is a 'minority meat'. But 18 wholly or partly automated lamb boning rooms have been sold across Australasia, representing $180m in cumulative sales (PV = $10->15m per installation today). Scott's estimates that the 60% of our regional lamb processing market that remains unautomated is 'ripe for the picking'.

The second string to Scott's meat automation bow is the automated poultry trusser. 'Trussing' is the term used when a plucked and de-headed chicken is packaged up ready for sale with string, tying the wings and legs of the bird carcass tightly to the body. This keeps the processed chicken 'compact' for packaging and rotisserie cooking purposes. A Scott robotic trussing system ($1.7m for a 24 birds per minute system) is capable of processing a single chicken in five seconds. The opportunity within the US market alone is estimated at 150 machines.

The third product, 'Bladestop' is an industrial band-saw with a twin safety mechanism that makes it almost impossible for an operator to injure themselves. This product is applicable to more manual meat processing, such as occurs in the beef industry. 'Bladestop' (around $70k per unit) currently has a 9% market share in the US, and shows further promise of being a sales prospect for non-protein based applications.

The above three 'standard products' all have patent protection in the markets in which they are sold.

3/ Mining Adjunct Equipment

Rocklabs, based in Auckland, does not supply mining equipment for pulling minerals out of the ground. What it does do is provide automated equipment to crush down and analyse drilling samples. That means those companies mining certain mineral veins know exactly the composition of material is that is being dug out. This is important information in assessing the ultimate yield of the raw material a company is mining. Rocklabs have a globally wide and loyal client base.

Normally, to do this testing, some form of comparative assay material is required. Rocklabs can supply such material.

A further 'mining aid' is Scott's robotic fuel filling system. An on site mining truck can be a very large beast, not suitable for driving on a public road. Typically the wheel height might be the height of a person. So reaching up to refuel such a thing, in hot weather, can be a demanding physical task. Scott's Australian business has developed a robotic arm automated refueling system to solve this problem.

4/ And 'oh yes' Scott's has a 'non-core business' arm too, and it makes up just under 25% of company revenue! Very curiously it wasn't even mentioned in the annual report text by name (although it was in a couple of photographs). This is the 'Appliance line manufacturing business', where the competition has been either from co-operative European consortiums in Spain and/or Italy, or the Appliance manufacturer doing the project 'in house' themselves.

As the producer of patent protected technology for niche applications, Scott's certainly ticks the 'top three in their chosen market' box. Even in the more contested Appliance line manufacturing business, Scott's seem to end up in the top three for customer choice.

Conclusion: Pass Test

SNOOPY

Snoopy

12-11-2022, 09:34 PM

FY2016: $8.929m / 74.681m = 12.0cps

Notes NPAT normalisation calculations

FY2016: These adjustments may be found on p33 of AR2016. I have:

a/ Added back a loss on sale of property plant and equipment, $0.215m; and an impairment of net assets at QMT Machinery Technology Co. Ltd in China, $0.449m.
b/ Added back fair value losses on firm commitments, $1.051m.
c/ Added back foreign exchange losses, $0.027m; and unrealised fair value losses on fair value losses on foreign exchange derivatives, $0.155m; and subtracted fair value gains on derivatives held as fair value hedges, $1.051m.

$8.134m+($0.215m+$0.449m)+ 0.72($1.051m+$0.027m+$0.155m-$1.051m)= $8.929m

FY2017: $8.959m / 74.681m = 12.0cps
FY2018: $10.205m / 75.903m = 13.4cps
FY2019: $9.464m / 77.545m = 12.2cps
FY2020: -$0.259m / 78.311m = -0.0033cps
FY2021: $11.146m / 78.636m = 14.2cps
FY2022: $13.510m / 79.852m = 16.9cps

Notes NPAT normalisation calculations

FY2017: These adjustments may be found on p30,31 of AR2017. I have:

a/ Subtracted a gain on sale of property plant and equipment ($0.073m)
b/ Added back fair value losses on firm commitments, $0.001m.
c/ Subtracted foreign exchange gains ($0.269m) and unrealised fair value gains on fair value gains on foreign exchange derivatives ($0.143m) and fair value gains held as fair value hedges ($0.001m).
d/ Subtracted a fair value gain on purchase of business "DC Ross" ($0.936m).

$10.265m-($0.073m+$0.936m)+ 0.72($0.001-$0.269m-$0.143m-$0.001m)= $8.959m

FY2018: Most of these adjustments may be found on p33 of AR2018. I have
a/ Added back the $0.021m loss on disposal of property plant and equipment.
b/ Added back in the unrealised loss on foreign exchange derivatives, $0.271m; and losses on derivatives used as fair value hedges, $1.579m; and the unrealised fair value losses on interest rate swap contracts, $0.043m.
c/ Subtracted foreign exchange gains ($1.627m) and fair value gains on firm commitments ($1.579m).
d/ Added back $0.496m being due diligence and acquisition costs (including the $0.271m of due diligence services from the auditors)

$10.772m+($0.021m)+ 0.72($0.271m+$1.579m+$0.043m-$1.627m-$1.579m+$0.496m)= $10.205m

FY2019: Most of these adjustments may be found on p39 of AR2019. I have
a/ Subtracted the gain on sale of property plant and equipment of $0.106m and $0.237m (assumed non taxable)
b/ Added back in the unrealised loss on foreign exchange derivatives, $1.334m; and fair value losses on derivatives used as hedges, $1.216m; and the unrealised fair value losses on interest rate swap contracts, $0.346m.
c/ Subtracted foreign exchange gains ($0.008m) and fair value gains on firm commitments ($1.216m) .

$8.604m-($0.106+$0.237m)+ 0.72($1.334m+$1.216m+$0.346m-$0.008m-$1.216m) = $9.464m

FY2020: This is the year in which the Covid-19 crisis struck! Most of these adjustments may be found on p5 and p36 of AR2020.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.328m (assumed non taxable)
b/ Added back $7.600m from the impairment of assets (ceased development of projects Scott dairy and automated pork processing).
c/ Added back $4.257m of restructuring impairment related to the closure of subsidiaries DC Ross Toolmakers in Dunedin and Scott Automation GmbH, the machine tools workshop arm in Germany. Since these represent complete and final closure of these businesses I am assuming no tax is recoverable
d/ Added back $6.295m of project impairments, closing out several challenging Australasian legacy projects (assumed no tax recoverable).
e/ Added back in the unrealised loss on foreign exchange derivatives, $0.082m and fair value losses on derivatives used as hedges, $0.890m.
f/ Subtracted foreign exchange gains, ($0.450m); fair value gains on firm commitments, ($1.036m); unrealised fair value gains on foreign exchange derivatives, ($0.146m) and unrealised fair value gains on interest rates swaps ($0.146m).

-$17.503m-($0.328m)+$7.600m+$4.257m+$6.295m +0.72($0.082m+$0.890m-$0.450m-$1.036m-$0.146m-$0.146m)= -$0.259m

FY2021: Most of these adjustments may be found on p39 and p40 of AR2021.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.068m (assumed non taxable)
b/ Added back an actual foreign exchange loss of $1.706m and an unrealised fair value losses on derivatives used as hedges of $0.521m.
c/ Subtracted unrealised fair value gains on foreign exchange derivatives, ($0.132m) and unrealised fair value gains on interest rates swaps ($0.155m).
d/ Added back the amortisation of HTS 110 goodwill, now a legacy asset that has been sold, of $0.403m.

$9.527m-($0.068m) +0.72($1.706m+$0.521m-$0.132m-$0.155m) + 0.72x$0.403m= $11.146m

FY2022: Most of these adjustments may be found on p45 and p46 of AR2022.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.049m (assumed non taxable)
b/ Added back an actual foreign exchange loss of $1.529m and an unrealised fair value losses on derivatives used as hedges of $0.639m.
c/ Subtracted unrealised fair value gains on foreign exchange derivatives, ($0.339m) and unrealised fair value gains on interest rates swaps ($0.576m).
d/ Writing off of Robotworx goodwilll, now Robotworx is a discontinued operation, was done as a separate accounting entry, outside of the continuing operations accounts as presented. Thus no adjustment to the accounts as presented is required as a result of discontinuing Robotworx operations.

$12.657m-($0.049m) +0.72($1.529m+$0.639m-$0.339m-$0.576m) = $13.510m

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

Discussion: You will notice that I calculated six years of results, whereas I am meant to be considering only five. I have done this because for Scotts, I believe the FY2020 result was so unusual (Covid-19 effects related), that it would be misleading to to think of it as any part of a 'normal business cycle'. Thus I am going to 'look through' FY2020 as though it didn't happen. The one sense where I will consider FY2020 is that on normalised profit metrics the business was close to break even. So with the benefit of hindsight government support, and no doubt lots of prudent management behind the scenes, we can see that the SCT business was not put at risk of closing by Covid-19. Consequently I do not think that SCT will be forced to close down should Covid-19 restrictions again come to the fore. With FY2020 excluded, and only one blip on the 'eps' growth scoreboard, the result of the second Buffett test is clear.

Conclusion: Pass Test

SNOOPY

Snoopy

13-11-2022, 06:24 PM

FY2016: $8.929m / $94.600m = 9.4%
FY2017: $8.959m / $97.156m = 9.2%
FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.464m / $111.817m = 8.5%
FY2020: -$0.259m / $92.947m = -0.29%
FY2021: $11.146m / $98.195m = 11.4%

Is FY2021 a portent to a much improved utilisation of shareholder funds in the future? It could be, but Scott's have a lot of catching up to do in the return on shareholder equity space.

Conclusion: Fail Test

FY2017: $8.959m / $97.156m = 9.2%
FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.464m / $111.817m = 8.5%
FY2020: -$0.259m / $92.947m = -0.29%
FY2021: $11.146m / $98.195m = 11.4%
FY2022: $13.510m / $100.406m = 13.5%

Good improvement over FY2022, even if we haven't yet reached the Buffett hurdle standard. It is pleasing the see the increased 'return on equity' (ROE) is happening on an increasing equity base. This shows the capital that has been invested back into the company is being wisely invested along a growth path. But our test 'hurdle height' is set for a reason so....

Conclusion: Fail Test

SNOOPY

Snoopy

13-11-2022, 06:42 PM

Here are the net profit margins for the last six years.

FY2016: $8.929m / $112.044m = 8.0%
FY2017: $8.959m / $132.631m = 6.8%
FY2018: $10.205m / $181.779m = 5.6%
FY2019: $9.464m / $225.093m = 4.2%
FY2020: -$0.259m / $186.073m = -0.14%
FY2021: $11.146m / $216.234m = 5.2%

We have had a blip up from the lows of FY2019 (ignoring the one off FY2020 Covid-19 genesis year). Is this a result of the new 'product lead' and 'standardised unit' policy? I think it is too early to tell if this uptick in net profit margin will form part of a trend. One thing that is clear is that the net profit margin trend was all down before FY2021

Conclusion: Fail Test

Here are the net profit margins for the last six years.

FY2017: $8.959m / $132.631m = 6.8%
FY2018: $10.205m / $181.779m = 5.6%
FY2019: $9.464m / $225.093m = 4.2%
FY2020: -$0.259m / $186.073m = -0.14%
FY2021: $11.146m / $216.234m = 5.2%
FY2022: $13.510m / $221.757m = 6.1%

Margins have been increasing since new CEO John Kippenberger started the 'Scott 2025' strategy. In short this is using standardised products and processes to remove contracting risk. Ignoring the unrepresentative Covid-19 year FY2020, profit margins look to be on a steady, albeit slow, recovery path, notwithstanding that margins are still below where they were six years ago. Over FY2022 margin growth of 6.1%/5.2% = +17% is greater than inflation.

Conclusion: Pass Test

SNOOPY

Snoopy

15-11-2022, 10:51 AM

I don't think SCT management see themselves as a 'no growth' company. But as investors I think it is reasonable to assess the company as a 'dividend payer only' to get some idea of value.

The calculation to work out the equivalent gross figure for the FY2020s partially imputed dividend, is as follows:

FY2020 Dividend P.I.: 4.0c (18.41% imputed, 18.41%/28%= 0.6575)
= 2.63c (FI) + 1.37c (NI)
= 2.63c/0.72 + 1.37c = 3.65c + 1.37c = 5.02c (gross dividend)

Year
Dividends as DeclaredGross DividendsGross Dividend Total

FY20175.5c+4.0c
7.64c + 5.56c
5.56c

FY20186.0c+4.0c8.33c + 5.56c13.89c

FY20196.0c+4.0c 8.33c + 5.56c13.89c

FY20204.0c (18.41% I) + 0c 5.02c + 0c5.02c

FY20210c + 2c (NI) 0c + 2.00c2.00c

FY2022 4c (NI)+ ?c 4.00c + ?c4.00c

Total44.3c

Averaged over 5 years of dividend payments, the dividend works out at 44.3/5 = 8.86c (gross dividend).

I have given some thought as to whether I should revise my sought for "gross yield" in this new environment of very low interest rates. Scott's seem to have been remarkably adept at solving the logistical transport problems created by Covid-19. They have even completed factory acceptance testing by virtual technology. I am now of the opinion that my previously selected sought after 7.5% gross yield over an historic five year business cycle window, should be reduced to 7.0%. This means that 'fair value' for SCT, based on the, 5 yearly historic dividend record is:

8.86c / (0.07) = $1.27

Now using my plus and minus 20% rule of thumb range to get a feel how the SCT share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.27 x 1.2 = $1.52
Bottom of Business Cycle Valuation: $1.27 x 0.8 = $1.02

SCT shares were trading at $3.25 on Wednesday 10th December as I write this (more than double the upper end of my expected range) and are now ($3.25-$1.27=$1.98) 155% overvalued (from a business cycle projected dividend income perspective). Another way of interpreting the same information is to say that SCT shares currently contain a 155% growth premium (because a capitalised dividend valuation assumes no growth).

It is clear the market is pricing SCT well above what we might expect from the dividend payer that I am modelling. And this is assuming SCT will increase the current annual dividend rate of 2c +4c = 6cps, to more than 8cps. This means the market clearly believes the growth story. But a capitalised dividend valuation relies on 'runs on the board', not future hope.

I don't think SCT management see themselves as a 'no growth' company. But as investors I think it is reasonable to assess the company as a 'dividend payer only' to get some idea of value.

Year
Dividends as DeclaredGross DividendsGross Dividend Total

[TR]
FY20186.0c + 4.0c8.33c + 5.56c5.56c

FY20196.0c+4.0c 8.33c + 5.56c13.89c

FY2020 (1)4.0c (18.41% I) + 0c 5.02c + 0c5.02c

FY20210c + 2c (NI) 0c + 2.00c2.00c

FY2022 4c (NI)+ 4c (NI) 4.00c + 4.00c8.00c

FY2023 4c (NI)+ ?c 4.00c + ?c4.00c

Total38.5c

Notes

1/ A sample calculation to work out the equivalent gross figure for the FY2020s partially imputed dividend, is as follows:

FY2020 Dividend P.I.: 4.0c (18.41% imputed, 18.41%/28%= 0.6575)
= 2.63c (FI) + 1.37c (NI)
= 2.63c/0.72 + 1.37c = 3.65c + 1.37c = 5.02c (gross dividend)

Discussion

Averaged over 5 years of dividend payments, the dividend works out at 38.5/5 = 7.70c (gross dividend).

I consider that under a more focussed industrial standard product model, an appropriate gross yield return on investment is 7.0%. This means that a 'fair value' for SCT shares, based on the 5 yearly historic dividend record, is:

7.70c / (0.07) = $1.10

Now, using my plus and minus 20% rule of thumb range to get a feel how the SCT share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.10 x 1.2 = $1.32
Bottom of Business Cycle Valuation: $1.10 x 0.8 = 88c

SCT shares were trading at $2.75 on Tuesday 15th November as I write this (more than double the upper end of my expected range). By this measure are now ($2.75-$1.10=) $1.65, or 150% overvalued (from a business cycle projected dividend income perspective). Another way of interpreting the same information is to say that SCT shares currently contain a 150% 'growth premium' (because a capitalised dividend valuation assumes no growth).

This current gross annual dividend rate being modelled of 7.7cps cps, is very close to the current twelve month dividend rate of 8cps. So it may not be reasonable to expect increasing dividends going forwards.

It is clear the market is pricing SCT well above what we might expect from 'a dividend payer'. This means the market clearly believes the growth story. So capitalising the dividend is not a good sole tool to measure the worth of this company.

SNOOPY

Snoopy

15-11-2022, 09:28 PM

It seems like CEO John Kippenberger looked at the business upon taking the CEO reins two years ago, then had some of the same doubts that I did. The 'adaptable teams' way of doing business at Scotts has been replaced by 'centres of excellence': Specialists doing what they do best at one site. Potential geographical constraints on trade have been (mostly) worked around - kudos for that! The Covid-19 pandemic means that it is difficult to judge the effectiveness of what looks like a radical rethinking of the way Scott's works 'by the numbers'. But what I can say is that 'earnings per share' of 14.2c (adjusted) is the best it has been since 2004 (when eps was 14.9cps, and Scott's was a very different and much smaller 'appliance production line manufacturer' only).

The one truth that has remained from those earlier days is that when appliance manufacturing line sales go well, then Scotts does well. That stands to reason. When you employ a lot of highly skilled tradespeople, you don't want them hanging around the workshops underutilised. It is difficult to get a good 'return on assets' (and in the case of Scotts, their best assets are not on the balance sheet, they are people) when the type of projects you are geared up to run are not firing. Adjusted ROE over FY2021, at 11.4%, was the best it has been since FY2013 (12.3%). But the more diversified Scotts becomes, the harder it becomes to get the whole internationally spread and diveresly experienced 'project teams' operating 'near peak' at the same time.

Right now 'Europe manufacturing' (see post 971) is effectively 'on the bench' as the rest of the Scott team plays on. I have looked at some of the Scott youtube videos on palletising and packing systems, showcasing the largely Belgian headquartered 'Scott Europe'.

https://www.youtube.com/c/ScottAutomationRobotics

It does look like very clever stuff. There has been cost cutting in Europe with the closure of the German workshop base, and with some work moving the Czech republic premises. 'In theory' Covid-19 should be a tailwind for 'Scott Europe'. Automated packaging systems reduce the human 'touch', and should combat disease spread (also through having less workers in a confined space). Yet capital commitments by manufacturing customers at a time when a business is under pressure is never a straightforward sell. Nevertheless I do think a real key to lifting the performance of the Scott group as a whole is a resurgence of 'Scott Europe'. By 'lift' I mean the potential to lift profits 50% above today's levels. That kind of profit lift is a juicy carrot worth staying invested for! But by when could that happen? I note as an aside that, as it stands today, profit margins for the group as a whole, at 5.2% for FY2021, are well below the pre-Covid-19 norms of 7 to 8%.

There are other headwinds too. Transbotics has moved on from its first generation AGVs that just followed painted lines, to 2G AGVs that navigate via lasers, to now looking at moving to a 3G system, where GPS guides a driverless vehicle's movements. I am not sure how much R&D is needed to make the transition to 3G AGVs. But I can't imagine the move is cheap. Elsewhere in the USA, Ohio, 'Robotworx', the reseller of refurbished robots, looks to be 'just plugging along' under a wave of Covid-19 uncertainty..

The biggest disappointment for me, from two years ago, has been the closing down of the automated pork processing project in Australia and the seeming end (although it hasn't been formally announced) of the fully automated beef processing project as well. Could it be that:

a/ The larger nature of these animals (as compared to a lamb),
b/ The more varied size of the carcass, and
c/ The consequent necessity to process these animals by halves (IOW you can't just take the way lambs are processed and 'scale it up'.)

are technical hurdles that are too difficult to clear? Ironically the great success of Scott's 'Bladestop' product in the beef industry, the safety bandsaw that nevertheless requires a human hand to operate, suggests that the prospects of a more comprehensive automation of the beef and pork processing lines may have indeed receded over the horizon.

Sometimes in 'cutting edge' technology it is necessary to 'wield the axe'. JK has ended a couple of my dreams with a final meltdown of the Milktech project, and the selling off of HTS-110. But I guess it had to be done?

To summarise, the Warren Buffett snapshot view: Well chosen operating niche, increasing profits, rather average return on capital (not unusual for a capital intensive industry I might add) with shrinking profit margins. There is as a bonus, no net company debt, which is always helpful when navigating uncertain times.

The 'glass half full' interpretation is that the company has been reset. And once the USA, and particularly Europe, gets back on line, sales and profits should accelerate. The 'glass half empty' interpretation is that the favourable confluence of cyclical factors in the Asia Pacific rim will turn south, capital expenditure on new projects will become more difficult to justify, and sales will settle at a level a little below what we see today.

I continue to have the 'glass half full' outlook. But I see the 'no net debt' position as a kind of 'safety net', that should allow the company to regroup again, should I be proven to be wrong. There is a significant growth premium (see my post 969) built into the share price today ($3.25 -$1.52=) $1.73. I think such a premium could be justified, if the full 'JK vision' for Scotts pans out. But I won't be adding any more shares to my holding at today's prices ($3.25, an adjusted PER of 23). And I think it is fair to say that I wouldn't expect Warren Buffett to be joining me on the share register any time soon.

Scott's 'have a plan' (see post 1010) and are 'executing the plan'. The flaw in the plan execution is the mediocre (to a Buffett eye at least) return on equity capital. This isn't a surprise for an asset rich manufacturing business, particularly so when war is on the doorstep of the company's largest revenue earner, the Material Handling Automation unit in financially strained Europe. Yet all the of those Buffett tests are by their nature historical. Let's look to the future. What is the contracted 'workload on the books', signed up to at years end?

Forward Work (1)Revenue in Following Year

FY2020$102m$216,234m

FY2021$119m$221.757m

FY2022$172m?

Note

1/ Forward Workload is 'contracted activity' taken from slide 4 of FY2022 results presentation (PR2022).

By this indicator, FY2023 is looking to be better than FY2022. Much of this forward work must be in 'Materials Handling', because there is $190m of such equipment on the order book (slide 6 PR2022).

I like to use a 30th September reference date, In the case of SCT, it covers the run up period to when the annual result is released. So there is a good incentive for institutional investors to align their expectations (by buying or selling shares) to bring the share price into line with what is a generally well signalled result. On 30-09-2022, the SCT share price was $2.80. That means the company was trading on a normalised historical PE ratio of: $2.80/$0.169= 16.6. This is a big drop from the equivalent historical PE ratio of last year (20.9) and is the lowest PE ratio Scott's have traded on since 2015. Nevertheless a PE ratio of 16.6 is not cheap, and implies significant future growth.

An alternative way to price growth is to create a 'no growth' valuation. The difference between the share price and the 'no growth' valuation is therefore the market priced 'growth premium'. The 30-09-2022 actual Capitalised Gross Yield for SCT (post 1014) is 7.7c / $2.80 = 2.75%.

Share Price equals
Capitalised Dividend Value plus
Implied Growth Premium

30-09-2021$2.85
$1.27
$1.58 (+124%)

30.09-2022$2.80$1.10$1.70 (+155%)

By this measure, despite the share price being lower than last year, the market growth premium has increased.

What do I make of all this? Buffett is looking for a good return on equity. CEO John Kippenberger is working towards that goal, but is not there yet. So Buffett is off elsewhere seeking out suitable investment gems. What about we shareholders on the register already? We are waiting for growth while being paid just under 3% on our invested capital while we wait. Last year, with interest rates still near their record lows, that would have sounded OK. This year, if you pick the right bank, you can earn 5% on your term deposit money. So a 3% gross dividend yield doesn't cut it. It only makes sense to hold SCT today if you believe in the growth story. Finally if you do believe in that growth story, you have to decide what is a fair price to pay for that growth story.

If I look at the compound 'eps' growth rate 'g' over the last 5 years:

12.0cps(1+g)^5= 16.9cps => (1+g)^5 = 1.40 => g= 7.1%

To me paying a PE of more than 15 is a high price to pay for that level of growth. Granted the level of eps growth was higher last year: 16.9cps/14.2cps= 119% (or +19%). But 19% is the highest normal operating eps growth for the company on record. I am expecting growth going forwards to moderate. So I think that an SCT share price of $2.80 with an implied PE of 16.6 looks about right. SCT is a 'hold' for me at $2.80.

SNOOPY

HITMAN

16-11-2022, 08:17 AM

Your posts are excellent Snoopy, Thanks

Snoopy

18-11-2022, 09:25 PM

Australasia ManufacturingAmericas ManufacturingEurope ManufacturingChina ManufacturingOverall

Revenue (a)$112.060m$37.248m$53.981m
$12.945m$216.234m

Revenue %ge51.82%17.23%24.96%
5.986%100%

Segment NPBT (a)$16.291m$3.322m$1.895m$2.534m$24.042m (b)

subtract Admin NPBT Adjustment($6.242m)($2.075m)($3.006m)
($0.721m)($12.044m)

equals NPBT Adjusted$10.049m$1.247m($1.111m)$1.813m$11.998m

less Taxation (a)($1.112m)($0.737m)($0.501m)
($0.121m)($2.471m)

equals NPAT adj$8.937m$0.510m($1.612m)
$1.692m$9.527m

Notional Tax rate (T / NPBTadj)11.1%59.1%-45.1%
6.7%20.6%

NPAT profit margin (NPATadj / R)8.0%1.4%(3.0%)
13.1%4.4%

Divisional Interest Income (a)$0m$0m$0.003m
$0.099m$0.102m

less Divisional Interest Costs (a)($0.160m)($0.194m)($0.392m)
($0m)($0.746m)

less Admin Interest Costs($0.329m)($0.109m)($0.158m)($0.038m)($0.634m)

equals Divisional Net Interest Expense (I)($0.489m)($0.303m)($0.547m)
$0.061m($1.278m)

EBIT Adjusted (NPBTadj+I)$10.538m$1.550m($0.564m)$1.752m$13.276m

Notes

a/ Information marked (a) in the above table is straight from Section A3 in the annual report. Other rows of information are derived.
b/ But an individual entry marked (b) is derived.

Observations from the Above

1/ Australasia is from where most of the 'product' output (Bladestop and Rocklabs Output) is sourced. Perhaps then, it is unsurprising that this geographical region is the most profitable?
2/ The very low tax bill from Australasia may be a reflection of tax being offset by government grants of $0.625m (AR2021 p39).
3/ The 'standard product line' based in the Americas - Robotworx - looks to have had a poor year, given the other substantive US based business, Transbotics Automated Guided Vehicles, seems to have had a good year with the tyre manufacturers (AR2021 p10). Although maybe the closing remark on Transbotics "we see a positive future'" means that the present is not yet so positive?

Assuming Transbotics revenue of $20.3m (my post 798, Note B, assume no growth over FY2020) and an EBITDA margin of 20%, this translates to a Transbotics EBITDA of 0.2x$20.3m=$4.06m. Total depreciable capital assets acquired when the business was purchased in FY2018 were valued at just $0.144m (AR2018 p61). So I am estimating the annual depreciation charge on these assets to be close to zero. Much more significant is the goodwill acquired on acquisition of $7.100m. This goodwill is revalued annually because the value of overseas goodwill, even if constant in its home currency, varies with exchange rates. (It would also vary if the goodwill was amortised, but this has not happened). I intend to ignore the annual exchange rate related amortisation fluctuations.

For interest charges, and to be conservative, I will apportion all of this years US funding cost of $0.194m to Transbotics. I can therefore estimate EBT for Transbotics to be:

NPBT(Transbotics) = EBT(Transbotics) = EBITDA - I - D - A = $4.06m - $0.194m - $0m - $0m = $3.866m = $3.9m

If my estimates are anywhere near correct, this would suggest that 'Robotworx', -the second hand robot refurbishment and resale company-, operated at an EBT loss over FY2021 of around $0.300m. (Ref AR2021 p43, Total 'America's NPBT' was $3.332m. $3.3m-$3.9m = -$0.300m.)

Standard Product' (I believe largely 'Robotworx') revenue slumped from $22.860m in FY2019 down to $15.198m (FY2020) before recovering $17.153m (FY2021).

