SCT - Scott Tech

[BlackPeter]

Whatever it is - announcement does not look flash. No divie, loss for the first HY and given the planned restructure I think we can expect a loss for the second half as well.

And we should not forget that the impact of Covid 19 is not really part of the results so far (financials are up to February).

Holders might want to buckle up or sell ...

[BlackPeter]

Scott themself seem to think model needs to change.

Part of todays SCT announcement.

The past five years has been a period of rapid acquisition growth for the company, resulting in a diverse reach across sectors, customers and geographies. With a new leadership team in place and given the changing operating environment, Scott is now moving to streamline its business and will focus on leveraging core strengths and expertise which offer profitable sustainable growth and margins.
The company’s new strategy will build on five pillars – Customer Partnerships, Leading Edge Technology, One Global Team, Operational Excellence and a Robust Global Platform. In particular, Scott will be increasing its focus on repeat, profitable sales of developed and proven technology, products and services which are core to the Scott Group; and increasing its service and support offering for customers. New project design & development will be carefully risk assessed and R&D activities will become highly focused on core technologies, with additional, carefully targeted strategic projects aimed at delivering positive commercial growth opportunities.

Amazing serving of corporate speak. Blurbs like that always make me wonder whether management has any idea what they are talking about. You could copy them from any corporate restructure plan. Have heard quite similar talk in some other NZ company more than 5 years ago (similar size, technology and export focus) ... and no, it didn't end pretty in this other example.

But I am sure - this time it will be different.

[winner69]

Scott themself seem to think model needs to change.

Part of todays SCT announcement.

The past five years has been a period of rapid acquisition growth for the company, resulting in a diverse reach across sectors, customers and geographies. With a new leadership team in place and given the changing operating environment, Scott is now moving to streamline its business and will focus on leveraging core strengths and expertise which offer profitable sustainable growth and margins.
The company’s new strategy will build on five pillars – Customer Partnerships, Leading Edge Technology, One Global Team, Operational Excellence and a Robust Global Platform. In particular, Scott will be increasing its focus on repeat, profitable sales of developed and proven technology, products and services which are core to the Scott Group; and increasing its service and support offering for customers. New project design & development will be carefully risk assessed and R&D activities will become highly focused on core technologies, with additional, carefully targeted strategic projects aimed at delivering positive commercial growth opportunities.

Oh, a new strategy

Did Martin Luther King stand in front of the Lincoln Memorial and say 'I have a new strategy'

No, he said 'I HAVE A DREAM'

Does Scott have a dream .... a vision .... doesn't seem to

[percy]

Well another disappointing result.
Missed priced large projects,costly.
With meat works trying to get more and more automated,it is a great pity Scott can't do it profitably.
So restructure ,refocus,and right size the business .
Will they get it right,what will it cost,and how long will it take.?
And the big question;will they get it right.?
History is not on their side.
Time to remember Buffett's quote;
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

[kiwidollabill]

I've always had a personal interest (from Uni days) in HTS-110, I see they are selling it (phrasing implies they have a buyer?), think it was bought originally for ~$4M?

[Snoopy]

Up for re-election this year is JBS representative Andre Nogueira. 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?

SP jumps nearly 10% on news of Nogueira's resignation... that's got to hurt.

I am glad that Nogueira has seen sense. If he couldn't attend any board meetings last year, he sure isn't going to attend any under Covid-19 restrictions.

The new director, Alan Byers, sounds good and he has close connections to Andre Nogueira.

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DIRECTOR APPOINTMENT – ALAN BYERS

The Board is pleased to announce the appointment of Alan Byers as a Director, effective from 8 May 2020.

Alan was most recently the President of US Regional Beef, retiring from that position after 43 years in the industry. Alan is now serving as a Senior Advisor to Andre Nogueira and the collective JBS US business. Prior to joining JBS USA, Alan held a number of senior executive roles, including CEO / President of Meyer Natural Foods, President of ConAgra Signature Meats, and 18 years with Hormel culminating in an assignment as President of Dubuque Foods.

Alan’s career experience has included positions as Plant Personnel Manager, Corporate Labour Relations Manager, Industrial Engineering Manager, Corporate Operations Manager, Plant Manager, Product Marketing Director, and Executive Vice President of Sales.

Alan is a Drake University graduate with a degree in Industrial Communication. He also holds an MBA from Kellog School of Business/Northwestern.

