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  1. #721
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    Ha! That is one share purchase I got wrong! But I didn’t get many, and after all, something has to have a negative return in the portfolio. It is nice having a share in a “local” company....and time turns many reds to green (not all, but some). I shall live in hope that they will be a growth company and someone will come in and drive them forwards.

  2. #722
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    Default JBS Australia: The Opportunity

    Quote Originally Posted by Snoopy View Post
    I see from Appendix 1 of the Northington report that JBS Australia has 11 processing facilities in Australia. From the presentation:

    -----

    Over the past two, JBS Australia and Scott have worked together installing an automated meat processing system for its lamb plant in Bordertown and elsewhere in Australia.

    1/ The production line at Bordertown is running daily, at commercial line speeds (approx. 10 head of sheep per minute or approx. 8,000 per day). [Snoopy note: looks like two eight hour shifts per day]
    2/ Rather than leading to redundancies, staff have been reloc'[/ated to other parts of the plant, with consequent expansion in throughput.
    3/Scott’s automation equipment is also operating at JBS’s Brooklyn plant (lamb) and beef plants at Dinmore and Beef City.

    This reads as though Bordertown has 'full automation' and Brooklyn (lamb) and for Beef Dinmore and 'Beef City' (Toowoomba) are partially automated.

    The JBS Australia Website lists the following processing sites:

    Queensland: Dinmore, Beef City (near Toowoomba), Rockhampton, Townsville
    NSW: Rivernia (rural NSW)
    Victoria: Brooklyn, Cobram
    Tasmania: Devonport, Longford
    South Australia: Bordertown

    Late in 2014, JBS acquired the 'Primo' group, specialising in smallgoods and bacon. Primo has two abbatoirs. One in Port Wakefield (South Australia) , and the other at Scone in the Hunter valley (NSW)

    Nine of the above facilities process beef, and one pork. However JBS also processes lamb (Brooklyn) and goats.
    JBS Australia is the 'first line of growth' for Scott Technology. So I think it is worth itemizing the opportunity amongst the JBS Australia plants. Overall 85% of JBS Australia's meat cut output is exported. This means international cost competitiveness is paramount. Robotics is a good way to bridge the cost gap to low cost overseas competitor countries. For Scott Technology these robotic development opportunities are not quite 'cash in the bank'. But with JBS Australia as Scott's controlling shareholder they are the nearest thing to it.

    JBS Australia Meat Processing Plants
    Location Plant Animals Processed Output Capacity per day Scott Robotics Installed?
    Queensland Dinmore Cattle 3400 Yes (pre EOFY2015)
    Queensland Beef City (Toowoomba) Cattle (grain fed) 1134 Yes (pre EOFY2015)
    Queensland Rockhampton Cattle (grass fed) 1400
    Queensland Townsville Cattle (grass fed) 1800
    New South Wales Riverina Cattle (grain fed) 600
    New South Wales Scone Cattle (grass fed) 650
    Victoria Brooklyn Cattle 1400
    and 'Small Stock' 8200
    Victoria Cobram Lambs 3200
    South Australia Bordertown 'Small Stock' 5000 Yes (pre EOFY2015)
    Tasmania Devonport Cattle (grass and grain fed) 28
    and Pigs 85
    and Lambs 540
    Tasmania Longford Cattle 450
    and 'Small Stock' 1600

    Scotts have a policy of not referring to specific contracts in their reporting periods. Yet relevant commentary from subsequent reports follows:

    HY2016 p1 "An uplift in projects for the meat processing sector, the company's Australasian sales were up over 70% from the previous year."