4/ The Alvey acquisition (automated conveying systems) in Europe (c.f. my post 649 estimated EBT = $11.764m) looks like it has turned to disaster (EBT now is -$1.111m). O.K. that actual figure for FY2021 includes a Scott machine shop workshop and assembly area in the Czech republic, and 'Normaclass' in France. Nevertheless I don't believe EBT for Europe reflects well on what was principally the old Alvey automated conveyor business.

5/ China manufacturing, which designs and installs production lines for appliance manufacturers, had the highest net profit margin. But they are very dependent on workload. During the outbreak of the Covid-19 crisis over FY2020 work dried up, and so did profits. Scott's China, over 2HY2021, moved to a new facility almost three times the size of the old location "to maintain their growth trajectory" (Ref: Cover letter from AR2021 announcement). Meanwhile new appliance manufacturing lines in the US (as opposed to US manufacturers with their appliance production lines based in China) continue to be serviced from the 'appliance line centre of excellence' in Christchurch N.Z..

A bit of a change this year as 'Australasia' separates out into Australia and New Zealand

New Zealand Manufacturing
Australia Manufacturing
Americas Manufacturing
Europe Manufacturing
China Manufacturing
Overall

Revenue (a)
$50.948m
$56.670m
$52.464m
$57.885m
$3.790m
$221.757m

Revenue %ge
22.97%
25.55%
23.66%
26.10%
1.709%
100%

Segment NPBT (a)
$21.967m
$0.005m
($2.073m)
$4.732m
$0.245m
$24.876m (b)

subtract Admin NPBT Adjustment
($2.288m)
($2.545m)
($2.356m)
($2.600m)
($0.170m)
($9.959m)

equals NPBT Adjusted
$19.679m
($2.540m)
($4.429m)
$2.132m
$0.075m
$14.917m

less Taxation (a)
($3.282m)
$0.667m
$1.068m
($0.736m)
$0.023m
($2.260m)

equals NPAT adj
$16.397m
($1.873m)
($3.361m)
$1.396m
$0.098m
$12.657m

Notional Tax rate (T / NPBTadj)
16.7%
-26.3%
-24.1%
34.5%
-30.7%
15.2%

NPAT profit margin (NPATadj / R)
32.2%
-3.3%
-6.4%
2.4%
2.6%
5.7%

Divisional Interest Income (a)
$0m
$0.486m
$0m
$0.001m
$0.073m
$0.560m

less Divisional Interest Costs (a)
($0.153m)
($0.107m)
($0.164m)
($0.321m)
($0m)
($0.745m)

less Admin Interest Costs
($0.175m)
($0.195m)
($0.181m)
($0.199m)
($0.013m)
($0.763m)

equals Divisional Net Interest Gain/(Expense) (I)
($0.328m)
$0.184m
($0.345m)
($0.519m)
$0.060m
($0.948m)

EBIT Adjusted (NPBTadj+I)
$20.007m
($2.724m)
($4.084m)
$2.651m
$0.015m
$15.865m

Notes

a/ Information marked (a) in the above table is straight from Sections A1 and A3 in the annual report. Other rows of information are derived.
b/ But an individual row entry marked (b) is derived.
c/ I use the word 'Adjusted' here in the sense that I have distributed the unallocated costs across the trading business units in proportion to the revenue of those trading units.

Observations from the Above

Sometimes 'scratching below the surface' we can find insights into a business that are not apparent when looking at 'the big picture'. The big picture tells of Scotts as a listed second tier manufacturer with a pot of 'takeover capital' that came on board as a result of JBS taking a controlling stake. Consequently, Scotts continued a push to acquire global technology leading automation businesses around the world. Subsequently some acquisitions have proved more successful than others.

Scott's comes across as an outfit doing clever stuff, but with an array of un-co-ordinated divisions prone to extended development times and project cost overruns that have failed to lift the company's financial sharemarket performance above the mediocre. But look at the 'country by country' divisions, and a much more diverse business-scape unfolds.

1/ New Zealand has been 'by far the star' performer over FY2022. Look at that Net Profit Margin of 32% (consistent with Slide 32 of PR2022 on Meat Industry products). The NPM is even higher at Rocklabs (over 40%)! Wow! I presume it must have been the 'appliance line manufacturing centre' now designated as 'non-core' that brought the NZ NPM overall back to a still laudable 32% overall.

2/ The United States operation has been 'rocked' by the closure of 'Robotworx' (AR2022 p2). However, put 'www,robots.com' into your browser and 'Robotworx' comes up still trading under the new ownership of: TIE 'The Industrial Experts'. What is that all about?

The reference divisional results for the Americas from the previous year have been restated, I assume because of 'no Robotworx' any more. I was therefore surprised to see such a big EBIT loss in the Americas this year - over $4m. Since the Americas now consists of a small service centre in Dallas, and Transbotics, I assume most of this loss was from Transbotics! If we go back to 2019, the Automated Guided Vehicle market had a target growth rate of 30%+ (slide 14, Scott Presents with Moelis November 2019 Slide Show). Yet a comparison of 'standard product' sales from the Americas (with Robotworx gone, this is all Transbotics now) between FY2022 and FY2021 (AR2022 p43,44) shows no growth in sales.

There are other headwinds too. Transbotics has moved on from its first generation AGVs that just followed painted lines, to 2G AGVs that navigate via lasers, to now looking at moving to a 3G system, where GPS guides a driverless vehicle's movements. I am not sure how much R&D is needed to make the transition to 3G AGVs. But I can't imagine the move is cheap.

I wonder if the comment I made above in 'Buffett summarising' what happened over FY2021 has any bearing on what happened at Transbotics over FY2022?

3/ The Bladestop band-saw, made in Australia as I understand it, saw a 20% growth in installations over FY2020 (PR2022 s13). I make that to be 25 more installations supplied over FY2022, although I am not sure exactly how many bandsaws end up in each installation. Given Bladestop is one of Scott's 'hero' products, I was very surprised to see Scott's Australia in EBIT loss of $2,704m for the year. Management are conservatively estimating that this EBIT result will improve by $3.8m (AR2022 p57). That means an EBIT profit in Australia of $1.1m for 2023

4/ China is showing minimal profit. But look at the turnover. Down two thirds on the previous year. IMV the Chinese result is the result of the ebb and flow of big appliance line manufacturing projects. Last year China was the division with the highest net profit margin of all, and I expect it to bounce back over FY2023.

So what conclusions can I draw from all this information?

SNOOPY

Snoopy

21-11-2022, 02:50 PM

So what conclusions can I draw from all this information?

Summing Up

I am surprised the 'appliance line manufacturing arm' has now become 'non-core'. This 'rest of the business' margin (mostly appliance line manufacturing) is 10% (PR2022 s9). However if we look at the other part of the business that supplies big project turnkey solutions, the Alvey Packaging System Arm, that has an 11% margin on sales (PR2022 s15). Not much different, and a lower margin than what the 'appliance line manufacturing arm' did in the previous year (FY2021). My impression is that some of the creative juice that drives Scotts, has come from creative people solving one off production line problems. If this kind of work is downgraded, (in management's eyes), as we transition to 'modular solutions', then where will the 'future creative culture' that has driven Scotts to where it is today come from?

I was hoping China might bounce back in FY2023. However 'Foreign Currency Risk Management', set up to cover future projects, in Chinese yuan (AR2022 p71) of both assets and liabilities, is more than halved from the previous year. The previous year's hedging would have related to mostly FY2022 activity, which was itself well down on FY2021. So early indications are that overall workloads in China are not going to improve soon. I wonder if 'non-core' is code for 'we want to unload this business'?

The same 'Foreign Currency Risk Management' indicator is predicting a bright business uptick for European located Alvey over FY2023. Furthermore, in the world capital of meat processing, Kaikouri Valley in Dunedin, there is a steady order book for the proven poultry trussing machines, and the automated lamb boning equipment - high margin engineering product lines that have no direct competition. Across the Tasman, a transition to profit has all but been promised. Meanwhile, Rocklabs in Auckland is riding the global mining boom. But I don't see any clarity on what is happening in the USA at Transbotics, with their AGVs (automated guided trolleys and tractors.)

Of the future projects not yet commercialised, the automated 'beef boning room' could be the 'smash it out of the park' home run that Scotts has always promised but never quite delivered. Yet I sense this project in particular will absorb many more millions of Scott's surplus earnings before, even if, it comes to market, meaning those hoping for an increased dividend going forwards are likely to be disappointed.

By putting together the different country ingredients, and weighting their relative importance to the group, I can come up with both positive and negative profit change scenarios for FY2023. The real value that I see in an investment in Scott Technology today is that for the price you pay, you get an option on the 'automated beef boning room' and other 'growth projects' for free. That may make some excited. But for me it, is simply enough to keep me invested.

SNOOPY

winner69

23-11-2022, 09:28 AM

Scott signs agreements with Caterpillar

They acquiring Caterpillar or something

kiora

24-11-2022, 09:02 AM

Collaboration for charging E vehicles with CAT
For refueling diesel. How big is this?
https://scottautomation.com/en/products/mining/mining-field-automation/robofuel

Sideshow Bob

24-11-2022, 09:55 AM

AGM article

https://www.odt.co.nz/business/scott-signs-deal-caterpillar

Snoopy

25-11-2022, 07:56 PM

Collaboration for charging E vehicles with CAT
For refueling diesel. How big is this?
https://scottautomation.com/en/products/mining/mining-field-automation/robofuel

You are conflating a couple of stories here. That video link concerns the robo-filling of giant diesel dump trucks.

The world needs materials to be mined. But it is a dirty business, unfortunately. So one way miners can 'cut down on their filth' is to remove the diesel emissions of their heavy vehicles on site. Caterpillar, is a large US manufacturer of 'off highway' commercial vehicles. Caterpillar dump trucks can haul up to 400tons of material, and such vehicles can cost up to $US3.5million each. Caterpillar are now looking at supplementing their diesel truck range with equivalent sized electric vehicles.

https://www.caterpillar.com/en/news/corporate-press-releases/h/caterpillar-succesfully-demonstrates-first-battery-electric-large-mining-truck.html

Electrical energy cannot be stored as 'weight effectively' as diesel oil. That means giant electrically fuelled off road trucks will have to be re-fuelled more often if they want to do the same task as their diesel powered equivalents.

Scott's have their own proven robotic technology to refuel 'off road' diesel mining trucks. Caterpillar have seen this and have signed a co-operative deal with Scotts:

1/ Caterpillar will supply the electric off road dump trucks.
2/ Scotts will supply the on site 'electric fuel bowsers' to do robotic re-fuelling over the day, without employing any humans in the re-fuelling process.

Scotts were selected as Caterpillar's business partner in the 'electric mining truck race' because of Scott's dual experience in artificial vision systems and robotics applications.

Caterpillar currently have around 5,000 full sized off road mining trucks in service around the world (Source Scotts 2022 AGM). Even if all of these went electric overnight, then I would estimate the total global demand for 'electric mine site bowsers' would be less than one sixth of that - say 800. And if the global conversion to electric took place over 20 years, then that would be 40 new 'electric bowser' installations per year. Even if half of existing mine operators chose not to convert (by continuing to use diesel or opting for hydrogen power), that would still be 20 new 'electric bowser' installations every year for 20 years. But this level of business would require 'proof of concept' co-operation with one or two key customers first. So I would be surprised to see more than one or two of these electric bowsers being made over the next two years. IOW this 'Caterpillar deal' will be more of a 'consumer of funds' than 'an earner' over FY2023 and FY2024. We also have to bear in mind this is a 'substitute business'. For every one 'robotic electric bowser sale' by Scotts, that is one less potential 'robotic diesel bowser sale' by Scotts.

Ironically one of the drivers in the growth of the mining market today is increasing worldwide demand for Lithium. And Lithium is one of the elements used in creating batteries for electric vehicles!

SNOOPY

Snoopy

26-11-2022, 10:44 AM

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.

It has been a long time between drinks for me at Scott's new expanded factory in Kaikouri Valley in Dunedin. It was five years ago that I was last there at an AGM! This was the first 'live' AGM meeting since 2019 due to Covid-19, although it was a hybrid meeting with a whole row of techno-kids with their electronics along the back row of the meeting room, simulcasting the meeting 'live on the net'. There was a single reporter/photographer from the ODT too, not something guaranteed at AGMs these days, where 'reporting on the AGM' often consists of rehashing the company's own press release.

I think it is worth recording the 'departures' of a couple of Scott Technology stalwarts that I became aware of during the meeting, even though nothing was said officially.

1/ "Greame James Marsh" former director of Scotts for 38 years (1969-2007) and chairman for 32 of those, has died aged 88 in June 2022. https://www.tributes.co.nz/ViewMyTribute.aspx?id=17483

2/ "Ian Devereux" died aged 80 early in the first lock-down in April 2020. Ian was the founder of Rocklabs, the globally significant "mining resource adjunct" company acquired by Scott Technology in 2008, upon Ian's retirement from the business. I think it is fair to say that since acquisition, Rocklabs has been the star performing division of Scotts.
https://notices.nzherald.co.nz/nz/obituaries/nzherald-nz/name/ian-devereux-obituary?pid=196083539

Details of the AGM addresses, I could not find on the Scott Investor Relations website. However, they are here:
https://www.nzx.com/announcements/402921

I don't see any point in rehashing what was said when you can go to the link of the original. One clarification made was of the $190m of forward orders reported (the highest in the company's history), $50m was from controlling shareholder JBS, $60m fitted under the header of 'standard equipment' (which means higher profit margins), leaving $80m worth of 'other business'.

During question time.

1/ A shareholder named "David Marsh", who looked like a younger edition of whom I later determined to be his father Graeme Marsh, asked for some more details on the Caterpillar deal. I have summarised CEO JKs answer to this, along with some thoughts of my own, in post 1022.

2/ A shareholder, who later identified herself as the late Ian Devereux's sister, said she was pleased to see two women at the top table and that she would be returning next year to press for more gender equality on the board. Gender equality on the day was boosted by the three male JBS appointees only being represented via video link, as was Australian based director Derek Charge. And the fact that one top desk person, company no.3, director of marketing and people, Casey Jenkins, wasn't actually a board member.

Nevertheless Scott Technology, in partnership with the University of Canterbury, did launch a "Women in Engineering Scholarship", showing that their push for more women to be involved in the company was not just lip service.

3/ A shareholder asked what was the underlying 'market force' in companies ordering new packaging solutions from Scott's Alvey division in Europe. The answer: A trend to much larger 'mega warehouses', with more and a greater variety of goods being shipped through one site. JK let slip that Pfizer in Europe was one of their customers.

4/ A shareholder asked about material cost over-runs and how this might affect the profitability of these larger installations. JK said that in Europe they were now including a 'steel index clause' that allowed variability in the contract price, depending on where the global steel price was at the time of project construction and delivery.

After the meeting we had a brief tour of the expanded workshop. I had a chat to Andrew Arnold, head of meat processing that lead the tour. He was very satisfied with progress being made on the automated beef boning room. The workshop floor employees had gone home by this point. But we saw a couple of robots being evaluated for beef boning in what looked like a small R&D section of the workshop. There was also a very large piece of pork boning equipment being lined up ready to ship.

After the meeting there was the usual 'superior spread' of small eats and drinks. But the turnout of shareholders to indulge was only around half that of previous pre-Covid years. I reckon the workers on the floor would have enjoyed a pretty impressive array of 'leftover lunch' the next day.

SNOOPY

Snoopy

30-11-2022, 10:21 AM

We Skellerup shareholders have certainly had a good year. But 'good' is a word that must always have context. I find it useful to have a 'measuring stick'. Scott Technology is such a stick. Different in that it sells complete packages and not components. But the same in that both companies rely on Intellectual Property and trusted staff that can turn that knowledge into profits.

SkellerupScott Technology

Operational SectorManufacturingManufacturing

Total Employees813622

Manufacturing HubsNZ, Australia, Europe, North America, Asia NZ, Australia, Europe, North America, Asia

Share Price 27-11-2021$6.06$3.37

Market Capitalisation 27-11-2021$1,183m$267m

Capitalised Dividend Valuation per share (2017.5 to 2021.5)$2.25$1.27

Declared earnings (FY2021)$40.175m$9.527m

Normalised earnings (FY2021)$40.243m$11.146m

Normalised eps (FY2021)20.5c14.2c

Normalised eps growth over 5 year period (FY2016 to FY2021)+72.3%+18.3%

Historical PE (FY2021)29.523.7

dps (paid during FY2021)7c+6.5c0c+2c

Earnings Payout Ratio (excluding DRP)68%14%

Gross dps (paid during FY2019)8.96c+7.76c0c+2c

Historical Gross Dividend Yield (using Share Price 27-11-2021)2.76%0.59%

Shareholder Equity (based on equity at EOFY2021)$196.149m$98.195m

ROE (based on equity at EOFY2021)20.5%11.4%

Sales (FY2021)$279.615m$216.234m

Net Profit Margin (FY2021)14.4%5.2%

Total Bank Debt (last balance date EOFY2021)$24.409m$10.920m

MDRT (Based on bank debt at balance date EOFY2021)0.61 years1.0 years

A 72.3% growth rate at SKL over a five year period equates to an averaged annual growth rate of:

1.723^0.2 = 1.115, or 11.5% per year.

Perform the same exercise on SCT and you get

1.183^0.2 = 1.034, or 3.42% per year.

This goes some way to explaining why SKL is sitting on a PE of 29.5 verses 23.7 for Scotts.

Some more observations:

a/ If you compare my quoted reference exercise from the FY2019 perspective, both companies have reduced their bank debt to something that is almost insignificant.
b/ ROE at SKL remains about double that at SCT, although both have improved.
c/ SKL coped with the initial Covid-19 hit better than SCT, because SKL mainly supplied essential components whereas SCT 'capital projects' were deferred. But SCT took the opportunity to 'right size' the business, losing around 200 staff compared to the FY2019 pcp.
d/ Net profit margin at SKL remains around triple that of SCT (c.f. pcp), although both have improved.

Another comparison of note is to see by how much the market price exceeds the 'capitalised dividend valuation' price. This difference is one measure of the 'growth premium' accorded to each company by the market.

SKL: Growth Premium = $6.06 - $2.25 = $3.81 => Growth Premium is 63% of share price
SCT: Growth Premium = $3.37- $1.27 = $2.10 => Growth Premium is 62% of share price

Depending on how you see the outlook for both companies, you might interpret these figures as showing both companies being equally overvalued ;-P

The one difference that does not show in these figures is the effect of the 'change of direction' for Scotts, under their new CEO. This is steering the company towards more standardised products, away from one off builds. It will take a couple of years for this change to flow through to margins, bar no more shock Covid-19 interruptions (gulp!)

Concluding the Comparison

Both companies are conservatively financed, which is always good in a world where business opportunities are uncertain. Scott's cut their dividend payout drastically to achieve this, but Skellerup did not have to. I see Skellerup as the more resilient earner. The growth story at Skellerup is around incremental improvement and bolt on acquisitions. Whereas at Scotts, growth is more around 'executing the Scott 2025 vision plan' (more repeat sales of modularised products). I see the Skellerup path as more certain (they have a great knack of retaining customers as development partners), whereas Scotts are being more affected by macro-economic events. But I think if Scott's can co-ordinate the growth in their diverse international 'centres of excellence', then it is Scott's that have the most growth potential over the next two to three years. Looking beyond that time frame though, it is hard to imagine that Skellerup will be bettered on the long term growth path. If Skellerup are overvalued, there is a case to be made that they are not significantly more overvalued than Scott's are. The bonus for Scott shareholders is that they are always on the verge of cashing in a figurative 'mega lottery ticket'. If Scott's automated beef boning room project can be nailed, then there are a good decade of highly profitable installation projects lined up in Australia and the USA to follow up. So far, the 'mega lottery ticket application' (of which the automated beef boning room is simply the current one) has not kicked in for Scott shareholders. But we always live in hope! Being a 'glass half full' person, I am calling Scotts as the better value investment on the market today. Yet as a long term holder, I would feel more comfortable with Skellerup in my portfolio. Yes the price is dear, for both. But good things tend not to come cheap!

discl: hold SCT and SKL

Time to bring a measuring stick to Scotts via my annual 'battle of the manufacturers' with Skellerup. Scotts is different in that it sells complete package solutions and not components. But it is the same in that both companies have a similar geographic market spread and rely on Intellectual Property and trusted staff that can turn that knowledge into profits.

Skellerup (SKL)Scott Technology (SCT)

Operational SectorManufacturingManufacturing

Total Employees869633

Manufacturing HubsNZ, Australia, Europe, North America, Asia NZ, Australia, Europe, North America, Asia

Share Price 29-11-2022$5.45$2.65

Market Capitalisation 27-11-2022$1,064m$212m

Capitalised Dividend Valuation per share (2018.5 to 2022.5)$2.57$1.10

Declared earnings (FY2022)$47.813m$12.657m

Normalised earnings (FY2022)$47.205m$13.510m

Normalised eps (FY2022)24.1c16.9c

Normalised eps growth over 5 year period (FY2017 to FY2022)+136%+40.8%

Historical PE (FY2022)22.316.6

dps (paid during FY2022)10.5c+7.5c4c+4c

Earnings Payout Ratio (excluding DRP)75%47%

Gross dps (paid during FY2022)12.54c+8.96c4c+4c

Historical Gross Dividend Yield (using Share Price 29-11-2022)3.94%3.02%

Shareholder Equity (based on equity at EOFY2022)$211.208m$100.406m

ROE (based on equity at EOFY2022)22.4%13.5%

Sales (FY2022)$316.829m$221.757m

Net Profit Margin (FY2022)14.9%6.1%

Total Bank Debt (last balance date EOFY2022)$40.000m$11.970m

MDRT (Based on bank debt at balance date EOFY2022)0.84 years0.94 years

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

A 136% growth rate at SKL over a five year period equates to an averaged annual growth rate of:

2.36^0.2 = 1.187 or 18.7% per year.

Perform the same exercise on SCT and you get

1.408^0.2 = 1.0708, or 7.08% per year.

This goes some way to explaining why SKL is sitting on an historical PE of 22.3 verses 16.6 for Scotts.

Some more observations:

a/ The SKL share price has declined by 10% between study periods (refer quoted post), whereas over the same time the SCT share has price declined by 21%.
b/ If you compare my quoted reference exercise from the FY2021 perspective, both companies continue to hold their company debt at low levels.
c/ ROE at SKL remains about double that at SCT, although while both improved the ROE at SCT improved a little faster.
d/ From a staffing perspective both SKL and SCT are on a 'growth trajectory'. But Scott's had a more modest growth rate, because the growth period included the closure of the US based Robotworx business. By contrast, 'investment rival' Skellerup bought a whole new bolt on business unit, Talbot Plastics with 18 employees, to add to their organic growth during the year.
e/ Net profit margin at SKL is now around 2.5 times that of SCT (c.f. 3 times over the pcp). The relative improvement at Scotts is because of SCT selling more standardized higher margin products. Nevertheless margins at both companies have improved.

Neither company makes a good yield play investment, now that interest rates are well and truly on the rise.
But it is interesting to see by how much the market prices of the shares exceeds the 'capitalised dividend valuation' (a proxy for dividend paying ability) price. This difference is one way of measuring any 'growth premium' the market attaches to each share.

SKL: Growth Premium = $5.45 - $2.57 = $2.88 => Growth Premium is 53% of share price
SCT: Growth Premium = $2.65 - $1.10 = $1.55 => Growth Premium is 58% of share price

The growth premium for both has decreased as the dividend payment for each share has increased. This 'growth premium' measure is Mr Market's one year snapshot of growth potential. Given Scotts are expecting some big projects, deferred by material shortages, to come to fruition over FY2023, then this measure is probably a fair reflection of the 'current guru opinion growth prospects' of each company. I would agree and expect SCT to grow profits faster than SKL over FY2023.

Concluding the Comparison

The growth story at Skellerup is around incremental improvement and bolt on acquisitions. Acquiring Talbot Advanced Technologies of Christchurch NZ on 31-07-2021 meant SKL increased their annualised after tax earnings for FY2022 by: $1.126m x 12/11 x 0.72 = $0.884m. Yet total annualised profit increased, between FY2022 and FY2023, by: [$47.205m+(1/12 x $0.884m)-$40.243m] = $7.036m. This shows by far the majority (87%) of SKL's NPAT growth was organic: ($7.036-$0.884)/$7.036m= 87%. This organic growth over the last two years in particular has come from:

a/ Better utilisation of existing factory resources, indirectly fuelled by strong commodity prices in dairy and oil.
b/ Site consolidation and the use of more energy efficient technology in both manufacturing and distribution.

However, I would argue that riding macro trends in commodities cannot continue indefinitely. Furthermore the 'easy pickings' in internal company costs are likely already in the bank. I can see growth for SKL continuing, but not at the stellar rate of the last couple of years.

Meanwhile at Scotts, growth is more around 'executing the Scott 2025 vision plan' (more repeat sales of modularised products), which is still very much a 'work in progress'. Successes are well trumpeted with the automated lamb processing room. Even better, work on the automatic beef boning room project, - potentially a much larger market- is progressing well. While full automation of the beef boning room is 'not yet there', the Bladestop band-saw product has been very successful as an 'interim step sale' to potential beef industry customers.

Offsetting this is the 'shuffling under the carpet' of robot wheeler dealer 'Robotworx', once the front line of SCT's USA expansion plans. Meanwhile the driver-less factory transport solution acquisition 'Transbotics' looks not to be living up to expectations on the revenue front. But rather than being a veiled criticism of Scott's management, I see my observations here as being a reflection of investment in technology generally: For every big winner a technology company creates, the path to success in one area will be strewn with many more losers that ultimately don't make the business case. I have confidence in CEO John Kippenberger's plan to co-ordinate the growth in their diverse international 'centres of excellence', and I think it is Scott's that has the more growth potential over the next two to three years.

The bonus for Scott shareholders is that they are always on the verge of cashing in a figurative 'mega lottery ticket'.
The latest deal with US heavy vehicle giant Caterpillar, to develop stationary automated robotic 'filling stations' to power giant electric earth moving equipment at mining sites globally is the latest example of this. Whether any real profits will ever come from this project is not certain (hydrogen fuelled electric power must be a real challenge to battery fuelled electric power for heavy vehicles in the future). But at today's SCT share price, shareholders are effectively getting a 'free option' on heavy vehicle battery refuelling technology. If it doesn't work out, it won't be a disaster for existing SCT shareholders.

Both companies are conservatively financed, which is always good in a world where business opportunities are uncertain. I see Skellerup as the more resilient earner, which is now fully (over?) priced as a result. But at current share prices I see Scotts as the better growth prospect. I will be looking to accumulate more SCT shares on any significant share price weakness, and unload some of my SKL shares into any significant share price strength.

SNOOPY

discl: hold SCT and SKL

Snoopy

12-01-2023, 07:26 PM

Reasonable volume available at $2.50 over the last few days (not always the case with SCT), so I am putting up the current investment case.

Skellerup (SKL)Scott Technology (SCT)

Operational SectorManufacturingManufacturing

Share Price 29-11-2022$5.45$2.65

Capitalised Dividend Valuation per share (2018.5 to 2022.5)$2.57$1.10

Normalised eps (FY2022)24.1c16.9c

Historical PE (FY2022)22.316.6

dps (paid during FY2022)10.5c+7.5c4c+4c

Earnings Payout Ratio (excluding DRP)75%47%

Gross dps (paid during FY2022)12.54c+8.96c4c+4c

Historical Gross Dividend Yield (using Share Price 29-11-2022)3.94%3.02%

With the share price at $2.50, we are now trading at a gross dividend yield of: 8/250 = 3.20%. But this is based on just a 47% payout ratio, which means the dividend is well covered and may be poised to grow. And the potential is there for things to improve further once some NZ imputation credits are restored (even if the dividend remains steady).

The historical PE ratio is now down to: (250/265) x 16.6 = 15.7

That is the lowest PE ratio this company has traded on for seven years (referred against my 30th September reference date), which is noteworthy in itself. But there is another reason buying shares on the market today at $2.50 looks enticing. The growth path going forwards looks better and more focussed than it has been for the last seven years. So at $2.50, not only are you buying a share, or the equivalent of a baked bean can, 'on sale'. You are buying the equivalent of a baked bean can on sale with '+x% bonus content' added to it as well.

it is interesting to see by how much the market prices of the shares exceeds the 'capitalised dividend valuation' (a proxy for dividend paying ability) price. This difference is one way of measuring any 'growth premium' the market attaches to each share.

