-
CEO loading up on market. He must think the SP is too cheap!
-
Big crossing this arvo....
4 |
1 |
2:03:01 pm |
260 |
522,932 |
$1,359,623 |
Off market |
-
"achieved revenues of $111.4 million for the six months to 28 February 2019, an increase of 65% on
the previous corresponding period (pcp) of $67.5 million. For this six month
period the company's operating EBITDA of $8.5 million increased 33% on the
pcp of $6.4 million while the net surplus before tax of $5.6 million was up
18%. "
Seems pretty good to me, but share price hasn't moved. Am I missing something?
-
Quote:
Originally Posted by
sanctus671
"achieved revenues of $111.4 million for the six months to 28 February 2019, an increase of 65% on
the previous corresponding period (pcp) of $67.5 million. For this six month
period the company's operating EBITDA of $8.5 million increased 33% on the
pcp of $6.4 million while the net surplus before tax of $5.6 million was up
18%. "
Seems pretty good to me, but share price hasn't moved. Am I missing something?
I think you need to see this in context. Most of their revenue and earnings growth has been by acquisition. Their income is as well very patchy - and even this "good" 1st HY produced less (in earnings) than half of last years full year income. I guess it is good to see that their EPS did grow compared to 1HY18 (from 4.2 cts in 1 HY18 to 6.6 cts in 1HY19) but this is still less than half of their FY18 total of 14.3 cts / share. They better have (again) a very good second half, otherwise their annual EPS is dropping. Ouch. Wrong direction.
And actually - this is the problem with this company. They do produce sexy technology (toys for the boys and girls) and they do have good revenue growth. However their EPS was over the last 5 years basically unchanged around 13 to 14 cts. No indication so far that this year will be different.
A number of softeners in the report as well:
Quote:
Australasia manufacturing sales were up 6% although, due to heavy R&D spend and some project cost overruns, contributions were down. One project for the meat industry suffered longer than expected commissioning times. Two projects for the mining industry faced challenges brought on by deployment of new advanced technology which were underestimated and has had a significant impact on this period’s contribution. The new technologies add to our overall capability and have application into the future. While disappointing, problems with projects are to be expected from time to time. However, with the business now well diversified, these instances can now be absorbed by the Group.
This must be the majority of their projects suffering under challenges ...
Given this fact - why would anybody be prepared to pay more for this share? A PE of nearly 20 without earnings growth is not cheap.
-
Quote:
Originally Posted by
BlackPeter
I think you need to see this in context. Most of their revenue and earnings growth has been by acquisition. Their income is as well very patchy - and even this "good" 1st HY produced less (in earnings) than half of last years full year income. I guess it is good to see that their EPS did grow compared to 1HY18 (from 4.2 cts in 1 HY18 to 6.6 cts in 1HY19) but this is still less than half of their FY18 total of 14.3 cts / share. They better have (again) a very good second half, otherwise their annual EPS is dropping. Ouch. Wrong direction.
And actually - this is the problem with this company. They do produce sexy technology (toys for the boys and girls) and they do have good revenue growth. However their EPS was over the last 5 years basically unchanged around 13 to 14 cts. No indication so far that this year will be different.
A number of softeners in the report as well:
This must be the majority of their projects suffering under challenges ...
Given this fact - why would anybody be prepared to pay more for this share? A PE of nearly 20 without earnings growth is not cheap.
Very good points BlackPeter.
I haven't looked at Scott Tech too much, but when I saw the HY report come out this afternoon, the headline numbers looked pretty good to me and my impulsiveness got the better of me, leading me to buy a small parcel without really doing any research!
True that the HY net profits was less than half of last year's full year profits, but it was very close and a big jump up in H1 compared to recent years.
And the profits have always been very heavily weighted to the 2nd half.
Looking at the H1/H2 profit splits from the last 3 years.
2016 ($000) %
H1 1,948 23.95%
H2 6,186 76.05%
FY 8,134
2017
H1 2,887 28.12%
H2 7,378 71.88%
FY 10,265
2018
H1 3,155 29.29%
H2 7,617 70.71%
FY 10,772
Assuming similar trend, let's say HY19 has 30% of FY profits, then FY19 net profits will be about $16.916m.
That would equal an EPS of 22cps based on current number of shares. Or maybe 21cps after DRP dillution. About a +40% increase in EPS.
Does that sound realistic?
-
After many years of following this share, I finally bought in in January paying between 2.60 and 2.75 per share...a tiny parcel and even then it took days to fill. I want to hold them for the long-term....their share price has not moved for years. I like their strategy and am hoping that they can turn their output on.
-
Quote:
Originally Posted by
JayRiggs
Assuming similar trend, let's say HY19 has 30% of FY profits, then FY19 net profits will be about $16.916m.
That would equal an EPS of 22cps based on current number of shares. Or maybe 21cps after DRP dillution. About a +40% increase in EPS.
Does that sound realistic?
Hard to say. Don't know enough about Scott Technology, but used to work for a long time in a quite comparable organisation (high tech project work, lumpy sales, international subsidiaries, similar size of the organisation).
We had as well always a much better second half than first half no matter when the FY ended (they shifted it during my tenure) - clearly an indication that the focus on achieving agreed end of year goals (or the bonus schema for the sales people ;)) had a lot to do with when the sales have been made and booked in.
To assess whether your assumptions are realistic we would need to know how "challenging" their current projects are and the causes behind these challenges. I don't. Lets hope its not "FBU style" challenges. We would need to know as well their sales funnel - I don't either. And yes, we would need to know, whether they managed to shift some projects from last year into this, to make this a really good and bonus rich year (hence the better FY1) or what other reason they had for a better HY1 than last year.
So yes, if your model of a god given 30/70 earnings distribution is right, than SCT might be in for a really good year. What we don't know is - is it right and if yes, what are the reasons behind it? We don't know either whether this would be a one off or the start of a long overdue trend to rise the EPS.
Ah yes - and we don't know the agenda of the majority shareholder (meat processor JBS) which without doubt will guide the management team. I don't think that increased earnings would be their highest priority.
-
Small tranches of SCT shares have been bought by directors and senior officers recently and Scott have bought Normaclass, a French based technology provider specialising in automated beef grading using machine vision.
https://www.nzx.com/announcements/333668
Their shares continue downwards despite these encouraging signs, but then, the market often seems to be contrary.
-
Quote:
Originally Posted by
Jerry
Small tranches of SCT shares have been bought by directors and senior officers recently and Scott have bought
Normaclass, a French based technology provider specialising in automated beef grading using machine vision.
https://www.nzx.com/announcements/333668
Their shares continue downwards despite these encouraging signs, but then, the market often seems to be contrary.
Not so sure ... I guess they are an interesting company doing stuff engineers like. I can sympathise. They bought as well a lot of additional revenue, but if you look at the earnings per share - they are flatlining now for a long time around 13 cents. PE around 19 with no (EPS-) growth at all.
So - it is clearly not a growth company (remember, its only EPS growth which counts for shareholders) and while their interests might be aligned with the interests of the majority shareholder (they are building tools for them) - for anybody else they are basically equivalent to a BB or less rated bond (they are neither a gentailer nor IFT) paying (at today's SP) in average 4.2% interest, which well may turn towards less or even nil when the next recession arrives.
While they are certainly worth something, there are many better dividend payers (if that's your thing) as well as much better growth games out in the market. And while they do have some sort of niche in meat processing - nothing they do is unique. Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.
Why should SCT's share price rise?
-
They have been acquiring a lot of companies to expand its global presence. Seems like a good thing long term assuming they did their due diligence before buying them. Revenues are steadily growing along with profits. As JayRiggs said, EPS growth should grow this year if historic revenue split is anything to go by. Of course, all depends on those "challenges" and how much of an impact that had. Ultimately I think robotics and automation is a huge industry that will only grow into the future. No other company on the NZX you can invest in for that as far as I am aware.
I can understand why the shareprice is going down though given the low yield with slower EPS growth than other companies. When I bought in, I did think Scott Tech had a lot of promise. By no means I am an expert so the declining shareprice does make me feel like I'm missing something. Hopefully things change in the coming years.
"Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.". That seems like a pretty ignorant statement, and same could be said for a lot of companies. Just because it could be done, doesn't mean a business would be willing to invest years of R&D to develop the same technology. That's why you pay a business that has already done it so you don't have to spend that money, time, and risk for R&D yourself.
Disc. holding and feeling salty because share price keeps going down :(
-
Quote:
Originally Posted by
sanctus671
They have been acquiring a lot of companies to expand its global presence. Seems like a good thing long term assuming they did their due diligence before buying them. Revenues are steadily growing along with profits. As JayRiggs said, EPS growth should grow this year if historic revenue split is anything to go by. Of course, all depends on those "challenges" and how much of an impact that had. Ultimately I think robotics and automation is a huge industry that will only grow into the future. No other company on the NZX you can invest in for that as far as I am aware.
I can understand why the shareprice is going down though given the low yield with slower EPS growth than other companies. When I bought in, I did think Scott Tech had a lot of promise. By no means I am an expert so the declining shareprice does make me feel like I'm missing something. Hopefully things change in the coming years.
"Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.". That seems like a pretty ignorant statement, and same could be said for a lot of companies. Just because it could be done, doesn't mean a business would be willing to invest years of R&D to develop the same technology. That's why you pay a business that has already done it so you don't have to spend that money, time, and risk for R&D yourself.
Disc. holding and feeling salty because share price keeps going down :(
Share your sentiments there. For tightly held resister that's the problem, it works like s double edged sword.
Looking at recent trading pattern, it looks way oversold and I'm picking we might have reached bottom.
In the long term though JBS will take full control and here's hoping they offer good price for holders.
-
Quote:
Originally Posted by
sanctus671
They have been acquiring a lot of companies to expand its global presence. Seems like a good thing long term assuming they did their due diligence before buying them. Revenues are steadily growing along with profits. As JayRiggs said, EPS growth should grow this year if historic revenue split is anything to go by. Of course, all depends on those "challenges" and how much of an impact that had. Ultimately I think robotics and automation is a huge industry that will only grow into the future. No other company on the NZX you can invest in for that as far as I am aware.
I can understand why the shareprice is going down though given the low yield with slower EPS growth than other companies. When I bought in, I did think Scott Tech had a lot of promise. By no means I am an expert so the declining shareprice does make me feel like I'm missing something. Hopefully things change in the coming years.
"Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.". That seems like a pretty ignorant statement, and same could be said for a lot of companies. Just because it could be done, doesn't mean a business would be willing to invest years of R&D to develop the same technology. That's why you pay a business that has already done it so you don't have to spend that money, time, and risk for R&D yourself.
Disc. holding and feeling salty because share price keeps going down :(
Look, if you think my statement is ignorant - be my guest.
My background is in electrical engineering. I spent several decades in the development of high tech equipment working both in Europe as well as in NZ and ... I have seen what SCT does (though never working for them).
I think they are a good company, but I don't see them as "special". Can't assess the quality of the companies they acquired, but from a statistical perspective - give me 5 NZ companies who have been successful in buying their international empire and I give you 10 who failed. I don't think the odds are in their favour, but there is always hope ;);
-
Transbotics Acquisition Details
Quote:
Originally Posted by
Snoopy
Fairly light on detail with this announcement. We have thirty new members in the Scott's team as a result of buying Transbotics. Transbotics do Automotive Vehicle Guidance systems. The completion of the transaction announcement on 8th June says Transbotics has revenues of US$4.5m to US$11.0m over the past five years. Yet no mention of how much Scott's paid for the business? I guess ultimately we will find out when the AR comes out at the end of the year?
I have decided to tie up a few loose ends on this thread.
'Transbotics' supplies automated guided vehicles (AGVs) , and is based in North Carolina in the USA. The aim is to provide reliable automated material handling solutions for production and warehouse facilities.
From information from AR2018 p61 and p62, the total paid for Transbotics (USA) was $4.873m on 31st May 2018. $3.438m was paid in cash and $1.435m will be an earn out payment. The 31st May acquisition date means that Transbotics was on the books for just three months of FY2018 for Scott Technology. Extrapolating from this three month period to try and get an idea of revenue and EBITDA figures for the year:
Annualised Transbotics Revenue: 4 x $4.0m = $16m
Annualised Transbotics EBITDA: 4 x $0.8m = $3.2m
Last three months of FY2018 Transbotics EBITDA Margin: $0.8m/$4.0m = 20%
SNOOPY
-
Quote:
Originally Posted by
Snoopy
sb9 wrote:
2 |
1 |
11:10:35 am |
335 |
1,313,445 |
$4,400,040 |
Off market |
"Biggie...."
A squiz at the latest published share register (AR2017) indicates there are only three outfits that could sell that many shares in one transaction.
1/ Majority sharehodler JBS (very unlikely, if they wish to remain a majority shareholder. It would also be inconsistent with them acquiring more shares in last years DRP).
2/ Oakwood Securities owned by former CEO Graeme Marsh. Oakwood reduced their percentage holding during the JBS takeover, and they may be looking to reduce it some more now that Graeme marsh is getting on a bit and there is no Mrash representation at Scott operating company level.
3/ The "JI Urquart Family A/C" estate who disastrously reduced their holding just at the wrong (capital raising ) time. Since Ian Urquart , a great Scott Tehnology stalwart, died they have gone on record as not being supportive of the company.
My pick is that it is 3. If we don't get a substantial security holders notice soon, then that will be confirmed by a process of elimination (both JBS and Oakwood would have to issue one, if it was them selling).
My guess on what was going on with this big trade in April 2018 was wrong. I double checked all three of the largest shareholders year on year. Both 'Oakwood Securities' and the lawyers running the 'JI Urquart family A/C' held exactly the same number of shares at EOFY2017 and EOFY2018. Meanwhile the number of shares held by JBS Australia went up from:
38,476,592 - 37,415,058 = 1,061,534
This increase, I think, largely reflects the new shares issued under the DRP in the November 2017 dividend payment. So the 1,313,445 shares traded on 17th April 2018 remain a mystery.
SNOOPY
-
Alvey Acquisition Details
Quote:
Originally Posted by
Snoopy
Alvey’s last year’s annual revenue was $56.5m. That price represented an EBITDA multiple of approximately 4.5 times. So EBITDA for Alvey’s most recent year must have been:
$56.5m / 4.5 = $12.5m
To calculate the NPAT of the acquisition under Scott’s ownership, we need to subtract the ‘ITDA’ bits from this. Let’s do that.
‘I’ (Interest payable): Because the Alvey purchase was made by cash, the ongoing interest bill associated with the purchase is zero
There is no information on Alvey’s depreciation or amortisation bills. But because the business looks like a smaller version of Scott’s, (combining intellectual property and spread international manufacturing facilities), I have decided to treat it as a small version of Scott’s and work out the depreciation and amortisation by scaling the Scott figures in proportion to the revenue of both companies before the merger.
‘D’ (Depreciation ) for Scott’s was $1.694m. Scaling according to company revenue, I estimate the annual depreciation at Alvey to be:
$1.694m x ($56.5m/$132.5m) = $0.722m
‘A’ (Amortisation) for Scott’s was $1.293m. However, on closer inspection, almost all of this ($1.261m) was a result of amortizing the recently acquired ‘Bladestop’ technology. IMO it is not reasonable to assume that Alvey has similarly spent a large amount of money on externally acquired intellectual property which must be similarly amortised. If I remove the ‘bladestop adjustments‘ from Scott’s accounts, I get a representative amortisation for Alvey of :
($1.293m - $1.261m) x ($56.5m/$132.5m) = $0.014m
So now we have enough information to calculate EBT for Alvey.
EBT = EBITDA –I –D –A = $12.5m - $0m - $0.722m - $0.014m = $11.764m
Assuming a New Zealand tax rate of 28% (Note: this is likely a wrong assumption, but I don’t want to make an uninformed guess about EU tax rates and tax subsidies that may exist), I get an incremental NPAT for the soon to be Scott owned Alvey of:
$11.764m x 0.72 = $8.470m
This is the kind of gain in net profit after tax I would expect once it is bedded in, and I must say it looks very juicy!
Alvey specialises in palletising, conveying and warehouse automation and is based in Europe. Alvey was acquired by Scott Technology on 23rd April 2018.
From information from AR2018 p61 and p62, the total paid for Alvey (Europe) was $19.303m on 23rd April 2018. $14.522m was paid in cash and $4.781m will be an earn out payment. The 23rd April acquisition date means that Alvey was on the books for just one hundred days of FY2018 for Scott Technology. Extrapolating from this period to try and get an idea of revenue and EBITDA figures for the year:
Annualised Alvey Revenue: (365/100) x $26.7m = $97.5m
Annualised Alvey EBITDA: (365/100) x $0.9m = $3.3m
Last three months of FY2018 Alvey EBITDA Margin: $3.3m/$97.5m = 3.4%
This doesn't compare well with the previous one year result, as noted in the quoted post above, pre-acquisition.