    FY2016 p5 "the manufacture and sale of multiple repeat X-ray , Primal and Middle Systems for meat processors in Australia and New Zealand
    FY2016 p51 "Meat Processing Revenue: FY2016 $38.875m, FY2015 $10.924m, +256% yoy

    HY2017 p1 "Economies of scale gained through a of repeat builds for the food and industrial automation industries, together with a closer sharing of skills and resources on on projects between Australia and New Zealand resulted in the company's Australasian sales being up 34% from the previous corresponding period."
    HY2017 p10: Australasia Manufacturing Revenues HY2017: $45.091m HY2016 $33.533m +34% yoy

    FY2017 p7; "Scott is also working closely with the Australian industry as it determines the best way to implement a planned roll out of DEXA X-ray technology to approximately 80 'Ausmeat' accredited meat processing facilities. The total project is expected to be rolled out over the next three years and opens the possibility to utilise the X-ray rooms to to drive Scott's meat processing automation.'"

    HY2018 p4 "Growth in the uptake and sale of our meat processing technologies is expected to accelerate in the second half of the year following a longer than expected completion time for previous projects and and a period of reduced activity in Australia caused in part by the ongoing discussions and uncertainty over the Red Meat industry roll out of DEXA systems into all Ausmeat accredited facilities."
    "During the first half of the year we commenced substantial development projects for our meat processing customers, including a start in the Pork and Poultry sector in addition to our meat and lamb."

    FY2018 p5 "Sales into our traditional markets of Appliances, Meat Processing and Mining sectors all achieved double digit growth. with the Appliance sector being the stand out with a 56% increase from the prior year."
    FY2018 p6 "We have commenced significant projects aimed at transferring our technology from lamb deboning to other species. Scott currently has two significant projects underway in beef, one in pork and two in poultry."
    FY2018 p7 "Bladestop bandsaw sales met our current year targets and combined with ongoing demand for lamb and boning automation solutions in New Zealand and Australia helped deliver record sales in our meat processing sector."

    HY2019 "Australasia manufacturing sales were up 6% although due to heavy R&D spend and some project cost overruns contributions were down. One project in the meat industry suffered longer than expected commissioning times."

    It looks like sales are rolling forwards, particularly in Australia. But what exactly is it in terms of specific projects that Scott are able to offer to the meat industry?

    SNOOPY
    Last edited by Snoopy; 04-07-2019 at 08:15 AM.
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  3. #723
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    Default Meat Industry Robotics: What's for sale?

    ,
    Quote Originally Posted by Snoopy View Post
    It looks like sales are rolling forwards, particularly in Australia. But what exactly is it in terms of specific projects that Scott are able to offer to the meat industry?
    Scott's crown jewel Meat Industry project is the 'Automated Lamb Boning Room'. This can be broken down into six distinct units:

    1/ X-ray Grading
    2/ X-ray Primal Cutter
    3/ Middle Machine (prepares rack and loin)
    4/ Hindquarter leg de-boner
    5/ Forequarter Processing
    6/ Knuckle Tipper (removes knuckle top from hind leg).

    Together 1-6 make up the 'automated lamb boning room', The design throughput speed is 10-12 carcasses per minute (equating to 8,000 per day), although I am not sure how many pieces of equipment operating in parallel at the same time this represents. The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry. But these other products are not fully automated and so represent sales along the path to automation. They are not themselves part of the automated boning room so I will not discuss these semi-manual tools further in this post.

    Automating the breakdown of a lamb carcass is an easy task (easy being a relative term) in the labyrinth of dissection possibilities of all animals farmed for meat. This is because lambs are relatively small and more uniform in size than beef carcasses in particular. The automation potential in the beef industry is much greater. However due to the beef carcass being much heavier and processed in halves, rather than full animals, the full automation of this is a very different and harder task.

    As far as I can make out the automated beef machines that Scott's currently consist of:

    1/ the "Beef Rib Cutter / Scorcher"
    2/ the "Beef Hock Cutter"

    There is currently nothing commercially available for pork.

    Scott's are busy with their R&D, filling the holes in their meat cut automation range: Even chicken and salmon is on the research list. But as things stand now, with the exception of lamb, the automated solutions for the most potentially lucrative market - beef - are limited.

