SCT - Scott Tech

[Snoopy]

I think that economic backwoodsman MacDunk, who can't understand comparative advantage and free trade amongst many other things, is still apologising to people for telling them to sell TEL at $2.15 isn't he? ;-) - currently $2.85.

I couldn't understand what you were doing on this thread Major, until I re-read the Silver Fern Farms press release.

"The company’s Market Value Traceability System (MVTS), has ... blah, blah"

"Market Value Traceability System" my paw.

The real reason for Scott's success is that they are following the secret MVTS system that has been proven many times in the past: the 'Major Von Temsky System'!

The Major is Scott's 'secret weapon' management consultant!

SNOOPY

[duncan macgregor]

Another little rant about something you know nothing about MVT. Look up my predictions this year with SHREWD CRUDE in our own little contest to get an insight to what i am up to in real life. Anyone holding TEL all the way down the way have raving on about a modest little rise is as dumb as they come. Getting back to SCT read back on what i said in this thread years ago which might have saved a few investors some money. Remember MVT i predicted a down trend leading up to a crash after the olympics and removed my funds from the market. Macdunk

[Arthur]

I went to the AGM (best food and wine of any I have attended, a bad sign?)
Aside from slamming the exchange rate the Directors were all positive. They have bought shares and have topped up further since the annual report. Boning is gaining traction, Alliance has bought and they have plenty of inquiry. Saw a couple of robots in "action".
They are currently so busy that the Christmas holidays are being restricted.

[Snoopy]

They are currently so busy that the Christmas holidays are being restricted.

This is the bit that I liked from Chris Hopkin's annual address Arthur:

"To provide you with some feel for the level of enquiry, we are currently bidding on or in early discussion with customers for four mining industry projects, five appliance systems and multiple meat processing systems. These total in excess of $40m and in addition there are at least another fifteen prospects that are in early stages."

I looked in "the Press" the next day for the reporters write up and saw absolutely nothing. Just as well the ODT was there to provide some coverage then!

The ODT, after chatting to Hopkins afterwards, went on to say that not all of that $40m of business under discussion would be put through the books during FY2010. For comparative purposes, revenue for FY2009 was $31.3m. Given the current exchange rates I would be looking for a small improvement in profit for FY2010. Given SCT sat on a PE of over 100 before the AGM, I was therefore somewhat surprised, although pleased, the SCT share price has moved up by 15% to $1.15 since the AGM.

Don't get me wrong, I am very pleased the workshop is busy. That means layoffs and any consequent loss of skilled engineers will be avoided. Scotts is a company that relies heavily on its 'human capital' which is something that can never be reflected in those bare accounting figures. But unlike some people, I do not believe that any major step change in profitability has been signalled by SCT management. Keeping turnover up and actually booking improved profits are two different things.

SNOOPY

discl: hold SCT

[Snoopy]

I went to the AGM (best food and wine of any I have attended, a bad sign?)

Perhaps the 'grub upgrade' was because SCT were not putting money into renting an AGM venue? That meant they could put that AGM budget towards food and drink?

I am not in a position to compare myself. Despite being an SCT shareholder since July 1997, this year was the first time that I have made the long trek down to Dunedin to attend an Otago based AGM in person. I made the trip because I wanted to take the first opportunity for shareholders to inspect the brand new Dunedin premises. That and to try and get a handle on how the 'automation division', which is headquartered there, really operates.

The new Dunedin HQ, I found to be spacious, modern and clinical in construction. On a present day profit basis you would have to class the 'automation division' as the underperformer of the three business units (the other two being 'Appliance Manufacturing Lines' and 'Rocklabs'). We learned that since 2001 SCT and what is now Silver Fern Farms have invested and written off around $14m in joint venture meat industry robotics, via joint venture company 'Robotic Technologies Limited'. SCT have a 50% share in that joint venture. So that means around $7m of SCT shareholders funds have been spent here and are now gone. $7m is over twice the sum of the net profits of SCT from 2004 to 2009 inclusive. So we are not talking about an insignificant sum of money here.

Is it fair to judge the 'automation division' like this? Probably not. But CEO Chris Hopkins did answer a question on how this 'joint venture business structure' works in practice. According to Hopkins, development money is always written off unless there are tangible cashflows available in the future. In the case of the X-ray grading machine, SCT gets 5c per carcass out of the 'super profits' that result from optimally processing carcasses robotically. This greater yield improves further in relative terms as human workers tire during their shift. 5c per carcass may not sound like much. In terms of the $3 per carcass value gain that has been independently verified in Australia it isn't. But taken over thousands, indeed millions, of carcasses, then what SCT have is a reliable ongoing income stream. This ongoing income stream is represented as a capitalized 'intangible asset' of the kind described under note 11(i) on page 30 of the 2009 SCT annual report. In addition to this SCT gets a fixed margin on the engineering work they carry out for the joint venture RTL. In this way SCT get two bites at the technology cherry.