Previous Year Alvey EBITDA Margin: $12.5m/$56.5m = 22.1%
SNOOPY
-
Things have really gone south since one year ago. It would be a much cheaper buy-out today for JBS if that was the overall plan. I feel like a minnow (or a mushroom) in this game.
-
Quote:
Originally Posted by
Snoopy
The acquisition of the Alvey Group in Europe has been treated favourably by the market. But what difference will this make in ‘earnings per share’ terms?
Alvey’s last year’s annual revenue was $56.5m. That price represented an EBITDA multiple of approximately 4.5 times. So EBITDA for Alvey’s most recent year must have been:
$56.5m / 4.5 = $12.5m
Quote:
Originally Posted by
Snoopy
Alvey specialises in palletising, conveying and warehouse automation and is based in Europe. Alvey was acquired by Scott Technology on 23rd April 2018.
From information from AR2018 p61 and p62, the total paid for Alvey (Europe) was $19.303m on 23rd April 2018. $14.522m was paid in cash and $4.781m will be an earn out payment. The 23rd April acquisition date means that Alvey was on the books for just one hundred days of FY2018 for Scott Technology. Extrapolating from this period to try and get an idea of revenue and EBITDA figures for the year:
Annualised Alvey Revenue: (365/100) x $26.7m = $97.5m
Annualised Alvey EBITDA: (365/100) x $0.9m = $3.3m
Last three months of FY2018 Alvey EBITDA Margin: $3.3m/$97.5m = 3.4%
This doesn't compare well with the previous one year result.
Previous Year Alvey EBITDA Margin: $12.5m/$56.5m = 22.1%
Quote:
Originally Posted by
winner69
From those numbers above re acquisitions it appears the existing ebitda margin was 11.9% but the acquired businesses (on a full year basis) margin is only 5.4%
Acquired businesses margins seem a bit low?
Winner, the EBITDA margin at Alvey over the first few months of Scott Technology ownership was only 3.4%. But Alvey's previous full year of results produced at EBITDA margin of 22.1%. I suspect that because the EBITDA margins at Alvey shrunk so much, even as revenue gained, we may have had some unusual costs to contend with.
In HYR2019, Scott's mentioned that Alvey, mainly based in Belgium, were being integrated with the Scott's existing European business 'Scott Technology GmbH' in Kurnbach Germany. If this process was stretching back into FY2018, this could have involved removing duplication of back office facilities, and some senior management redundancies and or property lease write downs. Or it could be a reflection of Alvey's earnings being lumpy, maybe even as a result of technical difficulties with a particular project. Either way, it looks like those last three months or so of earnings from Alvey incorporated into Scott's FY2018 result were not representative.
SNOOPY
-
FY2018 Profits: Forecast vs Reality
Quote:
Originally Posted by
Snoopy
If we add to this the underlying profitability of Scott Technology today, I get an underlying profitability for the combined ‘Scott’ and ‘Alvey’ group of:
$8.959m -$0.502m + $8.470m = $16.927m
This projection assumes no profit growth or decline from either company.
I do not expect the Scott Technology result for FY2018 to be this high, because Alvey will have only been owned for part of FY2018. Nevertheless I believe this figure is representative of the ongoing profitability of the group and should be used to assess value ahead of whatever the actual FY2018 result turns out to be.
With 74.681m shares on issue, Scott/Alvey should have ‘eps’ figures of:
$16.927m / 74.681m = 22.7cps
With a share price of $3.50, this means Scott’s is currently trading on a projected PE of:
$3.50/ 0.227 = 15.4
Note that this projection does not include the expected future ramp up of Meat Industry Robotics work to be done in association with major shareholder JBS. Compared to some of the sky high valuations on the market at the moment and with much growth to come, something around $3.50 is looking reasonable
Normalised Profit Calculation FY2018 (Refer AR2018 p33)
Declared Net Profit for FY2018 |
$10.772m |
add Loss on Property Plant and Equipment Sales |
$0.021m |
add Due Diligence Expenses |
0.72 x $0.271m |
add Unrealised Forex Losses |
0.72 x $0.271m |
add Fair Value Derivative Losses held as Fair Value Hedges |
0.72 x $1.579m |
add Unrealised Interest Rate Swap Contract losses |
0.72 x $0.043m |
less Foreign Exchange Gains |
0.72 x ($1.627m) |
less Fair Value Gains on Firm Commitments |
0.72 x ($1.579m) |
equals Normalised Net Profit |
$10.043m |
My previous forecast profit in the post above assumes a full years contribution from Alvey which didn't happen. Adjusting for that, the forecast was:
= $16.927m - [ (365-100)/365 ] x $8.470m = $10.777m
To calculate this I had assumed a drop in profit, due to a net interest annual income drop to $0.162m
$0.664m - $0.162m = $0.502m
Actual interest income received was a little more, at $0.369m.
SNOOPY
-
Which could mean a current share price track down to around 1.95 assuming a p.e of 15x?
-
Quote:
Originally Posted by
BeeBop
Which could mean a current share price track down to around 1.95 assuming a p.e of 15x?
Hard to predict what the markets will do - however - I would put them more between PE 10 and 12.5 for a non (earnings-) growth company.
I'd be interested below $1.30 or so ...
-
Ha! That is one share purchase I got wrong! But I didn’t get many, and after all, something has to have a negative return in the portfolio. It is nice having a share in a “local” company....and time turns many reds to green (not all, but some). I shall live in hope that they will be a growth company and someone will come in and drive them forwards.
-
JBS Australia: The Opportunity
Quote:
Originally Posted by
Snoopy
I see from Appendix 1 of the Northington report that JBS Australia has 11 processing facilities in Australia. From the presentation:
-----
Over the past two, JBS Australia and Scott have worked together installing an automated meat processing system for its lamb plant in Bordertown and elsewhere in Australia.
1/ The production line at Bordertown is running daily, at commercial line speeds (approx. 10 head of sheep per minute or approx. 8,000 per day). [Snoopy note: looks like two eight hour shifts per day]
2/ Rather than leading to redundancies, staff have been reloc'[/ated to other parts of the plant, with consequent expansion in throughput.
3/Scott’s automation equipment is also operating at JBS’s Brooklyn plant (lamb) and beef plants at Dinmore and Beef City.
This reads as though Bordertown has 'full automation' and Brooklyn (lamb) and for Beef Dinmore and 'Beef City' (Toowoomba) are partially automated.
The JBS Australia Website lists the following processing sites:
Queensland: Dinmore, Beef City (near Toowoomba), Rockhampton, Townsville
NSW: Rivernia (rural NSW)
Victoria: Brooklyn, Cobram
Tasmania: Devonport, Longford
South Australia: Bordertown
Late in 2014, JBS acquired the 'Primo' group, specialising in smallgoods and bacon. Primo has two abbatoirs. One in Port Wakefield (South Australia) , and the other at Scone in the Hunter valley (NSW)
Nine of the above facilities process beef, and one pork. However JBS also processes lamb (Brooklyn) and goats.
JBS Australia is the 'first line of growth' for Scott Technology. So I think it is worth itemizing the opportunity amongst the JBS Australia plants. Overall 85% of JBS Australia's meat cut output is exported. This means international cost competitiveness is paramount. Robotics is a good way to bridge the cost gap to low cost overseas competitor countries. For Scott Technology these robotic development opportunities are not quite 'cash in the bank'. But with JBS Australia as Scott's controlling shareholder they are the nearest thing to it.
JBS Australia Meat Processing Plants |
Location |
Plant |
Animals Processed |
Output Capacity per day |
Scott Robotics Installed? |
Queensland |
Dinmore |
Cattle |
3400 |
Yes (pre EOFY2015) |
Queensland |
Beef City (Toowoomba) |
Cattle (grain fed) |
1134 |
Yes (pre EOFY2015) |
Queensland |
Rockhampton |
Cattle (grass fed) |
1400 |
Queensland |
Townsville |
Cattle (grass fed) |
1800 |
New South Wales |
Riverina |
Cattle (grain fed) |
600 |
New South Wales |
Scone |
Cattle (grass fed) |
650 |
Victoria |
Brooklyn |
Cattle |
1400 |
|
|
and 'Small Stock' |
8200 |
Victoria |
Cobram |
Lambs |
3200 |
South Australia |
Bordertown |
'Small Stock' |
5000 |
Yes (pre EOFY2015) |
Tasmania |
Devonport |
Cattle (grass and grain fed) |
28 |
|
|
and Pigs |
85 |
|
|
and Lambs |
540 |
Tasmania |
Longford |
Cattle |
450 |
|
|
and 'Small Stock' |
1600 |
Scotts have a policy of not referring to specific contracts in their reporting periods. Yet relevant commentary from subsequent reports follows:
HY2016 p1 "An uplift in projects for the meat processing sector, the company's Australasian sales were up over 70% from the previous year."
FY2016 p5 "the manufacture and sale of multiple repeat X-ray , Primal and Middle Systems for meat processors in Australia and New Zealand
FY2016 p51 "Meat Processing Revenue: FY2016 $38.875m, FY2015 $10.924m, +256% yoy
HY2017 p1 "Economies of scale gained through a of repeat builds for the food and industrial automation industries, together with a closer sharing of skills and resources on on projects between Australia and New Zealand resulted in the company's Australasian sales being up 34% from the previous corresponding period."
HY2017 p10: Australasia Manufacturing Revenues HY2017: $45.091m HY2016 $33.533m +34% yoy
FY2017 p7; "Scott is also working closely with the Australian industry as it determines the best way to implement a planned roll out of DEXA X-ray technology to approximately 80 'Ausmeat' accredited meat processing facilities. The total project is expected to be rolled out over the next three years and opens the possibility to utilise the X-ray rooms to to drive Scott's meat processing automation.'"
HY2018 p4 "Growth in the uptake and sale of our meat processing technologies is expected to accelerate in the second half of the year following a longer than expected completion time for previous projects and and a period of reduced activity in Australia caused in part by the ongoing discussions and uncertainty over the Red Meat industry roll out of DEXA systems into all Ausmeat accredited facilities."
"During the first half of the year we commenced substantial development projects for our meat processing customers, including a start in the Pork and Poultry sector in addition to our meat and lamb."
FY2018 p5 "Sales into our traditional markets of Appliances, Meat Processing and Mining sectors all achieved double digit growth. with the Appliance sector being the stand out with a 56% increase from the prior year."
FY2018 p6 "We have commenced significant projects aimed at transferring our technology from lamb deboning to other species. Scott currently has two significant projects underway in beef, one in pork and two in poultry."
FY2018 p7 "Bladestop bandsaw sales met our current year targets and combined with ongoing demand for lamb and boning automation solutions in New Zealand and Australia helped deliver record sales in our meat processing sector."
HY2019 "Australasia manufacturing sales were up 6% although due to heavy R&D spend and some project cost overruns contributions were down. One project in the meat industry suffered longer than expected commissioning times."
It looks like sales are rolling forwards, particularly in Australia. But what exactly is it in terms of specific projects that Scott are able to offer to the meat industry?
SNOOPY
-
Meat Industry Robotics: What's for sale?
,
Quote:
Originally Posted by
Snoopy
It looks like sales are rolling forwards, particularly in Australia. But what exactly is it in terms of specific projects that Scott are able to offer to the meat industry?
Scott's crown jewel Meat Industry project is the 'Automated Lamb Boning Room'. This can be broken down into six distinct units:
1/ X-ray Grading
2/ X-ray Primal Cutter
3/ Middle Machine (prepares rack and loin)
4/ Hindquarter leg de-boner
5/ Forequarter Processing
6/ Knuckle Tipper (removes knuckle top from hind leg).
Together 1-6 make up the 'automated lamb boning room', The design throughput speed is 10-12 carcasses per minute (equating to 8,000 per day), although I am not sure how many pieces of equipment operating in parallel at the same time this represents. The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry. But these other products are not fully automated and so represent sales along the path to automation. They are not themselves part of the automated boning room so I will not discuss these semi-manual tools further in this post.
Automating the breakdown of a lamb carcass is an easy task (easy being a relative term) in the labyrinth of dissection possibilities of all animals farmed for meat. This is because lambs are relatively small and more uniform in size than beef carcasses in particular. The automation potential in the beef industry is much greater. However due to the beef carcass being much heavier and processed in halves, rather than full animals, the full automation of this is a very different and harder task.
As far as I can make out the automated beef machines that Scott's currently consist of:
1/ the "Beef Rib Cutter / Scorcher"
2/ the "Beef Hock Cutter"
There is currently nothing commercially available for pork.
Scott's are busy with their R&D, filling the holes in their meat cut automation range: Even chicken and salmon is on the research list. But as things stand now, with the exception of lamb, the automated solutions for the most potentially lucrative market - beef - are limited.
SNOOPY
-
Quote:
Originally Posted by
Snoopy
Scott's crown jewel Meat Industry project is the 'Automated Lamb Boning Room'. This can be broken down into six distinct units:
1/ X-ray Grading
2/ X-ray Primal Cutter
3/ Middle Machine (prepares rack and loin)
4/ Hindquarter leg de-boner
5/ Forequarter Processing
6/ Knuckle Tipper (removes knuckle top from hind leg.
Together 1-6 make up the automated lamb boning room, The design throughput speed is 10-12 carcasses per minute, although I am not sure how many pieces of equipment operating in parallel at the same time this represents. The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry. But these other products are not fully automated and so represent sales along the path to automation. They are not themselves part of the automated boning room so I will not discuss these semi-manual tools further in this post.
Once it goes through the primal cutter, then 3-5 could operate in parallel.
The robots are great for consistency of product and getting correct yields, especially the primal cutter.
Still need a reasonably number of staff - but there is automation/machinery out there already to reduce labour that these machines can work in with - ie boneless loin plough and a water 'Frenching' machine.
Beef would be the real prize - lamb is largely restricted to NZ and Australia.
-
Quote:
Originally Posted by
BlackPeter
Not so sure ... I guess they are an interesting company doing stuff engineers like. I can sympathise.
And while they do have some sort of niche in meat processing - nothing they do is unique. Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.
I think you are underselling the ever growing line of patents that Scott have filed since entering the meat carcass processing robotics BP. If we go back to the November 2015 presentation when Scott's were busy selling shareholders on the tie up with JBS, look at pages 22 to 24.
"Scott's patent portfolio has increased fourfold (from 7 to 35) over the last six years. More than 20 patent applications are pending."
"23 patents have been secured across different processes and in different geographical regions."
The patent(s) granted in NZ in 2009 for 'Bone in Processing" (via three individual patents) were 'patent pending' in the US, China , Mexico, Canada, Australia and Brazil in 2015. This particular 'patent set', Scott expects will provide comprehensive protection for the automation process in the most important global markets going forwards.
While you are right BP in that there are other engineering companies that can do this work, in practice when one tried in Europe a few years ago they were issued with a cease and desist notice by Scott's which was honoured. I don't think you will see Scott's go soft on any outfit that infringes their patents! Scott's have a strong moat in the meat processing automation market.
SNOOPY
-
Great summary Snoopy, it definitely gives me confidence in Scott Tech in the long term. I don't get it though. Everything seems really promising as far as potential growth for this company. They have strong revenue and profit growth, albeit slightly weaker EPS growth (so far anyway), yet the share price has dropped more than $1.5 over the past year (50c in the past 2 weeks). That is an FBU type disaster but yet there is no apparent major issues at scott tech as far as we know. Anyone have an thoughts to explain the weak share price? Is it just the weak EPS grwoth + market conditions favouring high yield, larger companies vs smaller growth companies right now?
-
Quote:
Originally Posted by
Snoopy
I think you are underselling the ever growing line of patents that Scott have filed since entering the meat carcass processing robotics BP. If we go back to the November 2015 presentation when Scott's were busy selling shareholders on the tie up with JBS, look at pages 22 to 24.
"Scott's patent portfolio has increased fourfold (from 7 to 35) over the last six years. More than 20 patent applications are pending."
"23 patents have been secured across different processes and in different geographical regions."
The patent(s) granted in NZ in 2009 for 'Bone in Processing" (via three individual patents) were 'patent pending' in the US, China , Mexico, Canada, Australia and Brazil in 2015. This particular 'patent set', Scott expects will provide comprehensive protection for the automation process in the most important global markets going forwards.
While you are right BP in that there are other engineering companies that can do this work, in practice when one tried in Europe a few years ago they were issued with a cease and desist notice by Scott's which was honoured. I don't think you will see Scott's go soft on any outfit that infringes their patents! Scott's have a strong moat in the meat processing automation market.
SNOOPY
Not sure the sheer number of patents would impress me ... one relevant patent is much more important than hundreds of non-relevant; However - I must admit, I have not analysed their patents, i.e. you might be right and they might have a moat through them. Did anybody do the analysis?