SKL: Growth Premium = $5.45 - $2.57 = $2.88 => Growth Premium is 53% of share price
SCT: Growth Premium = $2.65 - $1.10 = $1.55 => Growth Premium is 58% of share price

Update:
SCT: Growth Premium = $2.50 - $1.10 = $1.40 => Growth Premium is 56% of share price

So the price you are paying for Scott's growth is falling.

The bonus for Scott shareholders is that they are always on the verge of cashing in a figurative 'mega lottery ticket'.
The latest deal with US heavy vehicle giant Caterpillar, to develop stationary automated robotic 'filling stations' to power giant electric earth moving equipment at mining sites globally is the latest example of this. Whether any real profits will ever come from this project is not certain (hydrogen fuelled electric power must be a real challenge to battery fuelled electric power for heavy vehicles in the future). But at today's SCT share price, shareholders are effectively getting a 'free option' on heavy vehicle battery refuelling technology. If it doesn't work out, it won't be a disaster for existing SCT shareholders.

The share price has weakened off about 10% since the above announcement. None of the above numbers include the Caterpillar deal. So this is the 'free lottery ticket' part of a Scott Technology investment for those buying in today. It may not come off. But hey, you didn't pay any money for the ticket in the first place did you?

Is there a good reason for the share price to have fallen around 20% since March 31st 2022? The main Scott European factory is located in the Czech republic, which is located next to a country that has been a bit in the news recently: Ukraine. That fact may have spooked some investors. But Scott's are managing the situation with great care and production does not seem to be under threat. It is little hiccups such as this, perceived or real, that give we value investors the opportunity to buy at the discounted share prices that we all seek.

SNOOPY

discl: Topped up this week at $2.50

nztx

18-01-2023, 02:42 PM

Dear Scott .. how could overpayment to this tune have been going on ? ;)

https://www.nzherald.co.nz/nz/simply-not-sustainable-man-who-sought-500000-instead-ordered-to-pay-ex-employer-more-than-200000/TTCFZLGYAVCZ7AK7XJ7GTC6DRA/

‘Simply not sustainable’: Man who sought $500,000 instead ordered to pay ex-employer more than $200,000

claimed he performed the three jobs concurrently working 120 hours per week, which was not the case. He did not disclose the split salary arrangements or that he had been claiming tax credits in New Zealand.

Snoopy

18-01-2023, 04:55 PM

Dear Scott .. how could over-payment to this tune have been going on ? ;)

https://www.nzherald.co.nz/nz/simply-not-sustainable-man-who-sought-500000-instead-ordered-to-pay-ex-employer-more-than-200000/TTCFZLGYAVCZ7AK7XJ7GTC6DRA/

‘Simply not sustainable’: Man who sought $500,000 instead ordered to pay ex-employer more than $200,000

Ah yes Ken Snowling.

Started out as an apprentice tool maker and rose through he ranks to become the head man in Appliance Line Manufacturing design based in Christchurch. (all of the Appliance line manufacturing was done in Christchurch back in the day). Later became a sales and marketing guru as well. Was sent over to China to sort out the alternative Appliance Line Production manufacturing facility over there. Later he moved to Europe (this was all before the big Alvey acquisition) to build up the servicing side of the Appliance Line business 'on the Continent'. Convinced management that 'Europe' and 'China' were in effect 'just one big overseas based manufacturing arm' and got appointed head of both.

(Aside: I often wondered how he managed to be the combined head of business of both continents. Now we know he was paid a salary in both places and worked 120 per week to cover off both jobs, plus pocketing a salary in NZ which covered the costs of reporting to the 'mothership.' Why work full time in two jobs when you can work full time in three ;-P. But I digress....)

Acquired a German business with some very clever toolmakers, who were well paid for their skill. Gradually outsourced work to the lower cost Czech republic, until the German toolmaker 'teachers' became disposable. Management advised him to sack all the high paid Germans which he did, and closed down that operation, He was then invited back to New Zealand where he was sacked himself, after doing the dirty work. That all ties in with how corporates work these days.

SCT share price up 3.7% today on the release of this news (although the news release did not come through the stock exchange). I guess those 'on the inside' knew this court case was going on, and knew they had a good case against Snowling. That is why they decided it was 'not material' to keep shareholders informed. Actually a $500k claim, if successful, would have been around 3% of NPAT over FY2022. And had it been successful, such a claim may have opened the drawbridge for other internationally placed executives to try the same trick.

Poor old Ken, but I won't be feeling too sorry for him. He did a good job at Scotts, and was well remunerated for his services. No doubt he is now enjoying his retirement on the three pensions he is earning from New Zealand, Germany and China as we speak......

SNOOPY

na2m1

19-01-2023, 03:26 PM

Reasonable volume available at $2.50 over the last few days (not always the case with SCT), so I am putting up the current investment case.

With the share price at $2.50, we are now trading at a gross dividend yield of: 8/250 = 3.20%. But this is based on just a 47% payout ratio, which means the dividend is well covered and may be poised to grow. And the potential is there for things to improve further once some NZ imputation credits are restored (even if the dividend remains steady).

The historical PE ratio is now down to: (250/265) x 16.6 = 15.7

That is the lowest PE ratio this company has traded on for seven years (referred against my 30th September reference date), which is noteworthy in itself. But there is another reason buying shares on the market today at $2.50 looks enticing. The growth path going forwards looks better and more focussed than it has been for the last seven years. So at $2.50, not only are you buying a share, or the equivalent of a baked bean can, 'on sale'. You are buying the equivalent of a baked bean can on sale with '+x% bonus content' added to it as well.

Update:
SCT: Growth Premium = $2.50 - $1.10 = $1.40 => Growth Premium is 56% of share price

So the price you are paying for Scott's growth is falling.

The share price has weakened off about 10% since the above announcement. None of the above numbers include the Caterpillar deal. So this is the 'free lottery ticket' part of a Scott Technology investment for those buying in today. It may not come off. But hey, you didn't pay any money for the ticket in the first place did you?

Is there a good reason for the share price to have fallen around 20% since March 31st 2022? The main Scott European factory is located in the Czech republic, which is located next to a country that has been a bit in the news recently: Ukraine. That fact may have spooked some investors. But Scott's are managing the situation with great care and production does not seem to be under threat. It is little hiccups such as this, perceived or real, that give we value investors the opportunity to buy at the discounted share prices that we all seek.

SNOOPY

discl: Topped up this week at $2.50

Your commment could've spark some interest. SCT in the top 5 gains today. Dont see that too often

Snoopy

19-01-2023, 10:25 PM

Your comment could've sparked some interest. SCT in the top 5 gains today. Don't see that too often

Nice to get this call right. Closed on the high at $2.75, but $3.02 is the next buy point on offer. Pitiful volume today though, with only 1,762 shares traded (although someone hoovered up a few thousand at $2.55 yesterday). But even $2.75 is a nice 10% gain on where I bought my shares two days prior.

Of course it is just possible the referenced press release of today (below) had something to do with the share price rise as well:

https://www.nzx.com/announcements/405501

To be frank, I do find these future order book summaries periodically referred to by Scotts a bit strange. I imagine an analogous situation of Scott's being a bookseller while proprietor John Kippenberger sends out a quarterly sales up date:

"So and so buyers came into the shop. They ordered this book from the meat section. Someone else came in and ordered a logistics book. We had good interest from China on a repeat run of books."

I sit back reading John's report thinking, well that all sounds pretty good. But this year is a new year. What I really want to know is how the number of books you sold this year stacks up with last year. And what about the profit margins this year verses last year? Full order books are fine, but what proportion of these orders will end up going through the Scott's accounts this year and what amount in subsequent years? Are we going to make more money in the first half this year than we did last year? After pondering these questions, I realise that John's 'book sales report' has actually told me very little of what I really want to know. I will drop the book seller analogy now and show you what I mean:

"A significant partnership with global retail giant Costco Wholesale. An initial order of two machines has been secured, with a phase two order for an additional eight machines anticipated in the coming month."

We know from AR2022 p19 that each chicken trussing machine is a $1.7m project. So two of these on the books equates to revenue of $3.4m.. Last year total company revenue was $222m. So $3.4m on $222m represents about 1.5% of revenue, which possibly matches the first batch of trussing machines sold last year. In the grand scheme of things, this isn't a significant announcement. Over what time-frame will the eight other anticipated orders be delivered?

"Scott’s Transbotics arm has confirmed Automated Guided Vehicle (AGV) contracts with major global businesses, Microsoft, Novelis (metal recycling) , and Gulfstream (business jet aircraft). This is an exciting development for the materials handling arm of the business with Scott committed to nurturing and growing these new partnerships in the future."

Always good to name drop some big corporate customers I suppose. But what scale of projects are these? I deduced last year that Transbotics, manufacturer of driver less intelligent factory trollies made very little money, if any. So are these deals enough to pull Transbotics out of the red? Since we don't know the size and scale of these new projects, I don't know.

Scott's signed a new washer cabinet deal in China. In FY2022 China had few major projects and more or less just broke even. I reckon this deal should add around $1.5m to the bottom line (for FY2023?). But like all projects in this class, it is a oncer. Another project will need to be found in FY2024 to replace it.

There was a good announcement for Alvey, supplying some kind of robotic packing plant to James Hardie in Australia. But what about the European packaging projects that are right on Alvey's doorstep? No mention is made of any progress on those.

I hope you get the gist of what I am trying to communicate here. I could go on, but I am sure readers have got my point. This announcement by Scott's today is a 'feel good' announcement with no quantifiable incremental increase in profit able to be determined.

SNOOPY

Snoopy

20-01-2023, 06:16 PM

Nice to get this call right. Closed on the high at $2.75, but $3.02 is the next buy point on offer. Pitiful volume today though, with only 1,762 shares traded (although someone hoovered up a few thousand at $2.55 yesterday). But even $2.75 is a nice 10% gain on where I bought my shares two days prior.

Wow! A day of 'pitiful volume' has been followed by one of the largest trading days in history. Price is steady at $2.75 though. Most of the trading in two 'off market' trades (320,000). There are only a handful of shareholders who have that many shares to sell. Chairman Stuart, who will be completing his 15th year as company chair this year, and who sold down a few shares last year, 'selling down' as he contemplates retirement (and that new deck)? Oakwood securities selling down as that shareholding gets split up on the death of long time Scott stalwart Graeme Marsh? An unsupportive Field and Palmer reducing the holding of the old Ian Urquhart estate? It will be fascinating to see who has blinked, and who has come on board!

SNOOPY

Walter

10-02-2023, 09:17 AM

Poultry tech awarded | Otago Daily Times Online News (odt.co.nz) (https://www.odt.co.nz/business/poultry-tech-awarded)

winner69

12-04-2023, 02:43 PM

Seems to be a pretty solid result Snoopy

Might see renewed interest in Scott now

Snoopy

12-04-2023, 03:49 PM

Seems to be a pretty solid result Snoopy

Might see renewed interest in Scott now

Wow, Scott up 8.3% on that interim result to 3 bucks as I write this: Top of the NZX leaderboard!

Interim net profit up 66% from $4.7m (5.9cps) to $7.8m (9.8cps), a rise of 66%. Interim dividend unchanged though at 4cps, with no imputation credits. Perhaps a bit disappointing there is no dividend rise, as company debt is low.

FY2022 operational profit was $12.7m, implying a 2HY2022 result of $8m. So rolling twelve month result now $15.8m, or 19.8cps. That means at $3, based on 79.852m shares on issue, SCT is trading an an historical PER of 15. Doesn't seem too demanding for a company with such a solid portfolio of high tech products to sell.

"Forward work remains strong particularly around the meat and materials handling (Europe) sectors."

But look at the chart headed 'Regional Business Update', and NZ has one of the lower margins at just 2.9%. Then we are told that Rocklabs based in Auckland, traditionally one the the most profitable Scott operations, maintained their margins in dollars, despite reduced sales. The lamb and beef boning room projects are run from Dunedin. So I am surprised to see the overall NZ margins so low. No imputation credits might imply that once the corporate overhead is added in, NZ overall is loss making?

Also no follow up mention of the highly touted Caterpillar robotic fuelling deal. I hope our little caterpillar hasn't crawled away shrivelled up in heat affected outback Australia and died under a scorched Leaf?

SNOOPY

Muse

13-04-2023, 03:12 PM

Sideshow Bob

13-04-2023, 03:20 PM

GTM 3442

13-04-2023, 03:38 PM

You'd like to think that Scott might have a competitive advantage with a direct pipeline into JBS. Wouldn't you. . .

Snoopy

13-04-2023, 03:59 PM

Not the only robot in the meat plant....

https://www.abc.net.au/news/rural/2023-04-04/kilcoy-pastoral-company-robotic-cutting-saw-abattoir/102180680?utm_campaign=abc_news_web&utm_content=link&utm_medium=content_shared&utm_source=abc_news_web

"The automated system has been developed in Australia through the Australian Meat Processor Corporation's research partner Intelligent Robotics. It has taken three years of development and an investment of around $5 million to make the 12-month trial possible.'"

" "There are two parallel cuts that go across all of the rib cage, through each of the rib bones, and then there are two additional cuts that get made in the spine of the side," Mr Taylor (Australian Meat Processor Corporation chief executive ) said."
"He said workers in the production line could then more easily break down the carcase."

I don't think Scotts will be unhappy to see this in the sense that it legitimises their market. The beef carcase market is much larger than the lamb carcase market. So it is probably unreasonable to expect that Scott would have a perpetual monopoly in this business space. Having said that, the Kilcoy robot is but a single processing point in a manufacturing chain. At Scotts the dream is going the while hog to fully robotised carcase processing. Scott's have spent a lot more money and time than the Aussies and I believe Scotts are further down the commercialisation track. So let's just see what happens.

SNOOPY

nztx

13-04-2023, 04:06 PM

"The automated system has been developed in Australia through the Australian Meat Processor Corporation's research partner Intelligent Robotics. It has taken three years of development and an investment of around $5 million to make the 12-month trial possible.'"

" "There are two parallel cuts that go across all of the rib cage, through each of the rib bones, and then there are two additional cuts that get made in the spine of the side," Mr Taylor (Australian Meat Processor Corporation chief executive ) said."
"He said workers in the production line could then more easily break down the carcase."

I don't think Scotts will be unhappy to see this in the sense that it legitimises their market. The beef carcase market is much larger than the lamb carcase market. So it is probably unreasonable to expect that Scott would have a perpetual monopoly in this business space. Having said that, the Kilcoy robot is but a single processing point in a manufacturing chain. At Scotts the dream is going the while hog to fully robotised carcase processing. Scott's have spent a lot more money and time than the Aussies and I believe Scotts are further down the commercialisation track. So let's just see what happens.

SNOOPY

A wider slice on the Imputation cut out of the action would be good
to keep other delving fingers at bay ;)

Snoopy

13-04-2023, 04:09 PM

A wider slice on the Imputation cut out of the action would be good
to keep other delving fingers at bay ;)

I think Scott's meat processing are more in the 'amputation' business rather than the "imputation" business ;-P

SNOOPY

nztx

13-04-2023, 04:15 PM

I think Scott's meat processing are more in the 'amputation' business rather than the "imputation" business ;-P

SNOOPY

I suspect you're right .. wonder if an audit of the Taxman would help ? .. a bit of reverse robotics ? ;)

Snoopy

13-04-2023, 06:22 PM

A good result I thought.

Snoopy have you seen today's Forbar research on Scott Technology?

You can get it free - care of signing up to MST Access (likewise free). It's company commissioned so take w/ a grain of salt (but in reality one way or another all research is sponsored, directly or indirectly).

Frustrated at the lack of analyst coverage, Scott's commission their go to local broker to draw up an analyst outlook report!?! No I haven't seen the Forbar/Scott report or should I say the Scott/Forbar report.

Of all the companies that I own shares in, I have done more reading over the years and have been to more AGMs to ask pertinent questions at Scotts than any other. So I doubt if some skinny, tie-less financial analyst junior who parachutes in to Kaikouri Valley, takes a projected FY2023 result, and then adds 10% to that for each ensuing year to come up with 'what happens in 2025' will produce much extra light for me on where SCT is heading.

Of course if anyone does want to post some of the essential numbers from that Scott/Forbar report on this site, I will do my best to correct those numbers ;-P

SNOOPY

Muse

13-04-2023, 06:28 PM

lol - good man.

Snoopy

08-05-2023, 08:16 PM

Wow! A day of 'pitiful volume' has been followed by one of the largest trading days in history. Price is steady at $2.75 though. Most of the trading in two 'off market' trades (320,000). There are only a handful of shareholders who have that many shares to sell. Chairman Stuart, who will be completing his 15th year as company chair this year, and who sold down a few shares last year, 'selling down' as he contemplates retirement (and that new deck)? Oakwood securities selling down as that shareholding gets split up on the death of long time Scott stalwart Graeme Marsh? An unsupportive Field and Palmer reducing the holding of the old Ian Urquhart estate? It will be fascinating to see who has blinked, and who has come on board!

Looks like I missed another 300k + volume trading day on May 1st, to go with today's trade of nearly 268,000. These are huge volumes for SCT. If all of these shares (including the January sale) came from the same seller (a grand total of about 890,000), that means all may be revealed soon. Why? Because 1% of all the shares on issue add up to 80,484,287 x 0.01 = 804,843. Any significant shareholders are required to declare their updated holding position once the shares held change 'in total' by more than 1% of the company or 804,863 shares (which they now have).

Again, if they are all from the one source, it won't be Chairman Stuart McLauchlan. At last balance date he 'only' held 413,453 shares. If the shares being sold are from Oakwood, then we will know that soon enough as they must file a notice, If we don't get that filing, the shares sold will be from either Field and Palmer, who may have another million or so to sell. Or from 'Leveraged Equities Limited'. That latter possibility sounds like they are an interesting company: https://www.leveragedequities.co.nz/

"We help investors access these opportunities (i.e. giving investors ready cash) utilising their existing investment portfolio. It is the securities market equivalent of borrowing money on the security of real property."

What I would like to know is, do investors have to transfer their shares to 'leveraged equities', at least temporarily as security, to allow this 'cash borrowing' to happen? Anyone know? What other explanation could there be for 'leveraged equities' to appear on the SCT share register?

SNOOPY

whatsup

10-05-2023, 09:21 PM

Looks like I missed another 300k + volume trading day on May 1st, to go with today's trade of nearly 268,000. These are huge volumes for SCT. If all of these shares (including the January sale) came from the same seller (a grand total of about 890,000), that means all may be revealed soon. Why? Because 1% of all the shares on issue add up to 80,484,287 x 0.01 = 804,843. Any significant shareholders are required to declare their updated holding position once the shares held change 'in total' by more than 1% of the company or 804,863 shares (which they now have).

Again, if they are all from the one source, it won't be Chairman Stuart McLauchlan. At last balance date he 'only' held 413,453 shares. If the shares being sold are from Oakwood, then we will know that soon enough as they must file a notice, If we don't get that filing, the shares sold will be from either Field and Palmer, who may have another million or so to sell. Or from 'Leveraged Equities Limited'. That latter possibility sounds like they are an interesting company: https://www.leveragedequities.co.nz/

"We help investors access these opportunities (i.e. giving investors ready cash) utilising their existing investment portfolio. It is the securities market equivalent of borrowing money on the security of real property."

What I would like to know is, do investors have to transfer their shares to 'leveraged equities', at least temporarily as security, to allow this 'cash borrowing' to happen? Anyone know? What other explanation could there be for 'leveraged equities' to appear on the SCT share register?

SNOOPY

wasnt leveraged equities have something to do with Paul Collins the ex BIL man?

Snoopy

10-05-2023, 10:05 PM

wasnt leveraged equities have something to do with Paul Collins the ex BIL man?

I think that was 'Active Equities'.
http://www.geocities.ws/nzinvest/aeq.html

Note sure if 'Active Equities' is still active though?

SNOOPY

Snoopy

31-05-2023, 01:45 PM

Wow, Scott up 8.3% on that interim result to 3 bucks as I write this: Top of the NZX leaderboard!

Interim net profit up 66% from $4.7m (5.9cps) to $7.8m (9.8cps), a rise of 66%. Interim dividend unchanged though at 4cps, with no imputation credits. Perhaps a bit disappointing there is no dividend rise, as company debt is low.

FY2022 operational profit was $12.7m, implying a 2HY2022 result of $8m. So rolling twelve month result now $15.8m, or 19.8cps. That means at $3, based on 79.852m shares on issue, SCT is trading an an historical PER of 15. Doesn't seem too demanding for a company with such a solid portfolio of high tech products to sell.

"Forward work remains strong particularly around the meat and materials handling (Europe) sectors."

But look at the chart headed 'Regional Business Update', and NZ has one of the lower margins at just 2.9%. Then we are told that Rocklabs based in Auckland, traditionally one the the most profitable Scott operations, maintained their margins in dollars, despite reduced sales. The lamb and beef boning room projects are run from Dunedin. So I am surprised to see the overall NZ margins so low. No imputation credits might imply that once the corporate overhead is added in, NZ overall is loss making?

Also no follow up mention of the highly touted Caterpillar robotic fuelling deal. I hope our little caterpillar hasn't crawled away shrivelled up in heat affected outback Australia and died under a scorched Leaf?

The Scott star was fading a bit. Briefly touched $2.60 after the $3 jump on the interim result hike announced in April. So Scott's come out with a 'third quarter announcement' to save the show. 'Third quarter announcement'? That has to be a new one for Scotts.

The quick round up on new business deals signed is this:

1/ Automated sample processing for Mineral Resources Limited, the commercial launch of Scott's modular mining product: $12m
2/ Palletising and Materials handling: A-ware Food Group $3.2m, Colruyt $1.5m, Incom Leone (dairy) $7m
3/ Appliance Manufacturing Lines: New deal signed with Midea for $6.5m (third deal sealed this year with this company)

Then we hear:
"The upgrades arm of the appliance business remains a reliable source of high value, high margin contracts, reflecting strong customer confidence in Scott solutions and alignment with the Scott 2025 strategic pillar of authentic customer partnerships."

That sounds a lot better than describing this 'appliance' side of the business as 'non-core' as has been the case for the last two years. I had been wondering what the distinction between core and non-core business unit at Scotts really was. But now I see it is obvious. As soon as there is a pathway for good money to be made, that business unit becomes core!

The announcement that a "fit for purpose manufacturing centre is being set up in Christchurch to increase manufacturing capacity to meet demand (for poultry trussing)." is interesting. I wonder if this is being looked at as a way to better utilise that skilled Christchurch workforce, now that the appliance line manufacturing business in China seems well established?

Adding up those headline deals announced, I get a total of: $12m+$3.2m+$1.5m+$7m+$6.5m=$30.2m

Annual revenue for the company over FY2022 was $222m. Revenue was $126.5m for HY2023. So that third quarter run rate is looking a little light, although those deals do not include the standard product stuff. Nevertheless is this a hint that Scott is to 'run out of puff' in FY2024?

Today's announcement reads more like a 'Got up, washed my face, and combed my hair announcement.' Nothing very startling. Something that every shareholder might expect is going on behind the scene. Mind you given CEO John Kippenberger's adopted hair style, that 'combed my hair' bit might be genuinely newsworthy?

SNOOPY

kiwikeith

31-05-2023, 02:13 PM

The Scott star was fading a bit. Briefly touched $2.60 after the $3 jump on the interim result hike announced in April. So Scott's come out with a 'third quarter announcement' to save the show. 'Third quarter announcement'? That has to be a new one for Scotts.

The quick round up on new business deals signed is this:

1/ Automated sample processing for Mineral Resources Limited, the commercial launch of Scott's modular mining product: $12m
2/ Palletising and Materials handling: A-ware Food Group $3.2m, Colruyt $1.5m, Incom Leone (dairy) $7m
3/ Appliance Manufacturing Lines: New deal signed with Midea for $6.5m (third deal sealed this year with this company)

Then we hear:
"The upgrades arm of the appliance business remains a reliable source of high value, high margin contracts, reflecting strong customer confidence in Scott solutions and alignment with the Scott 2025 strategic pillar of authentic customer partnerships."

That sounds a lot better than describing this 'appliance' side of the business as 'non-core' as has been the case for the last two years. I had been wondering what the distinction between core and non-core business unit at Scotts really was. But now I see it is obvious. As soon as there is a pathway for good money to be made, that business unit becomes core!

The announcement that a "fit for purpose manufacturing centre is being set up in Christchurch to increase manufacturing capacity to meet demand (for poultry trussing)." is interesting. I wonder if this is being looked at as a way to better utilise that skilled Christchurch workforce, now that the appliance line manufacturing business in China seems well established?

Adding up those headline deals announced, I get a total of: $12m+$3.2m+$1.5m+$7m+$6.5m=$30.2m

Annual revenue for the company over FY2022 was $222m. Revenue was $126.5m for HY2023. So that third quarter run rate is looking a little light, although those deals do not include the standard product stuff. Nevertheless is this a hint that Scott is to 'run out of puff' in FY2024?

Today's announcement reads more like a 'Got up, washed my face, and combed my hair announcement.' Nothing very startling. Something that every shareholder might expect is going on behind the scene. Mind you given CEO John Kippenberger's adopted hair style, that 'combed my hair' bit might be genuinely newsworthy?

SNOOPY

I think you are right Snoopy. Nothing too dramatic to report. Maybe just a reminder that the business is still motoring along and nothing out of the ordinary to justify recent share price falls.

winner69

15-06-2023, 08:37 AM

Sideshow Bob

15-06-2023, 08:50 AM

JBS want out?

Nothing like a “strategic review” and mention of Macquarie to start speculation

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/413070/396514.pdf

JBS share price down 45% in the last year and lost $500m NZD in the last quarter. Markets a bit tough at the moment....

Balance

15-06-2023, 08:57 AM

JBS want out?

Nothing like a “strategic review” and mention of Macquarie to start speculation

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/413070/396514.pdf

Sounds like it.

If it was a takeover, would have happened by now.

So punters may see a selldown by JBS to the market, underwritten by Macquarie as one option?

Snoopy

15-06-2023, 10:14 AM

JBS want out?

Nothing like a “strategic review” and mention of Macquarie to start speculation

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/413070/396514.pdf

"Auckland, New Zealand: Scott Technology Limited (NZX: SCT) advises that after discussions with majority shareholder JBS (which owns 53.05% of the Scott shares), it intends to undertake a strategic review of its ownership structure, with a view to exploring options to maximise value for all shareholders. Scott has engaged Macquarie Capital as financial adviser to assist with the strategic review."

"maximse value for all shareholders" = look for someone to takeover the whole shebang?

Seeing Balance's comment above, maybe it is a euphemism for: "minimising capital losses for all shareholders." ?

JBS, which hold's their Scott shares through their Australian arm, can't sell their 53.05% holding in one lot, without triggering a takeover offer for the whole Scott company. I remember the special meeting prior to JBS taking their controlling stake late in 2015. Brent Eastwood, originally from Invercargill, the CEO of JBS Australia (he is still there ) was very adamant that JBS wanted 'control' of Scotts. I recall a miserable independent valuation of the company at the time that allowed them to do this cheaply. So I think a profit is on the table for JBS now if they do want out.

Here is a link to the Q1 2023 JBS institutional presentation

https://api.mziq.com/mzfilemanager/v2/d/043a77e1-0127-4502-bc5b-21427b991b22/c0ede19d-726b-31e7-57a4-14f100087d18?origin=1

Slide 11 shows JBS Australia's first quarter EBITDA plunging by 80%. So in NPAT terms they may be making a loss. There is a new CEO at JBS USA.

https://www.globenewswire.com/news-release/2023/04/27/2656952/17532/en/JBS-USA-Announces-New-CEO.html
"27-04-2023: Wesley Batista Filho, with more than 13 years of experience in the company, will assume the role of CEO of JBS USA."

