Chairman and Managing Director Address at AGM
12:00AM, 6 Dec 2006 | ADDRESS
SCOTT TECHNOLOGY LTD
Wednesday 6th December 2006
As Chairman of Scott Technology Ltd, it is my pleasure on behalf of the Board
of Directors to welcome shareholders to the 2006 Annual Meeting of Scott
Technology Ltd which is the tenth AGM since the company was relisted on the
New Zealand Stock Exchange in 1997, when the Scott Technology shares were
bonus issued at no cost to the shareholders of Donaghys Ltd.
This is also Scott's ninety-fourth year in business having been founded in
Dunedin in 1913.
At this time I wish to introduce to you the members of the Board of Directors
of Scott Technology Ltd.
Most of you are aware that I am Graeme Marsh, Chairman of Directors
Trevor Scott Independent Director
Graham Batts Independent Director
Mark Waller Independent Director
All of these gentlemen are non-executive independent directors.
Chris Hopkins Managing Director
Kevin Kilpatrick Engineering Director
Chris and Kevin as executives of Scott Technology Ltd are executive
Mark Jackson Our Secretary and Financial Controller
During the year Kevin Kilpatrick advised the Board that he wished to retire
as an executive in 2008 to pursue his interests in the wine industry. Kevin
also intimated that he would be pleased to step down now as Chief Executive
and focus on Engineering for the next two years and thus his appointment as
Chris Hopkins has been with Scotts for over ten years as Chief Financial
Officer during which he has gained a very detailed knowledge of the
operations of Scott Technology. The Board were pleased to appoint Chris
Hopkins as Managing Director and his experience in business management and
extensive knowledge of Scott's business make him an ideal appointee.
Scott Technology is first and foremost a global leader in the design and
manufacture of high technology and high speed production lines for the
international appliance industry.
However Directors are very pleased with the development of our industrial
robotics division in Dunedin and as you might expect the development takes a
little longer than we would like. However our progress in this field has been
quite dramatic and Chris Hopkins will outline that in more detail in his
address. The twelve months covered by the second half of 2005 and the first
half of 2006 was an aberration in that the company had very strong work loads
but these did not meet the company's profit forecast for reasons which have
been well documented by the company. The company then implemented a business
plan to return to profit involving, increased efficiency in our design and
production areas and a much stronger marketing team, and a policy of only
accepting new contracts which could be reasonably completed within the time
frame required by the customer. These policies have worked well and are
reflected in the second six months profit before tax of $1.8 million. I am
also pleased to report that the trading results for the first two months of
the current financial year have produced a net profit ahead of the average
monthly profit for the previous six months and this gives the Board
confidence for this half years profit. We currently have a strong order
position and have recently declined contracts which we could not build within
the customer's time frame.
Our marketing team are doing an excellent job with coverage of Europe, China
and the Americas.
Your directors were pleased to resume dividend payments and expect that the
pattern of twice yearly dividends should continue. Shareholders will have
received their current dividend in the past few days.
Scott Technology Ltd is a rather unique public company in New Zealand, with
no borrowings and substantial cash at the bank. The structure we have
provides a strong positive cash flow assisted by depreciation of nearly $1
million this year. You may wonder why we sold our Auckland Palletiser and
Package Handling division.
Back in 2002 the Directors decided to develop a second arm to our business
and entered the field of Industrial Robotics. We had the opportunity to buy
CBS Engineering in Auckland but subsequently the Dunedin operation focussed
on Robotics within the Meat Industry and we decided that this was the
preferred direction for the second arm of our company. The Robotic Palletiser
Market which the Auckland division focussed on is very competitive and it
became difficult to ascertain how that division could significantly increase
its technical sophistication. Thus Directors decided to sell the Auckland
Package Handling Division to management and this resulted in a modest profit
to the company.
I would now like to refer to the current economic conditions prevailing
within New Zealand with a dollar value in relation to the US$ at an
unacceptably high level. This makes it very challenging for all exporters
including farmers but provides a bonanza for importers of cheap goods out of
China and other countries.
Our high dollar is caused primarily by offshore money seeking to take
advantage of the Reserve Bank inspired high interest rates. The problem with
the Reserve Bank's sole weapon of interest rate adjustments is that the
higher interest in many cases leaves New Zealand in the hands of the Japanese
Ura-dashi in Japan, the Belgium Dentists and other foreign holders of our
Bonds and Loans. We could achieve much the same result by lowering the
interest rate but increasing the GST tax from 12.5% to 15% which would take a
similar amount out of circulation but retain it in New Zealand. The Governor
of the Reserve Bank could control the dual weapons of setting interest rates
and GST tax on goods and services. We know that this is not on the current
government's agenda, but there must be a point where our balance of
international payments becomes of such extreme concern that other action
needs to be taken. The October 2006 External Trade Deficit was $1.2 Billion
for the month, twice what economists had predicted. The deficit for the year
to date is $15 billion or nearly 10% of our GDP.