-
Quote:
Originally Posted by
sanctus671
Great summary Snoopy, it definitely gives me confidence in Scott Tech in the long term. I don't get it though. Everything seems really promising as far as potential growth for this company. They have strong revenue and profit growth, albeit slightly weaker EPS growth (so far anyway), yet the share price has dropped more than $1.5 over the past year (50c in the past 2 weeks). That is an FBU type disaster but yet there is no apparent major issues at scott tech as far as we know. Anyone have an thoughts to explain the weak share price? Is it just the weak EPS grwoth + market conditions favouring high yield, larger companies vs smaller growth companies right now?
Scotts average EPS since 2012 is 13 cents per share. Last years EPS was 13 cents per share. Where exactly do you see the (slightly weaker) growth? Must be the impact of the endowment effect?
Markets still pays a nice premium given a PE of 16.5 for a non growth company. What premium do you think they should pay?
-
Quote:
Originally Posted by
BlackPeter
Scotts average EPS since 2012 is 13 cents per share. Last years EPS was 13 cents per share. Where exactly do you see the (slightly weaker) growth? Must be the impact of the endowment effect?
Markets still pays a nice premium given a PE of 16.5 for a non growth company. What premium do you think they should pay?
EPS figures over the years I pulled from Scott Tech's annual reports:
2009:1.1
2010:8.5
2011: 16.6
2012:16.7
2013:13.6
2014: 6.2
2015:13.8
2016:13.3
2017:13.2
2018: 14.3
2019: For first half of year is 6.6, last year it was 4.2 for first half of the year
Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.
You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.
Also, my point with my post is about how the share price has decreased so dramatically. I understand how you personally don't value Scott Tech's current share price, but I'm referring to the huge 40+% downtrend that has seemingly not been triggered by any major event within the company.
-
Quote:
Originally Posted by
BlackPeter
Not sure the sheer number of patents would impress me ... one relevant patent is much more important than hundreds of non-relevant; However - I must admit, I have not analysed their patents, i.e. you might be right and they might have a moat through them. Did anybody do the analysis?
The idea of 'three key patents' defining 'a moat' that will make it difficult for other companies internationally to move on the robotization of meat processing in the way that Scott Technology has is not mine, I have copied this straight from p24 of the joint Scott & JBS presentation dated November 2015. This was the nationwide presentation taken around the country just prior to the approval of the JBS buy in. I haven't independently analysed these patents myself and am probably not qualified to make such a judgement on them in any case . But I have no reason to believe that Scortt's, with their 16 years in the meat automation business to that point, would make such a claim up.
SNOOPY
-
The JBS Agenda
Quote:
Originally Posted by
BlackPeter
.
Ah yes - and we don't know the agenda of the majority shareholder (meat processor JBS) which without doubt will guide the management team. I don't think that increased earnings would be their highest priority.
For those who came in late.....
Actually we do know the JBS agenda as it was fully disclosed at takeover time in November 2015. From p6 of the Northington report on the takeover proposal:
"We understand that JBS is attracted to Scott because of the potential to apply Scott's technology throughout its global operations., providing the potential to deliver higher efficiency, higher yields and productivity gains."
"In theory Scotts could provide its service to JBS under the existing ownership structure., without JBS taking an ownership position in the company. However Scott will be in a far stronger position to take advantage of opportunities if it is well capitalised and has the financial resources to scale operations as required."
Quote:
Originally Posted by
Jerry
Things have really gone south since one year ago. It would be a much cheaper buy-out today for JBS if that was the overall plan. I feel like a minnow (or a mushroom) in this game.
JBS want control so that they can consolidate SCT within their own company accounts A buy out is not on the agenda, or at least it wasn't in 2015. JBS gained control by buying 51% of the company for $1.39 per share. So even at $2 -from a JBS perspective, SCT doesn't look cheap.
Quote:
Originally Posted by
Snoopy
I am going to say that one and one half of these 11 plants are now robotised, leaving 9.5 to go. A full robotised installation today (X-ray Primal & Grading, Middle, Forequarter and Hindquarter) will cost the customer (like JBS) $12m to $13m. Scott gives a 'payback guarantee' of 18 months. This payback is achieved via improved yield, because robotized cutting is more precise, and results in less waste that a 'human knife wielder'. Gains in productivity (because robots don't get tired) and fewer accidents (robots don't sue) are a bonus. JBS hasn't done enough trialling yet to know if the 18 month (1.5 year) payback will be achieved. But based on past experiece from other installations, I am guessing it will be.
So: 9.5 (no. installations in Oz to do) x $12.5m (average cost) = $120m that JBS will ultimately spend.
Annnual payback with everything up and running will be:
$120m /1.5 = $80m
JBS have indicated they will not be paying 'mates rates' for their installations, even if they become controlling shareholders of SCT (Do I believe that? I'll take the claim at face value for now).
So: Outlay $120m (a one off).
Savings over ten years $80m x 10= $800m
Net gain: $800m-$120m = $680m
Amount laid out to 'get to the top of the customer list' : $15.4m to $50.4m (depending whether 80% or 20% of share holders accept Scheme of Arrangement).
Worst realistic case return for JBS over 10 years (calculation slightly quick and dirty, because not all installations will be installed at year one, but then again neither will all the outlay be paid in year one- but still indicative) :
$50.4m(1+r)^10= $680m
r=29.7% compounding!
This is simply a staggering return on investment. No wonder JBS Australia are keen to seek a controlling position in SCT at what, in investment terms, is an incredible bargain basement price.
Above is my analysis from 2015. Admittedly I can now see some flaws in it. But if the idea is to save $680m in costs for JBS over ten years, then the JBS share of the Scott's profit over ten years is puny by comparison - in the vicinity of $70m perhaps. For JBS it is Scotts rolling out the robotics to their plants that matters. The actual profitability of Scott Technology on the way effectively makes no difference to JBS's overall investment objective.
SNOOPY
-
Quote:
Originally Posted by
Snoopy
JBS Australia Meat Processing Plants |
Location |
Plant |
Animals Processed |
Output Capacity per day |
Scott Robotics Installed? |
Queensland |
Dinmore |
Cattle |
3400 |
Yes (pre EOFY2015) |
Queensland |
Beef City (Toowoomba) |
Cattle (grain fed) |
1134 |
Yes (pre EOFY2015) |
Queensland |
Rockhampton |
Cattle (grass fed) |
1400 |
Queensland |
Townsville |
Cattle (grass fed) |
1800 |
New South Wales |
Riverina |
Cattle (grain fed) |
600 |
New South Wales |
Scone |
Cattle (grass fed) |
650 |
Victoria |
Brooklyn |
Cattle |
1400 |
|
|
and 'Small Stock' |
8200 |
Victoria |
Cobram |
Lambs |
3200 |
South Australia |
Bordertown |
'Small Stock' |
5000 |
Yes (pre EOFY2015) |
Tasmania |
Devonport |
Cattle (grass and grain fed) |
28 |
|
|
and Pigs |
85 |
|
|
and Lambs |
540 |
Tasmania |
Longford |
Cattle |
450 |
|
|
and 'Small Stock' |
1600 |
Quote:
Originally Posted by
Snoopy
Actually we do know the JBS agenda as it was fully disclosed at takeover time in November 2015. From p6 of the Northington report on the takeover proposal:
"We understand that JBS is attracted to Scott because of the potential to apply Scott's technology throughout its global operations., providing the potential to deliver higher efficiency, higher yields and productivity gains."
<snip>
Above is my analysis from 2015. Admittedly I can now see some flaws in it.
What is wrong with my 2015 analysis? If you expect the benefit of a fully automated beef boning room to be in place in the near future then nothing. However, as of right now, only the lamb plants can benefit from full automation. It would also appear that the Devonport plant in Tasmania is a boutique plant that probably wouldn't benefit from full automation.
With the capacity to process up to 8,000 small animals carcasses per day (equivalent to 4000 cattle), it looks like even the largest meatworks in Australia (like Dinmore) can be satisfied with one automatic boning room operation. The potential for further lamb processing operation installations would seem to be restricted to Cobram Victoria.
Breaking down the revenues involved in installing such automation could result in a bill something like this
1/ X-ray Grading ($3m)
2/ X-ray Primal Cutter ($12m)
3/ Middle Machine (prepares rack and loin) ($12m)
4/ Hindquarter leg de-boner ($8m)
5/ Forequarter Processing ($8m)
6/ Knuckle Tipper (removes knuckle top from hind leg) ($6m).
That represents a total outlay for JBS Australia of around $49m for a fully automated lamb boning room at Cobram.
For the beef processing plants, of which there are six not using meat slicing robotics yet, there are two potential machines to install at each site.
1/ the "Beef Rib Cutter / Scorcher" ($8m)
2/ the "Beef Hock Cutter" ($8m)
This represents a total outlay for JBS Australia beef processing of 6 x $16m = $96m
Installations already made for JBS show an 18 month (1.5 year) payback period is realistic. So potential incremental net savings for JBS Australia over a ten year period add up to:
10 x ( $49m + $96m) / 1.5 = $966m
Take away the installation costs and you get a net gain of: $966m - ($49m+$96m) = $821m, or over $80m per year. Not a bad incentive to keep everything on track from a JBS perspective!
SNOOPY
-
Quote:
Originally Posted by
Snoopy
...
The actual profitability of Scott Technology on the way effectively makes no difference to JBS's overall investment objective.
SNOOPY
This is exactly what I meant. Great investment for JBS, but minority shareholders have the problem that their interests (a reasonable capital return either as dividends or as capital growth) is not high on the priority list of the majority shareholder. Explains why the SP is dropping.
-
Quote:
Originally Posted by
sanctus671
EPS figures over the years I pulled from Scott Tech's annual reports:
2009:1.1
2010:8.5
2011: 16.6
2012:16.7
2013:13.6
2014: 6.2
2015:13.8
2016:13.3
2017:13.2
2018: 14.3
2019: For first half of year is 6.6, last year it was 4.2 for first half of the year
Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.
You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.
Also, my point with my post is about how the share price has decreased so dramatically. I understand how you personally don't value Scott Tech's current share price, but I'm referring to the huge 40+% downtrend that has seemingly not been triggered by any major event within the company.
Fair enough. My spreadsheet does not go that far back - and I guess with earnings growth it is similar as with share price trends - if you want to make a point you nearly always find a time window to support it. Remove in your list the first two years - and you can clearly see that EPS is actually dropping :p;
One other thing to consider with SCT is that their typical business is very "lumpy". They don't produce high numbers of comparable products which consumers buy evenly spread across the year, but their typical projects are worth millions or tens of millions of dollars, every project is different often unique and they often take more than a year to completion. This means one individual years EPS (whether it is higher or lower than the average) is quite meaningless and might just be due to them finishing (and billing) a large project at the end of one or in the beginning of the next FY. What does count is the long term average and the long term trend.
Makes it obviously a bit harder to see a trend change ...
Ah yes - and how can they have significant revenue growth without earnings growth? Possible explanations would be:
1) They buy growth (by increasing the capital and the number of shares) or
2) Their margins reduce or
3) some of their projects went pear shaped and needed additional money to secure (which is a subset of 2 - taking additional earnings to secure revenue);
I suspect in Scotts case at least 1 and 3 will apply. JBS made a capital injection - didn't they ... and there is obviously the DRP. Last AGM they talked about some projects which took longer and did cost more than planned .... Not sure about generic margins in the industry.
Obviously - they might as well invest earnings into future growth ... and I am sure management would argue that this is what they do (and it well might be true).
-
Quote:
Originally Posted by
Snoopy
What is wrong with my 2015 analysis? If you expect the benefit of a fully automated beef boning room to be in place in the near future then nothing. However, as of right now, only the lamb plants can benefit from full automation. It would also appear that the Devonport plant in Tasmania is a boutique plant that probably wouldn't benefit from full automation.
With the capacity to process up to 8,000 small animals carcasses per day (equivalent to 4000 cattle), it looks like even the largest meatworks in Australia (like Dinmore) can be satisfied with one automatic boning room operation. The potential for further lamb processing operation installations would seem to be restricted to Cobram Victoria.
Breaking down the revenues involved in installing such automation could result in a bill something like this
1/ X-ray Grading ($3m)
2/ X-ray Primal Cutter ($12m)
3/ Middle Machine (prepares rack and loin) ($12m)
4/ Hindquarter leg de-boner ($8m)
5/ Forequarter Processing ($8m)
6/ Knuckle Tipper (removes knuckle top from hind leg) ($6m).
That represents a total outlay for JBS Australia of around $49m for a fully automated lamb boning room at Cobram.
For the beef processing plants, of which there are six not using meat slicing robotics yet, there are two potential machines to install at each site.
1/ the "Beef Rib Cutter / Scorcher" ($8m)
2/ the "Beef Hock Cutter" ($8m)
This represents a total outlay for JBS Australia beef processing of 6 x $16m = $96m
Installations already made for JBS show an 18 month (1.5 year) payback period is realistic. So potential incremental net savings for JBS Australia over a ten year period add up to:
10 x ( $49m + $96m) / 1.5 = $966m
Take away the installation costs and you get a net gain of: $966m - ($49m+$96m) = $821m, or over $80m per year. Not a bad incentive to keep everything on track from a JBS perspective!
SNOOPY
To Add...
They do have customers in the pork and chicken space - apparently the EU/USA gear has issues with the variability in carcass sizes that you get in this part of the world (particuarly free-range reared).
I've been advised all but one (I suspect AFFCO) of the majors in NZ have at least 1x install. Their backstop strategy for customers who claim higher effiencies or dont have the volume to justify the larger gear is to sell the 'bladestop' bandsaws on purely an H&S perspective.
Apparently some of their patents are already being flouted by manufacturers in the EU, patents are only there to line the pockets of IP lawyers IMHO.
-
Quote:
Originally Posted by
kiwidollabill
Apparently some of their patents are already being flouted by manufacturers in the EU, patents are only there to line the pockets of IP lawyers IMHO.
By 'flouted' do you mean 'blatantly copied' ? Or do you mean the patent has been successfully designed around?
I have heard it said that a patent is a very expensive way to put your ideas in the public domain so that those with deeper pockets than you can copy those ideas in a way such that it becomes cost prohibitive for you to sue them. For many, putting their 'great idea' behind a new recognizable 'brand' and relying on trademark protection going forwards is a better way to go.
The above might be true for an individual. But companies can afford lawyers. So the fear of 'Scott Technology' 'breathing down a competitors neck' probably has more deterrent value than saying 'Mr A Arnold from Dunedin' half-way-around-the-world might sue you.
Of course such conflicts do not necessarily end in 'cease and desist' battles. Scott's may be amenable to licensing their technologies at a modest charge. IIRC one of the Scott joint venture companies that held one of these patents received a royalty of 10c per carcass processed. It might be well worth someone interested in exploiting one of the patents to pay that as the improvement in meat yield would no doubt be well north of 10c per carcass in value.
SNOOPY
-
Quote:
Originally Posted by
Snoopy
,
The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry.
'The Real Pet Food Company' has bought three new Scott 'Baldestop' bandsaws in 2017 (two in NZ and one in Australia) for $NZ89,000 each. One replaced a three month old bandsaw that cost $NZ25,000.
This is a good example of a customer willing to pay top dollar to obtain a safer working environment. The replacements were the response to a staff member losing the tip of a finger while using the old equipment.
SNOOPY
-
Quote:
Originally Posted by
Snoopy
By 'flouted' do you mean 'blatantly copied' ? Or do you mean the patent has been successfully designed around?
I have heard it said that a patent is a very expensive way to put your ideas in the public domain so that those with deeper pockets than you can copy those ideas in a way such that it becomes cost prohibitive for you to sue them. For many, putting their 'great idea' behind a new recognizable 'brand' and relying on trademark protection going forwards is a better way to go.
The above might be true for an individual. But companies can afford lawyers. So the fear of 'Scott Technology' 'breathing down a competitors neck' probably has more deterrent value than saying 'Mr A Arnold from Dunedin' half-way-around-the-world might sue you.
Of course such conflicts do not necessarily end in 'cease and desist' battles. Scott's may be amenable to licensing their technologies at a modest charge. IIRC one of the Scott joint venture companies that held one of these patents received a royalty of 10c per carcass processed. It might be well worth someone interested in exploiting one of the patents to pay that as the improvement in meat yield would no doubt be well north of 10c per carcass in value.
SNOOPY
Blatently copied....
-
Quote:
Originally Posted by
sanctus671
Great summary Snoopy, it definitely gives me confidence in Scott Tech in the long term. I don't get it though. Everything seems really promising as far as potential growth for this company. They have strong revenue and profit growth, albeit slightly weaker EPS growth (so far anyway), yet the share price has dropped more than $1.5 over the past year (50c in the past 2 weeks). That is an FBU type disaster but yet there is no apparent major issues at scott tech as far as we know. Anyone have an thoughts to explain the weak share price? Is it just the weak EPS grwoth + market conditions favouring high yield, larger companies vs smaller growth companies right now?