I think it is JBS USA that controls JBS Australia. So perhaps a new broom is sweeping up things? Slide 18 confirms the whole group has now been plunged into a loss making situation for the quarter. Operating cashflow for the quarter at JBS group looks an absolute shocker. Comparing the operating cashflow of Q1 FY2022 to Q1 FY2023: R$403 -> -R$3,043 (1 Brazilian Rial is currently worth $US0.21). So a $US700m negative cashflow turnaround for the quarter year on year.

Short term debt repayments due amount to $US1,948m (slide 20). The same slide shows 78% of debt funding is via company bonds. Interest rates are on the way up. Average cost of funding debt is already 5.87% per annum. I can see why JBS might be interested in raising some cash. But Scott's market cap at $2.75 per share is only $NZ223m, with the JBS share of that worth $NZ118m. Seems 'small beer' within the greater JBS beer keg?

SNOOPY

kiwikeith

15-06-2023, 11:05 AM

I can see why JBS might be interested in raising some cash. But Scott's market cap at $2.75 per share is only $NZ223m, with the JBS share of that worth $NZ118m. Seems 'small beer' within the greater JBS beer keg?

SNOOPY

It may be small beer but as a chinese guy once said 'A journey of a thousand miles begins with a single step"

Snoopy

15-06-2023, 05:44 PM

JBS share price down 45% in the last year and lost $500m NZD in the last quarter. Markets a bit tough at the moment....

SCT lead the NZX market today with shares up 9.1% to $3 on good volume (for Scotts anyway) of 63,642 shares. Buyers are still there at that price, with sellers holding out for $3.05.

SNOOPY

discl: holding

winner69

16-06-2023, 08:39 AM

Mr Main from Jarden ’noted that the market had reacted surprisingly positively towards the announcement’ …end of day market wrap in media

Seems some/many think a full takeover on cards?

Mel

16-06-2023, 12:42 PM

Next parcel of shares is for sale at $3.47!!
What to do with my small parcel of shares?

Snoopy

16-06-2023, 02:19 PM

Next parcel of shares is for sale at $3.47!!
What to do with my small parcel of shares?

The price of Scotts is very much liquidity driven. Some other seller has since jumped in and said that $3.42 is enough. Whether they will get $3.42 is another question entirely! Price is up today another 5% to $3.15 as I write this. My records show adjusted normalised earnings for FY2022 of 16.9cps with the outlook for FY2023 flattish. So at $3.15 SCT are trading on an historical PER of: 315/16.9= 18.6. Not cheap but not expensive either. You have to go back to FY2016 to find Scotts trading on an historical multiple as low as 18.6 (excluding the outlier Covid-19 year of FY2020 that is). Even at $3.47, the historical PER is only 20.5, well within the normal range I might expect for this 'growth' share.

Scott's has always been a 'gunna' share, with the next year being when something surprising in a good way is 'gunna' happen. FY2024 is the year when the chicken trussing machine is 'gunna' take off. With the US trade show interest, that seems more believable than some the past dreams. If you are frustrated with broken past dreams, somewhere around $3.50 might be a fair exit point. But if you 'believe the story' I would say no harm in staying invested to see what is 'gunna' happen. I am sticking with my own Scott's holding 'as is' for now.

SNOOPY

PS Now buyers at $3.16 and sellers at $3.25

Mel

16-06-2023, 04:26 PM

The price of Scotts is very much liquidity driven. Some other seller has since jumped in and said that $3.42 is enough. Whether they will get $3.42 is another question entirely! Price is up today another 5% to $3.15 as I write this. My records show adjusted normalised earnings for FY2022 of 16.9cps with the outlook for FY2023 flattish. So at $3.15 SCT are trading on an historical PER of: 315/16.9= 18.6. Not cheap but not expensive either. You have to go back to FY2016 to find Scotts trading on an historical multiple as low as 18.6 (excluding the outlier Covid-19 year of FY2020 that is). Even at $3.47, the historical PER is only 20.5, well within the normal range I might expect for this 'growth' share.

Scott's has always been a 'gunna' share, with the next year being when something surprising in a good way is 'gunna' happen. FY2024 is the year when the chicken trussing machine is 'gunna' take off. With the US trade show interest, that seems more believable than some the past dreams. If you are frustrated with broken past dreams, somewhere around $3.50 might be a fair exit point. But if you 'believe the story' I would say no harm in staying invested to see what is 'gunna' happen. I am sticking with my own Scott's holding 'as is' for now.

SNOOPY

PS Now buyers at $3.16 and sellers at $3.25
Thanks for your insights Snoopy, much appreciated. I understand the liquidity concept, my dilemma is that there are a number of stocks in my portfolio that I've not exited (at a tidy profit) and then subsequently regretted due to a decline in the share price - don't want SCT to be another to be in this category!!

Snoopy

16-06-2023, 08:49 PM

Thanks for your insights Snoopy, much appreciated. I understand the liquidity concept, my dilemma is that there are a number of stocks in my portfolio that I've not exited (at a tidy profit) and then subsequently regretted due to a decline in the share price - don't want SCT to be another to be in this category!!

Price is what you pay. Value is what you get. Prices change every day, you can check what is happening every day on the market. But value is changing every day as well, it is just not so easy to see. How does all this relate to your post?

I will tell you my own SCT sad story, (which isn't really that sad). In January 2023 I bought a small parcel of SCT shares to add to my hoard priced at $2,50. As soon as I got the contract note I had 'buyers regret'. Why? Becasue seven years earlier in 2016 I had sold exactly the same number of shares for $2.10. How stupid I felt! There I was back in 2016 selling those SCT shares (albeit for a profit), and now -seven years later,- I was having to pay more money to buy those same shares back at a higher price. I would have been much better not to have done either transaction, (as I had also missed out on all of those dividends along the way), and just kept the original shares!

But then I thought again.......

When I sold in 2016, JBS had only just come on board. The European packaging side of the business, which turns over almost half the company';s revenue had not been bought. Neither had the AGV business in the USA - Transbotics. And Robotworx, now a discontinued operation was still the star turn in the USA. IOW what shares I bought in 2023 belonged to a very different business than that represented by the shares I sold in 2016.

I suspect a similar dilemma may be being faced by you Mel. Namely that the shares you did not sell 'back then' are approaching the price you didn't sell for 'back then' right now. The factor you have to consider is that the value of the company has changed over time. So the decision to sell today should be made when 'price today' exceeds 'value today'. "Price yesterday;' is just an historical figure based on 'value yesterday' which is also historical. Those two latter figures are best forgotten, even though it is psychologically hard to do so.

SNOOPY

Mel

19-06-2023, 07:15 AM

Price is what you pay. Value is what you get. Prices change every day, you can check what is happening every day on the market. But value is changing every day as well, it is just not so easy to see. How does all this relate to your post?

I will tell you my own SCT sad story, (which isn't really that sad). In January 2023 I bought a small parcel of SCT shares to add to my hoard priced at $2,50. As soon as I got the contract note I had 'buyers regret'. Why? Because seven years earlier in 2016 I had sold exactly the same number of shares for $2.10. How stupid I felt! There I was back in 2016 selling those SCT shares (albeit for a profit), and now -seven years later,- I was having to pay more money to buy those same shares back at a higher price. I would have been much better not to have done either transaction, (as I had also missed out on all of those dividends along the way), and just kept the original shares!

But then I thought again.......

When I sold in 2016, JBS had only just come on board. The European packaging side of the business, which turns over almost half the company';s revenue had not been bought. Neither had the AGV business in the USA - Transbotics. And Robotworx, now a discontinued operation was still the star turn in the USA. IOW what shares I bought in 2023 belonged to a very different business than that represented by the shares I sold in 2016.

I suspect a similar dilemma may be being faced by you Mel. Namely that the shares you did not sell 'back then' are approaching the price you didn't sell for 'back then' right now. The factor you have to consider is that the value the company has changed over time. So the decision to sell today should be made when 'price today' exceeds 'value today'. "Price yesterday;' is just an historical figure based on 'value yesterday' which is also historical. Those two latter figures are best forgotten, even though it is psychologically hard to do so.

SNOOPY
Great post, thanks Snoopy. Yes, you've captured my dilemma - I will only add that the market is pricing some shares at a price that I THINK is widely disparate from the value I POSTULATE. In short, the market is much more fickle than it was 5 years ago and sometimes there is no rhyme or reason as to the share price movements (and the global factors much more complex) - and no guarantee that the price will 'come right' in years to come.

BlackPeter

19-06-2023, 09:02 AM

Great post, thanks Snoopy. Yes, you've captured my dilemma - I will only add that the market is pricing some shares at a price that I THINK is widely disparate from the value I POSTULATE.
...

Don't we all? We all buy a share if we think it is more worth than the current market price (i.e. the market undervalues it), and we all try to sell it if we think the market overvalues it - and hope market will at the end come to reason and follow our superior reasoning.

The inherent problem: the market is a herd of individuals (some of them smarter and some of them dumber than us) who all have different view points. Obviously - none of them (no matter how clever) is able to predict the future (which would be essential to determine the earnings value of any company).

So - its all about guesses and gut feelings mixed with lots of (sometimes right and often wrong) extrapolations. Sometimes we are right and sometimes others ("the market") are.

...

In short, the market is much more fickle than it was 5 years ago and sometimes there is no rhyme or reason as to the share price movements (and the global factors much more complex) - and no guarantee that the price will 'come right' in years to come.

Yes, we used to have a long bull market, didn't we? Anything which moved was pushed up. Clearly - these days markets are often more careful, though it appears the tide is turning again. What you are describing is basically the cycles of GREAD (controlling the markets some years ago) and FEAR (the last 18 months or so).

This is the only thing you can rely on ... too much GREAD results in bubbles which burst creating fear, resulting in low prices creating GREAD.

Not sure this helps, but what I try to say is - market moods do change, and a "fickle" market is typically not the best time to sell.

If you think Scott is in principal a good company and has a good future (I know, nobody can predict that) ... then the time to sell is probably not now. Wait for a time when you really feel strong about holding this amazing company and even your shoeshine boy and your bowling friends recommend to buy more. This would be the time to sell.

Obviously - all coming with the usual disclaimers and adding that shares with such a limited liquidity are still more difficult to time then others.

Sideshow Bob

03-08-2023, 09:22 AM

https://www.nzx.com/announcements/415697

Auckland, New Zealand: Scott Technology (NZX:SCT) is excited to announce a NZD $12 million deal with McCain Foods, the world’s largest manufacturer of frozen potato products, to deliver its proven, automated materials handling system to the McCain, Alberta, Canada processing facility.

weasel

03-08-2023, 07:24 PM

Snoopy

03-08-2023, 07:33 PM

it's "meat and potatoes" for this company

And 'meat and potatoes' in more ways than one. Yesterday I walked down the street. I did the same thing today. Oh and I also had lunch. But if I had a stock ticker, would I be reporting this to the stock exchange?

SNOOPY

winner69

18-10-2023, 11:50 AM

All looking good in Scottland

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/420187/405384.pdf

I need to update my cashflow model

Bjauck

18-10-2023, 12:10 PM

percy

18-10-2023, 12:12 PM

A decent result with both revenue and net margins up.

A very solid result.

BlackPeter

18-10-2023, 05:58 PM

All looking good in Scottland

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/420187/405384.pdf

I need to update my cashflow model

Nice they have once in a while a good year. Hey - speading glitter all over the stage! I am sure they deserve it. I took them however some time ago out of my spreadsheet, which is good - it saves me from updating the data :);

Problem with them is the lumpy character of their business ... one swallow does not make a summer and things like that :);

I used to work for a quite comparable NZ company (similar size, similar technology, similar project structure, similar overseas markets, though different industry) and one thing I learned there was - if management are spreading the glitter on the stage (last page of the presentation), then next year will be the year where you better start practising to tightening the belts.

Anyway - what is their long term PE these days? Used to be (from memory) well above 20, did this improve?

winner69

19-10-2023, 08:51 AM

BP ….thought you were joking about the glitter so checked up and yes it was a glittering occasion

See whether it leads to a tightening the belt year

Snoopy

01-11-2023, 08:47 AM

FY2017: $8.959m / 74.681m = 12.0cps

Notes NPAT normalisation calculations

FY2017: These adjustments may be found on p30,31 of AR2017. I have:

a/ Subtracted a gain on sale of property plant and equipment ($0.073m)
b/ Added back fair value losses on firm commitments, $0.001m.
c/ Subtracted foreign exchange gains ($0.269m) and unrealised fair value gains on fair value gains on foreign exchange derivatives ($0.143m) and fair value gains held as fair value hedges ($0.001m).
d/ Subtracted a fair value gain on purchase of business "DC Ross" ($0.936m).

$10.265m-($0.073m+$0.936m)+ 0.72($0.001-$0.269m-$0.143m-$0.001m)= $8.959m

FY2018: $10.205m / 75.903m = 13.4cps
FY2019: $9.464m / 77.545m = 12.2cps
FY2020: -$0.259m / 78.311m = -0.0033cps
FY2021: $11.146m / 78.636m = 14.2cps
FY2022: $13.510m / 79.852m = 16.9cps
FY2023: $15.702m/ 81.198m = 19.3cps

Notes NPAT normalisation calculations

FY2018: Most of these adjustments may be found on p33 of AR2018. I have
a/ Added back the $0.021m loss on disposal of property plant and equipment.
b/ Added back in the unrealised loss on foreign exchange derivatives, $0.271m; and losses on derivatives used as fair value hedges, $1.579m; and the unrealised fair value losses on interest rate swap contracts, $0.043m.
c/ Subtracted foreign exchange gains ($1.627m) and fair value gains on firm commitments ($1.579m).
d/ Added back $0.496m being due diligence and acquisition costs (including the $0.271m of due diligence services from the auditors)

$10.772m+($0.021m)+ 0.72($0.271m+$1.579m+$0.043m-$1.627m-$1.579m+$0.496m)= $10.205m

FY2019: Most of these adjustments may be found on p39 of AR2019. I have
a/ Subtracted the gain on sale of property plant and equipment of $0.106m and $0.237m (assumed non taxable)
b/ Added back in the unrealised loss on foreign exchange derivatives, $1.334m; and fair value losses on derivatives used as hedges, $1.216m; and the unrealised fair value losses on interest rate swap contracts, $0.346m.
c/ Subtracted foreign exchange gains ($0.008m) and fair value gains on firm commitments ($1.216m) .

$8.604m-($0.106+$0.237m)+ 0.72($1.334m+$1.216m+$0.346m-$0.008m-$1.216m) = $9.464m

FY2020: This is the year in which the Covid-19 crisis struck! Most of these adjustments may be found on p5 and p36 of AR2020.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.328m (assumed non taxable)
b/ Added back $7.600m from the impairment of assets (ceased development of projects Scott dairy and automated pork processing).
c/ Added back $4.257m of restructuring impairment related to the closure of subsidiaries DC Ross Toolmakers in Dunedin and Scott Automation GmbH, the machine tools workshop arm in Germany. Since these represent complete and final closure of these businesses I am assuming no tax is recoverable
d/ Added back $6.295m of project impairments, closing out several challenging Australasian legacy projects (assumed no tax recoverable).
e/ Added back in the unrealised loss on foreign exchange derivatives, $0.082m and fair value losses on derivatives used as hedges, $0.890m.
f/ Subtracted foreign exchange gains, ($0.450m); fair value gains on firm commitments, ($1.036m); unrealised fair value gains on foreign exchange derivatives, ($0.146m) and unrealised fair value gains on interest rates swaps ($0.146m).

-$17.503m-($0.328m)+$7.600m+$4.257m+$6.295m +0.72($0.082m+$0.890m-$0.450m-$1.036m-$0.146m-$0.146m)= -$0.259m

FY2021: Most of these adjustments may be found on p39 and p40 of AR2021.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.068m (assumed non taxable)
b/ Added back an actual foreign exchange loss of $1.706m and an unrealised fair value losses on derivatives used as hedges of $0.521m.
c/ Subtracted unrealised fair value gains on foreign exchange derivatives, ($0.132m) and unrealised fair value gains on interest rates swaps ($0.155m).
d/ Added back the amortisation of HTS 110 goodwill, now a legacy asset that has been sold, of $0.403m.

$9.527m-($0.068m) +0.72($1.706m+$0.521m-$0.132m-$0.155m) + 0.72x$0.403m= $11.146m

FY2022: Most of these adjustments may be found on p45 and p46 of AR2022.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.049m (assumed non taxable)
b/ Added back an actual foreign exchange loss of $1.529m and an unrealised fair value losses on derivatives used as hedges of $0.639m.
c/ Subtracted unrealised fair value gains on foreign exchange derivatives, ($0.339m) and unrealised fair value gains on interest rates swaps ($0.576m).
d/ Writing off of Robotworx goodwilll, now Robotworx is a discontinued operation, was done as a separate accounting entry, outside of the continuing operations accounts as presented. Thus no adjustment to the accounts as presented is required as a result of discontinuing Robotworx operations.

$12.657m-($0.049m) +0.72($1.529m+$0.639m-$0.339m-$0.576m) = $13.510m

FY2023: Most of these adjustments may be found on p43 and p44 of AR2023.

I have
a/ Subtracted the gain on sale of property plant and equipment of $0.459m (assumed non taxable)
b/ Added back an actual foreign exchange loss of $1.159m and an unrealised fair value losses on derivatives used as hedges of $0.455m.
c/ Subtracted realised foreign exchange gains of ($0.845m), unrealised fair value gains on foreign exchange derivatives, ($0.362m) and unrealised fair value gains on interest rates swaps ($0.083m).
d/ Added back one off costs of $0.683m in relation to the strategic review of the company ownership structure.

$15.436m-($0.459m) +0.72(($1.159m+$0.455m) - 0.72($0.845m+$0.362m+$0.083m) + 0.72x$0.683m) = $15.702m

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

Discussion: You will notice that I calculated six years of results, whereas I am meant to be considering only five. I have done this because for Scotts, I believe the FY2020 result was so unusual (Covid-19 effects related), that it would be misleading to to think of it as any part of a 'normal business cycle'. Thus I am going to 'look through' FY2020 as though it didn't happen. The one sense where I will consider FY2020 is that on normalised profit metrics the business was close to break even. So with the benefit of hindsight government support, and no doubt lots of prudent management behind the scenes, we can see that the SCT business was not put at risk of closing by Covid-19. With FY2020 excluded, and only one blip on the 'eps' growth scoreboard, the result of the second Buffett test is clear.

Conclusion: PASS TEST

SNOOPY

Snoopy

01-11-2023, 09:30 AM

Anyway - what is their long term PE these days? Used to be (from memory) well above 20, did this improve?

Historical long term PE on my 30th September 2023 reference date was: $3.23/$0.193=16.7

Comparable historical PEs for FY2022, FY2021, FY2019 and FY2018, again on my 30th September reference date, were 16.6, 20.1, 20.5 and 22.8. Including FY2023 gives a five year average historical PE of 19.3. (notice I have omitted FY2020 from this analysis, as I believe this Covid year is not a credible forecasting data point).

Based on yesterday's closing price of $3.67, the historical PE was $3.67/$0.193 = 19.0, or very close to the five year average. This is an indicator to me that Mr Market has got the share price 'about right'.

Six reference year reference date compounding 'eps' growth (note I am including the FY2020 Covid year in this compounding time frame) rate is:

13.4(1+g)^5=19.3 => g = 7.6%

No 'improvement' necessary?

SNOOPY

discl: holding

BlackPeter

01-11-2023, 10:02 AM

Historical long term PE on my 30th September 2023 reference date was: $3.23/$0.193=16.7

Comparable historical PEs for FY2022, FY2021, FY2019 and FY2018, again on my 30th September reference date, were 16.6, 20.1, 20.5 and 22.8. Including FY2023 gives a five year average historical PE of 19.3. (notice I have omitted FY2020 from this analysis, as I believe this Covid year is not a credible forecasting data point).

Based on yesterday's closing price of $3.67, the historical PE was $3.67/$0.193 = 19.0, or very close to the five year average. This is an indicator to me that Mr Market has got the share price 'about right'.

Six reference year reference date compounding 'eps' growth (note I am including the FY2020 Covid year in this compounding time frame) rate is:

13.4(1+g)^5=19.3 => g = 7.6%

No 'improvement' necessary?

SNOOPY

discl: holding

Cheers - so, it looks like my memory was right (I didn't follow them the last couple of years) - and it looks as well that the PE improvement came basically with a reduction of the P - and to be honest, 16.6 looks still pretty dear unless it comes with reliable future growth.

I guess I wish them all the best, they are a cool South Island engineering based company after all and provide plenty of fun (and learning opportunities) for generations of engineering students.

From an investor perspective however I am still wondering what would make one invest into this company? I guess I can understand the rational for the majority shareholder (they might be happy to have paid a premium for priority access to an engineering workshop when they need it), but what's in it for a retail investor at a PE of nearly 17, unless one assumes they keep growing their earnings from now on year after year with a CAGR of at least 5. Not sure I would assume that the last 5 years (with a gap) would provide in a cyclical industry a reliable measure for average future growth? Do you?

Why do you think the growth coming out of the Covid valley will provide a guide for consistent and sutainable growth in the future?

And sure, they might be the largest production automation company in NZ, but internationally they are just a minnow. Where do you see their moat allowing them to keep growing on the international stage compared to automation giants in Japan, Korea, the US and Germany (next to some other countries all larger and with more high tech industry than our small (though beautiful) islands in the South Pacific :) ;?

Snoopy

01-11-2023, 12:10 PM

Cheers - so, it looks like my memory was right (I didn't follow them the last couple of years) - and it looks as well that the PE improvement came basically with a reduction of the P - and to be honest, 16.6 looks still pretty dear unless it comes with reliable future growth.

Actually the share price is flirting with all time highs. So the reduction in PE (from a five year average of 20 to 19 today) has definitely come from an increase in earnings, not a decrease in price. But I agree at that PE ratio of 19, there is a lot of growth priced in. A run up in share price wouldn't be unusual for a growth company running up to its AGM though, in this case in a couple of weeks. It happened last year, then the share price then cooled off over the summer, which if it happens again should provide a more attractive entry point than today. Last year I topped up my holding by picking up a small parcel at $2.50. I can't complain about a 50% return on that parcel in less than twelve months!

From an investor perspective I am still wondering what would make one invest into this company? I guess I can understand the rational for the majority shareholder (they might be happy to have paid a premium for priority access to an engineering workshop when they need it),

'Paid a premium'.!?! I have to pull you up there. JBS paid just $1.39 a share for their controlling stake in 2015. after Northington Partners issued a rather miserable valuation of $1.08 - $1.26 per share. So JBS paid a premium compared to that, but the market share price never got that low. I remember being wild at the time that JBS got their controlling stake so cheaply. No need to feel sorry for JBS. They are well in the money with this one.
.

but what's in it for a retail investor at a PE of nearly 17, unless one assumes they keep growing their earnings from now on year after year with a CAGR of at least 5. Not sure I would assume that the last 5 years (with a gap) would provide in a cyclical industry a reliable measure for average future growth? Do you?

Why do you think the growth coming out of the Covid valley will provide a guide for consistent and sustainable growth in the future?

You need to look at my figures again. The five year eps growth rate of 7.6% compounding per year was from a base date of EOFY2018 (31-08-2018), So well before Covid. That 7.6% compounding growth rate happened despite the Covid problems. There was no 'gap' in that particular calculation. And 7.6% is a compound annual eps growth rate well exceeding your 5% target. What is more, I didn't cherry pick my start point either. eps actually fell in FY2019. So if I had calculated a four year compounding growth rate, then I would have got an even greater number.

In case you hadn't caught up, Scott's are trying to move away from the cyclical contracting, into more on demand standardised products with less engineering execution risk.

And sure, they might be the largest production automation company in NZ, but internationally they are just a minnow. Where do you see their moat allowing them to keep growing on the international stage compared to automation giants in Japan, Korea, the US and Germany (next to some other countries all larger and with more high tech industry than our small (though beautiful) islands in the South Pacific :) ;?

Scott's aren't trying to compete with the big guys who make the robots. They are more about niche applications using other peoples robots, (although they do make their own AGVs via Transbotics, their US manufacturing subsidiary.)

SNOOPY

Snoopy

01-11-2023, 12:28 PM

FY2017: $8.959m / $97.156m = 9.2%
FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.464m / $111.817m = 8.5%
FY2020: -$0.259m / $92.947m = -0.29%
FY2021: $11.146m / $98.195m = 11.4%
FY2022: $13.510m / $100.406m = 13.5%

Good improvement over FY2022, even if we haven't yet reached the Buffett hurdle standard. It is pleasing the see the increased 'return on equity' (ROE) is happening on an increasing equity base. This shows the capital that has been invested back into the company is being wisely invested along a growth path. But our test 'hurdle height' is set for a reason so....

Conclusion: Fail Test

FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.464m / $111.817m = 8.5%
FY2020: -$0.259m / $92.947m = -0.29%
FY2021: $11.146m / $98.195m = 11.4%
FY2022: $13.510m / $100.406m = 13.5%
FY2023: $15.702m / $113,899m = 13.8%

Return on Equity is still going in the right direction, even if we haven't yet reached the Buffett hurdle standard. It is pleasing the see the increased 'return on equity' (ROE) is happening on a further rise in the equity base. This shows the capital that has been invested back into the company is being wisely invested along a growth path. But our test 'hurdle height' is set for a reason so....

Conclusion: FAIL TEST

SNOOPY

percy

01-11-2023, 12:39 PM

I am having a good laugh.
SCT are "FAIL TEST" for you while they are starting to "PASS TEST" on my radar..
Operating cash flow of $26m was higher than pcp due to the strong underlying performance of the
business but also the timing of significant cash deposits relating to large projects won, which in turn
boosted the Group’s net cash position to $12.8m.

Snoopy

01-11-2023, 12:40 PM

Here are the net profit margins for the last six years.

FY2017: $8.959m / $132.631m = 6.8%
FY2018: $10.205m / $181.779m = 5.6%
FY2019: $9.464m / $225.093m = 4.2%
FY2020: -$0.259m / $186.073m = -0.14%
FY2021: $11.146m / $216.234m = 5.2%
FY2022: $13.510m / $221.757m = 6.1%

Margins have been increasing since new CEO John Kippenberger started the 'Scott 2025' strategy. In short this is using standardised products and processes to remove contracting risk. Ignoring the unrepresentative Covid-19 year FY2020, profit margins look to be on a steady, albeit slow, recovery path, notwithstanding that margins are still below where they were six years ago. Over FY2022 margin growth of 6.1%/5.2% = +17% is greater than inflation.

Conclusion: Pass Test

Here are the net profit margins for the last six years.

FY2018: $10.205m / $181.779m = 5.6%
FY2019: $9.464m / $225.093m = 4.2%
FY2020: -$0.259m / $186.073m = -0.14%
FY2021: $11.146m / $216.234m = 5.2%
FY2022: $13.510m / $221.757m = 6.1%
FY2023: $15.702m / $267.526m = 5.9%

Ignoring the unrepresentative Covid-19 year FY2020, profit margins look to be on a steady, albeit slow, recovery path. A fall in margin, albeit small, from from last year is disappointing, notwithstanding that margins are still above where they were six years ago. But 6.9% is still a good jump from where the company was in FY2019

Conclusion: PASS TEST

SNOOPY

Snoopy

01-11-2023, 01:24 PM

I am having a good laugh.
SCT are "FAIL TEST" for you while they are starting to "PASS TEST" on my radar..
"Operating cash flow of $26m was higher than pcp due to the strong underlying performance of the business but also the timing of significant cash deposits relating to large projects won, which in turn boosted the Group’s net cash position to $12.8m." (AR2023 p3)

Percy, don't take a fail on the 'Return on Equity' test for a manufacturer like Scott's too hard. It is very rare for a capital intensive manufacturing business to meet that target (although I believe Skellerup does). The only real effect of this 'failure' is that I can't put my Buffett inspired compounding retained earnings spreadsheet model into use for predicting future returns. It doesn't mean that I exclude SCT as a worthwhile investment going forwards under other criteria.

