SCT - Scott Tech

[Snoopy]

Business Acquisition - Transbotics

https://www.nzx.com/announcements/318776

Another acquisition to bolster growth.

The above was recorded by sb9 on 31st May 2018

Fairly light on detail with this announcement. We have thirty new members in the Scott's team as a result of buying Transbotics. Transbotics do Automotive Vehicle Guidance systems. The completion of the transaction announcement on 8th June says Transbotics has revenues of US$4.5m to US$11.0m over the past five years. Yet no mention of how much Scott's paid for the business? I guess ultimately we will find out when the AR comes out at the end of the year?

AR2018 is now out and the 'grim details' are in Section E1. Cost of acquiring Transbotics is recorded at $4.873m. Keep on reading and we find:

"Revenue of $4.0m and operating EBITDA of $0.8m (is) attributable to the Transbotics business"

The acquisition was completed on 8th June, while the financial year ended on 31st August. So Transbotics was owned for only (30 - 8) + 31 +31 = 84 days OR 84/365= 0.2301 of one year.

So if we annualise Transbotic's results, an extrapolative procedure with all the dubiousness that implies, I get an annualised Transbotic contribution of:

Revenue = $4.0m/0.2301 = $17.4m

EBITDA = $0.8m/0.2301 = $3.5m

Since we know that actual revenue at Transbotics over the last five years have varied between US$4.5m to US$11.0m, it is likely my extrapolation is unrepresentative and the real annualised EBITDA contribution is lower too.

SNOOPY

[BlackPeter]

I attended yesterday the 2018 AGM at their Christchurch venue. Roughly 40 shareholders present.

AGM presentation has been published, i.e. no need to repeat here, but some observations:

Low staff turnover (6% annually) indicating good staff retention. However – skill shortage is a problem for them;

The chair talked about the uncertainties Trumps trade war with China might bring (they do have a factory in China) but stressed as well a good project pipeline (9 months) and increasing sales to their majority shareholder JBS.

Major growth (through acquisitions) in Europe and the US … however reflected as well in the balance sheet through lower NTA but higher goodwill.

A number of questions from the audience:

Q: Great that revenue and earnings grow, but not so good that EPS are flatlining. Does the company expect EPS to grow in future as part of their growth strategy as well?

A: company does not make forecasts … however – after some dialogue offered the MD that they expect the EPS trend in the years to come to move upwards as well. You heard it here first (unless you've been on the AGM as well !

Q: The company had in the recent years outstanding growth … and is now of a size where many other companies experience “growth pains”, often due to lack of process / communication issues - is this something Scott Technologies experiences as well?

A: Communication with the new aquired companies is good and Scott Technology actively manages this by bringing staff from all parts of the world for conferences and training together and having regular videoconferences (resulting in odd working hours given different time zones). Process is important to them (and owned by the Managing Director). Some of their venues are ISO9001 certified, but they put more emphasis on using lean methodologies including 6 Sigma.

Q: How is the New Zealand based business developing under the current government?

A: I heard some frustration about the inability of the New Zealand government so far to get waivers for NZ industry in Trumps trade war. Chris mentioned as well ongoing skill shortages; Oherwise – business as usual since the change of government.

Q: Is the company putting enough effort into internal staff training?

A: Chris mentiones dedicated training staff as well as the recent conferences- yes, he believes so.

Good opportunities to talk during the informal get together after the AGM with board and management and for a short factory tour.

Overall impression: It feels like a well managed company in an interesting industry. From a personal perspective - the SP feels currently still a bit dear ... but this is true for many other good NZ companies as well.

[Joshuatree]

Thanks BP, thats a great summary of the meeting for sharetrader. i can be a bit cynical of presentations and AGM's and have my bull****e detector on high alert as these shows can have an advantage with our feel good "investor bias" and some of the CEO's have the psychological training to rev us up as they are such "nice " people with "our " interests at heart .One needs a little feral cynicism when investing.

[BlackPeter]

Thanks BP, thats a great summary of the meeting for sharetrader. i can be a bit cynical of presentations and AGM's and have my bull****e detector on high alert as these shows can have an advantage with our feel good "investor bias" and some of the CEO's have the psychological training to rev us up as they are such "nice " people with "our " interests at heart .One needs a little feral cynicism when investing.

Absolutely - and nobody should invest into anything based solely on one data set (like input from one AGM).

Not sure, though what you try to tell us here - do you think it is better to ignore input from AGM's / company presentations?

As well - is your comment specific to Scott Technology - or is this this just general advise?

Just for clarification - I went as proxy to the AGM. I do not hold (but could imagine buying in at the right price).

[Joshuatree]

Just general , ive been to a few presentations lately and was impressed at your detail.

[sb9]

Thanks BP for your input from ASM.

[BlackPeter]

Just noticed - JBS keeps increasing their stake - holding now 51.1%.

https://www.nzx.com/announcements/327865

Interesting - I woiuld have thought that the shares are (PE above 20 and no EPS growth) rather dear, but JBS may well have other plans for them - turn them into an in house widget manufacturer?

[sb9]

Just noticed - JBS keeps increasing their stake - holding now 51.1%.

https://www.nzx.com/announcements/327865

Interesting - I woiuld have thought that the shares are (PE above 20 and no EPS growth) rather dear, but JBS may well have other plans for them - turn them into an in house widget manufacturer?

Here is the reason for increase in stake...

***
Details of transactions and events giving rise to relevant event:

Details of the transactions or other events requiring disclosure: JBS Australia Pty Limited was issued ordinary shares by Scott Technology Limited in accordance with its dividend reinvestment plan as follows:

Date of issue Number of shares Price per share

28 November 2017 616,461 NZ$ 3.6416

24 April 2018 445,073 NZ$ 3.4180

27 November 2018 789,371 NZ$ 2.9246

****

[BlackPeter]

I have seen that it is DRP related. But than - if they would know something better to do with their dividend money, than they clearly would not stick in the DRP, wouldn't they?

It still shows that JBS values the shares higher than other shareholders do, who obviously prefer to take the money instead. Otherwise JBS' percentage would not rise.

[sb9]

I have seen that it is DRP related. But than - if they would know something better to do with their dividend money, than they clearly would not stick in the DRP, wouldn't they?

It still shows that JBS values the shares higher than other shareholders do, who obviously prefer to take the money instead. Otherwise JBS' percentage would not rise.

That's ok then, they probably prefer to increase stake thro' DRP than dilute cash flow by taking cash instead.