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  1. #11
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    I would have thought it was pretty good news. From what I know, Rocklabs is fairly similar business to ASX:ESS - a company which has performed rather well in recent years.

    I think this will create some interest in SCT - though whether the transaction was at a fair price or can be integrated successfully with SCT current business is difficult to tell.

  2. #12
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    Quote Originally Posted by Snoopy View Post
    Are you based in Dunedin Steve? If so how much do you reckon the old site is worth?

    SNOOPY
    Unfortunately, SCT rent the premises from a company associated with Graeme Marsh who was involved with SCT for years.

    I believe that the new premises will also be rented from interests of graeme as well, so Graeme will most likely end up being the major winner here...
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  3. #13
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    Quote Originally Posted by Snoopy View Post
    I'm disappointed we do not know how much cash or how many shares are going to be issued to acquire Rocklabs. Perhaps adding the rider that:

    "the transaction will be earnings positive for the Scott group."

    means that management have decided that they don't need to tell us. I would turn that around.

    Even given I know nothing about 'Rocklabs' I'm picking that the previous owner Devereux is making good profits now and will not be selling out cheaply. If buying into Rocklabs is 'earnings positive' from day one, that must mean that the current profitability on the rest of the SCT business, production line design build and installing and the meat processing robots, is minimal! Oh dear, it is hard to see the SCT share price reacting positively to this announcement.
    Well no ultimate positive reaction as I anticipated. In fact someone dumped 10,000 SCT shares late on Friday sending the share price down to a new low of $1.12. Perhaps the following announcement had something to do with it:

    ------------

    The Directors of Scott Technology Limited advise that the company is to reduce staff numbers by approximately twenty across its Dunedin and Christchurch sites. Three quarters of these redundancies are voluntary.

    Management undertook a lengthy consultative process involving staff and the EPMU. Management considered the current and anticipated trends in each of its revenue streams and has been able to focus redundancies on under-performing and non-core parts of the business. The level of voluntary redundancies has greatly assisted this process.

    Following the completion of this process, Scott Technology Limited's staff numbers will be approximately 60 in Dunedin, 70 in Christchurch and 35 at newly acquired subsidiary, Rocklabs, in Auckland; a total of approximately 165 staff.

    Scott Technology Limited is experiencing a change in its business model, with less demand for the traditional machining and fabrication parts of the business and greater demand for our innovation, design and robotics skills.

    Lower worldwide demand for appliances has resulted in appliance manufacturers reducing or cancelling capital expenditure on new production lines. This has impacted on our Christchurch based appliances division over the last nine months. While we are faced with reducing staff numbers now, we are also continuing to pursue new opportunities for our appliances division, particularly in China and Europe, albeit with long lead and build times.

    However, opportunities for our automation and robotics division continue to be plentiful and underlie the increasing demand for our innovation, design and robotics skills. We have recently won a contract to build a robotic welding cell for a New Zealand based equipment manufacturer and are undertaking the development of new automated processes for the dairy industry.

    Significant progress also continues to be made with the automated boning room systems for the meat industry and we anticipate being able to announce further sales in the near future.

    With the continuing growth of the mining industry, newly acquired Rocklabs is showing excellent results. Our automation division is currently working on a major laboratory analysis system which will add a robotic interface to one of Rocklabs' existing systems. We see these jointly developed automation systems as being a significant contributor to the Scott Group in the future.

    Many of these automation and robotics systems are heavily biased towards "front end" design, rather than final manufacture which has driven the need to reduce staff numbers.

    Despite the need to reduce staff numbers, the Directors and management remain very confident of Scott Technology Limited's future prospects.

    Yours faithfully

    Chris Hopkins
    Managing Director
    End CA:00166695 For:SCT Type:GENERAL Time:2008-06-27:16:05:50

    -----------

    The problems that SCT face are mirrored by every other exporter, not tied to the dairy industry. In fairness SCT look like they are adapting better than most, even though these adaptations will take time to flow through to the bottom line.

    The breakdown in staff numbers:

    60 in Dunedin (Robotics),
    70 in Christchurch (Appliance Production Lines) and
    35 at Rocklabs (Mining Industry), in Auckland

    is very interesting and not something I have seen disclosed before. It seems unfortunate that SCT are moving to a bigger and brighter premesis in Dunedin just as the downturn bites. I hope thay haven't lost key personnel in the workforce downsizing! The offer of voluntary redundancy seems to have been made across the two south island sites rather than targeting the appliance division where the main downturn in work is perceived. Mind you we don't know the 'before redundancy' workforce breakdown. So perhaps my interpretation of what SCT wants to achieve has the wrong spin.

    Still no announcement on the final 'cash and shares terms' associated with the Rocklabs acquisition. Until that comes out, plus some indication of the new cost structure associated with the move to the new Dunedin base, valuing the new combined group will be difficult.

    SNOOPY

    discl: hold SCT
    Last edited by Snoopy; 28-06-2008 at 10:20 AM.
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  4. #14
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    Quote Originally Posted by Snoopy View Post
    Significant news from SCT today. They are to become suppliers to the mining industry!