Since the 2015 recapitalisation, access to cash has never been a problem for Scotts. But large projects have necessitated going into debt to provide the working capital to finish them. It is always good to see operational cashflow taking a favourable turn. Although as Scott's stated themselves in your quote, much of that was owing to ,
"the timing of significant cash deposits relating to large projects won" (AR2023 p3)

So rather than this being a new trend, it wouldn't surprise me at all if the cashflow picture turned around again over FY2024. That is just how a business like Scott's works, and would not be cause for alarm. Just letting you know in case you are considering climbing on board. The other problem with being an SCT shareholder is liquidity which is not often great. But of course that works 'both ways'. If new significant shareholders want in, that means they usually have to 'pay up' which provides a good opportunity for 'overweight shareholders' to exit. Share price up another 5c today as I write this to $3.72. By my calculation that is a PE of $3.72 /$0.193 = 19.3. Bang on the five year average for this share. So at $3.72, not expensive, but not cheap either (by my measure).

SNOOPY

discl: holding, not selling

Snoopy

01-11-2023, 03:33 PM

3M, the NYSE listed multinational corporate is known as a 'clever tech innovator' in the business space. Now New Zealand has their own 3M in the form of listed company 'Scott Technology'. The eMs in this case refer to Material handling, the Meat Processing Industry and Mining Adjunct Equipment. These are the three 'standard product' industries where Scott's have 20 years or more of specialist industry expertise.

1/ Material Handling

This is the old Alvey group business, purchased as a going concern by Scott's in FY2018 and headquartered in the Belgium and the Czech Republic in Europe. Much of the Alvey division's work is with palletising and packaging food for international brands such as McCain, Danone and Friesland Campina (a Dutch dairy multinational). Acquisition by Scott's has allowed branching out into new geographic markets with materials handling installations in Canada and New Zealand. In terms of revenue, this is the largest part of the Scott business (about one third).

Added to Alvey is the US based Transbotics business unit, which specialises in self guided automated trackless transportation trolleys for industrial use.

2/ Meat Processing

Meat processing's flagship project, the now successfully integrated 'automatic boning room', is built around processing of lamb carcasses. Globally lamb is a 'minority meat'. But 18 wholly or partly automated lamb boning rooms have been sold across Australasia, representing $180m in cumulative sales (PV = $10->15m per installation today). Scott's estimates that the 60% of our regional lamb processing market that remains unautomated is 'ripe for the picking'.

The second string to Scott's meat automation bow is the automated poultry trusser. 'Trussing' is the term used when a plucked and de-headed chicken is packaged up ready for sale with string, tying the wings and legs of the bird carcass tightly to the body. This keeps the processed chicken 'compact' for packaging and rotisserie cooking purposes. A Scott robotic trussing system ($1.7m for a 24 birds per minute system) is capable of processing a single chicken in five seconds. The opportunity within the US market alone is estimated at 150 machines.

The third product, 'Bladestop' is an industrial band-saw with a twin safety mechanism that makes it almost impossible for an operator to injure themselves. This product is applicable to more manual meat processing, such as occurs in the beef industry. 'Bladestop' (around $70k per unit) currently has a 9% market share in the US, and shows further promise of being a sales prospect for non-protein based applications.

The above three 'standard products' all have patent protection in the markets in which they are sold.

3/ Mining Adjunct Equipment

Rocklabs, based in Auckland, does not supply mining equipment for pulling minerals out of the ground. What it does do is provide automated equipment to crush down and analyse drilling samples. That means those companies mining certain mineral veins know exactly the composition of material is that is being dug out. This is important information in assessing the ultimate yield of the raw material a company is mining. Rocklabs have a globally wide and loyal client base.

Normally, to do this testing, some form of comparative assay material is required. Rocklabs can supply such material.

A further 'mining aid' is Scott's robotic fuel filling system. An on site mining truck can be a very large beast, not suitable for driving on a public road. Typically the wheel height might be the height of a person. So reaching up to refuel such a thing, in hot weather, can be a demanding physical task. Scott's Australian business has developed a robotic arm automated refueling system to solve this problem.

4/ And 'oh yes' Scott's has a 'non-core business' arm too, and it makes up just under 25% of company revenue! Very curiously it wasn't even mentioned in the annual report text by name (although it was in a couple of photographs). This is the 'Appliance line manufacturing business', where the competition has been either from co-operative European consortiums in Spain and/or Italy, or the Appliance manufacturer doing the project 'in house' themselves.

As the producer of patent protected technology for niche applications, Scott's certainly ticks the 'top three in their chosen market' box. Even in the more contested Appliance line manufacturing business, Scott's seem to end up in the top three for customer choice.

Conclusion: Pass Test

Scott Automation, as they like to promote themselves, is a world leading niche provider of automated robotic solutions to global manufacturing and processing industries. These are industries as highly varied as highly varied as: Appliances, Automotive, Cosmetics and Healthcare, Distribution and Retail , Food and Beverage, General Manufacturing, Meat Processing and Mining.

Scott's have engineering centres across the globe organized into global 'centres of excellence', where specific product lines are made to service the industries described above:

1/ Dunedin New Zealand (Meat Processing),
2/ Christchurch New Zealand (Appliance Production Line manufacturing),
3/ Auckland New Zealand (Automated mineral sample assessment, using the so called AMS (Automated Modular Solution) system, and the supply of CRMs (Certified Reference Materials) to use in these machines.
4/ Sydney and Melbourne Australia (Complementary to NZ in automated mining and meat processing equipment) supplying more complex automation to the mining industry and the award winning 'Bladestop' safety bandsaws to the meat industry.
5/ Belgium and the Czech Republic Europe (Materials Handling and Palletisation Equipment)
6/ Charlotte, North Carolina, United States (Materials handling, Automated Guided Vehicles)
7/ Qingdao, China (Appliance Production Line manufacturing)

Despite Scott's global reach, in worldwide terms they are still a minnow company planning on conquering the industrial world from headquarters in Dunedin. That means having good people to develop a technical edge and having good people to market and implement that technical edge are critical to the company's success. Being able to implement such a strategy has long been a foundation of the company. But under CEO John Kippenberger's leadership, which is encapsulated in the Scott 2025 strategy, added to that technical discipline is a financial one. Put simply the 'Scott 2025 Strategy' means 'doing what Scott does best where the technical lessons have been learned' and not taking on engineering vanity projects that satisfy company engineers but leave little or no profits for shareholders.

O.K. it all sounds good so far. Does Scott really have a 'tech edge' that stacks up globally? Scott's commissioned a valuation study on the company from Forsyth Barr published on 20th January 2023. Appendix 1 in that report is a 'competitor analysis', and the three examples I have chosen to expand on below, I have referenced from there.

Materials Handling and Palletisation
Scott's Europe, with their PAL4.0 packer, offer a dispatch solution for customers who want to combine different sized 'output units' into single efficiently packed pallet packages, at the producer level PAL4.0 has a noticeably small footprint for its output capability. Competitors in a similar market space include:
a/ 'Mecalux' which offers automated selection of goods and sorting as part of a wider automated warehousing solution.
b/ 'Tavil' which offers a similar ability to PAL4.0 to sort different sized packages onto pallets. However the installed footprint looks to be all single level, i.e. it is physically larger than PAL4.0 for the same output.
c/ CSi offers a lower cost solution compared to PAL4.0 called 'Stack-Mate'. But 'Stack-Mate' doesn't offer two or more variable input feeds and looks to have a lower processing capacity per hour. CSi also offers the C5000 (which can handle 140 'cases' (input cartons) per minute) and which does look similar to PAL4.0 (which handles 40-100 cases per minute). It could be that the C5000 is aimed at the higher throughput end of the market. CSi also offers the lower capacity Taros unit that processes up to 60 cases per minute. So it looks like Scott's have found a slot in the market between those two CSi products.
d/ John Bean Technology (JBT) do not appear to offer conveyor belt type packaging systems at all (they do AGVs).

Despite not being 'unique in the market', Scott's PAL4.0 looks to be a competitive offering in a carefully targeted processing capacity niche.

Bandsaws
Kando, (a variation on 'Can do'?) is a New Zealand based company offering specialised equipment to different protein processing industries. Their 'Guardian' bandsaw brand looks like a serious competitor to Scott's 'Bladestop'. Kando have a North American sales and service office based in Omaha Nebraska. Guardian have a bandsaw safety protection feature with four cameras watching for the presence of any special blue coloured glove near the saw blade. The 'shut down time' is measured in milliseconds. As well as the meat processing industry, Guardian is already active in the supermarket and industrial sectors, where Bladestop is only just getting started. In addition to a camera, which cannot see your hands if they are obscured, Bladestop, in addirion, features a 'body sensing system' where skin contact can be sensed via its capacitive electrical potential because the operator is earthed to the machine via a plug in cable attachment.

This means Bladestop can offer that patented extra security feature that others in the market cannot match.

Mineral Sample Preparation
Rocklabs, are the Scott division that has previously works on bespoke end to end sample preparation equipment for mining companies. Cost, complexity and repairability of such an installation must all be balanced around value and potential down-time. Mining sample preparation generally involves three steps:
i/ A sample is dried in an oven at 100degC
ii/ The sample is crushed using a rock crusher
iii/ A portion of the crushed sample is pulversied into powder, like talcum powder, and a sample of that is taken for analysis.
Although the sample was prepared by Rocklabs, the actual analysis was undertaken by using products from much larger corporates with bigger budgets.

Rocklabs has developed a new AMS (Automated Modular Solution) that is a world first in linking three individual modules (crushing, pulverising and dispensing) in a single sequential unit, But such a full scale end to end sampling system can still be operated as single units if desired. This modular nature of the product guards against entire system failure, so reducing downtime. The new design also offers the benefit of a significantly smaller installation footprint.

Herzog, based in Germany, markets itself as "your partner for automatic sample preparation." Herzog offer a range of sample preparation equipment, through to the computerised spectroscopy equipment for chemical analysis (not supplied by Rocklabs). Herzog also serve a wider range of customers including foundries, recyclers and cement producers (three markets not targeted by Rocklabs). Options start with the automated benchtop sized TP20E, and top out with the shipping container sized 'Herzog Metal lab' (Within the MetalLab, an industrial robot takes care for handling of production, re-calibration and control samples.) The Herzog metal lab is a size up on anything from the standard Rocklabs product range.

It looks to me as though Rocklabs do not necessarily offer 'global technical superiority' in the equipment they sell (although the new AMS product may change that). Rather, Rocklabs edge has been built on service. That means having replacement parts and equipment 'in stock' rather than the approach of other companies where sample preparation is only one cog in a much larger business wheel. In the case of those other companies, equipment can be out of action for months, while waiting for a batch order of replacement parts to be made. When a multi-million dollar mining operation can be brought to a halt for want of a simple part, service really matters and Rocklabs delivers.

I cannot cover all products and all competitors in all markets in which Rocklabs operates. But the three examples I have chosen show that without being 'the biggest', Scotts are very adept at identifying a market niche and by design and desire are able to put together a compelling package in that market space.

Conclusion: PASS TEST

SNOOPY

Snoopy

02-11-2023, 09:09 AM

A bit of a change this year as 'Australasia' separates out into Australia and New Zealand

New Zealand Manufacturing
Australia Manufacturing
Americas Manufacturing
Europe Manufacturing
China Manufacturing
Overall

Revenue (a)
$50.948m
$56.670m
$52.464m
$57.885m
$3.790m
$221.757m

Revenue %ge
22.97%
25.55%
23.66%
26.10%
1.709%
100%

Segment NPBT (a)
$21.967m
$0.005m
($2.073m)
$4.732m
$0.245m
$24.876m (b)

subtract Admin NPBT Adjustment
($2.288m)
($2.545m)
($2.356m)
($2.600m)
($0.170m)
($9.959m)

equals NPBT Adjusted
$19.679m
($2.540m)
($4.429m)
$2.132m
$0.075m
$14.917m

less Taxation (a)
($3.282m)
$0.667m
$1.068m
($0.736m)
$0.023m
($2.260m)

equals NPAT adj
$16.397m
($1.873m)
($3.361m)
$1.396m
$0.098m
$12.657m

Notional Tax rate (T / NPBTadj)
16.7%
-26.3%
-24.1%
34.5%
-30.7%
15.2%

NPAT profit margin (NPATadj / R)
32.2%
-3.3%
-6.4%
2.4%
2.6%
5.7%

Divisional Interest Income (a)
$0m
$0.486m
$0m
$0.001m
$0.073m
$0.560m

less Divisional Interest Costs (a)
($0.153m)
($0.107m)
($0.164m)
($0.321m)
($0m)
($0.745m)

less Admin Interest Costs
($0.175m)
($0.195m)
($0.181m)
($0.199m)
($0.013m)
($0.763m)

equals Divisional Net Interest Gain/(Expense) (I)
($0.328m)
$0.184m
($0.345m)
($0.519m)
$0.060m
($0.948m)

EBIT Adjusted (NPBTadj+I)
$20.007m
($2.724m)
($4.084m)
$2.651m
$0.015m
$15.865m

Notes

a/ Information marked (a) in the above table is straight from Sections A1 and A3 in the annual report. Other rows of information are derived.
b/ But an individual row entry marked (b) is derived.
c/ I use the word 'Adjusted' here in the sense that I have distributed the unallocated costs across the trading business units in proportion to the revenue of those trading units.

Observations from the Above

Sometimes 'scratching below the surface' we can find insights into a business that are not apparent when looking at 'the big picture'. The big picture tells of Scotts as a listed second tier manufacturer with a pot of 'takeover capital' that came on board as a result of JBS taking a controlling stake. Consequently, Scotts continued a push to acquire global technology leading automation businesses around the world. Subsequently some acquisitions have proved more successful than others.

Scott's comes across as an outfit doing clever stuff, but with an array of un-co-ordinated divisions prone to extended development times and project cost overruns that have failed to lift the company's financial sharemarket performance above the mediocre. But look at the 'country by country' divisions, and a much more diverse business-scape unfolds.

1/ New Zealand has been 'by far the star' performer over FY2022. Look at that Net Profit Margin of 32% (consistent with Slide 13 of PR2022 on Meat Industry products). The NPM is even higher at Rocklabs (over 40%)! Wow! I presume it must have been the 'appliance line manufacturing centre' now designated as 'non-core' that brought the NZ NPM overall back to a still laudable 32% overall.

2/ The United States operation has been 'rocked' by the closure of 'Robotworx' (AR2022 p2). However, put 'www,robots.com' into your browser and 'Robotworx' comes up still trading under the new ownership of: TIE 'The Industrial Experts'. What is that all about?

The reference divisional results for the Americas from the previous year have been restated, I assume because of 'no Robotworx' any more. I was therefore surprised to see such a big EBIT loss in the Americas this year - over $4m. Since the Americas now consists of a small service centre in Dallas, and Transbotics, I assume most of this loss was from Transbotics! If we go back to 2019, the Automated Guided Vehicle market had a target growth rate of 30%+ (slide 14, Scott Presents with Moelis November 2019 Slide Show). Yet a comparison of 'standard product' sales from the Americas (with Robotworx gone, this is all Transbotics now) between FY2022 and FY2021 (AR2022 p43,44) shows no growth in sales.

I wonder if the comment I made above in 'Buffett summarising' what happened over FY2021 has any bearing on what happened at Transbotics over FY2022?

3/ The Bladestop band-saw, made in Australia as I understand it, saw a 20% growth in installations over FY2020 (PR2022 s13). I make that to be 25 more installations supplied over FY2022, although I am not sure exactly how many bandsaws end up in each installation. Given Bladestop is one of Scott's 'hero' products, I was very surprised to see Scott's Australia in EBIT loss of $2,704m for the year. Management are conservatively estimating that this EBIT result will improve by $3.8m (AR2022 p57). That means an EBIT profit in Australia of $1.1m for 2023

4/ China is showing minimal profit. But look at the turnover. Down two thirds on the previous year. IMV the Chinese result is the result of the ebb and flow of big appliance line manufacturing projects. Last year China was the division with the highest net profit margin of all, and I expect it to bounce back over FY2023.

Updating the table for FY2023

New Zealand Manufacturing
Australia Manufacturing
Americas Manufacturing
Europe Manufacturing
China Manufacturing
Overall

Revenue (a)
$49.864m
$41.533m
$82.256m
$88.997m
$4.876m
$267.526m

Revenue %ge
18.64%
15.52%
30.75%
33.27%
1.823%
100%

Segment NPBT (a)
$21.634m
$2.321m
$3.197m
$4.981m
$1.901m
$34.034m (b)

subtract Admin NPBT Adjustment
($2.765m)
($2.302m)
($4.562m)
($4.936m)
($0.270m)
($14.835m)

equals NPBT Adjusted
$18.869m
$0.019m
($1.365m)
$0.045m
$1.631m
$19.199m

less Taxation (a)
($1.360m)
($0.409m)
($0.856m)
($1.116m)
($0.022m)
($3.763m)

equals NPAT adj
$17.509m
($0.390m)
($2.221m)
($1.071m)
$1.609m
$15.436m

Notional Tax rate (T / NPBTadj)
7.21%
2053%
-62.7%
2480%
1.37%
19.6%

NPAT profit margin (NPATadj / R)
35.1%
-0.94%
-2.70%
-1.20%
34.6%
5.77%

Divisional Interest Income (a)
$0.176m
$0.280m
$0m
$0.042m
$0.038m
$0.536m

add Interest Income Reallocated (a)
$0.004m
$0.003m
$0.007m
$0.008m
$0.000m
$0.022m

less Divisional Interest Costs (a)
($0.708m)
($0.060m)
($0.228m)
($0.354m)
($0m)
($1.350m)

less Interest Costs Reallocated
($0.166m)
($0.138m)
($0.274m)
($0.296m)
($0.017m)
($0.891m)

equals Divisional Net Interest Gain/(Expense) (I)
($0.694m)
$0.085m
($0.495m)
($0.600m)
$0.021m
($1.683m)

EBIT Adjusted (NPBTadj+I)
$19.563m
($0.066m)
($0.870m)
$0.645m
$1.610m
$20.882m

Notes

a/ Information marked (a) in the above table is straight from Sections A1 and A3 in the annual report. Other rows of information are derived.
b/ But an individual row entry marked (b) is derived.
c/ I use the word 'Adjusted' here in the sense that I have distributed the unallocated costs across the trading business units in proportion to the revenue of those trading units.

Observations from the Above

Sometimes 'scratching below the surface' we can find insights into a business that are not apparent when looking at 'the big picture'. The big picture tells of Scotts as a listed second tier manufacturer with a pot of 'takeover capital' that came on board as a result of JBS taking a controlling stake. Consequently, Scotts continued a push to acquire global technology leading automation businesses around the world. Subsequently some acquisitions have proved more successful than others.

Scott's share price has risen sharply over the last year, ironically on the possibility of corporate activity with majority shareholder JBS considering an exit from the share register. However, if we consider Scott purely on operational performance, then the rise in share price is supported by the jump in underlying earnings and the accompanying 'growth premium' that a company growing at this rate (eps has been growing at 7.6% compounding over five years) deserves.

The 'country by country' divisions, tell of a diverse 'business-scape'.

1/ New Zealand has once again been 'a star' performer over FY2023. Look at that meat industry Net Profit Margin of 33% (Slide 12 of PR2023 on Protein). The NPM is even higher at Rocklabs (Slide 13 of PR2023, 40%)! The NZ NPM I calculated in the table above to be 35.1% overall.

2/ The United States operations see a much reduced EBIT loss in the Americas this year, down 79% from over $4m to $0.87m (still a loss though). The USA footprint remains an appliance line service centre in Dallas, and the Transbotics AGV manufacturing site at Charlotte in North Carolina. Scott's have changed the reporting categories between FY2022 and FY2023 for all of their manufacturing base business units. For the 'American manufacturing' business unit, readers may compare the reporting changes in the table below.

The comparative product categories in section A1 of the respective annual reports have changed from 'Systems', 'Products' and 'Services' (AR2022) to 'Protein', 'Minerals', 'Materials Handling' and 'Rest of Business' (AR2023)
The 'standard product' sales from the Americas (all Transbotics) showed sales of $9.378m in AR2022. Yet the retrospective comparison of the same sales period from AR2023 showed sales of $11.314m of 'materials handling equipment' (an apt description of Transbotics). I cannot explain the near $2m difference.

Americas Manufacturing Revenue
SystemsProductsServicesProteinMineralsMaterials HandlingRest of BusinessTotal

FY2022 (AR2022)
$31.005m$9.378m$12.081m$52.464m

FY2022 (AR2023)
$12.579m$0.998m$18.324m$20.563m$52.464m

FY2023 (AR2023)
$34.925m$1.913m$28.387m$17.031m$82.256m

A couple of years ago I read an article about Transbotics migrating from laser guided navigation to GPS guided navigation. However true GPS guided navigation has a positioning accuracy of 5-10m at best. Frankly I can't see how that is useful when transporting goods from storage area to a manufacturing point in a factory (as an example). Perhaps it might be useful outdoors when a Transbotic train is moving goods from one building in a multi building manufacturing site to another? I had considered going from laser to GPS navigation a major generational change in AGV technology. I could be wrong. But today it reads more like an 'add on' with limited applications. Why did I bring this topic up? I was wondering if this was a explanation for a sudden jump in Transbotics sales (+55% YOY). But as I have explained, I doubt new GPS technology vehicles is the explanation.

If we go back to 2019, the Automated Guided Vehicle market had a target growth rate of 30%+ (slide 14, Scott Presents with Moelis November 2019 Slide Show). Perhaps after a year of slow growth last year, that 55% lift is going towards restoring AGV growth to some kind of medium term forecast trend average?

3/ In Australia, management 'conservatively' estimated that this EBIT result would improve by $3.8m in FY2023 (AR2022 p57). That $1.1m EBIT 'profit target' turned into a $0.066m EBIT loss for FY2023. Not good, although this failure must be seen in the context of $41.553m in revenue (i.e. it was only a 2.9% forecasting error). The reason for this loss is hinted at on s15 of PR2023:
"Strategic focus away from one off complex projects sees loss-making mining systems revenue and associated low margin taper off,"

By contrast, Bladestop band-saws, made in Australia as I understand it, saw a 36-51% growth (depending on the market) in installations compared to FY2022 (PR2023 s13). Things look very promising in this space for FY2024, with the new smaller T300 designed for smaller businesses, like retail butcheries and supermarkets coming to market early in CY2024.

4/ Europe had a good year with revenue bouncing to $88.997m, 54% up on the $57.885m from the previous year. But in this context it was disappointing to see the 'divisional net profit' rise by only 25% (AR2023 p47,p48). In the past in NZ, such discrepancies have been explained by more overtime being paid and excess work being farmed out at 'contract rates'. I do not know if that is what happened in Europe.

5/ By my table above, China looks to have made a strong rebound into profit. Turnover has bounced back at $4.876m, albeit this is still down 67% on the FY2021 figure ($12.045m). With an allowance for corporate overheads taken into account, my table numbers are saying China, exclusively an appliance production line manufacturing centre, is the second most profitable arm of the company, behind only New Zealand. That being so it is curious to read in s15 of PR2023 that the:
"Appliance business remains challenging with the overall contribution to group profitability still being marginal."

A possible explanation for this discontinuity is that my 'cost apportioning assumptions according to revenue' are wrong and that the rebuild of the Chinese operation worksite into entirely new and larger premises has raised local costs in a way that shareholders do not fully appreciate. Nevertheless the appliance line business is destined to be forever lumpy as a result of the ebb and flow of big appliance line manufacturing projects.

So what conclusions can I draw from all this information?

SNOOPY

BlackPeter

02-11-2023, 10:49 AM

Interesting analysis - cheers.

Looks just like another clever NZ company finding it difficult to gainfully compete in the rest of the world ... which makes sense.

Scotts main business (setting up customised automation solutions) requires close contact with the Gemba (in this case the place where the customers operates und uses their solutions). Scott is not the first and won't be the last company finding this difficult and expensive across the oceans. Can be done, but requires much more expense compared to local competitors, explaining Scotts small or negative margins overseas.

Snoopy

03-11-2023, 10:38 AM

I had Scott for some years and it seemed a good bet with new technology for automating assembly lines in manufacturing and agricultural uses. It gave divs and increased in value until a large (Brazilian?) outfit bought a controlling interest. Divs reduced and share price went down and heeding Percy's wise words about getting out when private equity gets in, I sold out. Not been sorry.

I don't think it is accurate to describe JBS, one of the largest food companies in the world as 'private equity', even if the actual shareholding company that JBS used to get their controlling interest (JBS Australia) was not listed. However, I was not without concerns either Jerry. Looking back it was with some trepidation that I saw the 'new shares for control' JBS deal go through. However, over the 8 years since this happened I think it has been a good partnership.

Management of Scott has remained independent with the company free to consider growth options outside of the meat industry. What is more the 'shortage of capital' problem that brought JBS to the shareholding table in 2015 has largely disappeared. Debt is largely a working capital item these days. However, there was always the question on what would happen if JBS wanted to sell its stake. In AR2023 on p1 we get this:

"In mid June 2023 Scott announced its intention to undertake a strategic review and that the review would take several months. The strategic review is ongoing. There is no certainty that a transaction will result , and no decisions will be made regarding any potential outcome until the completion of the process."

From the June press release
"Scott Technology Limited (NZX: SCT) advises that after discussions with majority shareholder JBS (which owns 53.05% of the Scott shares), it intends...."

It is clear this 'process' was initiated by controlling shareholder JBS.

Then from 'Street Talk' on July 4th in the Australian Financial Review we get this:
https://www.afr.com/street-talk/pep-checks-out-jbs-backed-engineering-shop-scott-technology-20230704-p5dlnm

I am aware that JBS will be looking to maxmise the price of their stake. But if private equity, in the form of Pacific Equity Partners, gets control of Scotts, I think it will be a disaster. Stripping the company of cash and cranking up the debt is exactly what Scotts does not need. It was this exact fiscal position that brought them into the arms of JBS in the first place back in 2015. And of course if such a deal does go through, it is 'lights out' for another respected NZX listing, to go with the probable departure of MHM in the scheme of arrangement deal for that company announced to the NZX this morning.

SNOOPY

winner69

03-11-2023, 11:16 AM

Will Scott will go the way of MHM and be lost to the NZX ……probably yes

Wonder how ‘strategic review’ going ..or have I missed something

Suppose ‘takeover’ will be at 5 bucks plus

GTM 3442

03-11-2023, 03:20 PM

Well with MHM out of the picture, who else other than Scott is there in the NZX automation/technology space? And with SCT out of the picture, who else is there in the NZX automation/technology space?

BlackPeter

03-11-2023, 05:48 PM

Well with MHM out of the picture, who else other than Scott is there in the NZX automation/technology space? And with SCT out of the picture, who else is there in the NZX automation/technology space?

NZ Top ten NZ Technology firms: https://www.teamtweaks.com/blog/it-companies-in-new-zealand/
NZ automation companies: https://www.lusha.com/company-search/automation-machinery-manufacturing/c15b064405/new-zealand/83/

Have fun with your research :) ;

Wai Wai

05-11-2023, 10:58 AM

Rakon?
https://www.rakon.com/about

Snoopy

05-11-2023, 08:03 PM

FY2023: $15.702m / $267.526m = 5.9%

When I hear the term 'margin' unqualified, I understand it to mean 'net profit margin', which is 'net profit' divided by 'revenue', such as I calculated above. Scott's may calculate it a little differently because I have normalised the net profit figure (refer post 1069). If we use the declared net profit figure of $15.436m, as quoted by Scott, the calculation becomes:
$15.406n / $267.526m = 5.8%

That not impressive enough for you? Let's raid the 'Consolidated Statement of Comprehensive Income' (AR2023 p32) and get net profit margin before tax as our base calculation figure.
Before tax Profit margin = $19.199m / $267.525m = 7.2%

Doesn't that sound good? But wait there is more. Since ability to pay dividends is all about 'cashflow', the figure of interest to investors should really be EBITDA margin. Using the income statement again, we can calculate this as:
EBITDA margin = $30.374m / $267.525m = 11.4%

But hold on. That figure contains the contribution cost of all those head office dudes who suck on the workers and don't do anything. In the case of a takeover all those dudes and dudettes could be fired. Their egregious costs may be found on p47 of AR2023 to be $14.835m. So let's stick that figure back onto the EBITDA earnings. Now we have:
Worker generated EBITDA margin = ($14.835m+$30.374m) / $267.525m = 16.9%

Are you getting the point yet? Fiddle around with the earnings figure definition and you can get a 'margin' figure of whatever you like (within reason).

