SCT - Scott Tech

[percy]

I thought note 23f was of interest with respect to "RobotWorx", and the much smaller "Applied Sorting Technologies" acquisition in Australia.

"Had these acquisitions been effected 1st September 2013, the revenue from the group would have been approximately $67m (c.f. actual $60.316m for FY2014) and the profit from the group after taxation and non-controlling interests from continuing operations would have been $3.1m (c.f actual $3.0m)."

So profit brought into the fold from the new acquisitions (mainly RobotWorx) was a mere $100k on $67m of sales!



The DRP does go some way to addressing this.

SNOOPY

I forgot DRP.
That will most probably be why the directors kept the divie up.

[Chaowee88]

I forgot DRP.
That will most probably be why the directors kept the divie up.

Not sustainable though. Look at Just Water, they also had a DRP going before it eventually blew the books out so bad they had to go 5 years without a divie.

In fact I'm not a big fan of DRP because it more a sign of weakness in which it to keep returns going to investors but long term wise it compounding the damage as further dilution takes it toll.

I see the odd companies who have a DRP going and also a buyback to reward "long term" faithful investors which is how a DRP should be utilized.

[percy]

Not sustainable though. Look at Just Water, they also had a DRP going before it eventually blew the books out so bad they had to go 5 years without a divie.

In fact I'm not a big fan of DRP because it more a sign of weakness in which it to keep returns going to investors but long term wise it compounding the damage as further dilution takes it toll.

I see the odd companies who have a DRP going and also a buyback to reward "long term" faithful investors which is how a DRP should be utilized.

Very valid points.
Thank you for your post.

[Snoopy]

I thought note 23f was of interest with respect to "RobotWorx", and the much smaller "Applied Sorting Technologies" acquisition in Australia.

"Had these acquisitions been effected 1st September 2013, the revenue from the group would have been approximately $67m (c.f. actual $60.316m for FY2014) and the profit from the group after taxation and non-controlling interests from continuing operations would have been $3.1m (c.f actual $3.0m)."

So profit brought into the fold from the new acquisitions (mainly RobotWorx) was a mere $100k on $67m of sales!

Incrementally 'RobotWorx' and 'Applied Sorting Technologies' would have increased SCT profitability by $0.1m/$67m = 0.15% (not a misprint, way less than 1%) if owned for the full year. (AR2014, note 23f).

We are told that during this year (FY2014), RobotWorx generated a profit of $NZ492k on revenue of $NZ2.6m and 'Applied Sorting Technologies' generated a loss of $NZ69k on revenue of $NZ113k.

Based on its own turnover, the margin for 'RobotWorx' and 'Applied Sorting Technologies' combined earnings for FY2014 was:

($0.1m+$0.492m-$0.069m)/($7m + $2.6m + $0.113m)
= $0.523m / $9.713m
= 5.4%

Within rounding error, you could say that figure is a good reflection on the performance of RobotWorx alone (because the contribution of Applied Sorting Technologies is so small)

From the RobotWorkx acquisition NZX announcement:

"The acquisition is for an initial consideration of US$5.4 million, funded by a combination of bank debt (US$4.5 million) and 646,301 shares in Scott (US$0.9 million) issued to the vendor. An additional 1,648,068 shares in Scott (representing further consideration US$2.3million) will be issued to be held under an escrow arrangement and to vest with the vendor over a period of three years if specified earnings targets are achieved. The shares have been issued at NZ$1.6157 per share, the volume weighted average price for the 5 days prior to settlement. The transaction will be earnings positive for the Scott Group, while the earnout arrangement will provide a strong incentive for the vendor and RobotWorx’ management to continue to grow the business. "

We know from note 15 of FY2014 the (floating) interest rate on that US borrowing stood at 2.65%. The actual US loan seems to be $US4.375m So the interest bill for one year going forwards is:

0.0265 x $4.375m = $115.9k

I guess there is also a 'cost of equity', reflecting the SCT shares issued to RobotWorx management. However, I don't know how to calculate that, or even if it has been included in the 'earnings positive' calculation.

The annual cash cost of the new US loan is considerably less than the annualised $NZ0.523m net profit after tax contribution from the new robotics acquisitions. On the surface this acquisition looks good.

New SCT shares were issued in part payment as well. No claim was made as to whether the acquisition was 'earnings per share positive'.

If things go well an additional 1,648,068 SCT shares will be issued to RobotWorx management, to go with the 646,301 shares already paid to them (2,294,369 total).

Incremental earnings of $0.523m on these new incremental shares gives an eps figure of:

$0.523m/2.294m =22.8cps

That is a higher eps figure than SCT has achieved at any time its listed history. So if profitability can be maintained at RobotWorx, then this acquisition is eps positive as well.