    26/05/2008
    TAKEOVER

    REL: 1328 HRS Scott Technology Limited

    TAKEOVER: SCT: ACQUISITION OF ROCKLABS

    <snip>
    The consideration for the purchase will be a mixture of cash and shares in Scott Technology and the transaction will be earnings positive for the Scott Group.
    <snip>
    ---------

    I'm disappointed we do not know how much cash or how many shares are going to be issued to acquire Rocklabs.
    More details of the payment to Rocklabs has come out. 3,313,452 shares have been issued at a price of $1.2072. I calculate that 'payment' to be worth.

    3,313,452 x $1.2072 = $4m

    Some of those shares are temporarily in escrow pending the profit performance of the new acquisition. That is all the information we know for sure. But I'm prepared to guess some more details. Say half of those shares will only be released upon profits reaching a certain level. That means $2m worth of shares now and $2m worth shares later. Possibly the cash part of the deal matched the initial shares issued, let's say $2m. That makes a nice ultimate retirement nest egg for Rocklab's founder, Devereaux. A $2m cash payment is quite manageable by SCT,without moving them too far from their previous 'debt free' position.

    Annual earnings of some 0.08 x $2m = $160,000 would be needed to cover a $2m debt and we can assume that Rocklabs as a stand alone business unit is capable of banking that much right now.

    A USD:NZD exchange rate of under 70c is encouraging for all exporters. Although I note previous chairman Marsh was complaining bitterly at the end of 2006 when the exchange rate was a low as 64c! Can SCT make any decent money at these exchange rates?

    For the newly acquired Rocklabs division the answer is yes. They are doing it now and the weakening of the NZD:AUD exchange rate will do that division no harm. For the appliance production line division productivity improvements have been made. But I predict that division will remain subdued in profitability until housing markets worldwide and the associted boost in new whiteware that goes into a new house look to improve. Nevertheless SCT should be one of the first companies to feel any upturn because of the long lead time between building a production line and the appliances it makes hitting the showroom.

    The meat industry joint venture with PPCS has been thrown a curved ball with Craig Norgate entering the industry via the proposed PPCS merger with PGG Wrightson. Ultimately I expect this to work out positively for SCT, and again the recent NZD:AUD exchange rate drop will help. Australia is targeted as a big potential market for meat industry robotics.

    All this has given me the confidence to continue accumulating SCT shares, at the right price. My holding is now twice what it was only a year ago! But it is a painfully slow process. My latest order for only a very few thousand shares took a week to fill, and was only finished today!

    I was looking for more diversification in my 'nz exporter' portfolio. With the addition of Rocklabs, SCT now provides that diversification across three quite different industry fronts.
    The low liquidity means SCT is very hard to accumulate. So waiting for the share price to turn is not really an investment option. The SCT share price was forced down by the effective liquidation of substantial shareholder 'Walker Capital Management'. Management have been in there buying at prices between $1.10 and $1.20. Term debt is zero to minimal, so the company will not be put under pressure in any worsening credit crunch. For me all the ducks are lining up. Don't let anyone say I didn't tell you so.

    SNOOPY

    discl: hold SCT. Will buy still more SCT if the share price weakens any further!
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  5. #15
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    [QUOTE=Snoopy

    This thread starts with 'out to lunch' suggesting SCT was a 'screaming buy' at somewhere near $3 on 30/04/2004. Yet now the share price has retreated to a '$1.82 buy and $1.85 sell' spread, this same share barely gets a mention on this forum. For those who like the FA statistics $1.82 today represents an historic PE of 15. That is greater than the 12.5 PE when SCT was regarded as a 'screaming buy' at $3 two and a half years ago. Consequently I don't think SCT is a 'screaming buy' at close to $2. I am buying more for portfolio rebalancing purposes. But if you believe that exporting from NZ has any future then I think SCT is worth accumulating at around this $2 level.
    Kilpatrick selling out of 170,000 odd shares during 2007 has worked well for me because I have been buying SCT shares in trickles all year - boosting my own holding in this company by something like 80% in the process. My average purchase price of these 'new' shares was $2.07. That doesn't look very clever if you consider the current buy price is $1.82. But that is assuming that I could have bought the number of shares I did buy at 'todays price' of $1.82. And that would not have been possible. It also ignores the dividends that I have accumulated during the year, which makes my 'theoretical loss' (it was a 'theoretical profit' two weeks ago) much less painful. I know that I couldn't have bought my shares at $1.82 because it has taken over a month for me to buy my 'November tranche', a very modest number of shares on market at a price around $2.

    So when do I expect my profit margin on my latest SCT acquisition to rise into the black again? I have no idea. But I am prepared to wait. And if the market weakens further I am prepared to buy more shares in the interim. I don't know if buying SCT shares at $2ish today will look clever in two and one half years time or not. But I think it is more likely to look clever than buying SCT at $3 looks now, viewed with two and one half years of hindsight.