But how about this? Go to this years presentation and look at slide 10
https://scottautomation.com/assets/Investor-centre/Announcements/2023/Scott-Technology-Investor-Presentation-FY23-Full-Year-Results-18-October-2023.pdf

The margin there for the whole group is listed as 27%. Absolutely fantastic! There is a mention of this figure in the Annual Report of 2023 on p3 as a 'group margin'. However nowhere in the report can I find a definition of what 'group margin' means. I assume it is a non-GAAP measure? In the absence of a formal definition I will make one up:

"Group margin" = "The highest margin the "groupthink" of senior management can get away with, without inquisitive shareholders asking awkward questions on how such a number might be derived."

By this definition, I do not believe that 27% is the Scott 'Group margin' for FY2023! I have looked long and hard at the Scott income statement for FY2023 and cannot get a margin figure anywhere near 27%. Can anyone shed any light on how such a 'group margin' figure of 27% might be arrived at?

SNOOPY

winner69

06-11-2023, 08:19 AM

BlackPeter

06-11-2023, 09:58 AM

Dr. Google tells us that

Group Gross Margin means the revenue of the Group less the Cost of Sales of the Group.

Which in my view confirms winners assumption. They count some of their cost as "cost of sales" - I suppose anything they need to produce a certain product and to sell it, while all other cost (e.g. management salaries, cost of governance, tea lady, other non sales specific admin and rest of waterhead are not cost of sales and covered by the gross margin.

Unless they allow you to do due diligence, you probalby need to believe them (or not :) ;.

Snoopy

06-11-2023, 09:26 PM

Snoops …the margin they quote is possibly an internal metric to measure the profitability of contracts

A hint is that line in P&L “Raw Materials, consumables and operating expenses” and then take a portion of the employee costs that are deemed to be directly related to doing the contract work.

Sort of splitting expenses into those are productive (contracting) and support (hq functions etc).

It’s not very clear is ir ..you have to believe them

Thanks for your thoughts here Winner. I was under the impression that I had missed something obvious, but it appears not. I am sure there is good logic behind the 'group margin percentage' Scott's publish. But without knowing what that logic is, my tendency is to remain skeptical. If your hunch is right and they have ring fenced out a whole heap of central admin costs, well it probably is a better way to judge the results of a 'specialised tech business'. But then someone, somewhere down the line, does have to pay all of those costs at 'central HQ'. It strikes me as akin to a family man saying; "Well I would be a zillionaire if I could live in a tent on dried noodles and save and compound all my earnings by investing in Buffett style companies." But the truth is, our man does have a family and has to pour most of his resources into supporting them - and keeping up the family HQ- , his house. So the whole argument of what he would do if he lived in a tent becomes moot. If that is Scott's argument, ring fencing out essential costs, to improve the performance of the sales force on the ground, then it seems flawed to me.

My own approach, in post 1078, is probably equally open to criticism. What I have done is allocate those central admin costs across all of the sales divisions in proportion to the sales in those divisions. The base thinking behind this idea is that you have a factory turning out boxes of widgets. However, some markets are bigger than others and require more logistics to move those widgets. Thus if you have a fleet of delivery trucks you set aside more trucks and drivers to handle the bigger markets and so distribution costs are divided asymmetrically according to market size. Such logic tends to break down a bit with tech companies like Scotts.

It would be more accurate to say that the initial 'return' on Scotts clever engineering solutions is zilch, in fact negative in the early years. But then it turns around and then pays off 'big time' when a completed concept comes to market. It is also more likely that profit relates to the value the market places on the capability of the product, and is not proportional to the revenue earned when that unique product is put to market. I could at this point be 'clever' and try to adjust for these factors in my modelling. But I suspect it would take someone cleverer than me to do so. Indeed, if I tried it, I would likely end up with some pomped up numbers that reflected nothing more than my unconscious personal biases. Given this, I feel it is more honest to keep my analysis relatively simple, and probably slightly wrong, while pointing out where I believe my errors are likely to be (as I have done in this paragraph). I feel that I am better to count the central HQ admin costs, even if I apportion them in not quite the right way, rather than try to spirit away some costs (as Scotts appear to have done) completely.

Give them a buzz …. They might give you the numbers

I will sleep on that suggestion.

SNOOPY

winner69

07-11-2023, 07:55 AM

Snoops …. I think what Scott do is reasonable, problem not that clear

Think retailer like Briscoes ….. Margin (gross) is sales less what the cost of those goods sold ….relatively straight forward eh

But Yale Metro Glass where Margin (gross) is sales less the cost of glass (including production/processing) less the cost of glaziers who put the glass in. This basically how Scott calculate their margin I’d say.

Maybe you could look at Scott’s p&l a different way …like recast it as revenues less .’cost of sales’ (calculate that to give the 30% margin) and see what is other stuff is to come to the profit line.

winner69

07-11-2023, 08:06 AM

Snoopy

07-11-2023, 08:28 AM

Snoops …. I think what Scott do is reasonable, problem not that clear

Think retailer like Briscoes ….. Margin (gross) is sales less what the cost of those goods sold …relatively straight forward eh

But Yale Metro Glass where Margin (gross) is sales less the cost of glass (including production/processing) less the cost of glaziers who put the glass in. This basically how Scott calculate their margin I’d say.

Maybe you could look at Scott’s p&l a different way …like recast it as revenues less .’cost of sales’ (calculate that to give the 30% margin) and see what is other stuff is to come to the profit line.

Good thinking. So revenue is $267.526m. 'Group Margin' is 27%. So cost of sales must be: $267.526m x (1-0.27) = $195m

Now, from the 'Consolidated Statement of Comprehensive Income' we learn that 'raw materials, consumables and operating expenses' totalled $158.967m, call it $159m.
So the cost of labour to 'do the job' was: $195m - $159m = $36m.

We also learn that 'Employee Benefits expense' for the year was $79.703m. That means $79.703m - $36m = $44m is spent on non-productive people.

That means a lot more money is being spent on people 'making the tea' and supervising ESG matters than 'doing the job'. That $44m figure no doubt includes CFO Cameron Matthewson as one of the 'chief troughers'?

SNOOPY

winner69

07-11-2023, 08:33 AM

Hey Snoops …..Sales and Marketing people get upset if you label them non-productive

Snoopy

07-11-2023, 09:21 AM

Based on MHM takeover numbers Forbar reckons Scott value is at least $4.73

“We view SCT's valuation discount to MHM as unjustified, and conservatively believe it should trade at least in line with MHM's multiple,” Lindsay and Twiss stated.

So the valuation has gone up even more since Forbar did their 19th October update? (was $4.47 then)
https://www.forsythbarr.co.nz/assets/publications/scott-technology-2023-10-19-fy23-result-core-growth.pdf

But let's not forget who financed, and is continuing to finance, this ongoing valuation exercise:
"This publication has been commissioned by Scott Technology (“Researched Entity”) and prepared and issued by Forsyth Barr in consideration of a fee payable by the Researched Entity."

And look at those profit projections on the front page of that referenced document. It is a straight line upwards (yeah right), with a near doubling of profits being forecast in just three years time!

Then look at the reference companies from which Forbarr is deriving their comparative ratios from (p6 of that publication). Those comparative norms now seem to be based on large USA based corporations (where did that come from?) Even so the 12m forward PE ratio today looks about right given the SCT price has risen 9% to $3.80 since that report was drafted (so the projected 12 month forward PE is now 17.9, well within comparative norms).

Is the market really undervaluing SCT at $3.80? Only if you believe those 'straight to the sky' profit projections made by a pimply faced lackey using a straight edge as a forecasting tool in a report on Scott funded by themselves.

SNOOPY

Snoopy

07-11-2023, 12:38 PM

I don't think SCT management see themselves as a 'no growth' company. But as investors I think it is reasonable to assess the company as a 'dividend payer only' to get some idea of value.

Year
Dividends as DeclaredGross DividendsGross Dividend Total

[TR]
FY20186.0c + 4.0c8.33c + 5.56c5.56c

FY20196.0c+4.0c 8.33c + 5.56c13.89c

FY2020 (1)4.0c (18.41% I) + 0c 5.02c + 0c5.02c

FY20210c + 2c (NI) 0c + 2.00c2.00c

FY2022 4c (NI)+ 4c (NI) 4.00c + 4.00c8.00c

FY2023 4c (NI)+ ?c 4.00c + ?c4.00c

Total38.5c

Notes

1/ A sample calculation to work out the equivalent gross figure for the FY2020s partially imputed dividend, is as follows:

FY2020 Dividend P.I.: 4.0c (18.41% imputed, 18.41%/28%= 0.6575)
= 2.63c (FI) + 1.37c (NI)
= 2.63c/0.72 + 1.37c = 3.65c + 1.37c = 5.02c (gross dividend)

Discussion

Averaged over 5 years of dividend payments, the dividend works out at 38.5/5 = 7.70c (gross dividend).

I consider that under a more focussed industrial standard product model, an appropriate gross yield return on investment is 7.0%. This means that a 'fair value' for SCT shares, based on the 5 yearly historic dividend record, is:

7.70c / (0.07) = $1.10

Now, using my plus and minus 20% rule of thumb range to get a feel how the SCT share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.10 x 1.2 = $1.32
Bottom of Business Cycle Valuation: $1.10 x 0.8 = 88c

SCT shares were trading at $2.75 on Tuesday 15th November as I write this (more than double the upper end of my expected range). By this measure the shares are now ($2.75-$1.10=) $1.65, or 150% overvalued (from a business cycle projected dividend income perspective). Another way of interpreting the same information is to say that SCT shares currently contain a 150% 'growth premium' (because a capitalised dividend valuation assumes no growth).

This current gross annual dividend rate being modelled of 7.7cps cps, is very close to the current twelve month dividend rate of 8cps. So it may not be reasonable to expect increasing dividends going forwards.

It is clear the market is pricing SCT well above what we might expect from 'a dividend payer'. This means the market clearly believes the growth story. So capitalising the dividend is not a good sole tool to measure the worth of this company.

SCT management do not see themselves as a 'no growth' company. But as investors I think it is reasonable to assess the company as a 'dividend payer only' to get some idea of value.

YearDividends as DeclaredGross DividendsGross Dividend Total

FY20196.0c+4.0c8.33c + 5.56c5.56c

FY2020 (1)4.0c (18.41% I) + 0c 5.02c + 0c5.02c

FY20210c + 2c (NI) 0c + 2.00c2.00c

FY2022 4c (NI)+ 4c (NI) 4.00c + 4.00c8.00c

FY2023 4c (NI)+ 4c (NI) 4.00c + 4.00c8.00c

FY2024 4c (NI)+ ?c 4.00c + ?c4.00c

Total32.6c

Notes

1/ A sample calculation to work out the equivalent gross figure for the FY2020s partially imputed dividend, is as follows:

FY2020 Dividend P.I.: 4.0c (18.41% imputed, 18.41%/28%= 0.6575)
= 2.63c (FI) + 1.37c (NI)
= 2.63c/0.72 + 1.37c = 3.65c + 1.37c = 5.02c (gross dividend)

Discussion

Averaged over 5 years of dividend payments, the dividend works out at 32.6/5 = 6.52c (gross dividend).

I consider that under a more focussed industrial standard product model, with a year's evidence of sound execution, an appropriate gross yield return on investment is now 6.0%. This means that a 'fair value' for SCT shares, based on the 5 yearly historic dividend record, is:

6.52c / (0.06) = $1.09
Now, using my plus and minus 20% rule of thumb range to get a feel how the SCT share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.09 x 1.2 = $1.31
Bottom of Business Cycle Valuation: $1.09 x 0.8 = 87c

SCT shares were trading at $3.85 on Tuesday 7th November 2023 as I write this (about triple the upper end of my expected range). By this measure shares are now ($3.85-$1.09=) $2.76 or $2.76/$1.09= 250% overvalued (from a business cycle projected dividend income perspective). Another way of interpreting the same information is to say that SCT shares currently contain a 250% 'growth premium' (because a capitalised dividend valuation assumes no growth).

This current gross annual dividend rate being modelled of 6.52cps, is a bit below the current twelve month dividend rate of 8cps. Furthermore the expected future restoration of imputation credits (after 3.5 years of none) would suggest the modelled gross dividend return, compared to what is likely, under-states the likely real gross return in the future. That means the modelled growth premium going forwards is actually not likely to be as high as $2.50 per share.

Nevertheless it is clear the market is pricing SCT well above what we might expect from 'a dividend payer'. This means the market clearly 'believes the growth story'. So capitalising the dividend is not a good sole tool to measure the worth of this company.

SNOOPY

Snoopy

07-11-2023, 04:09 PM

Snoopy have you seen today's Forbar research on Scott Technology?

You can get it free - care of signing up to MST Access (likewise free). It's company commissioned so take w/ a grain of salt (but in reality one way or another all research is sponsored, directly or indirectly).

A bit behind catching up on the Forbarr analysis of SCT (Muse's heads up was in April). But I have made up for it by reading the latest version.
https://www.forsythbarr.co.nz/assets/publications/scott-technology-2023-10-19-fy23-result-core-growth.pdf

A few statements in that exercise in self funded promotion stood out. From p3
"SCT has now fully its tax losses, so corporate tax rates in the future should normalise toward NZ headline rates."

The revenue from New Zealand operations ($49.864m) only makes up $49.864m/$267.526m = 18.6% of the productive capacity of the company. So why would corporate tax rates head towards the NZ tax rates, when 81.4% of Scott's output are produced in countries like the USA, China, Australia, Belgium the Czech Republic and France? Does this not have implications for the rate of dividend imputation (assumed by ForBarr to be 100%) going forwards?

From p6
"Given its recent revenue growth trajectory and prospects relative to peers, these (valuation) discounts appear unjustified. SCT's revenue rose +21% in FY23 and we forecast a solid +13% increase for FY24. By contrast, companies included in the peer group are expected to grow revenues by an average of +5% over the next year."

While I would love this to be true, why is it that revenue is expected to grow at a rate so far above Scott's comparator companies again? Oh that's right, revenue grew by 21% last year, so just dial down last years growth rate a bit and carry on. But if you look at the growth rate over the last five years (AR2023 p3), the actual compounding annual revenue growth rate at SCT was:
$211,585m(1+g)^5= $267.526m => g=4.8%,

or very close to the 5% industry average that ForBarr talk about. I would also expect growth in Scott's new product sales to be offset by the reduction in revenue from some of the larger more complex projects that Scott have done in the past and are now being phased out. Furthermore even if revenue did grow at these annual +10% heady rates, in the past this has meant more work at overtime rates, and sub contracting. And that means there is not a linear increase in profit rate with revenue rate (you only need to look at European production over FY2023 with segment revenue up 54% while segment profits fell by 3.3%, to see this).

From p1 of the report
"The Materials Handling and Logistics segment had a blockbuster period. This reflected an unwinding of the forward order book due to easing supply chain constraints."

So even ForBarr themselves are saying that much of the MHL division growth from $57.885m to $88.997m = $31.112m was due to a one off catch up situation, even as total company revenue grew from $221,757 to $267.526m = $45.769m over the same period. Take out the one off MHL effect and underlying revenue growth was $45.769m-$31.332m=$14.437m, or $14,437m/ $221.757m = 6.5%. That is still good but only half the growth rate that Forbarr are projecting out into the future for three years in a row!

I am calling BS on the growth rates going forwards assumed in this ForBarr analysis, and the underlying assumption that growth in revenue will necessarily be followed by growth in profits to the same degree. Like it or not, SCT have customers in cyclical industries. Mineral production and the global markets for meat have been very up and down in the past. I don't believe those revenue projections and in particular I don't believe these profit projections out to FY2026 will be met. Revenue trends in these industries do not go up in a straight line like that, they just don't!

By the same token I am not saying SCT will be a poor investment going forward. But successful investing is very much about timing. If only I had bought a parcel of shares in January of this year when the historical PE fell back to that multi year low of 15 and the share price was just $2.50! Oh, hang on, I did do that. I guess what I am saying here is that buying shares in SCT has been most rewarding when the shares are at 'minimum hype'. Going forward with a PE of 18 or 19, where SCT is trading today does not tick the value box for me. And remember it only jumped to these lofty PE levels when a hint for an offer for the whole company that 'might happen' was disclosed to the market in June.

This talk of a private equity offer at 5 bucks? Yes it might happen. But are those Pacific Equity Partner people that stupid? Surely they will have their own people pouring over the books and will not be relying on any ForBarr report. Current Scott CEO JK has already trimmed the dead wood from the company operations. I don't see that loading Scott up with debt, as private equity is prone to do, will help things. In fact it was just such a scenario (insufficient ability to raise cash) that drove Scott into the arms of JBS in 2015.

Of course if that $5 per share offer does come through, then I will immediately get down off my moral high horse and sell out, (as all short term minded kiwi investors are destined to do).

SNOOPY

Snoopy

08-11-2023, 08:12 AM

Hey Snoops …..Sales and Marketing people get upset if you label them non-productive

Ah, but who was it that brought up the subject of 'group margin' to start with? There is no need to report such figures, according to accounting reporting conventions. It was Scott's who chose to create these data reference points, and chose not to reveal the methods used to calculate such figures. The only way they could quote such high margin percentages would have been to ring fence out some administrative or service costs to make the 'group margin' look better. Personally I do believe that the administrative core of 'back office guys and gals' does serve a useful function. If Scott's choose to ring fence these people out to boost their 'group margin', then it is Scott's that are calling out their own back office as 'non-productive'.

SNOOPY

Snoopy

08-11-2023, 09:17 AM

So what conclusions can I draw from all this information?

The following is a review of the information presented in post 1078.
https://www.sharetrader.co.nz/showthread.php?368-SCT-Scott-Tech&p=1027993&viewfull=1#post1027993

I went through this again yesterday and corrected a transcription error that rippled through the table. It was only a small correction that didn't change the big picture. But I am now satisfied that the whole table, an expansion of the table found in the annual report under 'Segment Information' (AR2023 p47), is correct. Discussion points I note are as follows.

1/ The administrative 'Net Profit Before Tax adjustment' (table row 4) is just my way of allocating 'outside of direct sale costs' back among the operating divisions. My method of doing this will tend to over-allocate costs to areas where less management time is needed to 'keep the ship steaming'. For example, where Scott's has a well established 'standard product' selling into a 'defined market' very little wider input outside of the direct sales and product construction teams will be needed. That means my table may have exaggeratedly estimated, in a negative way, the adjusted earnings from the Australian hub that manufactures 'Bladestop' band saws. For Australia my administrative allocation expense almost wiped out all of the Australian division profit! However, it doesn't change the view that Australia is still a problem hub for Scotts, as evidenced by the careful examination of Australian goodwill highlighted in the Deloitte auditors report (AR2023 p84).

2/ In Europe the administrative 'Net Profit Before Tax adjustment' similarly almost wiped out the European manufacturing hub profit. In this instance, with Europe assuming management control of the USA division, European management would certainly have required more procedural approvals with head office staff. Perhaps more trans-Atlantic flights to keep up the intercontinental contact as well. Furthermore, because the patent protection available for materials handling is somewhat less than the rest of the Scott product portfolio, I think it is very reasonable to assume that revenues are closely correlated with head office 'back up work' hours. I apply a similar argument in reverse to the USA based hub. I do believe that the overall loss making picture that the table shows - taking all relevant costs into account - both in Europe and the USA, is genuine.

3/ The notional tax rate (table row 8) contains what most would see as 'crazy figures'. But I have double checked them and those figures are correct. These figures are based on actual tax expense during the year, which may reflect top up payments from previous years as well as current tax. For example in New Zealand the error in any provisional tax paid is not corrected until the subsequent tax year. The other point to consider is that overseas jurisdictions may not be working on the same allocation of head office expenses that I have used. In the news media this kind of thing often comes under a news heading of 'transfer pricing'. 'Transfer pricing' is normally read about in the context of large multinationals adding exorbitant costs onto their NZ operations to avoid paying tax in New Zealand. However in this instance I am talking about an opposite process called 'transfer costing'. That means that we in NZ Scotts HQ shoulder what are really overseas business costs that Scott's overseas subsidiaries should be incurring, thus increasing tax paid by Scott's in those overseas countries. What good global citizens we are at Scotts to do this! The reason some of those tax percentages in the table look so crazy is that I have allowed for 'transfer costing' (by dint of the way I have redistributed unallocated expenses), but Scotts in their actual tax payments have not. This could explain why the tax bill paid by Scott's Europe is more than 20 times my 'adjusted earnings' for the same period(!).

I have been thinking more on the discussion we have been having on this mysterious metric that Scott have come up with called 'group margin'. The more I think about it, the more I think 'group margin' should be ignored. I don't think you can disregard a whole sub group of business costs just to make your 'margin' (whatever you deem that to mean) look better. Furthermore using a metric like this can lead to what I deem to be inaccurate comments. For example, Slide 15 from PR2023 states:
"Appliance business remains challenging with the overall contribution to group profitability still being marginal."

Yet if we look at my table in post 1078, it is showing the China division, which has been exclusively dedicated to appliance line manufacturing as the second most profitable manufacturing country in the Scott manufacturing hub portfolio, almost the equal of New Zealand! The moral of this story is that 'profitability depends on how you allocate costs'. And 'you should not misallocate (or ignore) certain costs to reinforce your own personal biases'.

One thing that has ballooned out from year to year are the company central administration costs: From $9.959m (FY2022) to $14.835m (FY2023), a rise of 49% in a single year! No wonder Scotts want to leave at least some of these costs out, in their measure of 'group margin' profitability!

Looking at each of the five geographical manufacturing hubs, it is New Zealand showing the best profitability. This will be largely due to the globally unique automated lamb boning unit, soon to be boosted by the well received automatic trussing machine for chickens. Meanwhile, China has just moved to new premises. This should increase project build capacity, and eliminate any need to outsource (at higher cost) work at peak demand.

The European hub assembly facility in the Czech Republic has recently moved to a larger manufacturing premises too. Will this allow Europe to increase sales? Perhaps it is this build program, and the one in China, that has greatly increased underlying administrative costs this year (FY2023)?

I understand the drive to create 'Centres of Excellence' at different locations. No point in 'inventing the wheel' twice on both sides of the world. Yet my vision on the 'Australian Centre of Excellence' remains opaque. Yes the 'Bladestop' technology was designed and invented in Australia. But with Bladestop as a 'standard product', surely it can now be manufactured anywhere? With the wind down on those complex non standard mining application projects, where does that leave Australia's 'core expertise'? Is the real Australian specialty skill now 'losing money'?

Scott aren't big on 'future forecasting', instead preferring to release progress to the market as new opportunities are signed. But I find it worthwhile to cast one's eye over the currency hedging in place (section D1 in the annual report) to get an indicator on the comparative quantum of work on the books. For FY2023, the Foreign Currency Risk Management for Assets (this is I think represents future repatriated revenues) looks very encouraging indeed. Revenue assets booked to be brought home from the USA (Transbotics) and Australia (Bladestop) and China (completed manufacturing lines) are nearly doubling,compared to the previous year. However, we have to remember that such revenue is historically lumpy. So we can't say if this increasing revenue is a definite annual trend. Furthermore, it is early days for forecasting repatriating profits for FY2024. The hedged asset return is still only one quarter of the total FY2023 revenue (perhaps our best guide as a FY2024 revenue measuring stick). Nevertheless these early indications, for what they are worth, would suggest that Scotts are headed for a record year. The share price keeps climbing to all time highs (buyers at $3.93 as I write this). I expect that materials handling on both sides of the Atlantic will return to 'actual net profit after tax' in FY2024 rather than the self calculated 'superior gross margin' that Scotts go on about. Before I sign off on the foreign currency exchange commentary, it is worth remembering we are talking about revenues here and not profits.

The way we go over returns from the just finished financial year in the referred table is, by definition, historical. What is not reflected in these figures is any upside from the fully automated beef boning room project, should it ever come to fruition, or the Caterpillar electric mining truck robotic refuelling project. These are two 'free options' you get to hold by owning Scott Technology shares.

SNOOPY

BlackPeter

08-11-2023, 10:54 AM

Snoopy, I agree that this group margin thingee is probably not too useful for investors who want to assess the performance of their holding.

I believe however that it has its justification in internal accounting. I remember seeing managers using basically the same metrics to assess in not so good times, whether a certain deal is making a loss (i.e. the cost of sales are higher than the sales price), is breaking even (cost of sales equal to sales price) or - contributing to the overhead (i.e. cost of sales lower than sales price) - in other words - is the group margin positive or negative?

Investors are obviously interested, whether the company overall (including overhead, warts et all) makes money, but for the individual manager it is important to have some metric for the individual deal.

But again - I am not sure either it makes a lot of sense to gloat with these numbers in the annual report, given that they say little about the performance of the organisation as a whole.

Maybe the fact that they seem to have the need to do this is an indicator for investors? ... run for the hills?

kiora

08-11-2023, 10:56 AM

"Gross Margin vs Operating Margin: What's the Difference?
https://www.investopedia.com/ask/answers/122314/what-difference-between-gross-margin-and-operating-margin.asp "

Snoopy

08-11-2023, 09:34 PM

"Gross Margin vs Operating Margin: What's the Difference?
https://www.investopedia.com/ask/answers/122314/what-difference-between-gross-margin-and-operating-margin.asp "

Thanks for the reference. I believe Scott's declared 'group margin' is the same as the 'gross profit margin' as described below from the reference.

Gross profit margin, represents the percentage of total revenue a company has left over above costs directly related to production and distribution. The percentage figure is calculated by subtracting those costs from the total revenue figure and then dividing that sum by the total revenue figure.

Operating margin additionally subtracts all overhead and operational expenses from revenues, indicating the amount of profit the company has left before figuring in the expenses of taxes and interest. For this reason, operating margin is sometimes referred to as EBIT, or earnings before interest and tax.

The only problem being, as BP pointed out, as an investor you want to know the profit after all company costs, because as a shareholder you have to pay them all! I.e. you want to know the company's 'Operating margin' and more than that - net profit after tax.

SNOOPY

Snoopy

09-11-2023, 12:06 PM

Scott's 'have a plan' (see post 1010) and are 'executing the plan'. The flaw in the plan execution is the mediocre (to a Buffett eye at least) return on equity capital. This isn't a surprise for an asset rich manufacturing business, particularly so when war is on the doorstep of the company's largest revenue earner, the Material Handling Automation unit in financially strained Europe. Yet all the of those Buffett tests are by their nature historical. Let's look to the future. What is the contracted 'workload on the books', signed up to at years end?

Forward Work (1)Revenue in Following Year

FY2020$102m$216,234m

FY2021$119m$221.757m

FY2022$172m?

Note

1/ Forward Workload is 'contracted activity' taken from slide 4 of FY2022 results presentation (PR2022).

By this indicator, FY2023 is looking to be better than FY2022. Much of this forward work must be in 'Materials Handling', because there is $190m of such equipment on the order book (slide 6 PR2022).

I like to use a 30th September reference date, In the case of SCT, it covers the run up period to when the annual result is released. So there is a good incentive for institutional investors to align their expectations (by buying or selling shares) to bring the share price into line with what is a generally well signalled result. On 30-09-2022, the SCT share price was $2.80. That means the company was trading on a normalised historical PE ratio of: $2.80/$0.169= 16.6. This is a big drop from the equivalent historical PE ratio of last year (20.9) and is the lowest PE ratio Scott's have traded on since 2015. Nevertheless a PE ratio of 16.6 is not cheap, and implies significant future growth.

An alternative way to price growth is to create a 'no growth' valuation. The difference between the share price and the 'no growth' valuation is therefore the market priced 'growth premium'. The 30-09-2022 actual Capitalised Gross Yield for SCT (post 1014) is 7.7c / $2.80 = 2.75%.

Share Price equals
Capitalised Dividend Value plus
Implied Growth Premium

30-09-2021$2.85
$1.27
$1.58 (+124%)

30.09-2022$2.80$1.10$1.70 (+155%)

By this measure, despite the share price being lower than last year, the market growth premium has increased.