Sanctus, you ask a very poignant question. i think part of the answer is because Scott's business is so heavily weighted into overseas markets, some of the issues affecting Scotts are not reported here. After a fair bit of internet trawling, I believe I have found at least a partial answer to your question.
1/ Delayed Roll Out of DEXA in Australia
DEXA (Dual-Energy X-ray Absorptiometry) is an X-ray system that has found a use within the meat industry to estimate the yield of an animal carcass. DEXA technology is used by Scotts as a potential first key to unlocking a full automatic boning room project. At one stage, an industry lead internal roll out to every Australian red meat abattoir site looked on the cards.
An industry time line of what has happened, as regards the DEXA roll out, is here:
https://www.beefcentral.com/processi...line-of-events
Meat and Livestock Australia (MLA) got very keen on DEXA in November 2016, recommending a fast roll out to all industry members. They made plans to borrow $150m to fast track rolling out DEXA equipment to 90 abattoirs in Australia. However after an Ernst & Young review, by May 2017 a materially smaller $10m roll out at just four plants (three lamb and one beef) was commenced. A smaller trial program was deemed prudent because DEXA is unproven in beef in a commercial setting. And beef is by far the largest meat processing market in Australia. Ernst & Young were in favour of a three year delay in initiating a wider roll out, meaning industry players are having to largely fund their own installations for now. The estimated cost of buying and installing each unit outlined in MLA’s initial funding proposal is $1.45 million per unit ($1m for smaller units for sheep and goat plants, $2m for larger units for cattle plants). Notwithstanding these costs do not include other likely, and potentially considerable, expenditure such as plant modifications that may be needed to accommodate a DEXA unit. For some plants these costs will be substantial, in particular older plants that are already cramped for space. Future industry development funding has now switched away from the $150m loan proposal to implementing an industry levy. But no coherent plan had been signed off by March 2019. As a result, all such developments are still plant owner funded, with some government R&D assistance.
The whole evaluation process seems to have been caught up in a wider Australian Senate Report on "The effect of market consolidation on the red meat processing sector". This was finally published in September 2017. The slower any trial, the further down the track benefits of Scott's being able to build on the DEXA technology are pushed. A July 2018 report highlights slow progress
https://www.beefcentral.com/processi...ield-analysis/
If alternative scanning technology, the European E+V whole carcase yield camera, ends up preferred, this does not integrate with Scott's add on robotic systems. That could deal a serious blow to Scott's being able to transfer their lamb boning knowledge into the beef industry.
As a current window on industry progress, there was a March 19 2019 announcement: Three new lamb installations will include one unit in Western Australia, a second unit in Victoria and one in NSW. Company identities have not yet been disclosed. All will be retro-fitted into existing lamb plants, and some are expected to be linked to robotic lamb carcass cutting systems (the robotic bits presumably made by Scotts).
2/ Underperformance from Alvey in Europe
We don't hear much about it, but the size of Scott's business in Europe (made up of mainly Alvey) now matches, in staff numbers at least, those working in Australasia. This means the performance of the European business has a large effect on how the Scott's group as a whole is traveling. My post 717 provides evidence that Alvey's contribution since acquisition by Scotts in FY2018, as reported in AR2018, has deteriorated. Europe is having a difficult time, what with trade wars with Trump and uncertainty caused by Brexit. This could very well be the cause of a continuing significant decline in palletising, conveying and warehouse automation solutions, specialised in by Alvey, being bought and sold within Europe. The only comment in the Scott half year report letter in March, regarding Europe, was that Alvey was being integrated with Scott's German division. There was no market comment on Europe, although in the same paragraph it was noted that Transbotics in the United States was providing a good growth platform. Reading between the lines: Europe in the doldrums; No growth to speak of?
SNOOPY
-
The 'brand reach' of Alvey
Quote:
Originally Posted by
Snoopy
2/ Underperformance from Alvey in Europe
We don't hear much about it, but the size of Scott's business in Europe (made up of mainly Alvey) now matches, in staff numbers at least, those working in Australasia. This means the performance of the European business has a large effect on how the Scott's group as a whole is traveling.
I am finding it difficult to get a feel for the reach of Alvey. To assist with this, I have been perusing the Alvey website ( www.alvey.eu ) and have produced some 'summary information' for the brands they are palletising, conveying and warehousing.
Frozen Vegetables (Multi-line palletisation)
Ardo Dujardin, McCain, Bergia Frites, Mydibel, Clarebout, Pasfrost, Farm Frites, Pinguin, Lamb Weston Meijer
Potato Snacks (Multi-line palletisation) Gentle handling a key requirement
Lamb Weston Meijer, PepsiCo, Roger & Roger, Veurne Snack Foods
Dairy Products ('An absolutely key market segment' Work in all geographical markets with an Alvey presence. Challenge: open trays with delicate products.)
Danone, Maitres Laitiers du Cotentin, NOM UK, Yoplait, Friesland Campina, MilkLink, Olma, Fromagerie Bel, Molkerei, Alois Müller, Royal A-ware, Glanbia Müller UK, Savencia Fromage & Dairy
Ice Cream (Special expertise for low temperatures)
Haagen Dasz, Rosen Eiscream, SGS Frigicrème, Thiriet
Drinks (high capacity packing lines)
Coca Cola, Chaudfontaine, Emig, Korunní, Kuracjusz
Beer (Crates and Kegs, strong in Czech Republic)
Budweiser Budvar, Litovel,, Carlsberg, Pilsner Urquell, Heineken, Guinness
Coffee (Operate in largest coffee factory in Europe)
Douwe Egberts, Kraft Foods, La Maison du Café
Bakery & Flour Products (palletise 1kg packs, use robots for larger bags)
Brioche Pasquier, Panavi, Chateau Blanc, Penam, Délifrance, Puratos, Harrys, Vandemoortele
Poultry (client one of world's biggest poultry suppliers)
LDC, SNV
Feminine and Baby and Incontinence Paper Hygiene Products
Essity Germany, Essity Netherlands, Essity Poland, Essity Russia
Home Detergents
McBride, Procter & Gamble, Vandeputte
Cosmetics (few customers)
Clarins, Gols Mediterranée
Hospital Laundry System (France only, Sorting and picking linen for departments)
Assistance Publique Hôpitaux de Marseille, Centre hospitalier de Lagny, CHU De Reims, SIH Caudan, Assistance Publique Hôpitaux de Paris, Hôpitaux de Toulouse, Jensen, CHU Clermont FerrandColruyt
Automotive (includes 'Maestro' software for 'just in time' delivery)
Deldo, Doyen Auto, MC Syncro, Volvo
General Manufacturing
Autajon, Sagem, Eternit, SEW, Isover, Schneider, Knauf, PGB
Alcyon, Durand Production, Saunier, Altadis, EPC Newspapers, Schulman Plastics, Bio c´Bon, Monsanto, Synerlab, Daikin, Nestlé Purina, Vandeputte, De La Ballina, Philip Morris, Western Newspapers
Logistics |
(including pioneered drive by collection of internet ordered retail goods) |
Atlas Copco, Eandis, Geodis, SB Logistics, bpost ,Eriks, Nationale Loterij Belgium, Spicers, CL Group, Euroterminal. Oesterbank, Spie, CNH, Fournial, Paul Boyé, Velleman, Colart, Franky Vleeswaren, PGB, Vergeer Kaas
Colruyt, Morrisons, Darty, Ubaldi, Décathlon. Delhaize. Leclerc
SNOOPY
-
'Normaclass Acquisition': Now I get it!
Quote:
Originally Posted by
Snoopy
If alternative scanning technology, the European E+V whole carcase yield camera, ends up preferred, this does not integrate with Scott's add on robotic systems. That could deal a serious blow to Scott's being able to transfer their lamb boning knowledge into the beef industry.
A couple of excerpts from the 24th April 2019 letter to the stock exchange outlining the arrival of this newest member of the Scott family.
"Normaclass is the leading provider of a grading technique to meat processors in both France and Uruguay. The system uses digital cameras to collect data and measurements of each carcass (while in motion on the production line) which is then analysed by software in real-time to determine a carcass classification. This classification, in conjunction with carcass weight and market prices, determines the carcass price paid to the farmer."
"Normaclass will also provide SCOTT with a complementary technology to DEXA for those customers who simply want an objective carcass grading tool."
Effectively 'Normaclass' allows Scott to have a 'bet each way' with meat industry players, if DEXA 'doesn't cut it' as a grading tool for the beef industry. Yet if both systems work for grading, would an abattoir that has just installed a 'Normaclass' system (cheaper than DEXA because there is no requirement for shielding to isolate the X-rays as used in DEXA), then proceed to order a fully automated meat room? Perhaps not, which means that each 'Normaclass' sale represents 'business lost' to that fine automation team in Scott's Dunedin base.
'Normaclass' profits supposedly equate to 1-2% of Scott group profits before the acquisition. Group NPAT for FY2018 was $10.772m. So 'Normaclass' profits must be $0.107m to $0.215m. If we work on EBITDA of $19.305m, then ongoing Normaclass EBITDA is about $0.193m -$0.386m.
The initial payment for 'Normaclass' was 1.1m euro. On the 30th May 2019 settlement date $NZ1 = 58.5 euro, This means the $NZ purchase price was: 1.1 / 0.585 = $NZ1.88m. The purchase price equates to an EBITDA margin of:
($0.107m - $0.215m) / $1.88m = 5.7% to 11.4%
SNOOPY
-
Strange price jumps (big) today on low volume, interesting if something's up as with tightly held stocks either way up or down.
-
Strange, I can't find their 2019 half-year report on the SCT web site. Am I blind, or has anyone here an obvious explanation before I write them?
MVA
-
Go to www.stocknessmonster.com
type in SCT
then news
scroll down and you will find it.
Can also bring up previous year's news.
It's a free service.
-
Quote:
Originally Posted by
emveha
Strange, I can't find their 2019 half-year report on the SCT web site. Am I blind, or has anyone here an obvious explanation before I write them?
MVA
Hi emveha,
You won't find the half year report for Scott's for FY2019 because it doesn't exist! It is all due to the new stock exchange rules that the NZX listed companies are gradually adopting which does away with the requirement to produce a half year report. Of course when shareholders vote to adopt these new rules, no mention is made of the half year report being dropped. We are sold all the streamlining benefits of bringing reporting into the modern age and reducing compliance costs blah blah blah.
We now have to make do with a rather less informative 'half year announcement' which is no longer sent to shareholders. You can find the half year announcement for HY2019 here:
https://www.scottautomation.com/asse...nouncement.pdf
This dropping of half year reports doesn't apply to just Scott Technology. You will quite soon find no more half year reports will be issued for any NZX company. A retrograde step in my view.
SNOOPY
P.S. I note you are based in London, and that Scott's, through their acquisition of Alvey, have greatly increased their presence in Europe. Have you noticed an increased profile for Scott's in Europe that has piqued your interest as an investor?
-
Quote:
Originally Posted by
emveha
Strange, I can't find their 2019 half-year report on the SCT web site. Am I blind, or has anyone here an obvious explanation before I write them?
MVA
I can’t see it on the website either.
-
Thank you Snoopy, I didn't know about that aspect in the change of rules and I agree that's a step backwards. I guess all the same information is in the HY Announcement + HY financial statement, but without the convenience of a single document.
To answer your question, even though I am based in London, I am a Kiwi at heart and my investments are very much NZX-based. That's how I came to Scott.
-
Quote:
Originally Posted by
emveha
Thank you Snoopy, I didn't know about that aspect in the change of rules and I agree that's a step backwards. I guess all the same information is in the HY Announcement + HY financial statement, but without the convenience of a single document.
To answer your question, even though I am based in London, I am a Kiwi at heart and my investments are very much NZX-based. That's how I came to Scott.
I am through London a lot....Gulf based though...if you ever want to chat about NZ shares (and Scott), do let me know.
-
Quote:
Originally Posted by
emveha
Thank you Snoopy, I didn't know about that aspect in the change of rules and I agree that's a step backwards. I guess all the same information is in the HY Announcement + HY financial statement, but without the convenience of a single document.
To answer your question, even though I am based in London, I am a Kiwi at heart and my investments are very much NZX-based. That's how I came to Scott.
Quote:
Originally Posted by
BeeBop
I am through London a lot....Gulf based though...if you ever want to chat about NZ shares (and Scott), do let me know.
Emveha and Beebop. I hereby bestow the honour on you both of 'honourary roving hound' with the mission of sniffing out whatever Scott/Alvey is doing in the northern hemisphere. I have to admit to feeling a bit disconnected now that nearly half of Scott's business is European based. The press releases on what was the Alvey website have slowed to a trickle. There wasn't exactly much detail in the Scott's half year 2019 non-report nzx letter either.
The overall impression I have is that the justification for the Alvey purchase is to provide a packaging and final distribution add on to the 'automated boning room' concept. Robots from go to whoa. However, at least in New Zealand, there was a previous loose synergistic arrangement with 'Millers Mechanical', also Dunedin based, to do this. I imagine this relationship is still intact as Scott's have taken over the international spare parts arm of Millers. How Millers will fit in with the Alvey operation going forwards, I am not sure. I wonder how many Alvey production finishing lines will find their way into the JBS Australia Meat Processing sites over the next few years? And on that last thought, given what I see as doubtful synergies and the apparently positive reputation of Alvey, I wonder if the northern hemisphere rebranding of 'Alvey' to 'Scott' really makes sense?
SNOOPY
-
Quote:
Originally Posted by
Snoopy
Emveha and Beebop. I hereby bestow the honour on you both of 'honourary roving hound' with the mission of sniffing out whatever Scott/Alvey is doing in the northern hemisphere. I have to admit to feeling a bit disconnected now that nearly half of Scott's business is European based. The press releases on what was the Alvey website have slowed to a trickle. There wasn't exactly much detail in the Scott's half year 2019 non-report nzx letter either.
The overall impression I have is that the justification for the Alvey purchase is to provide a packaging and final distribution add on to the 'automated boning room' concept. Robots from go to whoa. However, at least in New Zealand, there was a previous loose synergistic arrangement with 'Millers Mechanical', also Dunedin based, to do this. I imagine this relationship is still intact as Scott's have taken over the international spare parts arm of Millers. How Millers will fit in with the Alvey operation going forwards, I am not sure. I wonder how many Alvey production finishing lines will find their way into the JBS Australia Meat Processing sites over the next few years? And on that last thought, given what I see as doubtful synergies and the apparently positive reputation of Alvey, I wonder if the northern hemisphere rebranding of 'Alvey' to 'Scott' really makes sense?
SNOOPY
You do realise that Millers Mechanical (Milmeq) went into liquidation last year....?
https://www.odt.co.nz/news/dunedin/d...e-cost-40-jobs
-
Quote:
Originally Posted by
kiwidollabill
'Ouch', I didn't know that. When I saw that Scott's had taken over the "Milmeq Spares and Sundries Meat Slaughter Business" in January 2019, I thought it was just a logistical move to combine 'export resources' with Scott's who have been 'beefing up their beachheads' overseas. I had no idea that Milmeq itself had gone under. Quoting from that article
-----
Milmeq custom-designs, engineers and manufactures systems for primary food processing, materials handling, chilling and freezing within the protein industry.
Mr Marshall (board chairman) said ''world markets have been challenging'' for the past 12 to 18 months with inter-company consolidations, Australia's drought and the uncertainty surrounding the US-China trade tariff war.
''Companies are just not making reinvestment decisions at the moment.''
-----
No new business on the horizon, nada, none. Yet two years previously Milmeq were finalists in three categories in the Otago Chamber of Commerce business awards. What a fall from grace.
If the business had been for sale for six months before the plug was pulled, you would have thought that some one at Scott's would have known about it. And they chose not to buy it. Now the acquisition of Alvey by Scott's makes more sense, to fill this hole.
SNOOPY
-
I can't find the result date in the announcements but it should be soon. We'll see how well (or poorly) the European branch is doing then.
-
Quote:
Originally Posted by
emveha
I can't find the result date in the announcements but it should be soon. We'll see how well (or poorly) the European branch is doing then.
I would expect it towards the end of this week. Last year was around this time but might be +- a week.
-
Quote:
Originally Posted by
emveha
I can't find the result date in the announcements but it should be soon. We'll see how well (or poorly) the European branch is doing then.
Result out and it is a bad one. A result so shameful, Scott's management couldn't even bring themselves to tell us what the net profit after tax was in their NZX announcement! The headline figure emphasised was the 4% increase in EBITDA. But that includes a $4m increase as a result of the adoption of new NZ IFRS rules. Take that away and EBITDA year to year is well down:
($20m -$4m) / $19.3m = 82%
So underlying EBITDA is down by 18%, and the increased depreciation and interest charges will mean NPAT has plunged by rather more than that. And the increase in shares as a result of the DRP will mean that the 'eps' decline will be even larger than the NPAT decline. Final dividend down from 6cps (fully imputed) to 4cps (not fully imputed). Yet revenue has increased which means the actual profit margin has come crashing down as well. Not impressed.
