SCT - Scott Tech

[winner69]

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

Share price shortly after announcement of F2003 was $1.84 (adjusted for bonus issue)

That’s spooky eh.

[Marilyn Munroe]

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?

My understanding is the technology is good but market uptake is hampered by the high cost of superconducting wire which is critical to the technology.

Boop boop de do
Marilyn

[Snoopy]

SCT's normalised net profit after tax was just +$0.8m. Yet further up the income statement normalised EBITDA was a loss of $0.4m! I can't fathom how an EBITDA loss can turn into an NPAT profit. Perhaps someone who has some serious accounting training can explain.

Ok no-one took up the challenge so I will attempt to answer my own question.

Operational EBITDA	($0.392m)
less Depreciation & Amortisation	($5.032m)
less Finance Costs	($1.050m)
add Interest Received	$0.010m
add Tax Credit (Australian R&D)	$1.168m
add Tax Credit (NZ)	$3.441m
equals NPAT Operational	($1.855m)

That doesn't correspond to the declared 'normalised net profit' of $0.8m. What am I missing?

SNOOPY

[Biscuit]

Ok no-one took up the challenge so I will attempt to answer my own question.

Operational EBITDA	($0.392m)
less Depreciation & Amortisation	($5.032m)
less Finance Costs	($1.050m)
add Interest Received	$0.010m
add Tax Credit (Australian R&D)	$1.168m
add Tax Credit (NZ)	$3.441m
equals NPAT Operational	($1.855m)

That doesn't correspond to the declared 'normalised net profit' of $0.8m. What am I missing?

SNOOPY

I haven't looked at their accounts (which can't be nice to look at) but is it possible they have a tax benefit?

[Snoopy]

I haven't looked at their accounts (which can't be nice to look at) but is it possible they have a tax benefit?

Thanks for the response Biscuit, and here is the link to the HY2020 results (which I should have given before).

https://www.scottautomation.com/asse...Statements.pdf

See p1 "SCOTT TECHNOLOGY LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME."

To answer your specific question, yes there are tax benefits that I have detailed in my calculation.

On p4 of the HY2020 results presentation

"2./ Normalised EBITDA and Normalised NPAT exclude non-trading adjustments."

Non-trading adjustments total $11.8m (p4 HY2020 Presentation). Now refer back to the half year accounts note 4: Impairment of Assets $10.931m. Next check out the restructuring provision in note 5: $1.429m. After tax that restructuring provision comes to $1.429m x 0.72 = $1.028m. That comes to a total of $11.959m (Not quite the $11.8m I was looking for).

SNOOPY

[Biscuit]

To answer your specific question, yes there are tax benefits that I have detailed in my calculation.


SNOOPY

Ah, I should have noticed that! No, I am none the wiser, I have no idea - must be something to do with some component of ITDA? Scotts might be a good investment going forward if the Covid-crisis spurs on automation? I like the idea of the company but the profit looks a bit up and down, and they are never particularly cheap.

[winner69]

Solved the puzzle yet Snoops

I love puzzles ..... let me know if it still needs solving

[Snoopy]

Ah, I should have noticed that! No, I am none the wiser, I have no idea - must be something to do with some component of ITDA?

Solved the puzzle yet Snoops

I love puzzles ..... let me know if it still needs solving

Not solved yet Winner. In theory translating an EBITDA figure into an NPAT figure from the income statement shouldn't be too difficult. Even I can usually do it!

This one still has me stumped though. It might be more fun to think of this problem as a murder mystery, with suspects 'E' 'I' 'T' and 'DA'. I think this is in effect what Biscuit is saying. However, rather than dealing with a physical body, what we are dealing with here is the 'murdering' of SCT profits. So whodunnit?

I think 'I' is probably in the clear. The income statements shows finance costs of ($1.050) offset by 'interest earned' of $0.010 for a net interest cost of ($1.040). To me 'I' looks straight, and doesn't appear to be hiding anything.

Similarly 'DA' looks hard to fudge. ($5.032) as a half year charge looks straight. There is no further information included in the report apart from this total. My inkling is that DA is in the clear.

'T' looks a bid dodgy though. He appears as a credit in the profit statement, yet if you look in the segmented profit breakdown he appears as a bill. Neither of those lines up with the tax paid in the cashflow statement. He is my prime suspect but I can't pin him down.

'E' seemingly escapes scrutiny by most (well Biscuit at least). But have some 'non operating earnings' been reversed to create a higher figure from which the normalised NPAT hasd been calculated? I have a gut feeling that 'E' could be implicated.

It might even be a double hatchet job involving 'T' and 'E'. As a simple 'bobby on the beat' this is as far as I have got. Over to you detective sergeant Winner.

SNOOPY

[Biscuit]

'T' looks a bid dodgy though.

I'd suspected T from the start! Remember though, in a whodunnit, the nasty-looking character is the first to raise suspicions, but it usually turns out to be the most innocuous character who is the guilty party. Purely from an Agatha Christie point of view, I'd have a good hard look at Mr straight guy "I" what is he really hiding?

[winner69]

OK ...we either trust them and that they know what they doing and it’s all above board or we go to the top to find out.

I’ve emailed them ...let’s see what happens

I see they use a PR company so copied in Mr Kippenberger

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Hi Jackie

Re half year results

I have a friend on a share trading forum (Sharetrader) asking if anybody can reconcile how Scott goes from Normalised EBITDA of ($0.4m) to Normalised NPAT of $0.8m. (As shown on your presentation)

It does seem a bit of puzzle and hard to tie in with the Income Statement.

My friend is known as the ‘normalisation guru’ and not many things stump him but this as. Even I can’t work it out for him. I think the frustration is getting to him.

So to alleviate his concerns can you get somebody to clarify for us. I will pass any response to him via Sharetrader.

My friend is a loyal long time shareholder of Scott.

Thank you