What do I make of all this? Buffett is looking for a good return on equity. CEO John Kippenberger is working towards that goal, but is not there yet. So Buffett is off elsewhere seeking out suitable investment gems. What about we shareholders on the register already? We are waiting for growth while being paid just under 3% on our invested capital while we wait. Last year, with interest rates still near their record lows, that would have sounded OK. This year, if you pick the right bank, you can earn 5% on your term deposit money. So a 3% gross dividend yield doesn't cut it. It only makes sense to hold SCT today if you believe in the growth story. Finally if you do believe in that growth story, you have to decide what is a fair price to pay for that growth story.

If I look at the compound 'eps' growth rate 'g' over the last 5 years:

12.0cps(1+g)^5= 16.9cps => (1+g)^5 = 1.40 => g= 7.1%

To me paying a PE of more than 15 is a high price to pay for that level of growth. Granted the level of eps growth was higher last year: 16.9cps/14.2cps= 119% (or +19%). But 19% is the highest normal operating eps growth for the company on record. I am expecting growth going forwards to moderate. So I think that an SCT share price of $2.80 with an implied PE of 16.6 looks about right. SCT is a 'hold' for me at $2.80.

This post is the wrap on the results of the four FY2023 Buffett Tests recorded in posts on this thread: 1077, 1069, 1073, and 1075. Scotts has passed the significant business scale test, the increasing earnings per share test and the ability to raise margins above the rate of inflation test. But Scotts has failed the return on shareholder equity test. Unfortunately one failure means 'overall failure' which is not quite as bad as it sounds (it just means I can't use the Buffett inspired compounding earnings model to predict the share price going forwards).

All of those Buffett tests are by their nature historical. Let's look to the future. What is the contracted 'workload on the books', signed up to at years end?

Forward Work (1)Actual Revenue in Following Year

FY2020$102m$216,234m

FY2021$119m$221.757m

FY2022$172m$267.526m

FY2023$179m?

Note

1/ Forward Workload is 'contracted activity' taken from slide 4 of the FY2023 results presentation (PR2023).
By this indicator, FY2023 is looking to be better than FY2022, albeit the increase is a modest 4% (fairly flat if you consider inflation).

I like to use a 30th September reference date. In the case of SCT, it covers the run up period to when the annual result is released. So there is a good incentive for institutional investors to align their expectations (by buying or selling shares) to bring the share price into line with what is a generally well signaled result. On 30-09-2023, the SCT share price was $3.23. That means the company was trading on a normalised historical PE ratio of: $3.23/$0.193= 16.7. This is consistent with FY2022 and is still the lowest PE ratio Scott's have traded on since 2015 (Note: As of 8th November 2023 the share price has risen to $3.88). Nevertheless even a PE ratio of 16.7 is not cheap, and implies significant future growth.

An alternative way to price growth is to create a 'no growth' valuation. The difference between the share price and the 'no growth' valuation is therefore the market priced 'growth premium'. The 30-09-2022 actual Capitalised Dividend Valuation for SCT (post 1094)
sees 'fair value' for SCT shares, based on the 5 yearly historic dividend record, to be averaged earnings divided by acceptable gross yield: 6.52c / (0.06) = $1.09

Share Price equals
Capitalised Dividend Value plus
Implied Growth Premium

30-09-2021$2.85
$1.27
$1.58 (+124%)

30.09-2022$2.80$1.10$1.70 (+155%)

30.09-2023$3.23$1.09$2.14 (+196%)

The market growth premium for Scott's has increased greatly from FY2022. Scotts historical gross dividend yield (8.0c / $3.23) is at our reference date 2.5%. A 2.5% gross dividend yield doesn't cut it in today's much higher interest rate market. It only makes sense to hold SCT today if you believe in the growth story. Finally if you do believe in that growth story, you have to decide what is a fair price to pay for that growth.

If I look at the compound 'eps' growth rate 'g' over the last 5 years:

13.4cps(1+g)^5= 19.3cps => (1+g)^5 = 1.44 => g= 7.6%

To me paying a PE of more than 15 is a high price to pay for that level of growth. Granted the level of eps growth last year was good: 19.3cps/16.9cps= 114% (or +14%). Yet 14% is a growth moderation from the somewhat heady record of 19% eps growth over FY2022. So I think that an SCT share price of $3.23 with an implied PE of 16.7 looks about right. If the share price sank to $2.90 for an historical PER of 15, then I would consider SCT a 'buy'. Today's price, being almost a dollar higher than that $2.90 figure can only be justified on takeover speculation IMV.

SNOOPY

Sideshow Bob

13-11-2023, 12:12 PM

Snoopy

13-11-2023, 12:57 PM

https://www.nzx.com/announcements/421550

In June, the company commenced a strategic review of its ownership structure with a view to exploring options to maximise value for all shareholders. As part of this process, the company engaged with a group of potentially interested parties in relation to transactions involving an offer to all shareholders for their shares in Scott.

Those discussions will not progress further at this time, as no offers were received at price ranges which reflected the independent directors’ view of value for all of the company. However, a range of other initiatives have been identified during the process. These are at an early stage and will continue to be worked on by the company, together with its advisers. There can be no certainty that any transaction will result from the continuing strategic review and no further comment will be made by the company in respect of the strategic review at this stage.

The Board remains committed to the Scott 2025 strategy and believes the ongoing implementation of the strategy will continue to drive value for shareholders.

Oooooh! That news release was at 11:04am. So all those smart suited investment advisors would either be in client meetings or preparing for an early lunch. The Scott share price could still be in for a 'high dive' after that lunch is digested as the speculators bail out. I see last sale was at $3.85, but there are now sellers at $3.82. I have to say I am somewhat relieved as I wasn't looking forward to having more investor capital to reallocate, when I would rather carry on for the ride. It would have been a shame to see an end to what has become my 26 year long shareholder relationship with Scotts (although average capital holding time is a 'mere' 15 years). Sentimental? Maybe. But even as a 'buy and hold' investor at heart, I have had a couple of capital reallocation exercises along the way. Just checked my records and my current average buy price for my SCT shares is 83.0c. So if the takeover had gone through, I would have been looking at near to a 'five bagger'. An overnight success after 26 years!

The wording in these press releases always interests me. Those 'potentially interested parties', sought out by Scotts (not the other way around I note) if indeed they were those private equity guys as touted in the AFR, couldn't see a way to make a 'quick buck'. So I guess that is a back handed compliment to Scott's current management and direction.

I wonder what can be read into the 'other issues identified'? Unless there is an offer for the whole company, I can't see a way for majority shareholder JBS to exit at a good price, which was presumably the aim when the strategic review started.

SNOOPY

Snoopy

13-11-2023, 06:04 PM

To me paying a PE of more than 15 is a high price to pay for that level of growth. Granted the level of eps growth last year was good: 19.3cps/16.9cps= 114% (or +14%). Yet 14% is a growth moderation from the somewhat heady record of 19% eps growth over FY2022. So I think that an SCT share price of $3.23 with an implied PE of 16.7 looks about right. If the share price sank to $2.90 for an historical PER of 15, then I would consider SCT a 'buy'. Today's price, being almost a dollar higher than that $2.90 figure can only be justified on takeover speculation IMV.

Started the day at $3.90. Ended the day at $3.66 down 6.2% for our 'market leader', (i.e. SCT 'leading the market down' today). Take out that off market trade and on market volume was pitiful. If those speculators 'want out' some swallowing of pride will be required. Down another 6.2% tomorrow would see the price settle at $3.43. Now hanging onto my top ten position in the stock picking competition by my fingernails at no.10. SCT getting closer to that $3,23 price I regard as 'fair value'.

SNOOPY

winner69

13-11-2023, 06:46 PM

Snoopy

13-11-2023, 07:49 PM

SCT barely covers it cost of capital ……..as such shouldn’t trade much above Book Value of $1.40 unless the market believes the future is going to be phenomenal

Current share price of $3.66 is outrageous

I ask a lightly different question. What will be the cost of capital at SCT be when interest rates fall a couple of percentage points and the increasingly reliable cashflow stream wipes out some of that share price volatility? You invest on that basis rather than worrying about what the cost of capital might be at SCT today. All those cost of capital calculations are always retrospective anyway. Get up to date and you will see the cost of capital going forwards will be about 6%. Invest on that basis.

And the guru directors obviously think it’s should be lot higher …oh well

I have gone back to October 2015 and the last offer for Scott's made by JBS for control. The Northington Partners valuation was made on the basis of an EBITDA multiple of between 7.5x and 8x. Of course that was pre-IFRS16. So we have to back those lease payments (now regarded as interest payments) out of present day income figures.

Operating EBITDA was declared as $30.374m for FY2023. We have to take away from that the 'total cash outflow from leases' ($4.040m) and the interest expense on lease liabilities ($0.528m). That gives us a pre-IFRS16 EBITDA of $30.374m - $4.040m - $0.528m = $25.806m. This gives an upper and lower bound 'per share' valuation of:

(7.5 x $25.806m)/ 81.198m = $2.38 (lower bound)
(8.0 x $25,806m)/ 81.198m = $2.54 (upper bound)

I can see why Scotts did not go back to get a company valuation from Northington Partners this time!

SNOOPY

Muse

13-11-2023, 08:00 PM

Snoopy

13-11-2023, 09:17 PM

Any need to deduct net debt from the enterprise value? Havent looked at the northington valuation but from your paragraph above would appear they calc’d an EV using an ebitda multiple, from which one would deduct net debt to derive an equity value using that approach.

I had a more careful look at the Northington valuation Muse. I thought it was just a straight EBITDA multiple valuation. But it turns out you are right. I do have to take off debt. So thanks for the correction.

I have gone back to October 2015 and the last offer for Scott's made by JBS for control. The Northington Partners valuation was made on the basis of an EBITDA multiple of between 7.5x and 8x. Of course that was pre-IFRS16. So we have to back those lease payments (now regarded as interest payments) out of present day income figures.

Operating EBITDA was declared as $30.374m for FY2023. We have to take away from that the 'total cash outflow from leases' ($4.040m) and the interest expense on lease liabilities ($0.528m). That gives us a pre-IFRS16 EBITDA of $30.374m - $4.040m - $0.528m = $25.806m.

Bank debt at balance date (EOFY2023) was: Bank Overdraft $9.036m. Non-current borrowings $11.324m.. => Total Debt = $20.360m

This gives an upper and lower bound 'per share' valuation of:

[(7.5 x $25.806m)-$20.360m]/ 81.198m = $2.13 (lower bound)
[(8.0 x $25,806m)-$20.360m]/ 81.198m = $2.29 (upper bound)

I can see why Scotts did not go back to get a company valuation from Northington Partners this time (same conclusion as before)!

SNOOPY

winner69

14-11-2023, 06:31 PM

Share price down again today. ……. A few days ago getting close to 400 ….Close today 349 ………heading back to 300 I reckon

Was about 260 when they said they were trying to hock off the company …..so 300 with not suitors seems reasonable

Snoopy

15-11-2023, 01:38 PM

Time to bring a measuring stick to Scotts via my annual 'battle of the manufacturers' with Skellerup. Scotts is different in that it sells complete package solutions and not components. But it is the same in that both companies have a similar geographic market spread and rely on Intellectual Property and trusted staff that can turn that knowledge into profits.

Skellerup (SKL)Scott Technology (SCT)

Operational SectorManufacturingManufacturing

Total Employees869633

Manufacturing HubsNZ, Australia, Europe, North America, Asia NZ, Australia, Europe, North America, Asia

Share Price 27-11-2022$5.45$2.65

Market Capitalisation 27-11-2022$1,064m$212m

Capitalised Dividend Valuation per share (2018.5 to 2022.5)$2.57$1.10

Declared earnings (FY2022)$47.813m$12.657m

Normalised earnings (FY2022)$47.205m$13.510m

Normalised eps (FY2022)24.1c16.9c

Normalised eps growth over 5 year period (FY2017 to FY2022)+136%+40.8%

Historical PE (FY2022)22.316.6

dps (paid during FY2022)10.5c+7.5c4c+4c

Earnings Payout Ratio (excluding DRP)75%47%

Gross dps (paid during FY2022)12.54c+8.96c4c+4c

Historical Gross Dividend Yield (using Share Price 29-11-2022)3.94%3.02%

Shareholder Equity (based on equity at EOFY2022)$211.208m$100.406m

ROE (based on equity at EOFY2022)22.4%13.5%

Sales (FY2022)$316.829m$221.757m

Net Profit Margin (FY2022)14.9%6.1%

Total Bank Debt (last balance date EOFY2022)$40.000m$11.970m

MDRT (Based on bank debt at balance date EOFY2022)0.84 years0.94 years

Scotts and Skellerup form the 'tech' part of my portfolio. And since tech investments are frequently dressed up as 'exciting prospects' it is easy for we 'investors in tech' to get overly enthusiastic. This 'head to head' exercise has the objective of putting two of the longer serving listed players in the tech sector up against each other, both as a snapshot of performance, but also to check that some of those market set metrics have not got over-enthusiastically 'out of line.' Scotts sells complete package solutions. Skellerup concentrates on critical components which have a substantial rubber or silicone or foam content . But both companies have a similar geographic manufacturing and market spread and rely on Intellectual Property and trusted staff that can turn that knowledge into profits. The first task is to line up the raw data.

Skellerup (SKL)Scott Technology (SCT)

Operational SectorManufacturingManufacturing

Total Employees807656

Manufacturing HubsNZ, Australia, Europe, North America, China NZ, Australia, Europe, North America, China, Vietnam

Share Price 14-11-2023$4.96$3.49

Market Capitalisation 14-11-2023$973m$283m

Capitalised Dividend Valuation per share (2019.5 to 2023.5)$3.38$1.09

Declared earnings (FY2023)$50.941m$15.436m

Normalised earnings (FY2023)$53.501m$15.702m

Normalised eps (FY2023)27.3c19.3c

Normalised eps growth over 5 year period (FY2018 to FY2023)+82.0%+58.2%

Historical PE 14-11-2023 (FY2023)18.118.0

dps (paid during FY2023)13.0c+8.0c4c+4c

Earnings Payout Ratio (excluding DRP)75%47%

Gross dps (paid during FY2023)12.54c+8.96c4.00c+4.00c

Historical Gross Dividend Yield (using Share Price 14-11-2023)4.33%2.29%

Shareholder Equity (based on equity at EOFY2023)$225.426m$113.899m

ROE (based on equity at EOFY2023)23.7%13.8%

Sales (FY2023)$333.537m$225.436m

Net Profit Margin (FY2023)16.0%5.9%

Total Bank Debt (last balance date EOFY2023)$43.924m$12.475m

MDRT (Based on bank debt at balance date EOFY2023)0.86 years0.81 years

SNOOPY

forest

15-11-2023, 05:09 PM

Great post Snoopy comparing SCT and SKL. Interesting also to see that SKL reducing the number of employees and are making more $ compared to last year.

percy

15-11-2023, 05:39 PM

Great post Snoopy comparing SCT and SKL. Interesting also to see that SKL reducing the number of employees and are making more $ compared to last year.
Agree a great post Snoopy.

Snoopy

16-11-2023, 04:09 PM

A 136% (normalised earnings) growth rate at SKL over a five year period equates to an averaged annual growth rate of:
2.36^0.2 = 1.187 or 18.7% per year.

Perform the same exercise on SCT and you get
1.408^0.2 = 1.0708, or 7.08% per year.

This goes some way to explaining why SKL is sitting on an historical PE of 22.3 verses 16.6 for Scotts.

Some more observations:

a/ The SKL share price has declined by 10% between study periods (refer quoted post), whereas over the same time the SCT share has price declined by 21%.
b/ If you compare my quoted reference exercise from the FY2021 perspective, both companies continue to hold their company debt at low levels.
c/ ROE at SKL remains about double that at SCT, although while both improved the ROE at SCT improved a little faster.
d/ From a staffing perspective both SKL and SCT are on a 'growth trajectory'. But Scott's had a more modest growth rate, because the growth period included the closure of the US based Robotworx business. By contrast, 'investment rival' Skellerup bought a whole new bolt on business unit, Talbot Plastics with 18 employees, to add to their organic growth during the year.
e/ Net profit margin at SKL is now around 2.5 times that of SCT (c.f. 3 times over the pcp). The relative improvement at Scotts is because of SCT selling more standardized higher margin products. Nevertheless margins at both companies have improved.

Neither company makes a good yield play investment, now that interest rates are well and truly on the rise.
But it is interesting to see by how much the market prices of the shares exceeds the 'capitalised dividend valuation' (a proxy for dividend paying ability) price. This difference is one way of measuring any 'growth premium' the market attaches to each share.

SKL: Growth Premium = $5.45 - $2.57 = $2.88 => Growth Premium is 53% of share price
SCT: Growth Premium = $2.65 - $1.10 = $1.55 => Growth Premium is 58% of share price

The growth premium for both has decreased as the dividend payment for each share has increased. This 'growth premium' measure is Mr Market's one year snapshot of growth potential. Given Scotts are expecting some big projects, deferred by material shortages, to come to fruition over FY2023, then this measure is probably a fair reflection of the 'current guru opinion growth prospects' of each company. I would agree and expect SCT to grow profits faster than SKL over FY2023.

This is my observations on the data in post 1110

An 83% (normalised earnings) growth rate at SKL over a five year period equates to an averaged annual growth rate of:
1.830^0.2 = 1.128 or 12.8% per year.

Perform the same exercise on SCT with their 5 year 52.8% earnings growth and you get
1.528^0.2 = 1.0884, or 8.84% per year.

Of note, and in complete contrast to the previous year, at our reference date both companies were trading on the market at almost identical PERs. Distorting the picture was that Scotts had announced that a board solicited buyout of the whole company was being investigated. On the day before my reference date, it was announced that no offer for the group as a whole at a satisfactory price had been forthcoming. But other early stage initiatives that had presented themselves were being worked on.

Resulting snapshots of the respective share price, and the implied historical price earnings ratios, on comparative dates are in the table below:

Date27/11/202214/11/202316/11/2023

SCT Share Price$2.65$3.49$3.35

SCT historical PER16.618.017.3

SKL Share Price$5.45$4.96$5.18

SKL historical PER22.318.118.8

One thing we have to remember is that while the recent past can provide a hint about the performance of the near future, sharemarkets are always forward looking. Scotts PER would suggest that, takeover aside, the market perceived 'percentage growth prospects' of Scotts have not changed much 'year to year'. By contrast the equivalent numbers at Skellerup have declined, but from a much higher level to a slightly higher level than found at Scotts today. IOW it is Skellerup's perceived decline (albeit from high levels) that has seen the PER comparison between the two 'close up'.

Some more observations:

a/ The SKL share price has declined by a further 9% between 2022 and 2023 reference dates, whereas over the same time the SCT share price rose by 32%.
b/ Both companies continue to hold their company debt, as measured by the Minimum Debt Repayment Time, at low levels.
c/ ROE at SKL is just shy of double that at SCT, although while both improved over FY2023, the ROE at SCT improved a little faster.
d/ From a staffing perspective, SKL shrunk their workforce (62 jobs shed) as key customers reduced their inventories in line with what they used to be in the pre-Covid era. I am not sure what aspect of the business required Scotts to modestly increase their workforce (23 jobs added) over the same period. But Scotts did highlight that service and aftermarket revenue was up 28% over the year before.
e/ 'Net profit margins' were roughly consistent compared to the previous year, with SKL's a tick higher while SCT was a tick lower. Nevertheless SKLs more standardised product manufacturing allows a net profit margin 2.7 times that of Scotts (c.f. 2.5 times that of SCT in the previous year and 3 times in the year before that).

Neither company makes a good yield play investment, now that interest rates have well and truly risen.
But it is interesting to see by how much the market prices of the shares exceeds the 'capitalised dividend valuation' (a proxy for dividend paying expectation) price. This difference is one way of measuring any 'growth premium' the market attaches to each share.

SKL: Growth Premium = $4.96 - $3.38 = $1.58 => Growth Premium is 32% of share price
SCT: Growth Premium = $3.49 - $1.09 = $2.40 => Growth Premium is 69% of share price

No surprise in the year on year trend here. A boost in the dividend at SKL, while the share price declined, has lead to smaller proportion of the share price making up a growth premium. Likewise, but in reverse, a static dividend at SCT (on increasing earnings I might add) and a higher share price means the growth premium part of the market share price has gone up. This is a good indication, even leaving aside the potential SCT takeover offer (now deflating), that the market sees SCT as the company more likely to grow over 2024. The same indicator (although far less pronounced) suggested that SCT would grow profits faster than SKL over FY2023 and that is what happened.

SNOOPY

Snoopy

25-11-2023, 02:37 PM

3/ The 'standard product line' based in the Americas - Robotworx - looks to have had a poor year, given the other substantive US based business, Transbotics Automated Guided Vehicles, seems to have had a good year with the tyre manufacturers (AR2021 p10). Although maybe the closing remark on Transbotics "we see a positive future'" means that the present is not yet so positive?

Assuming Transbotics revenue of $20.3m (my post 798, Note B, assume no growth over FY2020) and an EBITDA margin of 20%, this translates to a Transbotics EBITDA of 0.2x$20.3m=$4.06m. Total depreciable capital assets acquired when the business was purchased in FY2018 were valued at just $0.144m (AR2018 p61). So I am estimating the annual depreciation charge on these assets to be close to zero. Much more significant is the goodwill acquired on acquisition of $7.100m. This goodwill is revalued annually because the value of overseas goodwill, even if constant in its home currency, varies with exchange rates. (It would also vary if the goodwill was amortised, but this has not happened). I intend to ignore the annual exchange rate related amortisation fluctuations.

For interest charges, and to be conservative, I will apportion all of this years US funding cost of $0.194m to Transbotics. I can therefore estimate EBT for Transbotics to be:

NPBT(Transbotics) = EBT(Transbotics) = EBITDA - I - D - A = $4.06m - $0.194m - $0m - $0m = $3.866m = $3.9m

If my estimates are anywhere near correct, this would suggest that 'Robotworx', -the second hand robot refurbishment and resale company-, operated at an EBT loss over FY2021 of around $0.300m. (Ref AR2021 p43, Total 'America's NPBT' was $3.332m. $3.3m-$3.9m = -$0.300m.)

Standard Product' (I believe largely 'Robotworx') revenue slumped from $22.860m in FY2019 down to $15.198m (FY2020) before recovering $17.153m (FY2021).

Just returned from the Scott AGM and after chatting with CEO JK afterwards, I found out a bit more information on the demise of 'Robotworx', the former subsidiary -US based- that covered the reselling and refurbishment of second hand industrial robots . It looks like my calculations from FY2021 (quoted above) were close to the money. In fact Robotworx had not made money for the last 3-4 years of operations. The cause was an improvement of supply of new industrial robots from the OEM industrial robot manufacturers, both in terms of logistical product logistics supply and new product at lower price points. That coupled with rising costs of refurbishing older robots meant that the 'used robot market' became a much more difficult commercial proposition. Scott's had to ask themselves if this was really a market space they wanted to continue in for the longer term. And the answer they gave themselves was a clear 'no'. Result: Robotworx - exit stage left - at a $12.612m loss for Scott shareholders :(. An historic loss booked in FY2022.

SNOOPY

Snoopy

25-11-2023, 08:55 PM

Sometimes in 'cutting edge' technology it is necessary to 'wield the axe'. JK has ended a couple of my dreams with a final meltdown of the Milktech project, and the selling off of HTS-110. But I guess it had to be done?

During my post AGM chat with CEO JK, he touched on the exit from the HTS (High Temperature Superconductor) business during FY2021. For those who have forgotten about it:
https://www.hts-110.com/

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

Why HTS-110?

HTS-110 is the only company worldwide dedicated to the design and manufacture of HTS magnets and components, with over 18 years’ experience in HTS machine design.

HTS-110 specialises in HTS coil, current lead, and custom magnet projects and will work closely with your technical team to define and implement class-leading superconducting systems. Or select from a number of specialist applications and product areas where our HTS technology has already demonstrated clear user advantage and acceptance.

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

In short, the HTS-110 company is run by ex-university boffins, selling their hi-tech to other university boffins still in universities. There is nothing wrong with the products, and they are cutting edge. Nor is there a problem with 'university boffins'. The problem is that, as far as Scott is concerned, the immediate market potential is just too small and the growth potential time horizon for more commercial applications is too uncertain,. Given the automated robotics markets opening up in the sub sectors of 'protein' 'mining' and 'materials handling', it made more sense to sell this business into private ownership. This Scott did, with ownership now resting with senior management in conjunction with the 'Booster Tahi Limited Partnership', a kiwisaver growth fund.

SNOOPY

Snoopy

27-11-2023, 10:01 AM

It has been a long time between drinks for me at Scott's new expanded factory in Kaikouri Valley in Dunedin. It was five years ago that I was last there at an AGM! This was the first 'live' AGM meeting since 2019 due to Covid-19, although it was a hybrid meeting with a whole row of techno-kids with their electronics along the back row of the meeting room, simulcasting the meeting 'live on the net'. There was a single reporter/photographer from the ODT too, not something guaranteed at AGMs these days, where 'reporting on the AGM' often consists of rehashing the company's own press release.

I think it is worth recording the 'departures' of a couple of Scott Technology stalwarts that I became aware of during the meeting, even though nothing was said officially.

1/ "Greame James Marsh" former director of Scotts for 38 years (1969-2007) and chairman for 32 of those, has died aged 88 in June 2022. https://www.tributes.co.nz/ViewMyTribute.aspx?id=17483

2/ "Ian Devereux" died aged 80 early in the first lock-down in April 2020. Ian was the founder of Rocklabs, the globally significant "mining resource adjunct" company acquired by Scott Technology in 2008, upon Ian's retirement from the business. I think it is fair to say that since acquisition, Rocklabs has been the star performing division of Scotts.
https://notices.nzherald.co.nz/nz/obituaries/nzherald-nz/name/ian-devereux-obituary?pid=196083539

Details of the AGM addresses, I could not find on the Scott Investor Relations website. However, they are here:
https://www.nzx.com/announcements/402921

I don't see any point in rehashing what was said when you can go to the link of the original. One clarification made was of the $190m of forward orders reported (the highest in the company's history), $50m was from controlling shareholder JBS, $60m fitted under the header of 'standard equipment' (which means higher profit margins), leaving $80m worth of 'other business'.

During question time.

1/ A shareholder named "David Marsh", who looked like a younger edition of whom I later determined to be his father Graeme Marsh, asked for some more details on the Caterpillar deal. I have summarised CEO JKs answer to this, along with some thoughts of my own, in post 1022.

2/ A shareholder, who later identified herself as the late Ian Devereux's sister, said she was pleased to see two women at the top table and that she would be returning next year to press for more gender equality on the board. Gender equality on the day was boosted by the three male JBS appointees only being represented via video link, as was Australian based director Derek Charge. And the fact that one top desk person, company no.3, director of marketing and people, Casey Jenkins, wasn't actually a board member.

Nevertheless Scott Technology, in partnership with the University of Canterbury, did launch a "Women in Engineering Scholarship", showing that their push for more women to be involved in the company was not just lip service.

3/ A shareholder asked what was the underlying 'market force' in companies ordering new packaging solutions from Scott's Alvey division in Europe. The answer: A trend to much larger 'mega warehouses', with more and a greater variety of goods being shipped through one site. JK let slip that Pfizer in Europe was one of their customers.

4/ A shareholder asked about material cost over-runs and how this might affect the profitability of these larger installations. JK said that in Europe they were now including a 'steel index clause' that allowed variability in the contract price, depending on where the global steel price was at the time of project construction and delivery.

After the meeting we had a brief tour of the expanded workshop. I had a chat to Andrew Arnold, head of meat processing that lead the tour. He was very satisfied with progress being made on the automated beef boning room. The workshop floor employees had gone home by this point. But we saw a couple of robots being evaluated for beef boning in what looked like a small R&D section of the workshop. There was also a very large piece of pork boning equipment being lined up ready to ship.

After the meeting there was the usual 'superior spread' of small eats and drinks. But the turnout of shareholders to indulge was only around half that of previous pre-Covid years. I reckon the workers on the floor would have enjoyed a pretty impressive array of 'leftover lunch' the next day.

