SCT - Scott Tech

[Snoopy]

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

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

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

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

SNOOPY

[Sideshow Bob]

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

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

[Under Surveillance]

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

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

SNOOPY

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

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

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

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

[Snoopy]

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

OK not quite for free.

JBS put

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

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

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

-------

Update on Approval Requested from the Overseas Investment Office.

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

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

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

-----

SNOOPY

[Carpenterjoe]

Why is this company being sold so cheaply?


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


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

statements show..

Cash up

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

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

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

All non trading debts down?

And still paying a large div with so much debt?

I hope snoops has the answers for all my questions!

[Under Surveillance]

I hope snoops has the answers for all my questions!

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

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

[Snoopy]

Why is this company being sold so cheaply?

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

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

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

I hope snoops has the answers for all my questions!

Working on them!

SNOOPY

[Snoopy]

Cash up

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

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

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

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

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

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

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

RO's = Return on Operations?

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

Ppe down by 4mil?

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

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

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

All non trading debts down?

And still paying a large div with so much debt?

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

I hope snoops has the answers for all my questions!

Have done my best!

SNOOPY

[Carpenterjoe]

Good stuff. Thanks, Snoopy

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

[sb9]

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