During October New Zealanders spent $56 Million on mobile telephones alone.
When one realises that of our total dollar turnover of $25 billion per day
only 8% relates to international trade and the other 92% is finance or
investment related. Incidentally during November more NZ Uradashi and
Eurokiwi were issued than were redeemed. It is interesting to note that
Toyota Motor Credit in Japan took up $162 million of our NZ Bonds. This is
the Toyota finance company buying NZ dollars at 6.68% yield probably from
funds borrowed in Japan at 1.5%, a spread of more than 5%. A very attractive
investment for a 3 year term. There are more New Zealand dollars traded
daily in both London and Australia that there are traded in New Zealand. The
return on New Zealand overseas investment is approximately $12 billion less
than the income earned by foreigners on their New Zealand investments.
On a per capita basis every Kiwi including children has a debt of $27,400
which makes us the most indebted nation in the O.E.C.D.
With regard to our corporate governance, two of our Directors, Mr Trevor
Scott and Mr Graham Batts retire by rotation and are offering themselves for
re-election, and we seek your endorsement as both Directors make a
significant contribution to the Company.
Finally may I take this opportunity to express the appreciation of the
Directors to all of our Scott Technology people for their absolute commitment
to the Scott Technology culture and in particular for their strong support
for our new Managing Director.
I also express my personal appreciation to both the executive Directors and
my fellow non-executive Directors for their considerable contribution to the
strategy and governance of the company during these challenging times.
As shareholders I thank you for your continued support and as your Directors
and many of Scott's employees are significant shareholders we all have a
common goal to ensure that the company continues its drive to improve
profitability and the payment of regular dividends.
I now formally move that the Annual Report, including the Directors report,
Financial Statements and Audit Report of Scott Technology Ltd for the year
ended 31st August, 2006 be adopted and I invite our Managing Director Chris
Hopkins to address you and second the motion.
SCOTT TECHNOLOGY LIMITED
WEDNESDAY, 6th DECEMBER 2006
MANAGING DIRECTOR'S ADDRESS
Thank you Mr Chairman
What I would like to do today is run through the company's operations in more
detail, provide an overview of our history and current focus, discuss the
year that we have completed and then I will finish with an analysis of trends
that effect the business and an outlook for Scott Technology in 2007 and
Firstly, I would just like to run through an outline of the current
management structure that the company is operating under. Scott Technology
is very fortunate to have a very strong Board of Directors, a Board with vast
experience, not only in the wider business area, but also within the business
activities of Scott Technology over a very long duration.
In June 2006 the Board completed a review of the management structure as part
of the Board's ongoing succession planning. This was prompted by Mr Kevin
Kilpatrick's stated intention to retire with in the next two years. I was
appointed to Managing Director and Kevin took on the role of Engineering
Director. Kevin has the important task of mentoring our engineering staff
and assisting with the critical engineering aspects of the business. We see
this as having enormous benefit for Scott by ensuring that our vast
experience in engineering can be transitioned in a planned manner.
Working directly with me are the key senior executives:
? Phil Johnston - responsible for the Appliance Division here at Maces
Road in Christchurch.
? Ken Snowling - responsible for the group's sales and marketing
? Andrew Arnold - responsible for the Automation Business, including
meat processing developments being undertaken at Crawford Street in Dunedin;
? Mark Jackson - looking after the company's finances and a wider
administration throughout the group.
Another key person I'd like to mention also is Tony Joyce, who is working
closely with the management team on business development projects.
An overview of our resources as they stand today includes manufacturing in
Christchurch and Dunedin, Sales & Service office in Dallas, USA, Service in
Shanghai, China and service representation in various forms in Brazil and
Currently our total staff numbers are approximately 175, of which 169 of
these are Engineers. So as you can see, although I head the company with a
business background, I am well supported by many fine engineers.
I would like to move quickly through the history of Scott Technology. We
started in 1913 and we are now in our 93rd year, but our current expertise
and direction was primarily developed during the last 20 years, where Scott
developed and focused on appliance production systems. The company was so
successful in our niche that by the year 2000 we were entirely export
focussed, but in 2001, prior to the 9/11, the US economy stalled, and our
niche market shrunk dramatically.
This produced a watershed for the company and was the catalyst behind the
Board's decision to seek diversification. This diversification had two main
? Firstly geographically with our appliance business where we sought to
move beyond North America and this was by way of our first move into Asia,
China in particular, and exploratory sales visits into Europe.
? Secondly diversification was sought through applying our expertise
and skills into other industries. Several areas were investigated, including
meat processing, industrial factory automation and also, through the
acquisition of CBS Engineering in 2002, palletising and materials handling.
This diversification has been refined and developed over the past five years
and today we have two main areas of focus:
1. The global appliance industry; and
2. Automation Systems with a primary focus on the meat industry.
A snapshot of our appliance business is as follows. It is worldwide, still
100% export and we still consider North America as our home market.