By contrast another joint venture 'Scott Milktech' (61% owned) has been set up to look at automated solutions in the dairy industry. With nothing close to commercialization as yet, all of the expenses incurred by Scott Milktech have been written off to date.

These joint venture structures are of obvious benefit in the initial commercialization phase of robotic industry technology. The ability to have meat industry players alongside you as marketers is what has allowed Silver Fern's rival Alliance Group to become sold as a customer on a concept that might have once been regarded as something from an engineer's fantasy playground. And now the third step on the way to the automated boning lamb room, the 'Knuckle Tipper', is well underway.

I am not 100% convinced that as the commercialization of the technology progresses, that these joint venture companies will prove the best structures going forwards. Hopkins made it very clear to those who heard his AGM presentation that the board is very aware of getting a return on shareholders funds. And that doesn't rule out the possibility of selling out of a joint venture like 'Robotic Technologies Limited' in the future if it is in the interests of SCT shareholders to do so. Of course 'selling out' does not mean abandoning robotic technology development in the meat industry. I think we are talking here more of streamlining the way this technology is marketed, and carrying on the technological development on a contract basis.

We were told that $10m of Automation Technology is on the order books as we work through FY2010. How much of that translates to net profits for FY2010, it will be interesting to see.

SNOOPY

discl: hold SCT

[Lizard]

That looks great! Having spent one university summer standing on the "catch and pack" side of one of those bandsaws, I'd be happy to leave it to the robots! (Oh and they probably won't mind spending their summer at 10oC either!).

[Sideshow Bob]

Liz, I think this sort of them is what you are talking about:

http://www.nzherald.co.nz/business/n...ectid=10642474

[Snoopy]

On 13th September2010, Ian Urquhart second largest shareholder in SCT with 15.1% of shares on issue (source 2009 Annual Report) passed away. He was 76. The death notice in the Press named no living family, but Ian seemed to have been a bit of a mentor to younger investors in his last few years according to the article in Saturday 25ths Press. Looks like he will be sadly missed. Perhaps this represents the start of a real passing of the baton to a younger generation of investor at SCT? In any event I will be watching with interest to see what happens to Ian's strategic stake.

SNOOPY

[percy]

On 13th September2010, Ian Urquhart second largest shareholder in SCT with 15.1% of shares on issue (source 2009 Annual Report) passed away. He was 76. The death notice in the Press named no living family, but Ian seemed to have been a bit of a mentor to younger investors in his last few years according to the article in Saturday 25ths Press. Looks like he will be sadly missed. Perhaps this represents the start of a real passing of the baton to a younger generation of investor at SCT? In any event I will be watching with interest to see what happens to Ian's strategic stake.

SNOOPY

I first met Ian at Ebos AGM in approx 1991.About 10 shareholders present.The Chairman Jamie maddren past round the afternoon tea.Mark Waller and forget his name {was canty cricket captain and went to manage EBO in aussie ] were having Ian on.Wanted to know where he got his shoes from?.Were taking bets either Salvation Army or Methodis Misson,as they had not seen him wear shoes before,and both knowing Ian well knew he would not have paid full price at a shop.!!!! EBO at the time had a market cap of just over $2 mil.I had cause to ring him over something I was unsure of about EBO.He was very easy to speak to,and made sure I understood what he was telling me. At that time Ian had a lot of EBO shares.Maurice Ryan was the cricket guy,just remembered.Ian worked for the National Bank,made a lot of money on Brierly investments,NZ Cement company,and Nuplex.I last saw him a couple of years ago at a Postie Plus AGM.A character,who was always interesting to speak to.Yes Snoopy it will be interesting to see what happens to Ian's SCT holding,and I am pleased you posted Ian's vale.He was single and looked after his parents for a number of years.He had good advice from Geoff Wilkinson at Hamilton Hinden and Green before Geoff retired a few years ago.

[Snoopy]

In any event I will be watching with interest to see what happens to Ian's strategic stake.

Answer: On 28th October the late Ian's shares were transferred to the J I Urquhart Trust. So that takes away any overhang of SCT shares in the market. Or does it? Perhaps the trustees of the J I Urquhart Trust will be compelled by law to sell down some SCT shares as part of their duties of being 'prudent' (not having too many of their eggs in one basket). Anyone know the legal requirements of this situation?

SNOOPY