    SNOOPY

    discl: hold SCT[/QUOTE] A good lesson to be learned here about the worth of fundamental analysis without having any sell strategy when it all turns to custard. Needless to say most TA investors are sitting the market out watching the slaughter. Plenty of opportunity to average down in this market SNOOPY. Macdunk

  6. #16
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    Quote Originally Posted by duncan macgregor View Post
    A good lesson to be learned here about the worth of fundamental analysis without having any sell strategy when it all turns to custard. Needless to say most TA investors are sitting the market out watching the slaughter. Plenty of opportunity to average down in this market SNOOPY. Macdunk
    Macdunk, traders would not have been in this share at all, because it is not liquid enough to allow them to 'get out' easily. Of course investors main objective is to 'invest' and pick up future dividend streams along the way. Not to withdraw from the market and sit on the sidelines sniping. So such liquidity concerns do not worry 'the investor'.

    My latest purchase means my average entry price to SCT is now $1.60. That may not look so clever to you when the current market price is $1.18. However your implied assumption that $1.18 is the price for the number of shares that *I* want and indeed own is wrong. I could buy the number of shares I have now on the market today. But only by paying up to $1.40 per share (just checked the SCT market depth with my broker). The point you do not appreciate Macdunk is that the share price is set by supply and demand. That means if the demand suddenly increases (like if I wanted to buy my entire shareholding today), then the share price is no longer the quoted market buy price of $1.18!

    A loss of $1.60 to $1.40 (let's leave dividends out of it this time as I know you are a well known 'dividend denier') or a 12.5% loss is not great news. But neither is it a 'slaughter'.
    A 'slaughter' might better be akin to a PEM shareholder where 90% of their investment has disappeared over the past two years.

    My 'sell strategy' Macdunk, is to sell when a share becomes overvalued above and beyond normal market fluctuations. In my judgement, without the benefit of hindsight, that hasn't happened yet with SCT.

    SNOOPY
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  7. #17
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    Hey Snoopy. Is there a restricted period the owner cannot sell the 3.3 million shares issued at $1.20?

    Interesting little company. I am gonna do more reading into it.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt – either directly by abolishing large slabs of it, or indirectly by inflating it away.

  8. #18
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    Quote Originally Posted by Dr_Who View Post
    Hey Snoopy. Is there a restricted period the owner cannot sell the 3.3 million shares issued at $1.20?
    We are told that not all of the shares will be issued to Devreaux until after a 'performance hurdle' has been satisfied. We aren't told when the hurdles have to be jumped. But given that Rocklabs is now a subsidiary of Scott Technology and the Scott Technology balance date is 31st August....

    I would guess some shares will be restricted until this years results are totted up, maybe more released next year and perhaps still more the year after.

    All this might be moot though if you are trying to 'time' your entry point into SCT.

    The news today that the old PPCS (now Silver Fern) and PGW have agreed to a new joint venture is sensational news for SCT. I didn't see the SCT share price move much today. Perhaps the market hasn't figured out the implication yet? So I will spell it out.

    SCT is Silver Fern's partner in the meat robotics project. The merger PGW/Siler Fern joint venture will accelerate the investment in robotics in those Silver Fern plants (we are talking tens of millions of dollars here) and SCT is the world leading designer and manufacturer of those meat industry robots!

    I have been strategically accumulating SCT over the last few months in anticipation of the moment when the robotics technology would take off. The need has always been there, but only now is there the money in the customers pocket to spend up big. Perhaps the SCT robotics division is about to move into the limelight it deserves? Good luck to anyone who wants to accumulate a position in SCT tomorrow. But SCT has been firming in price for several weeks now, so I don't like your chances.

    SNOOPY

    discl: hold SCT, and have strategically doubled my holdings over the last twelve months.
    Last edited by Snoopy; 08-09-2008 at 05:57 PM.
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  9. #19
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    Think it was a couple of weeks ago it was announced that Alliance had bought one of the robots. The downside with it at present is the huge decrease in lamb numbers in NZ due to dairy expansion.

  10. #20
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    Quote Originally Posted by Sideshow Bob View Post
    Think it was a couple of weeks ago it was announced that Alliance had bought one of the robots. The downside with it at present is the huge decrease in lamb numbers in NZ due to dairy expansion.
    AFAIK, the 'Robotic Technologies Ltd.' robots (SCT and Silver Fern are 50/50 partners in this company) have only installed meat processing robotics at one Silver Fern site, the old PPCS Silverstream plant.

    While the reduction in lamb numbers is a threat to the meat processing industry in the sense it will force more restructuring on the industry, this is no threat to Scott Technology expanding the production of their robotics. I guess the aim will be to equip all of the old PPCS meat processing plants with robotics, which is a huge opportunity for SCT.

    The downside to SCT would be that the meat industry players become financially weak that they cannot afford to invest in high tech. The PGW/Silver Fern agreement has 'fixed' this problem in the Silver Fern corner of the industry at least.

    SNOOPY

    discl: hold SCT, PGW
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