Being 'eps positive' is much more important than being 'earnings positive' from an investor perspective.

SNOOPY

[Snoopy]

Incrementally 'RobotWorx' and 'Applied Sorting Technologies' would have increased SCT profitability by $0.1m/$67m = 0.15% (not a misprint, way less than 1%) if owned for the full year. (AR2014, note 23f).

We are told that during this year (FY2014), RobotWorx generated a profit of $NZ492k on revenue of $NZ2.6m and 'Applied Sorting Technologies' generated a loss of $NZ69k on revenue of $NZ113k.

Based on its own turnover, the margin for 'RobotWorx' and 'Applied Sorting Technologies' combined earnings for FY2014 was:

($0.1m+$0.492m-$0.069m)/($7m + $2.6m + $0.113m)
= $0.523m / $9.713m
= 5.4%

Within rounding error, you could say that figure is a good reflection on the performance of RobotWorx alone (because the contribution of Applied Sorting Technologies is so small)

The RobotWorx acquisition was announced to be 'settled today' on the market as at 14th May 2014. That means three and one half months of RobotWorx's operations was consolidated into the SCT FY2014, which ended 31st August 2014. During that 3.5 months RobotWorx contributed $NZ0.492m NPAT.

However, if RobotWorx had been consolidated for a full year we are told that SCT would have booked $NZ0.1m extra profit, which must have been earned (by subtraction) over the other 8.5 months. This shows the RobotWorx profit is probably inherently very lumpy. Something to be considered when doing future forecasts.

SNOOPY

[okay]

Who's behind this one?

http://www.stuff.co.nz/business/farm...worlds-biggest

[Under Surveillance]

Who's behind this one?

http://www.stuff.co.nz/business/farm...worlds-biggest

The answer is in the second sentence of the article, i.e. DeLaval. Used to be Alpha Laval.

[okay]

Cheers. Swedish company. Shame Scott Tech weren't able to pick up this one.

[Snoopy]

Cheers. Swedish company. Shame Scott Tech weren't able to pick up this one.

I don't think Scott's Milktech system is competing in the all singing and dancing new dairy shed market. The Scott system is an add on to milking sheds that already exist IIRC.

http://www.scottech.co.nz/scott-milktech/

SNOOPY

PS I see the above link says they will put the Scott System into new sheds. But I am sure the focus was (and still is?) on retrofitting existing dairy sheds.

[Snoopy]

Not an amazing result for FY14 but not awful either. I’m pleased to see four of five industries grew in revenue, the exception being Mining.

A bit concerned about the payout ratio. D/EPS = 0.08/0.062 = 130% but I won’t complain at this point. Something to keep an eye on? Depreciation was slightly higher and I suppose the Board is confident the acquisitions will shine.

I hope this marks the turning point for SCT. With the NZD (hopefully) depreciating further and some strategic acquisitions I’m bullish on FY15.

I have had a chance to review the annual report 2014 at leisure.

Under note 29a, on Financial Instruments, there is the following comment:

"The group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes."

It is disappointing then to see many financial instrument transactions pay a large part in the headline result. The statement of comprehensive income (AR2014, p20) shows 'TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET OF TAX" to be $2.925m. However, that includes 'Other comprehensive income' which is the net movement in the cash flow hedge reserve and a translation from foreign operations. Back those figures out and we have 'NET SURPLUS FOR THE YEAR AFTER TAX' of $3.026m, This most readers might take as the 'operational result', net of hedge movements and foreign currency translations out of the control of management, but they would be wrong.

If shareholders turn to Note 3b, we find that the 'net surplus before taxation' already includes:

Fair value losses on firm commitments	-$0.324m
Foreign exchange losses	-$0.118m
Fair value gains on derivatives held as fair value hedges	$0.324mm
Unrealised fair value gains on foreign exchange derivatives	$0.864m
Gain on sale of property plant and equipment	$0.026m
Total	$0.722m

At a 28% tax rate, these transactions have boosted profit by:

(1-0.28)*$0.722m= $0.556m

So the operational profit was really:

$3.026m - $0.556m = $2.470m

This is more than 15% less than the $2.925m headline figure. Why do SCT make the calculation of the operational profit so hard?

Based on 44.002m shares on issue, the eps figure is:

$2.47m/ 44.002m = 5.61cps.

Based on a share price of $1.70, SCT is trading on an historical PE of:

170/5.61 = 30.3

Given there is no imminent recovery in the mining sector, this looks very fully priced IMO.

SNOOPY