SNOOPY
-
Its all about innovation and growth Snoops
Future is bright
Financials irrelevant ......to them
Got to be careful with what companies say these days about their profits ...Allied a bit loose with reality yesterday is a good example
-
Took a lot of time trying to find the Net Profit after tax.
No wonder..!
-
No surprises here. Sexy technology for the engineers but little money returned to investors.
Nice revenue growth as usual: long term (7 years) revenue CAGR =19.7 and consistent earnings drop: long term earnings CAGR negative 5 percent. Just wondering where this will end?
But yes, they are obviously just investing for a much brighter future, which may or may not come.
Who knows - maybe they become one day the Tesla of meat processing ... and only the sky is the limit? Shareholders just need to make sure they don't miss the peak ;);
-
Shane Jones believes the story!
Quote:
Originally Posted by
BlackPeter
No surprises here. Sexy technology for the engineers but little money returned to investors.
Nice revenue growth as usual: long term (7 years) revenue CAGR =19.7 and consistent earnings drop: long term earnings CAGR negative 5 percent. Just wondering where this will end?
But yes, they are obviously just investing for a much brighter future, which may or may not come.
Who knows - maybe they become one day the Tesla of meat processing ... and only the sky is the limit? Shareholders just need to make sure they don't miss the peak ;);
Part of today's Otago handout:
https://www.odt.co.nz/news/dunedin/2...lside-workshop
As Shane says:
"We are providing $5.8 million towards the establishment of a dedicated manufacturing agriculture technology business unit within Dunedin-based company Scott Technology."
"This unit will be dedicated to automation solutions and services for New Zealand food processors, producers and their suppliers.''
Scott's now a fully state subsidised business?
SNOOPY
-
Quote:
Originally Posted by
Snoopy
Part of today's Otago handout:
https://www.odt.co.nz/news/dunedin/2...lside-workshop
As Shane says:
"We are providing $5.8 million towards the establishment of a dedicated manufacturing agriculture technology business unit within Dunedin-based company Scott Technology."
"This unit will be dedicated to automation solutions and services for New Zealand food processors, producers and their suppliers.''
Scott's now a fully state subsidised business?
SNOOPY
Interesting. I used to work for some other NZ high tech company which managed to attract plenty of taxpayer funded subsidies. Can't really claim that that story ended very flash, but wish Scott all the best.
Just wondering - are there examples around for tax payer funded businesses which ended up really successful for shareholders?
-
A 5.8 M loan isn't exactly what I would called "fully state subsidised" or "tax payer funded".
-
Quote:
Originally Posted by
emveha
A 5.8 M loan isn't exactly what I would called "fully state subsidised" or "tax payer funded".
Of course is the loan tax payer funded. Or do you think Shane is paying out of his own pockets?
I didn't say "fully tax payer funded", didn't I? However, they are now receiving hand outs given by people with very limited business acumen and a political (vs. a business agenda) using other peoples money.
What possibly could go wrong?
-
Another director faux pas at Scotts
Quote:
Originally Posted by
Snoopy
Wow, I have never seen an announcement quite like this! Scott's battling to fulfill their legal obligations!
------------
INTERIM DIRECTOR APPOINTMENT & INDEPENDENCE DETERMINATION
Interim Director Appointment
The Board has appointed Mr John Thorman as a Director effective from 1 May 2018. The Board has determined that Mr John Thorman is an Independent Director.
Following the retirement of Mr Mark Waller, the Board commenced a search for a suitable replacement Independent Director with the appropriate skills and experience. To date the search has been unsuccessful and to ensure the Company complies with the requirements for independent and New Zealand based Directors, this interim appointment has been made.
-----------
The board has appointed a new director and gone on record as saying he is not up to the task! Extraordinary! I wonder if Mr Thorman will be adding 'incompetant interim director' to his resume?
After the above from 2018, I never thought there would be another director scandal at Scotts so soon. But read on.
Up for re-election this year is JBS representative Andre Nogueira. Nothing scandalous or unusual about that. Nogueira is the chief executive of JBS USA, the parent company of JBS Australia that holds the controlling stake in Scotts. This is great as it gives Scott's a direct line to the big boss in the US, and all the potential direct links to the meat processing industry in the USA: a very large pipeline of automation project potential. But having someone that high up in the hierarchy from so far away on the board means that he may not be able to attend all of Scott's board meetings, even if there were only six of them over FY2019. So it is fair enough to appoint an alternate director. JBS have done this by nominating John Berry, Head of Corporate and Regulatory affairs at JBS Australia as the alternate.
So how many board meetings did Andre Nogueira miss during the year? One, perhaps two? As AR2019 p16 shows, the actual answer is all of them! Nogueira never showed up at all, at any board meeting! How can we shareholders be asked to vote for a director that never showed up? I have been investing in sharemarkets for quite a while now, and I can honestly say I have never heard of a situation anything like this!
SNOOPY
-
Sorry I can't explain it better than this.
You have God on the board.
God's word is law.
God's man has God's backing,so his words are God's.
God's law must not be broken.
Should any director fail to keep God's law,then he will rot in hell.[ie he will not receive God's vote when up for re-election].
-
Quote:
Originally Posted by
percy
Sorry I can't explain it better than this.
You have God on the board.
God's word is law.
God's man has God's backing,so his words are God's.
God's law must not be broken.
Should any director fail to keep God's law,then he will rot in hell.[ie he will not receive God's vote when up for re-election].
So you are saying.. " Trust in God " ?.
-
Quote:
Originally Posted by
percy
Sorry I can't explain it better than this.
You have God on the board.
God's word is law.
God's man has God's backing,so his words are God's.
God's law must not be broken.
Should any director fail to keep God's law,then he will rot in hell.[ie he will not receive God's vote when up for re-election].
I get your point Percy, although the 'JBS Bible' has some interesting parables to relate:
https://www.thebureauinvestigates.co...over-the-world
I quote:
"When it comes to scandals, you can take your pick — during its rapid rise to become the world’s biggest meatpacker, JBS and its network of subsidiaries have been linked to allegations of high-level corruption, modern-day “slave labour” practices, illegal deforestation, animal welfare violations and major hygiene breaches."
I have a feeling this 'JBS god' you refer to Percy, might be batting for the other team? Whereas I don't expect JBS controlling shareholding to vote against him, that doesn't mean I can't!
SNOOPY
-
BT1 FY2019/ Top Three player in Chosen Market?
Quote:
Originally Posted by
Snoopy
Scott’s vision is to be ‘the global innovator in automation’. Type that phrase into Google and the company that comes out first is FANUC, formed in 1956. FANUC is listed on the Japanese stock exchange. FANUC is an acronym for Factory Automatic Numerical Control.
Judged as world leader by analyzing patent data and related metrics in a proprietary methodology (for comparison Scott’s have 17 patents), FANUC Corporation, is the world's most diversified manufacturer of CNC Systems, Robots, and Machine Tools,
The criteria used to evaluate innovation performance of companies that invent on a significant scale are:
1/ Work on developments that are acknowledged as innovative by others around the world (patent approval success rate, patent influence in literature citations and overall patent volume).
2/ Inventions that are globally protected due to their importance (global reach of patent portfolio).
Thomson Reuters, judge of the 2011 Top 100 Global Innovator methodology, used these criteria to reach their conclusion rating FANUC as number one.
FANUC's innovative technology has contributed to a worldwide manufacturing revolution, which evolved from the automation of a single machine to the automation of entire production lines. Today, FANUC has more than 600 engineers working in R&D to provide the most reliable, efficient and innovative CNC systems available - ensuring the very lowest Total Cost of Ownership.
With 50 years of experience and more than 2,200,000 CNCs and 220,000 robots installed worldwide, FANUC is the undeniable global leader in CNC and robotics.
OK, so despite the bold statement, I think Scott Technology still has a way to go to fulfill their own vision. A differentiating point of Scotts from FANUC is that their headline robotics projects (meat industry and milking) have an ‘animal tissue interface’. That means the Scott robotics must develop a ‘feel’ and ‘room for dimensional tolerance’ that is not just a transplant of established industrial robotic technology available in Japan. The page 3 Scott AR2011 remark ‘we lead the world in our chosen markets’ is perhaps the more believable quote.
Eight years on how have Scott's progressed? Looking back at my previous comparison with 'FANUC', I feel as though it wasn't fair. Scott's are more into making turnkey project solutions rather than making all the individual units of hardware that supply that solution. Having said this, Scott's are capable of making the hardware. But if a robot is available off the shelf, there is no reason to reinvent the wheel.
Today typing 'industrial automation leader' into a search engine, what comes up?
1/ Omron Automation: Integrated Robotics: Design and install flexible manufacturing enabled by the seamless integration of robotics with advanced machine control. This includes Autonomous Intelligent Vehicles (has largest installed base in manufacturing), Robotic installations include Vision, Motion and Safety functions, and Automated Warehouses. Omron is headquartered in Japan and has over 35,000 employees, with nearly 24,000 of those in overseas subsidiaries. Omron's Industrial Automation division turnover comprises 46% of total company turnover of about $US8billion.
Since the 1990s, in the industrial area, Omron has focused on microelectronics. They strove to become number one worldwide in components and industry leader in the systems field. Omron was quick to detect the emerging need for programmable controllers with a fast processing speed to facilitate a trend away from 'mass production' of a single product, to high-mix, low-volume production runs. Omron, as a company, seems to be two orders of magnitude larger than Scotts.
2/ Comau: is an Italian domiciled multinational and a subsidiary of Fiat Chrysler Automobiles. A developer of Industry 4.0 (the trend towards automation and data exchange in manufacturing technologies and processes)-enabled systems, products and services. Comau is active in vehicle manufacturing, heavy industry, railway and renewable energy. Comau have 9,000 employees, operate 32 centres across 14 countries, including 5 'innovation centres' and 14 manufacturing plants. This company is an order of magnitude larger than Scotts but in a slightly different market space: Scott's is more orientated towards light manufacturing production lines and food industry processing lines.
3/ ABB (Asea Brown Boveri Ltd): ABB, a Swiss domiciled multinational conglomerate, operate a 'Machinery and Factory Automation' division, 'MF' (formerly a separate company B&R, founded by Erwin Bernecker and Josef Rainer). MF operate in more than 200 offices worldwide and have more than 3,400 employees. MF combines state-of-the-art technology with advanced engineering to provide customers in virtually every industry with complete solutions for machine and factory automation, motion control, Human Machine Interface and integrated safety technology. MF operate in the Automotive, Printing, Food & Beverage, Handling & Robotics., Oil & Gas and Metalworking industrial spaces. MF is a complementary business to another ABB business arm: the ABB Robotics Division that actually manufactures robots. The workforce at the ABB ML division is over four times larger than the 784 that are employed at Scott Technology at EOFY2019.
With no need to take my research further, it is clear that Scott is not in the top three companies that offer integrated manufacturing solutions in the industrial automation space. But neither do Scott choose to emulate the industry big boys. This is an analogous position to Scott subsidiary 'Rocklabs'. 'Rocklabs', build sample preparation equipment. They became a friend of the smaller laboratories. These were laboratories that had formerly had been forced to wait behind bigger customers to be supplied by bigger equipment manufacturers out of Germany and the United States. Like Rocklabs, the Industrial Automation part of Scott's go after the 'second tier', in this case the appliance manufacturing industry. Appliance manufacturing is a sector without the glamour of the larger automotive companies, but which nevertheless requires first class metal pressing and component handling skills to service it well.
In the 'secondary industry space', where Scotts choose to operate, they work with the biggest names in those industries. For appliance manufacturing lines this includes Haier, General Electric, Bosch and Electrolux. For meat carcase packaging, this includes the world's largest player JBS, a multinational beef, lamb and chicken processor who are also the majority Scott's shareholder. JBS is ultimately domiciled in Brazil.
Conclusion: Pass Test
SNOOPY
-
BT2 FY2019/ Increasing 'eps' 5yr trend (One setback allowed)
Quote:
Originally Posted by
sanctus671
EPS figures over the years I pulled from Scott Tech's annual reports:
2009:1.1
2010:8.5
2011: 16.6
2012:16.7
2013:13.6
2014: 6.2
2015:13.8
2016:13.3
2017:13.2
2018: 14.3
2019: For first half of year is 6.6, last year it was 4.2 for first half of the year
Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.
You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.
Thanks for your post Sanctus. I have pulled out what I consider the 'normalised' earnings per share over the last five years based on the number of Scott Technology shares on issue at the end of the financial year. This, no doubt, is why some of my eps figures are a little different to yours. The results are below:
FY2015: $4.803m / 45.474m = 10.6cps
FY2016: $8.929m / 74.681m = 12.0cps
FY2017: $8.959m / 74.681m = 12.0cps
FY2018: $10.205m / 75.903m = 13.4cps
FY2019: $9.464m / 77.545m = 12.2cps
Notes: NPAT normalisation calculations
FY2015: These adjustments may be found on p31, p32 of AR2015. I have:
a/ Subtracted the gain on sale of property plant and equipment ($0.280m)
b/ Added back fair value losses on derivatives held as fair value hedges ($0.449m).
c/ Subtracted foreign exchange gains ($1.538m) and add back unrealised fair value losses on fair value losses on foreign exchange derivatives ($0.108m) and subtracted fair value gains on firm commitments ($0.449m).
$6.113m-($0.280m)+ 0.72($0.449m-$1.538m+$0.108m-$0.449m)= $4.803m
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: 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
Conclusion: Pass Test
SNOOPY
-
BT3 FY2019/ ROE > 15% for 5yr (One setback allowed)
FY2015: $4.803m / $50.618m = 9.5%
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%
Conclusion: Fail Test (a comprehensive fail covering each of the last five years). The last time Scott's passed this test for a single year was back in 2010!
-
Quote:
Originally Posted by
Snoopy
FY2015: $5.363m / $50.618m = 10.6%
FY2016: $8.929m / $94.600m = 9.4%
FY2017: $8.959m / $97.156m = 9.2%
FY2018: $10.205m / $102.947m = 9.9%
FY2019: $9.429m / $111.817m = 8.4%
Conclusion: Fail Test (a comprehensive fail covering each of the last five years). The last time Scott's passed this test for a single year was back in 2010!
I concur.Fail.
-
BT4 FY2019/ Ability to raise margins above inflation
Quote:
Originally Posted by
BlackPeter
They paid too much for the "goodwill"? Not the first company falling into that trap ...
Just so exciting for directors and CEO's to buy additional revenue. Great revenue pointers showing into exactly the right direction (top-right). Just don't talk about margins - I guess, who wants that much detail?
Here are the net profit margins for the last five years.
FY2015: $4.803m / $72.298m = 6.6%
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%
Doing more and more business while making proportionately less profit over many years is not the way to go. The 'glitch' in FY2016 saw Scott's sell multiple repeat sales of automated lamb boning room units (the most profitable business that Scott's does) coupled with a good year at 'Rocklabs'. More of this will be required if there is to be any hope of restoring net profit margins to respectable levels.
Conclusion: Fail test
SNOOPY
-
Hopkins 'caught on the hop'?
Quote:
Originally Posted by
percy
It may be a rather long phone call.
Would think it may pay to speak to Chris Hopkins.
CEO Chris Hopkins is set to give his last address to shareholders today. So no more phone calls from shareholders. Chris has been sacked, oh sorry, moved into his new position of 'sales director'.
"Scott Technology’s Board of Directors has appointed John Kippenberger as the company’s next Chief Executive Officer. John is an experienced business leader who has a successful career as CEO of a number of international business‐to‐business and consumer branded companies.This has included time in Australia as CEO of several industrial companies of George Weston Foods Limited before leading their large meat & dairy organisation which included 1,200 people operating across seven factories. After returning to New Zealand in 2006 with his wife Julie and children Emily and Tom, John was a part‐owner and the Chief Executive of Premier Beehive NZ Limited. More recently,John led the exponential growth and development of Manuka Health NZ Limited.This included expansion of the company’s agricultural and factory operations,along with an acquisition in Germany and the opening of company operations in Australia, the United States, the United Kingdom and parts of South East Asia and China."
The 'meat and dairy background' of JK would suggest that majority shareholder JBS has had a hand in this appointment are unhappy with how fast the meat industry robotics were progressing under Hopkins. Kippenberger will be good for JBS. But will he be good for Scott's minority shareholders?
SNOOPY
-
Buffett Tests 2019: Summary
Quote:
Originally Posted by
Snoopy
The 'meat and dairy background' of JK would suggest that majority shareholder JBS has had a hand in this appointment are unhappy with how fast the meat industry robotics were progressing under Hopkins. Kippenberger will be good for JBS. But will he be good for Scott's minority shareholders?
I never envisaged when writing this summary it would be an epitaph to the Chris Hopkins era. But here we go. Benchmarking one company against another, even if they are not direst competitors, can be insightful. I choose Skellerup Limited as a foil for Scott Technology.