Chairman's address:
https://scottautomation.com/assets/Investor-centre/Announcements/2023/2023-Annual-Shareholders-Meeeting-Chairmans-Address.pdf

CEO's address
https://scottautomation.com/assets/Investor-centre/Announcements/2023/2023-Annual-Shareholders-Meeeting-CEOs-Address.pdf

AGM Presentation slides
https://scottautomation.com/assets/Investor-centre/Announcements/2023/Scott-Technology-ASM-FY23-Full-Year-Results-22-November-2023.pdf

Unlike last year, with the announcement of the Caterpillar heavy duty electric mining vehicle project, there was no ground breaking new project announcements to get the shareholders excited. If there had been the wider public would not have known, because, for the first time I can remember, the ODT did not send out a reporter to cover the meeting. There was a reasonable turnout of shareholders, around 30 by my count, in the 'Graham Batts Meeting room' (Graham a stalwart of the company for many decades is retired but still alive and in good form) with another 50 shareholders looking in on-line.

The non executive director turn out was a bit light though, with only Chairman Stuart McLaughlin and John Thorman making it. It was very disappointing not to see the Australian JBS contingent there, given the ownership shake up instituted by them during the year was obviously going to be a point of contention. However, there were other unspecified JBS matters requiring their attention in Australia apparently. Nevertheless JBS Australia CEO Brent Eastwood at least, had the good grace to look in on the meeting AGM via the hybrid webcast, that was broadcast on line.

Come question time, one shareholder did get stuck into Chairman Stuart regarding the JBS position. Were they still a supportive shareholder? Were they even still a supportive customer? (I must admit I had doubts about this, given the seemingly glacial progress of the automated beef boning room, while other products like the chicken trussing machine for other customers forge ahead). However, the answer to both questions was 'yes' and 'yes', with Brent Eastwood himself giving an audio address from across the Tasman, confirming Chairman Stuart's own affirmation. I have to admit I found the clarification of the JBS position a great relief.

During the 'after AGM workshop tour' with the head of the Dunedin headquarters Andrew Arnold, I found out that the Australian development partner of the the automated beef boning project, Teys Australia, a leading protein processor, had quit. And JBS had stepped in as the new development partner to ensure that the project continued. This isn't as disruptive as it appears. Scotts were doing all of the production engineering line development, and Tey's were to do the real world evaluation of the technology on the processing line. All the change means is that, next month, the evaluation prototypes get shipped off the JBS in Australia rather than to Teys. I suspect the change of heart at Teys was in response to corporate cost pressures, rather than a loss of confidence in the technology. But 'time will tell' on that.

The workshop tour was primarily to show off a 'working display' of the chicken trussing processing machinery in Scott's Kaikouri Valley workshop - (but without the chicken carcasses on the moving production line at the time of course). In real life installations, the chickens must still be 'manually loaded'. But everything is fully automated after that. Scott's envisages that the poultry trussing machines will be built in Dunedin for now. But there are plans to establish an alternative construction facility in Christchurch, should demand expand according to plan.

Another shareholder had a question on the automated fish de-boning project. CEO JK said it had proved a difficult engineering challenge, with all the small fish bones to deal with, and the project was now dead.

A further shareholder, asked about progress on the Caterpillar deal, announced with much fanfare at last years AGM. He bemoaned the fact that there had been no update since. JK noted that he had met with representatives of caterpillar in Christchurch just last month and the project was progressing well. (Personally I was of the opinion that putting hydrogen into fuel cells and using those to drive electric motors is a far better green heavy transport solution than batteries. But then again, there is the issue of transporting hydrogen fuel to the outback mines -where it is required-, which in itself requires specialised equipment). I guess the fact that Caterpillar have considered the hydrogen power route, and this has not put them off battery technology (heavy batteries reduce the payload of mining trucks, which is an issue) means the gamble of going into this partnership with Caterpillar is not the long-shot I thought it was. Nevertheless I would not be holding my breath on any translation from automated re-fuelling for electric mega-dump trucks to profit at Scotts just yet!

On the move of the three at the top management table from Dunedin to Auckland, apparently CEO JK has his family based there. Funny, I always thought that JK was a Dunedinite, but apparently not! So you can understand JK not wanted to wrench his family from their Auckland base to Dunedin.

There was a fine spread at the end of the Dunedin factory tour with both liquid and solid refreshments. I got stuck in to the red wine and crumbed fish bites and the rye bread salad club sandwiches. Someone told me it was one of the local hotels that puts on the catering. The certainly do a fine job.

SNOOPY

winner69

15-03-2024, 04:12 PM

Snoopy

15-03-2024, 05:59 PM

Saw an article on Rocklabs opening in Auckland the other day and wondered how SCT shareprice going.

Currently $3.00, well off high of $3.91 not that long ago. Seems strategic review to find a buyer failed and punters not too confident of an offer coming out of the blue

Is share price heading back to pre-covid levels?

I have had a buy order in for several months at $3 Winner, that was finally executed this afternoon. $3 represents an historic PE of 15 on FY2023 earnings. Not cheap, but the PE has not been that low since 2015. I think $3 equates to a good price to top up, because that share price can be justified purely on operational grounds, leaving aside any fancy transactions (takeovers included). SCT seems at last to be on a steady growth path with their new more focussed 'standardised product' strategy. So I have been looking to accumulate at a fair price.

How would I expect the individual Scott business units to be going?
a/ There could be a slow down in the automated meat processing units ordered in Oz and NZ, due to the beef and lamb downturn.
b/ But Rocklabs seems 'on the tear' (hence the new facilities in the Airport precinct).
c/ Appliance line production is always a bit up and down.
d/ But there is a pretty full order book for the automated packaging facilities built in Europe.
e/ Bladestop safety bandsaws are doing well everywhere.

The half year has just closed off as at the end of February. So the half-year guidance would be expected to be reported in mid-April. Personally I am not too worried what they report, as I believe any downturn will be more likely 'orders delayed' rather than 'orders cancelled'.

SNOOPY

winner69

19-03-2024, 08:50 AM

CEO on way out

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/428170/415126.pdf

Snoopy

19-03-2024, 10:13 AM

CEO on way out

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCT/428170/415126.pdf

That resignation by JK is a bit of a shock. But on reflection not too much of a surprise. 4.5 years is probably the sort of tenure you might expect from a transformative CEO. Come in with your ''re-imagining the business' plan. Execute, then leave. JK an Aucklander of course. So with all the dirty work done any residual resentment also goes out the door with JK. Time to appoint a true 'southern man' to the CEO role now. What about Brent from Invercargill? Surely he is sick of Australia where he has been leading JBS Australia for a while? After being a Scott director for that many years, he certainly knows the business. But instead the interim CEO (will he be invited to permanently step into the top job?) Aaron Vanwalleghem - President of Europe and North America - is about as 'northern a man' as you can get.

SNOOPY

Sideshow Bob

22-03-2024, 09:42 AM

CEO going and also now the CFO......!! :scared:

https://www.nzx.com/announcements/428417

Today Scott Technology (NZX: SCT) announces that CFO, Cameron Mathewson, has resigned to take up another CFO role.

Mr McLauchlan noted “Earlier this week I announced that Scott Group CEO John Kippenberger had decided to step down at the end of May 2024 from his role leading the global company. With the departure of our CFO in the near future, John has offered to delay his departure as CEO and director. We will work through with John over the next few days the details of an appropriate transition that is in the best interests of the Scott Group. The board is grateful to John for his immediate offer to put his own plans on hold.”

“I want to stress that the two resignations are completely unrelated and in no way signal that there are any matters that are of concern to the board with the Scott Group’s performance. It is simply an unfortunate coincidence that the two senior resignations came in the same week”.

The Scott Group does not normally provide guidance however the half year results to the end of February are due to be announced on 16 April 2024. Under the circumstances the board determined it is appropriate to give an indication of the operational and financial performance that the business has achieved during the six months.

“The business has been performing well during the period and we are expecting to announce double digit growth at both the revenue and EBITDA level. Borrowing, depreciation and lease costs will be higher than for the same period last year due to the positive momentum of the Scott Group’s underlying growth and performance. The company continues to experience positive growth drivers across all core sectors. Further information will be provided when we announce the half year results” commented Mr McLauchlan.

winner69

22-03-2024, 09:49 AM

No worries … they say

.” “I want to stress that the two resignations are completely unrelated and in no way signal that there are any matters that are of concern to the board with the Scott Group’s performance. It is simply an unfortunate coincidence that the two senior resignations came in the same week”.

Snoopy

22-03-2024, 11:19 AM

CEO going and also now the CFO......!! :scared:

https://www.nzx.com/announcements/428417

Today Scott Technology (NZX: SCT) announces that CFO, Cameron Mathewson, has resigned to take up another CFO role.

That role is CFO at THL (Tourism Holdings). Cameron starts on July 1st.

https://www.nzx.com/announcements/428400

SNOOPY

Sideshow Bob

22-03-2024, 12:31 PM

Price sensitive when leaving, not price sensitive when being hired.

The hiring announcement was before the resignation announcement......

Snoopy

22-03-2024, 01:48 PM

Price sensitive when leaving, not price sensitive when being hired.

The hiring announcement was before the resignation announcement......

I think the 'price sensitive' bit from Scotts would have related to the financial information disclosed accompanying the announcement, rather than Cameron moving on.

As for the timing of the respective messages, think how long it takes for a messenger pigeon to travel from Chairman McLaughin's loft in Dunedin to NZX HQ in downtown Wellington. By contrast THL would only have to stick a bloke in a camper-van, and get him to drive the message from the Wellington Airport precinct to downtown. A much speedier process. When the respective notices were published doesn't necessarily reflect when they were sent!

SNOOPY

Snoopy

26-03-2024, 10:26 AM

I think the 'price sensitive' bit from Scotts would have related to the financial information disclosed accompanying the announcement, rather than Cameron moving on.

Given the price sensitive information released on 26th March and the subsequent 'soggy share price' I thought my interpretation of what was said (below) might be of interest:

"The business has been performing well during the period and we are expecting to announce double digit growth at both the revenue and EBITDA level. Borrowing, depreciation and lease costs will be higher than for the same period last year due to the positive momentum of the Scott Group’s underlying growth and performance. The company continues to experience positive growth drivers across all core sectors. Further information will be provided when we announce the half year results” commented Mr McLauchlan."

I am not surprised that lease costs will be higher, given over the last year Scott Europe have moved their Czech Republic unit to a much more spacious site in Podivin. Furthermore Rocklabs seems to have moved to a new leased site in the Auckland Airport precinct, from what I believe were company owned facilities also in Auckland. I am not sure of the fate of the company owned industrial premises in Auckland following this move. Under IFRS16 reporting standards, what used to be called rent has been 'split reclassified' as both a finance expense and a depreciation of a right to lease asset. This has the effect of increasing EBITDA in comparison with pre-IFRS16 reporting periods. This in turn means that any capital transaction that increases rent will likely increase EBITDA as well, because the earnings benefits of the more productive new premises flow straight to EBITDA but the associated increased costs do not.

Chairman McLauchlan was careful not to mention 'net profit after tax' in his announcement. That and the fact that the last major contract win (something that Scott's are usually keen to 'get out there' by way of a press release) was announced in the previous half year (3rd August) would suggest that even if Scott's have been 'trucking along fine' for six months, the next year may have a more sombre growth profile. So I would not be surprised if earnings go into a 'holding pattern' for the next 12-18 months. Adding to my speculation here is McLauchlan's use of the word 'core' as in:

"The company continues to experience positive growth drivers across all core sectors."

It is well known that under Chief Executive JK's leadership, the appliance production line business, that used to provide the majority of company earnings not that many years ago has been labelled 'non-core'. So if all of those clever engineering staff that put together these things are not being fully utilised, we have a temporary hit on profits right there.

This share is another of my 'silver anniversary' holdings, where I have held the shares for more than 25 years (albeit not in the quantities I do now). So even though I have 'lost money' on the shares I purchased at $3 the other day, my average holding price has only increased to 95.1c per share (excluding all dividend payments over the years). Having said that, I have now built my holding up to a level where I want it to be. So I won't be in the market for any more SCT shares myself for the foreseeable future. My estimate is that Mr Market is pricing these shares where they should be priced on an earnings basis for now. SCT today is what I would call a classic 'hold'.

SNOOPY

Snoopy

26-03-2024, 10:36 AM

Oh, and here is a belated ditty showing that even engineers can have a sense of humour. (note the 'nicking of the cookie' on the LH side of the screen)

https://www.youtube.com/watch?v=j4F8tsA48fM

SNOOPY

winner69

27-03-2024, 08:23 AM

Jeez Snoops you been a shareholder since last century

Old papers in my box.of goodies shows in 1999 their sales were $27m and profit was $2.9m

They come a long way since eh

When tech was the rage around the turn ofvthe century one broker no long around was always touting Scott as a great tech company

Snoopy

27-03-2024, 09:48 AM

Jeez Snoops you been a shareholder since last century
Old papers in my box.of goodies shows in 1999 their sales were $27m and profit was $2.9m

Yep my 'scruffy paper records' confirm your figures and here are a few more. Share price on 30-09-1999 was $2.24. There were just 19.590m shares on issue then. And the historic PER on that reference date was 15.1. Back then the company was largely a 'one trick pony' manufacturing appliance production lines. Now it is a global tech company across multi robotic disciplines with factory business units in China, Europe and the USA as well as Oz/NZ. Yet on a PER basis, SCT is cheaper today than it was back then. And some people say there is nothing worth buying on the NZX these days. Go figure!

They come a long way since eh
When tech was the rage around the turn of the century one broker no long around was always touting Scott as a great tech company.

SCT saved me from going down various tech rabbit holes in the dot.com days. Any new investment I make has to stand out against a reference investment, and in the case of using SCT as a 'tech reference', none of those dot.com temptations did. It took me until 2015 before I found another tech company that beat my SCT comparative investment hurdle. You may have heard of that company. It goes under the moniker 'Skellerup'.

SNOOPY

winner69

27-03-2024, 10:00 AM

At a PE of 12.5 and further down the profitability track than WDT, for example - surely SCT is a screaming buy?

By the way, (although I haven't spent much time studying them in great detail aside from when I held WDT), surely F&P appliances, SCT and WDT have a lot in common when it comes to developing small appliance technology? I wonder what SCT and WDT could do if they worked together, say if WDT provided the small motor technology and SCT worked on the production line side of things. Surely a combo of these two would be appealing to the big manufacturers. Hmmmm... any thoughts, anyone?

Disc: Hold none of these, wish I had some $ to grab a few SCT though

First post on this thread in 2004

Think SCT has done better as a company than WDT ..now AOF ….and probably as an investment

You still around OutToLunch ..whst your thoughts 20 years on?

Sideshow Bob

16-04-2024, 11:32 AM

https://www.nzx.com/announcements/429655

SCOTT TECHNOLOGY ANNOUNCES FY24 HALF-YEAR RESULTS

• Dedication to Scott 2025 strategy enabled delivery of sustainable growth, and achievements across the business see strategy extended out to 2027.
• Group revenue is up 11% to $141m, margins maintained at 26% with a focus on both core and service, supported by improved delivery of rest of business.
• Sales and service in Scott’s three core sectors delivered 85% (+8ps) of group revenue.
• Operating EBITDA increased 14% to $17m, outpacing revenue growth.
• Net profit after tax was down 42% to $4.5m due to one-off strategic review costs, higher lease and financing costs.
• Forward work of $161m remains positive, comprising of MHL, minerals, protein orders and service agreements.
• An interim dividend of 5 cents per share was declared, up from 4 cents in H1 F23.

Automation and robotic solutions provider, Scott Technology Limited (NZX: SCT), has today released its results for the six months to 29 February 2024 (H1 F24).

Dedication to the Engineering Scott to High Performance (Scott 2027) strategy, which emphasises core sectors and productisation, has enabled Scott to deliver sustainable growth and continued leadership across protein, materials handling (MHL) and minerals sectors.

The Scott 2027 strategy has continued to underpin the business’ focus and investment in the growth of its three core sectors with revenue up 11% to $141m and operating EBITDA up 14% to $17m.

The business’ sales pipeline remains positive and on strategy, with $161m in forward work comprising of MHL projects, continued strong minerals and protein product orders, as well as significant progress in secured service contracts.

Scott Technology CEO, John Kippenberger, says he’s pleased with the business’ solid H1 performance.

“With our emphasis on building a more sales-oriented organisation, and growing and investing in our teams, we are well positioned for continued success in the dynamic global markets.

“Our unwavering commitment to operational excellence is bolstered by investing in productisation and leading innovation. This ensures we harness the current momentum for continued success as we lean into 2025 and beyond,” says Kippenberger.

ESG update
The momentum driving Scott's ESG strategy has continued during H1 F24, marked by robust engagement across all levels of the organisation and support from the Board and Executive leadership. Significant strides have been made across each of the three pillars of Scott’s ESG commitment as the business remains steadfast in its dedication to leading a sustainable future.
Scott has now formalised its ESG governance structure, progressed carbon reduction programs, and witnessed a positive uptick in engagement scores from teams worldwide following the bolstering of its awards and recognition programs. Its approach extends to actively engaging with suppliers, and supporting customers' sustainability goals, reflecting Scott’s commitment to fostering environmental stewardship and social responsibility.

People

Employee health, safety and well-being remain the highest priority, and good progress has been made in all the key metrics in H1 F24. Improvement in lead indicators, including strengthened hazard reporting, has significantly decreased the Lost Time Injury Frequency Rate (LTIR) and Total Recordable Injury Frequency Rate (TRIFR). Following the launch of the Critical Risk program in November, Scott is poised to begin global critical risk workshops in its 2024 focus areas, Mobile Plant and Potential Energy.

The recent employee engagement survey results saw Scott's highest-ever level of participation of 80%, coupled with the highest-ever employee engagement score of 85%. Employee retention remains high, and turnover rates reduced on H1 F23, from 7% to 3%.

Results overview

Revenue for H1 F24 increased 11% on the prior comparative period (pcp) to $140.9m, as Scott’s strategy of generating more revenue from repeatable core products and services along with growing MHL and protein solutions in North America continued to deliver sales growth.

The group margin of 26% was maintained, despite the sales mix reflecting several lower margin, high value MHL and minerals solutions.

This strategic revenue and margin approach has resulted in operating EBITDA growth of 14% to $16.6m for the period.
Net profit after tax (NPAT) of $4.5m for the period (-42% on pcp) reduced due to the one-off costs of $2.4m associated with the strategic review; increased IFRS16 amortisation costs (+$1.3m) in relation to new leased premises; increased financing costs (+$0.9m) in relation to higher effective interest rates on term debt; and an increase in IFRS16 interest (+$0.3m) associated with the expanded footprint for Minerals and MHL businesses.

Operating cash outflow of $7.7m was due to timing associated with a number of significant projects currently underway with cash due to be received in arrears compared with pcp where a number of significant projects had received deposits in advance. Cash has also been applied to footprint expansion and other capital investments. This has resulted in the Group’s net debt position of $20.7m.

In recognition of the ongoing progress made by the company, the Directors declared a (partially imputed) dividend of 5.0 cents per share, payable on 15 May. The Dividend Reinvestment Plan will apply.

Core sectors

The Scott 2027 strategy continues to emphasize the imperative of growing sales through product areas where Scott has established world-leading technology and away from the more bespoke design projects which are unproven and present higher risk to the business.

This focus has seen core sector revenue grow by 22% in the period and move from 77% to 85% of total group revenue.
Materials handling and logistics (MHL)

• This sector largely comprises conveyors, automated palletizing and sortation equipment used in the warehousing operations of large food manufacturers and related industries. Customers include industry leaders such as Danone, Pfizer and McCain Foods.

• Revenue grew at 35% on pcp due to completion of the ASRS system for Alliance NZ, and progress made with JBS Brooks and McCain Canada, alongside continued strong growth in the existing Europe market.

• MHL continues to maintain a significant forward order book of $113m which includes an installation at Clarebout’s new facility in France, an installation at McCain Netherlands new AGV (Autonomous Guided Vehicle) business in North America with Logan Aluminum and long-term customer Bridgestone.

• Scott is currently developing a modular AGV solution for the growing AGV market in North America. A standardised offer of vehicles with a range of attachments is being developed with a prototype being available during H2 F24.
Minerals

• Anchored off strong and reliable Rocklabs sample preparation sales, the mining sector continues to be a core part of the Scott group. These products are well proven in the large global mining sector and produce high margins.

• Scott’s minerals business has delivered significant growth of 53% compared to pcp largely driven by Rocklabs automated solution for Mineral Resources Ltd and the automated energy transfer system (AETS) for Caterpillar.

• Although revenue increased by 53%, the shift in the mineral's product mix towards these new solutions resulted in a lower margin, from 46% to 34%.

• The launch of AMS has seen strong market engagement with several of the world’s largest mining companies trialing the demonstration unit with positive results.

• A renewed focus on product development will position the minerals business to expand into untapped markets in coming years.

Protein
• This sector largely comprises meat processing equipment which operates in the secondary processing operations of the large meat processors and related industries.

• While the period included the successful commissioning of the Silver Fern Farms Primal solutions and repeat trussing units from Costco, protein revenue declined 9% on pcp, impacted by global pressure on red meat reduces customer demand and meat processors investments.

• Despite those challenges, protein service revenue grew 39% on pcp due to the increased equipment installation base and a focus on securing long term service and maintenance agreements.

• The pipeline conversion for protein products has slowed for the reasons outlined above. Despite this, several long-term Australasian customers have signed up to long term service agreements worth over $10m.

• The successful installation of the first two Poultry Trussing lines into US retailer CostCo is opening up this channel with industry-leading companies looking to secure a safer, automated poultry trussing line. Other poultry prospects have shown a significant amount of Positive progress continues in the development of the world’s first fully-automated beef boning solution, with first beef chine modules prototype underway at JBS Brooklyn.

• Early-stage progress has been made on the lamb frenching automation which will increase yield and product quality while addressing labour challenges. This product is being developed in association with our partners Robotic Technologies and Meat & Livestock Australia.

Service and aftermarket business

Scott’s strategy of building its service and aftermarket business has been important for customers, maintaining Scott machine accuracy and reliability, and for shareholders as it provides important recurring revenue and lucrative margins.

The service business underpinning the core business segments saw strong growth of 13% in the period.

We have seen this important stream continuing to deliver sustainable profit growth as our customers look to the specialist skills of Scott technicians to support their own maintenance teams, on Scott’s highly specialised equipment.

The service business also contains a strong stream of high margin recurring consumables.

This growth is evident in the protein sector where service revenue grew 39% on pcp. The 2-year CAGR on protein service is 47% (H1 F22 to H1 F24) which follows protein equipment sales of 46% for the previous two years (H1 F21 to H1 F23). The service lag contributes to growth, especially during cyclical times, such as the current red meat headwinds, where equipment sales soften.
Service revenue also grew across the total group (including non-core business) by 10% and continued to deliver strong margins of 35%. This demonstrates the importance of the service / aftermarket business to the overall performance and profitability of Scott.

Regional business update

• New Zealand revenue reduced as the Alliance palletisation and Silver Fern Farms lamb boning room were commissioned. A focus on service resulted in a revenue increase of 29% on pcp.

• Australia income increased considerably based on the mineral AMS solution being produced for Mineral Resources. The aftermarket business grew by 11% on increased protein installation-base.

• Coming off the back of a strong prior period for BladeStop saw protein decline in Europe. However, the region delivered significant and continued growth in MHL, resulting in an increase of 15% in core revenue. The intentional contraction of the appliance sector resulted in total lower growth for the period.

• In North America the CostCo Poultry Trussing lines (protein), CAT energise solution (minerals), and JBS Brooks and McCain Canada (MHL) gave a strong presence for Scott as the North American MHL market is opened up.

• China and Rest of the World has seen growth in the minerals business through a solid account management focus working with agents in those areas.

winner69

16-04-2024, 06:46 PM

Hey snoops I was going to ask you why cash flows looked really awful …but then I saw customers are now not paying in advance to the degree they once did.

Suppose a good enough explanation

Snoopy

18-04-2024, 10:24 PM

Now the half year result is out, it is time to find out how accurate my interpretation of Chairman McLaughlin's words really was.

"The business has been performing well during the period and we are expecting to announce double digit growth at both the revenue and EBITDA level. Borrowing, depreciation and lease costs will be higher than for the same period last year due to the positive momentum of the Scott Group’s underlying growth and performance. The company continues to experience positive growth drivers across all core sectors. Further information will be provided when we announce the half year results” commented Mr McLauchlan."

What actually happened:
Underlying EBITDA went from $14.560m to $16.587m, or +13.0%
Revenue went from $126.533m to $140.868m or +11.3%

So yeah, double digit growth as promised, but only just.

Depreciation and Amortisation cost went from $3.920m to $5.889m a rise of $1.969m or 50% - ouch! But were are told that $1.3m of that is 'IFRS16 amortisation', a cost that used to be called rent, in relation to the new rented premises for Rocklabs in Auckland and Alvey in the Czech Republic. These extra costs are incurred now. But the extra growth from these new premises is yet to come.

Borrowing Costs have risen from $1.025m to $2.226m a rise of $1.201m or 117% - double ouch! $0.3m of that was related to IFRS16, which is incremental rent on the new larger premises. The remaining $0.9m of increase was attributable to higher interest rates on long term borrowings.

The comment about 'growth in all core sectors' (which includes protein, minerals and materials handling and logistics) is collectively true. But actually revenue was down 10% in the protein section subsection, while margins reduced as well.

I am not surprised that lease costs will be higher, given over the last year Scott Europe have moved their Czech Republic unit to a much more spacious site in Podivin. Furthermore Rocklabs seems to have moved to a new leased site in the Auckland Airport precinct, from what I believe were company owned facilities also in Auckland. I am not sure of the fate of the company owned industrial premises in Auckland following this move. Under IFRS16 reporting standards, what used to be called rent has been 'split reclassified' as both a finance expense and a depreciation of a right to lease asset.

It looks like I was spot on about what was behind the rising lease costs

Chairman McLauchlan was careful not to mention 'net profit after tax' in his announcement. That and the fact that the last major contract win (something that Scott's are usually keen to 'get out there' by way of a press release) was announced in the previous half year (3rd August) would suggest that even if Scott's have been 'trucking along fine' for six months, the next year may have a more sombre growth profile. So I would not be surprised if earnings go into a 'holding pattern' for the next 12-18 months. Adding to my speculation here is McLauchlan's use of the word 'core'.

Actual NPAT was $4.460m, down from $7.826m of the previous period. That is a drop of $3.366m or 57%. No wonder Chairman Stuart was coy! But included in that figure was the one off 'MacQuarie Capital Structural review', which cost the company $2.448m. Add that back in and the normalised result becomes: $4.460+0.72($2.448m)=$6.223m. That represents a profit drop of $1.603m. Add up the after tax effects of the rise in rent and interest rates and I get 0.72($1.6m+$1.2m)= $2.0m. These after tax increased costs more than exceed the NPAT profit drop. So there is definite growth in the revenue side of the business before incremental operating costs cast shadow on the result. To me this means the fall in operational NPAT of $1.743m for the half year is not cause for concern.

Yet is does add up to 'no growth' for FY2024. So my 'holding pattern' remark looks spot on as well, or perhaps even optimistic?.

"The company continues to experience positive growth drivers across all core sectors."

It is well known that under Chief Executive JK's leadership, the appliance production line business, that used to provide the majority of company earnings not that many years ago has been labelled 'non-core'. So if all of those clever engineering staff that put together these things are not being fully utilised, we have a temporary hit on profits right there.

I don't find it easy to pick out what the appliance production line side of the business is doing from the half year report. China sales (100% appliance line manufacturing) are certainly up from $4.086m to $6.120m, It looks like all of the income in NZ in that sector over the half was $1.030m in servicing costs. But I don't think any North American sourced projects, that would have been built in New Zealand, and then shipped to the USA for installation, are included in that figure. Forward work contracts revenue outside of the Material Handling Business in Europe, totalled $48m at the half year balance date. Perhaps half of that, or $24m, relates to appliance line manufacturing contracts?

I think if there was growth in the appliance line manufacturing business, somewhere in that interim report, it would have been mentioned.

Whether overall profits will be up or down this year, i think depends on the overall utilisation of the new larger Scott factory footprint.

SNOOPY