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Does that last line mean he got his MBA out of a cornflakes packet? Never mind, I guess 43 years experience in industry trumps all qualifications anyway. It will tough attending board meetings though. 14 day quarantine before he attends any board meeting and another 14 days quarantine when he returns to the USA. Just as well the board meetings are only every two months?

SNOOPY

[Snoopy]

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.

The above is what I said in November. Below is the 8th May market announcement on 'business restructuring'.

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Business Restructure

In line with the new strategy, the company is transitioning to a streamlined, regionally focused business model with four regions - Australasia (New Zealand & Australia), Europe, North America and China. Each will be led by a Regional Director with local teams providing product expertise, sales and customer support.

Manufacturing plants will become Centres of Excellence where each plant will have a specific focus on a product or industry sector, rather than all plants striving to produce a number of different and often highly complex systems and products.

The business and workforce will be right-sized for the new strategy and operating environment, resulting in a reduced cost base. This will include the consolidation or closure of a number of facilities including the closure of the Kürnbach facility in Germany with production moved to other plants, the proposed consolidation of Melbourne manufacturing into the Sydney plant and closure of the Brisbane office.

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I can see the sense of consolidating the east coast of Australia offices. Germany is, I guess, just too expensive a base from which to maintain a cost effective contracting base. Sad for Scott's German employees. But hopefully their skills can be picked up by higher margin manufacturers.

The problem with the 'centres of excellence strategy' as I see it is that, in these days of trade wars, the ability to dodge around tariffs could be lost. If SCT had 'centres of excellence for design', while maintaining the ability to shift manufacturing bases where most of the hard costs are incurred, then that might work. But with individual countries operating as silos in the future, what does that say for the Chris Hopkins grand plan of the merits of having a truly integrated global business?

Finally, if what I previously speculated about transfer pricing was true, a decentralised approach could see the end of dividend imputation for NZ shareholders. Of course you could argue that the dividend imputation issue is no longer relevant if there aren't any dividends!

SNOOPY

[BlackPeter]

...

I can see the sense of consolidating the east coast of Australia offices. Germany is, I guess, just too expensive a base from which to maintain a cost effective contracting base. Sad for Scott's German employees. But hopefully their skills can be picked up by higher margin manufacturers.

Given that Germany's big strength is its engineering SME's you are wondering why Scott was not able to run their German engineering business profitable if everybody else seems to be able to do that ...

A company which is not able to make a German engineering business successful must be about as incompetent as a company not being able to profitable run a New Zealand agrar business or a company not being able to successfully produce cheese in the Netherlands or to run a profitable banking operation in Switzerland.

Sure - there examples for all of the above, but normally it is not a good idea to invest into any of these losers.

[winner69]

Found a report that showed Scott’s turnover in F2003 was $47.5m with NPAT of $5.6m

Shareholders had put in $7.6m in 2003 and this has increased to $81.8m

Retained Earnings in 2003 were $9.3m in 2003 and this now $14.9m

Heaps more capital being used these days ....for lower returns?

It’s a Dunedin based company so allowed to be like that

Come a long way in the last 17 years?

[Snoopy]

Found a report that showed Scott’s turnover in F2003 was $47.5m with NPAT of $5.6m

Shareholders had put in $7.6m in 2003 and this has increased to $81.8m

Retained Earnings in 2003 were $9.3m in 2003 and this now $14.9m

Heaps more capital being used these days ....for lower returns?

It’s a Dunedin based company so allowed to be like that

Come a long way in the last 17 years?

Check out the price of any bit of whiteware in 2003. Now look at an equivalent item today and I bet you can buy it for the same price or less. Falling margins on relatively static demand is the problem faced by whiteware makers worldwide.
Solution? Crank up the speed of the automated manufacturing lines that make the fridges / washing machines. But that puts more strain on the manufacturing equipment. And that means more troubleshooting is required by the likes of Scotts. As the manufacturing equipment becomes 'less reliable' whiteware making customers require larger 'performance delivery bonds'. Another cost to be faced by Scotts.

The truth is, supplying manufacturing equipment for whiteware makers is not as profitable as it once was. This was the driving force behind diversifying the business firstly by acquiring Rocklabs in 2008, and subsequently in a business acquisition drive that has been continuing ever since. And as we know business acquisition and changes of direction do not come without risk. So yes Winner, SCT was more profitable in 2003. But unfortunately going back to 2003 business conditions is not possible because the cosy business model of 2003 now has new cost pressures.

To pervert a Warren Buffett baseball analogy. If you keep swinging your bat at new balls, eventually you will hit a home run (at least that is what we SCT shareholders hope)!

SNOOPY