The net profit margin at Scott Technology is roughly half that of Skellerup Ltd. Granted these businesses operate in different industrial and agricultural spaces. But both are kiwi based exporters that have expanded in recent years. Both have substantial overseas based manufacturing interests scattered across the globe. Both have around 800 employees. And both have sales of around $230m to $240m per year. Both expense any research and development expenses in the year those expenses are incurred. Scott's call this R&D policy conservative. However the amount of Research and Development build that can subsequently be recovered by being 'on sold' as part of a new project over the last five years has been very low (1). So I would argue Scott's R&D policy is better termed realistic.
The earnings per share picture, once normalised, is quite consistent over five years. But eps growth at Scott's over a five year period of 15% compares poorly with Skellerup's 36%. One argument as to why the comparison is unfavourable could be that Scott's is going through a more transformative phase. Scotts want competent and adaptable engineering teams worldwide at several sites. Whereas Skellerup have their key products made at specialist manufacturing plant at different sites. A look over the change in staff numbers over five years show how Scotts have now achieved their goal of global employee balance (AR2019 p2):
Number of Staff |
FY2015 |
FY2019 |
New Zealand |
94 |
248 |
Australia |
70 |
101 |
Asia |
52 |
36 |
Americas |
45 |
83 |
Europe |
1 |
316 |
The drop in staff numbers in Asia since 2015 is because a then four year agreement with 25% China partner 'Teknatool International Ltd' came to an end in October 2015, with Scott's former joint venture staff then resized and reskilled to pursue Scott Technology projects only.
The good thing about Scotts having a manufacturing base in China, the United States, Europe and Australasia is that you can make your projects in a location that will avoid trade barriers. But the bad side to that strategy is that while trade barriers exist, you will always have some of your manufacturing base in the wrong place. Given Scott's results since the 'globalised bases of scale' strategy has come to fruition, I am not clear it is the right strategy. The fact that Scott's have been able to maintain fully imputed dividends while only around a quarter of the workforce is NZ based, shows how 'profitable' (sic) the overseas manufacturing bases are. Of course there may be some internal transfer pricing that artificially inflates the New Zealand contribution to profit when more than one manufacturing base contributes to a project, But it isn't clear that any of the overseas bases are real profit stars.
With Scott Technology we have a highly skilled workforce doing clever things and making very average profits. Of course there are plenty of technology companies out there that make no profits at all, and Scott's deserve kudos for actually making money while doing smart stuff. But the automated boning room project has been a disappointment of late, principally because the lamb boning room which was technologically very successful and profitable has such a small potential market. The real money in automated meat processing is in processing beef. And the larger beef carcass, more variable in size, seems to be proving problematic to adapt to the robotised technology proven in the lamb boning room.
There have been other failures too. Scott Milktech, the robotised milking shed project, was first absorbed into the parent Scott Technology in 2017, as their industry partner sold out, and now it doesn't rate a mention in this years annual report or presentations. The HTS-110 company in Lower Hutt, a full subsidiary since 2014 battles away building applications with magnetic superconductor technology that is globally well respected in international academia and industry. Yet so far the king hit application that will really put HTS-110 on the map remains illusive. No matter. Should either of these business units get on board the commercial express train, then shareholders buying at today's prices will get the benefits 'for free'. In cutting edge technology, ultimate success is often the outcome of a series of failures.
Scotts know there is room for improvement. The last line in the objectives for FY2020 is to "Review all areas of operations to improve bottom line" In the short term, the sale of more proven meat processing equipment is the key to this. And Europe, where most of the company's material handling expertise lies, will have to shake off their 'Brexit Headache'. If you think they can do this there is every reason to remain invested. But I don't think Warren Buffett will be joining you on the share register.
Notes
(1) If some R&D expenditure manifesting as equipment in storage was written off but subsequently recycled, I imagine it would be brought back onto the books as 'Property Plant and Equipment' at no cost. The price it was sold at would then be all profit. So one test to see if this did happen would be look at the profit margin of the Property Plant and Equipment sold during any year when an overall profit was made. Looking at the three years of 'Property Plant and Equipment' when this happened.
|
P,P&E Profit |
P,P&E Sales |
P,P&E Profit Margin |
FY2015 |
$0.280m |
$0.445m |
63% |
FY2017 |
$0.073m |
$1,483m |
4.9% |
FY2019 |
$0.343m |
$0.302m |
114% |
It looks to me as though some previously written off R&D funded equipment may have been resold in FY2015 and FY2019. But the quantum of that recycling less than $0,632m in total over five years is not material to the company.
SNOOPY
discl: hold SCT and SKL
-
Capitalised Dividend Valuation: FY2015 to FY2019.5 data
Quote:
Originally Posted by
BlackPeter
They bought as well a lot of additional revenue, but if you look at the earnings per share - they are flatlining now for a long time around 13 cents. PE around 19 with no (EPS-) growth at all.
So - it is clearly not a growth company (remember, its only EPS growth which counts for shareholders) and while their interests might be aligned with the interests of the majority shareholder (they are building tools for them) - for anybody else they are basically equivalent to a BB or less rated bond (they are neither a gentailer nor IFT) paying (at today's SP) in average 4.2% interest, which well may turn towards less or even nil when the next recession arrives.
While they are certainly worth something, there are many better dividend payers (if that's your thing) as well as much better growth games out in the market.
I am not sure 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 unimputed 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 Declared |
Gross Dividends |
Gross Dividend Total |
FY2015 |
5.5c+2.5c |
N/A c + 3.47c |
3.47c |
FY2016 |
5.5c+4.0c |
7.64c + 5.56c |
13.20c |
FY2017 |
5.5c+4.0c |
7.64c + 5.56c |
13.20c |
FY2018 |
6.0c+4.0c |
8.33c + 5.56c |
13.89c |
FY2019 |
6.0c+4.0c |
8.33c + 5.56c |
13.89c |
FY2020 |
4.0c (18.41% I) + ?c |
5.02c + ?c |
5.02c |
Total |
|
|
62.67c |
Averaged over 5 years, the dividend works out at 62.67/5 = 12.5c (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. I think that given the trade wars and the inability to move production from affected international production sites, I should not do this.
So based on my previously selected sought after 7.5% gross yield over an historic five year business cycle window, , 'fair value' for SCT is:
12.5 / (0.075) = $1.67
Now using my plus and minus 20% 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: $1.67 x 1.2 = $2.00
Bottom of Business Cycle Valuation: $1.67 x 0.8 = $1.34
At this part of the investment cycle, with conditions very favourable towards shares, I would argue that SCT shares trading at $2.30 (above the upper end of my expected range) are now overvalued by 15%.
SNOOPY
-
Wrote a long piece on the AGM, but the FN system logged me out and wiped it all. Does anyone have any interest ? or questions?
-
Quote:
Originally Posted by
Arthur
Wrote a long piece on the AGM, but the FN system logged me out and wiped it all.
Darn it! I was hoping someone might report in.... I couldn't get to the AGM this year myself!
There is a trick to get around this 'wiping of ones work'. If you enter your post as a reply to another post, the Sharetrader software will automatically periodically save it as you write it. Then if whatever system you are on 'wipes you out', you can log back in on another session or even on a different computer system entirely. Now press 'Reply' to the same post you replied to before and 'Hey Presto' a little box on the lower left hand corner of the screen will say 'Restore Autosaved Content? You can click 'Yes' and bingo, your wiped work will come back!
I am not sure this works if you just make a general 'Reply' without reference to an existing post. I suspect it doesn't, because the Sharetrader server would have no reference point
to recover from.
Another trick is to write your long post as a word file off line, then just cut and paste it into Sharetrader.
Quote:
Does anyone have any interest ? or questions?
What was the body language of Chris Hopkins like !!!?!!
SNOOPY
-
Chris' speech implied that he had dedicated too much of his life to the company and now it was time to spend more time with his family. The new CEO's CV does not jump out as perfect for the company. He did go around and introduce himself to many of the staff.
Allegedly there is jam tomorrow. In 2016 we were promised that great things would come with the new shareholder. As Snoopy has pointed out meat systems sales are lower than when they wrapped their tentacles around Scott. The new pork system they are working on is probably for JBS, so they may not be a complete bust.
The new extension looks good. They seemed to have more staff in design and R&D.
They were working a machine for Germany/Czech at the factory.
-
Turnout was more than they expected. Around 15 people had to stand for the meeting as there were insufficient chairs.
They had a bigger Bladestop machine there. I think they said more than 1000 Bladestop saws have been sold and there are now some in industries aside from meat.
-
Quote:
Originally Posted by
Arthur
The new CEO's CV does not jump out as perfect for the company. He did go around and introduce himself to many of the staff.
Scott's have a long history of bringing their CEOs up through the ranks: Chris Hopkins, Kevin Kilpatrick, Graham Batts. It is a break from tradition to parachute someone into the top job. John Kippenberger certainly has the experience in the international markets where Scotts operate. Perhaps with Scotts being very much an international company now, JK is exactly the person for the job? Like it or not, it may no longer be realistic to think of Scotts home being their Dunedin base any more.
Quote:
Originally Posted by
Arthur
The new extension looks good. They seemed to have more staff in design and R&D.
I saw the new extension was only opened at the end of October.
Is there anyone working in the new extension yet, or any machinery in there? Or is it still a shell?
Quote:
Originally Posted by
Arthur
They were working a machine for Germany/Czech at the factory.
That is interesting because Scotts bought out the assets of their German equivalent from bankruptcy in April 2016. I would have expected a machine destined for Europe would have been built there. Otherwise what is the point of having a skilled team in Germany/ The Czech Republic?
SNOOPY
-
The extension looks like it has always been there. They had just moved on a large hide processing machine, so it was looking a bit empty on the factory floor. They also added a lot more office space, some of which is occupied by the younger design staff.
The machine for Europe was abit of a puzzle. If my memory is correct it was shipped from Europe, they had about a week to work on it here and it was being shipped back. Either we had some unique skills here or skilled staff are in short supply in their European office or it is top secret (didn't look like that). It looked like it would weigh about the same as a small car, so would take abit to freight around. Maybe I got the wrong end of the stick because if was a skilled staff issue it could make more sense to send people to Europe. Maybe a work visa issue or maybe it a mission critical machinery where no expense is spared to get it into production ASAP.
-
Quote:
Originally Posted by
Arthur
....
The machine for Europe was abit of a puzzle. If my memory is correct it was shipped from Europe, they had about a week to work on it here and it was being shipped back. Either we had some unique skills here or skilled staff are in short supply in their European office or it is top secret (didn't look like that). It looked like it would weigh about the same as a small car, so would take abit to freight around. Maybe I got the wrong end of the stick because if was a skilled staff issue it could make more sense to send people to Europe. Maybe a work visa issue or maybe it a mission critical machinery where no expense is spared to get it into production ASAP.
Interesting .... and hard to understand. Expensive and difficult to circle the world with big and heavy equipment, particularly if time is of the essence. It is not just the freight and the lost time in transport .... on top of that the customs procedures (and MAF in NZ) can be a pain.
The only thing I could imagine is that they required for fixing some large / unique / expensive piece of equipment they only have here in NZ. But if this is the case, than you wonder what's the point of development diversification ...
-
Building Block Analysis: Introduction
Quote:
Originally Posted by
Snoopy
I think at the roadshow either Hopkins or McLauchlan (can't remember which), mentioned they look for a 15% return on their new investments. But whether that has been a long established policy (I got the impression it was) or a new target hinted at by JBS, this I don't know. By way of an aside, I look for an ROE of 15%+ from my own sharemarket investments (doesn't always happen), or at least the 'growth' ones. So I am very happy that the SCT board has a similar policy.
Scott's have grown the size of their business enormously over the last five years. The JBS cash issue (aka takeover) of Scott Technology during FY2016 provided a $40.597m bucket of cash that has allowed Scott to build project engineering skill bases 'on the ground' by acquisition in Europe, Australia and the United States in particular. Yet how successful this strategy was in terms of 'earnings per share' is an open question.
If you give a kid a bag of building blocks, shaking those blocks up and throwing them on the floor will not produce anything productive in itself. But if your kid takes those blocks and tries to 'knit them together', then this process could produce something of substance. It is the synergies between blocks and any associated cross selling opportunities that will determine whether Scott's will have just 'growth in earnings' or the much more desirable 'growth in earnings per share'.
Underlying growth in 'eps' has not yet happened. So can we conclude that 'our' little kid 'Scotty' has simply taken his new blocks and thrown them on the floor? Let's find out!
SNOOPY
-
No ones talking about them writing off this small part of the business...
They shifted it out towards Mosgiel, I drive past it most days and the building always seemed to be pretty quiet.
https://www.odt.co.nz/business/dc-ro...se-8-jobs-line
-
Quote:
Originally Posted by
kiwidollabill
Thanks for this kiwidollabill. The fact that nothing was said at the AGM on the subject of 'DC Ross' and that as soon as Chris Hopkins stepped down, the new guy wielded the axe tells we shareholders a lot:
1/ Hopkins most likely did not agree with the closure plan. If he had agreed he could have put himself up as the 'fall guy' while Kippenberger as the new CEO looked towards a hopeful future with a 'rebuild the business' plan. The way it was handled makes the new helicoptered in CEO the hatchet man. This doesn't bode well for future staff management relations.
2/ The highly skilled staff at DC Ross are apparently surplus to requirements of the group. I actually thought the whole reason for acquiring DC Ross in FY2017 was to buy the skills of the staff so that, in a market with a shortage of well qualified fitters and turners, they could be quickly doing other projects within the Scott group. The fact that Scott's now seem to have a surplus of labour in this area in NZ must be cause for concern. Perhaps the pipeline of project work coming into the wider group is weaker than management are letting on?
3/ The fact that the DC Ross workers "believed the company was doing well" would suggest that they have been winning projects by putting in below cost tenders. That doesn't necessarily imply management incompetence. DC Ross may have done it deliberately to keep their staff intact, while they transition to more profitable projects. So maybe looking after the staff, Scott's best asset BTW, is not the priority it once was?
SNOOPY
P.S. He (Scott Technology’s chief operating officer, Richard Jenman) did not want to give figures on how much was being lost.
"In terms of percentage of revenue, it’s significant."
(my underline emphasis). If there is to be a 'significant' loss of revenue to the group, why was there no announcement to the stock exchange of this on November 29th? Nearly two weeks later and still no announcement to the NZX has been made!
-
Building Blocks bought via the JBS lead Capital Raising
Quote:
Originally Posted by
Snoopy
Underlying growth in 'eps' has not yet happened. So can we conclude that 'our' little kid 'Scotty' has simply taken his new blocks and thrown them on the floor? Let's find out!
For those who came in late, Scott Technology had a very drawn out capital raising process (because of unsupportive major shareholders) that culminated in a new major shareholder, the JBS group out of Brazil, via Australia, promising to back the company into its next stage of development. The buying spree that used this new capital actually started in the year before the capital was raised, FY2015. Here is a table of the Scott Technology acquisitions over the last five years:
Year |
Acquisition |
Purchase Price |
EBITDA Contribution |
Days Owned |
Annualised EBITDA Contribution Estimate |
FY2015 |
Machinery Automation & Robotics (MAR) |
$14.324m |
$0.626m (1) |
212 |
$1.078m |
FY2016 |
Somako Hirsch & Attig GmbH |
$0.880m |
-$0.147m |
149 |
-$0.360m |
FY2017 |
DC Ross Limited |
$0.375m |
NM |
92 |
$0.0m |
|
Scott Separation Technology |
$0.433m |
NM |
131 |
$0.0m |
FY2018 |
Alvey |
$19.303m |
$0.9m |
159 |
$2.066m |
|
Transbotics |
$4.873m |
$0.8m |
122 |
$2.393m |
FY2019 |
Normaclass |
$2.940m |
NM |
89 |
$0.0m |
Total |
|
$43.128m |
|
|
$5.177m |
So we can see that with these seven 'building blocks' bought, the $40.597m of capital raised has been 'well and truly spent'. Or perhaps I should have said simply 'truly spent?'
Notes
(1) The 2015 annual report does not give an EBITDA contribution from MAR. So I have apportioned the interest paid by Scotts for holding MAR after purchase to the revenue turned over by MAR relative to the revenue of the whole group.