    SNOOPY
    Last edited by Snoopy; 04-07-2019 at 09:46 AM.
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  4. #724
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    Quote Originally Posted by Snoopy View Post
    Scott's crown jewel Meat Industry project is the 'Automated Lamb Boning Room'. This can be broken down into six distinct units:

    1/ X-ray Grading
    2/ X-ray Primal Cutter
    3/ Middle Machine (prepares rack and loin)
    4/ Hindquarter leg de-boner
    5/ Forequarter Processing
    6/ Knuckle Tipper (removes knuckle top from hind leg.

    Together 1-6 make up the automated lamb boning room, The design throughput speed is 10-12 carcasses per minute, although I am not sure how many pieces of equipment operating in parallel at the same time this represents. The are other machine products, the most high profile being 'Bladestop', a failsafe boning saw for sale to the industry. But these other products are not fully automated and so represent sales along the path to automation. They are not themselves part of the automated boning room so I will not discuss these semi-manual tools further in this post.
    Once it goes through the primal cutter, then 3-5 could operate in parallel.

    The robots are great for consistency of product and getting correct yields, especially the primal cutter.

    Still need a reasonably number of staff - but there is automation/machinery out there already to reduce labour that these machines can work in with - ie boneless loin plough and a water 'Frenching' machine.

    Beef would be the real prize - lamb is largely restricted to NZ and Australia.

  5. #725
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    Quote Originally Posted by BlackPeter View Post
    Not so sure ... I guess they are an interesting company doing stuff engineers like. I can sympathise.
    And while they do have some sort of niche in meat processing - nothing they do is unique. Just put a handful of electrical and mechanical engineers together and give them enough money and they can do it as well.
    I think you are underselling the ever growing line of patents that Scott have filed since entering the meat carcass processing robotics BP. If we go back to the November 2015 presentation when Scott's were busy selling shareholders on the tie up with JBS, look at pages 22 to 24.

    "Scott's patent portfolio has increased fourfold (from 7 to 35) over the last six years. More than 20 patent applications are pending."

    "23 patents have been secured across different processes and in different geographical regions."

    The patent(s) granted in NZ in 2009 for 'Bone in Processing" (via three individual patents) were 'patent pending' in the US, China , Mexico, Canada, Australia and Brazil in 2015. This particular 'patent set', Scott expects will provide comprehensive protection for the automation process in the most important global markets going forwards.

    While you are right BP in that there are other engineering companies that can do this work, in practice when one tried in Europe a few years ago they were issued with a cease and desist notice by Scott's which was honoured. I don't think you will see Scott's go soft on any outfit that infringes their patents! Scott's have a strong moat in the meat processing automation market.


    SNOOPY
    Last edited by Snoopy; 04-07-2019 at 10:33 AM.
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  6. #726
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    Great summary Snoopy, it definitely gives me confidence in Scott Tech in the long term. I don't get it though. Everything seems really promising as far as potential growth for this company. They have strong revenue and profit growth, albeit slightly weaker EPS growth (so far anyway), yet the share price has dropped more than $1.5 over the past year (50c in the past 2 weeks). That is an FBU type disaster but yet there is no apparent major issues at scott tech as far as we know. Anyone have an thoughts to explain the weak share price? Is it just the weak EPS grwoth + market conditions favouring high yield, larger companies vs smaller growth companies right now?
    Last edited by sanctus671; 04-07-2019 at 12:50 PM.

  7. #727
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    Quote Originally Posted by Snoopy View Post
    I think you are underselling the ever growing line of patents that Scott have filed since entering the meat carcass processing robotics BP. If we go back to the November 2015 presentation when Scott's were busy selling shareholders on the tie up with JBS, look at pages 22 to 24.

    "Scott's patent portfolio has increased fourfold (from 7 to 35) over the last six years. More than 20 patent applications are pending."

    "23 patents have been secured across different processes and in different geographical regions."