$1.198m x ($13m / $72.298m) = $0.215m
I have estimated the depreciation and amortisation charge at MAR by
a/ Looking at the plant and equipment assets on the MAR books at takeover date
b/ Comparing that to the total plant an equipment on the Scott Technology book at the end of the year AND
c/ apportioning the total D&A to the fraction of plant and equipment owned by MAR
$1.636m x ($1.062m/$11.468m) = $0.151m
To estimate EBITDA from this:
NPAT / T + I +DA = ($0.161/0.7) + $0.245m + $0.151m = $0.626m
SNOOPY
-
Quote:
Originally Posted by
Snoopy
For those who came in late, Scott Technology had a very drawn out capital raising process (because of unsupportive major shareholders) that culminated in a new major shareholder, the JBS group out of Brazil, via Australia, promising to back the company into its next stage of development. The buying spree that used this new capital actually started in the year before the capital was raised, FY2015. Here is a table of the Scott Technology acquisitions over the last five years:
Year |
Acquisition |
Purchase Price |
EBITDA Contribution |
Days Owned |
Annualised EBITDA Contribution Estimate |
FY2015 |
Machinery Automation & Robotics (MAR) |
$14.324m |
$0.527m |
212 |
$0.907m |
FY2016 |
Sumako Hirsch & Attig GmbH |
$0.880m |
-$0.147m |
149 |
-$0.360m |
FY2017 |
DC Ross Limited |
$0.375m |
NM |
92 |
$0.0m |
|
Scott Separation Technology |
$0.433m |
NM |
131 |
$0.0m |
FY2018 |
Alvey |
$19.303m |
$0.9m |
159 |
$2.066m |
|
Transbotics |
$4.873m |
$0.8m |
122 |
$2.393m |
FY2019 |
$2.940m |
NM |
89 |
$0.0m |
Total |
|
$43.128m |
|
|
|
So we can see that with these seven 'building blocks' bought, the $40.597m of capital raised has been 'well and truly spent'. Or perhaps I should have said simply 'truly spent?'
SNOOPY
Great job, snoopy - and not a pretty picture.
Obviously they might say that they need time to fit the blocks together to turn them into a money spinner. But if that's the case - why are they now reducing their Dunedin operation with the staff they would need to keep the wheels spinning?
I've seen throughout my career many companies failing this magic hurdle of attempting to outgrow its size beyond something like 500 (give or take a handful) staff. This is when the informal communication and management processes of the early "garage company run by heroes" (where communication mainly works through a handful of highly competent people who all grew their career in the same garage) need to be switched to well defined, well honed and enforced communication and management processes which work whether the stakeholders come from the same stable (and have known each other for many years) or not.
Otherwise one gets quickly this right hand does not know what the left hand does situation.
Obviously - if companies add during this phase lots of additional companies in far away countries with different culture and language, than this hurdle gets still harder to pass. Scott has now nearly 800 staff across 3 continents. Just saying.
-
The problem with DC Ross is essentially their only customers were Ford/Holden Australia, when they stopped domestic manufacturing over there then the sales for them stopped too. They had amassed a ton of debt and the major shareholder family washed their hands of the whole thing after taking their $ out years ago. They are a decent blank making firm but with such a niche its hard to diversify the business into other spaces (which is what Scott wanted to do....).
Disc I know one of the senior people there who got burned at DC
Could this be the start of write offs of sub-part businesses which Scott have bought over the years?
Kippenberger likes things lean and simple....
-
Building Blocks all over the floor Profit
Quote:
Originally Posted by
Snoopy
So we can see that with these seven 'building blocks' bought, the $40.597m of capital raised has been 'well and truly spent'. Or perhaps I should have said simply 'truly spent?'
The figure I want to focus on now is the $5.177m "Annualised EBITDA Contribution Estimate." What would happen if we add this figure to the FY2014 EBITDA figure, the year before this JBS headed capital raise was required? If we did that, we could calculate the 'building blocks thrown all over the floor' profit where there are no integration benefits or synergies from all these acquisitions.
EBITDA for FY2014: $4.231m + $0.514m + $1.336m = $6.131m
Now add in our "Annualised EBITDA Contribution Estimate" from acquisitions over the last five years:
Underlying EBITDA 'blocks all over the floor' = $6.131m+ $5.177m = $11.308m
Of course Scotts have now had up to five years to bed in all these acquisitions so the benefits of the integrations and synergies can flow through. So what was the actual EBITDA profit figure for FY2019?
According to AR2019 the EBITDA figure for FY2019 was $20.010m. However that figure was boosted by $4m because of an accounting standards change in relation to leases. So the comparable figure is actually $16.010m. It does seem then that up to $5m in synergy and integration benefits may have been realised? Then again the EBITDA increase could have just been organic growth from the core business already owned before FY2015. In truth this is a fairly 'flimsy analysis' for several reasons:
1/ I am extrapolating a part of a year earnings contribution as representative of the whole year.
2/ I am assuming that the year in which a new business unit was acquired represents a 'typical' earnings contribution for any year.
3/ There is no way to separate out 'organic growth' from acquisition synergy growth. For example, in October 2016 Scott's purchased the intellectual property associated with 'Bladestop'. 'Bladestop' is an innovative design of bandsaw with a 'double safety catch' to prevent injury to operators hands and limbs. The principal application is in the meat processing industry. Scott's have paid the 'Bladestop' intellectual property holders $6m cash with an additional $4m being set aside as an earn out payment. Because these payments are for pure intellectual property in an industry where Scotts already operates, I consider this purchase part of 'organic growth'.
4/ Given the lumpy nature of Scott's business, are the two comparative years of 2014 and 2019 truly representative? (Note: neither FY2014 nor FY2019 were great years, so I personally am happy with the two chosen years selected).
Nevertheless the figures that I have used are the only ones we are given to work with.
The other factor we need to keep in mind is that the number of shares on issue has dramatically increased over that five years. The EBITDA per share figure is as follows:
FY2014: EBITDA/share = $6.131m/44.009m = 13.9cps
FY2019: EBITDA/share = $16.010m/77.545m = 20.6cps
So perhaps the operating earnings 'growth job' put in by management over the last five years is not as bad as some here think?
SNOOPY
-
Quote:
Originally Posted by
Snoopy
.... The EBITDA per share figure is as follows:
FY2014: EBITDA/share = $6.131m/44.009m = 13.9cps
FY2019: EBITDA/share = $16.010m/77.545m = 20.6cps
So perhaps the operating earnings 'growth job' put in by management over the last five years is not as bad as some here think?
SNOOPY
Lets face it - the only thing which really matters for shareholders is the EPS trend AFTER Tax, AFTER depreciation and AFTER interest. And this number is in (8 year-) average 13 cents with a minimum of 6 cents in 2014 and a maximum of 17 cents in 2012. The 2019 result was 11 cents - even below the 8 year average.
If I extrapolate the EPS trend based on the last 8 years then the earnings CAGR is NEGATIVE 5 %. Could somebody please tell the board that this is the wrong direction?
-
Research and Development Assistance: The Change Part 1
Quote:
Originally Posted by
Snoopy
GENERAL: SCT: SCT ATTRACTS MAJOR GOVERNMENT SUPPORT FOR R&D
10 December 2010
SCOTT TECHNOLOGY LTD ATTRACTS MAJOR GOVERNMENT SUPPORT FOR R&D
The company is pleased to advise that we have been successful in our application for the Governments Technology Development Grant. This has been awarded to Scott to a maximum of $3.7 million over 3 years and is payable at the rate of 20% of eligible spend on research and development (R&D).
-------
That's another nice little cashflow bonus for SCT shareholders. $3.7m represents 11.7cps! Note quite cash in the bank as SCT will have to spend $18.5m over three years to get the $3.7m rebate. But having such a vote of confidence in the company by the government will not do SCT any harm.
Scotts are about to enter their tenth year of being on the R&D grant system in New Zealand. These R&D grants are distributed through Callaghan Innovation. But things are changing.
If necessary, when seeking to distinguish R&D from non-R&D, the further advice provided by the New Zealand Financial Reporting Standard 13 (NZ FRS 13) should be applied:
"R&D is distinguished from non-R&D by the presence or absence of an appreciable element of innovation. If the activity departs from routine and breaks new ground it is normally R&D; if it follows an established pattern it is normally not R&D.”
The Government has announced the final design of the R&D tax incentive and Growth Grants will be replaced by the tax incentive from 1 April 2019. The Growth Grant scheme will end on 31 March 2021.
The final date for commencing a new Growth Grant application in the online portal will be 12 noon, Thursday 20 December 2018. The final date for completion of new Growth Grant applications ready for assessment and approval is 31 January 2019. All Growth Grants commenced and subsequently approved in this period will have a Contract Start Date of 1 January 2019 and a Contract End Date of up to 31 March 2021 (depending on your tax year).
In dollar terms the 'old' tax grant scheme paid out 20% of the business’s eligible R&D spend up to $25m per annum - The amount paid is up to a maximum of $5m per year (0.2 x $25m =$5m). All R&D carried out in New Zealand is eligible for consideration. However there is one particular category of R&D where no payout will be made. This is when R&D is capitalised as an intangible asset. Scott's have told we shareholders for years that they expense all their R&D and they are being conservative. That is one way of looking at things. But it does appear the real reason they are expensing all their R&D is to qualify for the Callaghan Institute R&D Grants. Nothing really wrong with that. But it would have been nice to know 'up front' exactly why Scott's are being conservative with their R&D expensing.
So what will 'the change' mean for Scotts?
SNOOPY
-
Research and Development Assistance: The Change Part 2
Quote:
Originally Posted by
Snoopy
The Government has announced the final design of the R&D tax incentive and Growth Grants will be replaced by the tax incentive from 1 April 2019. The Growth Grant scheme will end on 31 March 2021.
So what will 'the change' mean for Scotts?
From the ird website:
https://www.classic.ird.govt.nz/rese...incentive.html
------
The key features of the R&D tax credit include:
• A 15% tax credit available from the beginning of a business' 2020 tax year
• A minimum R&D expenditure threshold of $50,000 per year
• A $120 million cap on eligible expenditure
• A definition of R&D intended to ensure accessibility across all sectors
• A limited form of refunds in the first year. This will allow some firms with a tax loss to receive a refund of the tax credit.
-------
Scott's declared R&D spending (admittedly spread between Australia and NZ) of $14m over FY2019. So there is little doubt they qualify for the $50,000 minimum threshold spend.
We can work out the dollar cap of any payment:
15% of $120m is: 0.15 x $120m = $18m.
That is quite a lift from the maximum 'payout' under the old scheme of $5m. I put 'payout' in quotation marks. That is because, under the old system, the payment was made up front with the ability to claw back payments when any approved R&D project is not completed.
A 'tax credit' has the connotation that profits must be earned and a tax bill incurred before a credit can be given. Weirdly this interpretation doesn't tie into the fifth IRD bullet point above, whereby some firms with a tax loss can receive a tax credit. I have to admit I am baffled by this. I wonder if it means there is relief from provisional tax in the ensuing year? But of course if the company is making a loss there shouldn't be any requirement to pay provisional tax!
What is clear is that this change is bad for cashflow. The R&D expenditure must be paid for up front by the company up front before any tax relief is forthcoming.
SNOOPY
-
Research and Development Assistance: The Change Part 3
Quote:
Originally Posted by
Snoopy
What is clear is that this change is bad for cashflow. The R&D expenditure must be paid for up front by the company up front before any tax relief is forthcoming.
Scotts are also receiving R&D assistance in Australia. Information on Australian governmental assistance may be found here:
https://www.business.gov.au/Grants-a...-Tax-Incentive
The Australian R&D tax incentive replaced the Australian R&D tax concession from 1 July 2011, and applies differently from the concession.
Australia, right now, has a lower minimum spend to qualify for assistance of $A20,000 (vs $NZ50,000 in NZ). There is also a possibility of claiming for overseas R&D expenditure ('Advance and Overseas Findings'). This is specifically ruled out in New Zealand.
As an R&D tax incentive, it goes without saying that a company must be liable for paying tax in Australia to qualify. All applications must be pre-registered. Scotts qualify here, largely through their Australian subsidiary MAR.
The tax offset for a private company that can be claimed is 43.5% (for aggregated R&D turnover less than $20m) or 38.5% (for aggregated R&D turnover greater than $20m). Since the Australian company federal income tax rate is 30%, it looks like you can claim back an amount greater than your tax bill. However, Australian businesses face other taxes as well, like payroll tax (an Australian state and territory tax, levied at about 5% in Victoria and NSW). So it is possible that in practice Australian companies would not be able to claim more tax back than they were due to pay after all. Incremental notional R&D deductions above $100m of R&D spending are claimable at a lower level (the Australian company tax rate).
The Australian R&D tax incentive (no dollar cap on tax rebate with between 100% to 145% of tax paid returnable) looks to be a lot more generous than the New Zealand system ($18m dollar cap on tax rebate with 54% of tax payable refundable). I wonder if that difference is enough for Scotts to abandon their R&D program in New Zealand and move the whole lot to Australia?
SNOOPY
-
Quote:
Originally Posted by
Snoopy
Scotts are also receiving R&D assistance in Australia. Information on Australian governmental assistance may be found here:
https://www.business.gov.au/Grants-a...-Tax-Incentive
Australia has a lower minimum spend to qualify for assistance of $A20,000 (vs $NZ50,000 in NZ). There is also a possibility of claiming for over seas R&D expenditure ('Advance and Overseas Findings'). This is specifically ruled out in New Zealand.
As an R&D tax incentive, it goes without saying that a company must be liable for paying tax in Australia to qualify. Scotts qualify here, largely through their Australian subsidiary MAR.
Not only do you need to be liable for tax there you also have to conduct the R&D spend in Australia, cant get away with a transfer pricing it to the NZ entity...
If they have a UK business you can claim R&D credits from there as long as you show the R&D involves a UK entity and they dont care where in the world the R&D money is spent.
Or this is how our accountant explained it to me...
-
Quote:
Originally Posted by
kiwidollabill
Not only do you need to be liable for tax there you also have to conduct the R&D spend in Australia, can't get away with a transfer pricing it to the NZ entity...
Couldn't Scotts do it the other way around though? By that I mean use transfer pricing to create most of their meat processing robotics profits in Australia and then do the R&D spending in Australia at MAR?
After all:
1/ Scotts biggest shareholder is Australian based (JBS Australia),
2/ The biggest medium term growth market for meat processing robotics is in Australia AND
3/ If they can get the automated beef boning room right there are potentially very large profits in Australia, and not just from JBS.
Of course if Scotts go this way, it is probably good-bye imputation credits for NZ shareholders!
Quote:
Originally Posted by
kiwidollabill
If they have a UK business you can claim R&D credits from there as long as you show the R&D involves a UK entity and they dont care where in the world the R&D money is spent.
Or this is how our accountant explained it to me...
That would be fine if Scotts venture into the UK was profitable. Profits look hard to come by in UK/ Europe at the moment!
SNOOPY
-
Government R&D Support: FY2015 to FY2019
Quote:
Originally Posted by
Snoopy
Scotts are about to enter their tenth year of being on the R&D grant system in New Zealand. These R&D grants are distributed through Callaghan Innovation.
In dollar terms the 'old' tax grant scheme paid out 20% of the business’s eligible R&D spend up to $25m per annum
Quote:
Originally Posted by
Snoopy
Scotts are also receiving R&D assistance in Australia.
The tax offset for a private company that can be claimed is 43.5% (for aggregated R&D turnover less than $20m) or 38.5% (for aggregated R&D turnover greater than $20m).
Time to tabulate all of this government support that Scott Technology have received over the last five years:
Financial Year |
Government Grants NZ (GGNZ) |
GGNZ/0.2 {A} |
Australian Tax Credits (ATC) |
ATC/0.435 {B} |
{A}+{B} |
Declared R&D Spend |
2015 |
$0.673m |
$3.365m |
$0m |
$0m |
$3.365m |
? |
2016 |
$2.172m |
$10.860m |
$0m |
$0m |
$10.860m |
? |
2017 |
$0.926m |
$4.630m |
$0m |
$0m |
$4.630m |
? |
2018 |
$1.861m |
$9.305m |
$0.563m |
$1.294m |
$10.599m |
$11.0m |
2019 |
$2.026m |
$10.130m |
$1.112m |
$2.556m |
$12.686m |
$14.0m |
Notes
1/ FY2015 was the year in which MAR in Australia was brought into the Scott's fold.
2/ I haven't been able to find a declared R&D spend for FY2015, FY2016 and FY2017. For the two years in which I could find a declared R&D spend total (FY2018 and Fy2019), the declared total exceeds the 'sum of the parts total' that I have calculated. I would assume this is because not all R&D expenditure is recoverable via a grant or tax relief.
3/ For AR2019, the 'Government Grants related to Research and Development' are found in section A1. The 'Research and Development tax credited claimed (Australia) are found in section A2.
SNOOPY
-
R&D to Turnover ratio: FY2015 to FY2019
The Research & Development (R&D) Expense to Revenue ratio ( {A}/{B} in the table below) measures the percentage of sales that is allocated to R&D expenditures. In shorthand I will call this ratio "R&D to T."
Financial Year |
Declared or Estimated R&D Spend {A} |
Turnover {B} |
{A}/{B} |
2015 |
$3.365m (e) |
$72.298m |
4.7% |
2016 |
$10.860m (e) |
$112.044m |
9.7% |
2017 |
$4.630m (e) |
$132.631m |
3.5% |
2018 |
$11.0m (d) |
$181.779m |
6.1% |
2019 |
$14.0m (d) |
$225.093m |
6.2% |
The above is what 'R&D to T' looks like for Scott Technology. But what should we expect it to look like? 'R&D to T' is very industry dependent. So the only comparison that makes sense is to look at R&D amongst Scott's peer industry players.
New Zealand ranked 21st of OECD countries in GERD (Gross expenditure on R&D) in 2018, up from 28th five years earlier.
https://www.stats.govt.nz/reports/re...w-zealand-2018
Total R&D expenditure as a proportion of GDP for the whole country was 1.37 percent, still lower than the OECD average of 2.4%. The highest spending NZ sector for R&D in dollar terms was manufacturing.
A series of NZ companies are grouped together for statistical purposes as the as the "Technology Investment Network " (TIN)
https://www.callaghaninnovation.govt...siness-numbers
The Technology Investment Network consists of 450 export-focused New Zealand businesses operating in the high-tech manufacturing, ICT and biotechnology sectors. It analyses the results for 200 of the biggest (the “TIN200”). Over 2015-2016 the businesses’ expenditure on R&D represented 8.8% of total revenues. On the TIN 'R&D to T' comparative scale then, it looks like Scott's spend on R&D is toward the lower end of the TIN scale.
SNOOPY
-
Indicative Interest Rate paid over FY2019: The Calculation
Quote:
Originally Posted by
Snoopy
Apart from the increase in cash signifying completion of projects, a large amount of cash -$2.75m- (including my rights issue subscription money, as U.S. points out!) is sitting on deposit as cash pending approval of the JBS Australia capital injection.
How things have changed since the rights issue was banked. Scotts have spent it all and debt is back on the balance sheet again. To get some idea of the debt holding burden going forwards, we need to look back at what the net debt balance was at the three documented points throughout the year (beginning, middle and end)
|
EOFY2018 |
EOHY2019 |
EOFY2019 |
Cash & Cash Equivalents |
$12.473m |
$0m |
$0m |
Bank Overdraft |
$0m |
($5.678m) |
($4.737m) |
Current Portion of Term Loans |
($3.321m) |
($3.996m) |
($4.217m) |
Term Loans |
($4.088m) |
($2.904m) |
($7.450m) |
Total Net Bank Debt |
$5.064m |
($12.578m) |
($16.404m) |
From the published full and half year balance sheets, there is no way to know the distribution of net debt throughout the year. However, we can calculate a linear approximated average that gives us an indicative net debt figure for the year from the table above.
Indicative Net Debt Over FY2019 = ( $5.064m- $12.578m - $16.404m) / 3 = -$7.996m {B}
The net interest paid over FY2019 was: $0.020m - $1.715m = -$1.695m (A)
So the net indicative interest rate paid was {A}/{B}:
$1.695m / $7.996m = 21.2%
That seems very high. Have I made a mistake?
SNOOPY
-
Indicative Interest Rate paid over FY2019: Discussion
Quote:
Originally Posted by
Snoopy
Indicative Net Debt Over FY2019 = ( $5.064m- $12.578m - $16.404m) / 3 = -$7.996m {B}
The net interest paid over FY2019 was: $0.020m - $1.715m = -$1.695m (A)
So the net indicative interest rate paid was {A}/{B}:
$1.695m / $7.996m = 21.2%
That seems very high. Have I made a mistake?
To answer my own question - no mistake!
There are several possible explanations as to why the interest rate that I calculated above is so high.
1/ Bank Debt Changing Seasonally: Let me split the year into four parts and not two. Now let's average the indicative debt over five snapshot in time points that bookend these four periods of the year.:
( $5.064m - $12.578m - $12.578m - $16.404m - $16.404m) / 5 = -$10.580m
That average debt is still consistent with the debt figures printed is in the Annual Report and the Half Year Accounts. But the timing of the debt burden is different. In this case the indicative interest rate is:
$1.695m/ $10.580m = 16.0% (still high)
2/ One Off Fees: The 'Finance Costs' could include some kind of 'set up' fee in addition to the interest expense. This explanation seems less likely because there were term loans both at the start and the end of the year. But Scott's may have suddenly needed to raise funds and incurred penalty fees (see note 3). However, from p52 AR2019 there is a credit line of close to $NZ30m of which only about half is being utilised at balance date. So perhaps Scott's is paying handsomely to have this credit line available?
3/ Payments Withheld as a Result of Project Delays: There was a large jump in 'Contract Assets' of $8m over the year. 'Contract Assets' represent work performed for customers that has not been invoiced for contractual reasons. When work that is already done is invoiced, it turns from 'Contract Assets' to 'Trade Debtors' in the Balance Sheet. Scotts have told shareholders that three big projects have run into unexpected problems during FY2019.
"In the half year to 28 February 2019, the Board noted that several projects had a significant impact and as these projects continue they will also impact the second half of this fiscal year. These projects are expected to be fully resolved by the time we enter the 2020 fiscal year."
These were cutting edge projects and the associated cost overruns are effectively R&D that can be used in future high tech installation projects. But contract underperformance can also mean a delay in payment. Scotts may have had to suddenly increase its borrowings to account for the $8m deficit in the 'Contract Assets'.
4/ Incompetance: With the Chief Financial Officer leaving during the year, the company may have just stuck all their debts on the company Visa card at 20%+ interest rates ;-P (Edit: I put point 4 in as a semi-joke. However I see that from p52 AR2019 there is $0.512m on the Visa bill at balance date - ouch!)
5/ A combination of 1 to 4.
I am very uncomfortable about that 21% interest figure. The 16% calculated in this post is better. But the disruptive project elements that lead to that 16% may happen again. So I am sticking with that 16% figure as the indicative interest rate figure for FY2020.
What about the indicative level of debt for FY2020 that leads to these interest charges? Scott's have said that these rogue projects will sort themselves out by FY2020, I am interpreting this to mean that the $8m jump in contract assets will turn into invoiced debtor assets and be collected. If this happens then the indicative beginning of year debt figure will drop to:
$16.404m - $8m = $8.404m
Assuming this is an indicative debt figure for the whole year, the 'Net Financial Expense' for FY2020 is:
$8.404m x 0.16 = $1.345m
This is a decrease from FY2019 of:
$1.695m - $1.345m = $0.350m
SNOOPY
-
FY2020 Profits: Forecast
Quote:
Originally Posted by
Snoopy
Normalised Profit Calculation FY2018 (Refer AR2018 p33)
Declared Net Profit for FY2018 |
$10.772m |
add Loss on Property Plant and Equipment Sales |
$0.021m |
add Due Diligence Expenses |
0.72 x $0.271m |
add Unrealised Forex Losses |
0.72 x $0.271m |
add Fair Value Derivative Losses held as Fair Value Hedges |
0.72 x $1.579m |
add Unrealised Interest Rate Swap Contract losses |
0.72 x $0.043m |
less Foreign Exchange Gains |
0.72 x ($1.627m) |
less Fair Value Gains on Firm Commitments |
0.72 x ($1.579m) |
equals Normalised Net Profit |
$10.043m |
My previous forecast profit in the post above assumes a full years contribution from Alvey which didn't happen. Adjusting for that, the forecast was:
= $16.927m - [ (365-100)/365 ] x $8.470m = $10.777m
To calculate this I had assumed a drop in profit, due to a net interest annual income drop to $0.162m
$0.664m - $0.162m = $0.502m
Actual interest income received was a little more, at $0.369m.
I didn't get around to making a profit forecast for FY2019.
Fast forward to FY2020. The way Scott's now operate, segmented results are declared in geographical areas. This makes it difficult if you are used to thinking of results in terms of what is happening to different global industries. I think it best to think of Scott Technology as having a base of earnings that does not grow from year to year, then superimpose on this picture the earnings growth from certain fast growing business units.
Taking the base level profit of FY2019,
FY2019 Profit Normalisation:
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
How do I see things developing over the current year FY2020?
Amount |
Description |
Calculation |
$9.464m |
Baseline Adjusted Profit FY2019 |
+$0.252m |
Interest saved from lower interest intellectualbill |
$0.350m x 0.72 |
+$1.649m |
Meat Industry Robotics (incremental) |
$10.994m x 0.15 [See Note (A)] |
+$0.705m |
Transbotics (incremental) |
0.15 x $4.7m [See Note (B)] |
-$0.500m |
Appliance Production Lines |
My post 800 |
+$0.630m |
Mining |
2 x $0.315m [See Note (C)] |
-$1.458m |
Loss of NZ R&D Grant (scheme expired) |
0.72 x $2.026m |
$10.742m |
Forecast NPAT Total |
|
With 78.311m shares on issue, this equates to an earnings per share figure of:
$10.742m / 78.311m = 13.7cps
At $2.20,SCT is trading on a projected PE of 220/13.7 = 16.0
Notes
A/ Meat Industry Robotics Thanks to the expansion of the Scott Technology site at Kaikouri Valley in Dunedin, FY2020 represents the first year in which the meat industry robotics team have double the area to build their meat industry robotics projects. From my post 485, the aim is to supply 5-10 automatic robotic projects per year. The estimated value of a full production line is $12m to $13m, or some $6.5m for half automating a production line. Most growth looks to come from Pork (see Pork Primal System already drawn up on pages 27&28 of AGM2019 presentation) and Beef processing in FY2020, because the lamb market in Australasia is significantly automated already.
Seven half projects completed over FY2020 would produce revenues of: 7 x $6.5m = $45.5m. This represents an increase of:
$45.5m - $34.506m = $10.994m
From post 485, the margin on this increased turnover is approximately 15%. This allows us to calculate the NPAT incremental profit from the increase in meat industry turnover
B/ Automatic Guided Vehicles We know from slide 6 of the Forsyth Barr March 2019 Emerging Companies Conference that the EBITDA margin at Transbotics is 20%. Interest is not negligible and Depreciation and Amortisation at Technology companies can be high. So I am assuming a NPAT profit margin of 15%
Sales over the last five years at Transbotics have ranged from $US4.5m ($NZ6.9m) to $US11m ($NZ16.4m) over the years 2014 to 2108 (slide 30 same presentation (using exchange rate of $NZ1 = $US0.67). In the year that Transbotics came into the Scott fold (FY2018) the annualised sales rate worked out to be:
$NZ4m x (365/122) = $NZ12m
The AGV market has a target growth rate of 30%+ (slide 14, Scott Presents with Moelis November 2019 Slide Show). So I am estimating Tramsbotics revenue was 1.3 x $12m = $15.6m for FY2019 and 1.3 x $15.6m = $20.3m over FY2020, That equates to incremental revenue of $4.7m. The incremental increase in NPAT from that can be estimated as follows:
0.15 x $4.7m = $0.705m
C/ Mining
Hopkins noted in his AGM address that:
"we expect Mining to rebound significantly in 2020,"
"Opportunities for the Mining sector is primarily for Scott’s sample preparation systems but through recent developments, extends into field automation ,such as robotic refuel,robotic idler change and automated fire assay."
Multiple Robo-prep installations are planned for FY2020. The addressable market for these is judged to be $20m to $50m per annum.(Moelis November 2019 Presentation , Slide 13). The largest installation so far was an automated Sample Preparation System for Pernoles, the second largest mining company in Mexico. This build took 5 months, largely at Scott's Sydney engineering base. MAR, now "Scott Australia' had a turnover of about $7.7m when acquired in FY2015. With organic growth that could be $10m today. If half of MAR's resources were assigned to this robo-prep project for 5 months, that would account for:
0.5 x 5/12 x$10m = $2.1m of turnover.
If we assume a 15% profit margin, this one project could have contributed: 0.15 x $2.1m = $0.315m of the group profit after tax. We can use this figure to judge the NPAT effect of an incremental two extra Robo-prep system sales on net profit.
D/ 'Robotworx' profit assumed unchanged.
E/ 'Alvey' profit assumed unchanged due to the continued uncertainty and flow on fall out from Brexit.
F/ 'HTS-110' Superconductor Technology Subsidiary assumed to be no longer a meaningful contributor to the group (it wasn't mentioned in the Annual Report).
G/ I have not made any allowance for costs relating to the closure of "DC Ross". However this is a 'one off' event that is unrepresentative of the ongoing operation of the business.
SNOOPY
-
On your figures eps will be 9.29 cents per share,and with the share price at $2.19 the PE ratio is 23.57,,
I note the dividend yield is a very modest 3.65%.
-
Appliance Production Line Profit Contribution: How to predict?
Quote:
Originally Posted by
Snoopy
Some musings from the presentation on the current state of the appliance business.
A fridge selling for $300 fifteen years ago still sells for $300 today. So Appliance makers globally are under huge cost pressures. In Europe alone, three manufacturers have disappered completely over the last few years.
After the GFC, and the accompanying housing downturn, most appliance manufacturers had their lines turning over at only 30% capacity. In tight times, the first thing to be cut is capital expenditure. The only time capital expenditure is not cut in hard times, is when government legislation demands new environmental standards, necessitating new product design and manufacture. Big Appliance players normally work on 120 to 130 day payment terms, tough for smaller contracting companies like Scotts. Nevertheless, the 30-40% deposit on order is helpful to cashflow at the front end of any project.
However, a new order has been received just recently. So that means Appliance manufacturing lines in FY2016/2017 will likely be in better shape than in FY2015 position.
One of the most important predictors of profit for Scott Technology in any year is how well the 'Appliance Line Production' section of the business does. Appliance Line Production projects are usually large (up to $20m in gross value) and take from several months to two years to complete, once an order is received. The flow of these jobs is often lumpy from year to year. Most of this business is done in the United States, some in China (which often uses the $US as the functional currency of payment) and Europe. Once Scott's receive an order, they hedge their currency position in the functional currency of the job to control their costs. This occurs when the labour component of the job is paid in NZ dollars but the customer will be paying in a different currency. Scott's report their currency hedging in their annual report. So I thought it would be an interesting exercise to compare:
1/ The summed hedged currency position in US dollars and Euros, converted to NZ dollars, at balance WITH
2/ Sales in the appliance division in the ensuing year.
Can a predictive pattern of future Appliance Division sales be gleaned by looking at the hedge book?
|
2019 |
2018 |
2017 |
2016 |
2015 |
2014 |
0-12 month hedging 'Sell USD' |
$11.326m |
$25.241m |
$3.121m |
$3.177m |
$3.640m |
$1.030m |
0-12 month hedging 'Sell Euro' |
$0m |
$0.097m |
$0.272m |
$0.118m |
$0.641m |
$0.573m |
0-12 month hedging Total |
$11.236m |
$25.338m |
$3.393m |
$3.295m |
$4.281m |
$1.603m |
Appliance Division Turnover: 'Subsequent Year' |
$N/A m |
$45.069m |
$41.069m |
$26.308m |
$20.181m |
$13.606m |
What in the way of useful information can be got from this table? When the actual sales come through they are always significantly greater than that implied by the hedged position. That's good. This could indicate that although these project completion times are long, most are completed within the twelve months from 'go to whoa'. The hedging on the balance of these completed jobs , if any, might go unreported. An obvious anomaly in this table is in 2017 when a relatively modest hedging position turned into a large dollop of Appliance Division sales. That position can be juxtaposed against the FY2018 result where a much larger of proportion of hedged sales was booked compared to actual sales (am anomaly going the other way). I have to conclude that my 'forecasting technique' may not be that useful!
Chairman McLauchlan claimed to have "a number of large projects in the final stages of negotiation." These are not necessarily Appliance Division projects.
McLauchlan goes on to say
"This is being driven by businesses wanting to remove labour from their processes due to the sharp reduction in labour force participation in most geographies as a result of an ageing work force."
Since most appliance manufacturing companies are already highly automated, this suggests to me that these projects are most likely in other areas such as meat industry automation. Consequently I am forecasting a decrease in the contribution made by the Appliance Line Manufacture business for the FY2020 year.
To see how a revenue drop in the Appliance Division might affect profit, we have to go right back to FY2013 and earlier when 'Automated Equipment' (effectively the Appliance Line Manufacturing Division) reported separately:
|
2013 |
2012 |
2011 |
2010 |
2009 |
2008 |
2007 |
2006 |
2005 |
2004 |
Automated Equipment NPAT |
$2.099m |
$0.034m |
$2.455m |
$3.095m |
$0.597m |
($1.598m) |
$3.042m |
$0.242m |
$0.315m |
$3.716m |
Automated Equipment Turnover |
$32.329m |
$29.499m |
$32.150m |
$30.800m |
$22.141m |
$15.843m |
$29.186m |
$27.510m |
$40.263m |
$35.789m |
FY2008 was the year of the GFC. Two big projects were cancelled, but wages still had to be paid. That was an extreme downturn. The reference year I will use to forecast FY2020 is FY2011. In that year in a slowing economy, a $0.5m drop in profit was recorded.
SNOOPY