    The patent(s) granted in NZ in 2009 for 'Bone in Processing" (via three individual patents) were 'patent pending' in the US, China , Mexico, Canada, Australia and Brazil in 2015. This particular 'patent set', Scott expects will provide comprehensive protection for the automation process in the most important global markets going forwards.

    While you are right BP in that there are other engineering companies that can do this work, in practice when one tried in Europe a few years ago they were issued with a cease and desist notice by Scott's which was honoured. I don't think you will see Scott's go soft on any outfit that infringes their patents! Scott's have a strong moat in the meat processing automation market.


    SNOOPY
    Not sure the sheer number of patents would impress me ... one relevant patent is much more important than hundreds of non-relevant; However - I must admit, I have not analysed their patents, i.e. you might be right and they might have a moat through them. Did anybody do the analysis?
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

  8. #728
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    Quote Originally Posted by sanctus671 View Post
    Great summary Snoopy, it definitely gives me confidence in Scott Tech in the long term. I don't get it though. Everything seems really promising as far as potential growth for this company. They have strong revenue and profit growth, albeit slightly weaker EPS growth (so far anyway), yet the share price has dropped more than $1.5 over the past year (50c in the past 2 weeks). That is an FBU type disaster but yet there is no apparent major issues at scott tech as far as we know. Anyone have an thoughts to explain the weak share price? Is it just the weak EPS grwoth + market conditions favouring high yield, larger companies vs smaller growth companies right now?
    Scotts average EPS since 2012 is 13 cents per share. Last years EPS was 13 cents per share. Where exactly do you see the (slightly weaker) growth? Must be the impact of the endowment effect?

    Markets still pays a nice premium given a PE of 16.5 for a non growth company. What premium do you think they should pay?
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

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    Quote Originally Posted by BlackPeter View Post
    Scotts average EPS since 2012 is 13 cents per share. Last years EPS was 13 cents per share. Where exactly do you see the (slightly weaker) growth? Must be the impact of the endowment effect?

    Markets still pays a nice premium given a PE of 16.5 for a non growth company. What premium do you think they should pay?
    EPS figures over the years I pulled from Scott Tech's annual reports:
    2009:1.1
    2010:8.5
    2011: 16.6
    2012:16.7
    2013:13.6
    2014: 6.2
    2015:13.8
    2016:13.3
    2017:13.2
    2018: 14.3
    2019: For first half of year is 6.6, last year it was 4.2 for first half of the year

    Of course, we can only speculate what this years EPS would be so instead better to look at last years figures. 14.3 is more than 13.2. It's a marginal increase hence why I said weak EPS growth.

    You'll need to forgive me as I'm definitely not a financial expert. Perhaps I have this wrong, and if so, please let me know. I'm not hugely knowledgeable on EPS and other financial measures of a company which is probably why I missed certain things with Scott Tech. I guess what confuses me is how revenue growth can be so strong while EPS growth isn't.

    Also, my point with my post is about how the share price has decreased so dramatically. I understand how you personally don't value Scott Tech's current share price, but I'm referring to the huge 40+% downtrend that has seemingly not been triggered by any major event within the company.

  10. #730
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    Quote Originally Posted by BlackPeter View Post
    Not sure the sheer number of patents would impress me ... one relevant patent is much more important than hundreds of non-relevant; However - I must admit, I have not analysed their patents, i.e. you might be right and they might have a moat through them. Did anybody do the analysis?
    The idea of 'three key patents' defining 'a moat' that will make it difficult for other companies internationally to move on the robotization of meat processing in the way that Scott Technology has is not mine, I have copied this straight from p24 of the joint Scott & JBS presentation dated November 2015. This was the nationwide presentation taken around the country just prior to the approval of the JBS buy in. I haven't independently analysed these patents myself and am probably not qualified to make such a judgement on them in any case . But I have no reason to believe that Scortt's, with their 16 years in the meat automation business to that point, would make such a claim up.

    SNOOPY
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