Within the Appliance industry we would be working on anything from 5 to 10
systems per year, with project values ranging from $1m to $15m with our
sales, as reported in our Annual Report, taken on a percentage completion
It is very hard to always explain our product and what we create at Scott in
words, so what I would like to show now is a short video of an appliance
production line. This one shown is installed in Poland and produces the
front and cabinet of a front loading washing machine. This is a very good
example of the look and feel of a Scott machine. Typical system process
converts coil steel (or flat sheets) into finished components through a
series of automated processes.
Scott equipment is spread throughout the world and we now have in excess of
$200m worth of equipment operating in a vast array of countries.
The second focus on our business is industrial factory automation. This is
where we are leveraging off our expertise and process automation experience
gained in the appliance industry and apply to other industries in need of
good, robust automation solutions. Over the past few years we have developed
our meat boning room automation and also completed water heater manufacturing
systems, straw filling machines for Unistraw and an automated laminated
cutting machine which was developed specifically for a laminate manufacturer,
when they could find no suitable piece of machinery worldwide.
Our industrial automation business can be involved in 3 or 5 projects at any
one time. Project values are less than Appliance Systems, ranging up to $4m
and again our recorded sales is on a percentage completion basis.
The short video I am showing here is the automated hot water cylinder
fabrication system. This produces any one of 26 models, in batch sizes as
low as one and produces a tank approximately every 30 seconds. This system
is running in a factory outside of Sydney, Australia.
Included in Automation Systems is our meat processing automation. This is an
area that has occupied much attention from management and our resources over
the past five years. The initial focus is concentrated on New Zealand and
Australia, although we perceive significant potential worldwide for this
technology. This development work has been completed working very closely
with PPCS. All our meat processing technology is owned and managed through
our 50/50 joint venture with PPCS, Robotic Technologies Limited.
In the early years all of the meat automation research and development was
funded jointly between Scott and PPCS, but as our reputation and experience
in this area builds we increasingly seek to undertake, and fund, our research
and development in conjunction with either Meat and Livestock Australia or
New Zealand Government TechNZ, or both.
To help shareholders get an understanding of what our objectives are and our
achievements in this area, I'd like to show two short videos; the first I am
going to show in is the current manual boning process undertaken in lamb
boning rooms throughout the world. This process is little changed from that
undertaken 100 years ago.
This second video demonstrates our developed technology undertaking the same
tasks but utilising robots and automation.
The diagram shown highlights the focus of our technology within the red meat
industry. Our efforts are concentrated on the boning room processing sector
within the sheep sector. There are four key areas that make up our vision
for the fully automated boning room. The first area is the primal cutter.
This cuts the lamb of a carcass into three pieces. We have machines in
development and operating at PPCS Silverstream and at CRF in Australia. The
second area is the hindquarter machines and we have machines currently in
production at PPCS Silverstream. The third area is the saddle processing.
The saddle is the middle portion of the carcass - this is an area of current
research and development. The fourth and final area is the forequarter
segment of the carcass - this is a planned future development.
Now that I have provided an insight into our current activities I would like
to review the recently completed year to 31 August 2006. Highlights from
- Production lines shipped to new markets such as Russia, Turkey and
Greece, in addition to our more established markets of Australia, China and
- We have now completed six straw filling machines for Unistraw. Four
of these are currently operating in China and a further two machines are
currently being commissioned in Chicago USA as I speak.
- The NZ Export Credit Office financing projects on lines put into
Turkey and Greece that we commenced in 2004 have now been completed and NZ
Government Guaranteed repayments are being made by the customer.
- The Auckland Package Handling business was sold in May 2006 to the
management of that business.
- Our meat automation research and development has advanced to the
stage of having hindquarter robots in production and a primal cutting system
developed and installed at CRF Australia.
The first half of the year was a difficult period, with many trading
conditions carried over from 2004/2005. We had a high dollar, difficult CEA
Union negotiations and the first half of the year was in a period that
immediately followed an extremely high workload. We had competitive pressure
on sales, we were looking to expand into new markets such as Russia and
Greece and we continued to suffer from cost overruns on projects with budget
pressures. These all combined to produce a much reduced performance in the
first half of the year, which was reported in our half year report.
I am pleased to say that the second six months to 31 August 2006 produced a
much better result and benefited from new orders from the USA and Europe at
more favourable exchange rates, a lesser workload which enabled more work to
be completed in-house. We have also progressed our focus on continued cost
reduction, this primarily involved smarter purchasing and we had a major
turnaround in our working capital position which also assisted the bottom
Our success that we have achieved over the past is significant and we are
well positioned today to continue that success into the future. I often
reinforce to my colleagues that at Scott we sell CONFIDENCE. When our
customers come to us with a new project, the systems and processes are not
well defined and often the product has never been manufactured before. We
develop our own concepts and build them into reality. In placing an order
with Scott, our customers must have confidence in our ability to deliver.
Other key factors in our success is that we enjoy our work and creating smart
systems. We pride ourselves on our uniqueness, our innovation, and our
ability to stay ahead of the market. This is critical for New Zealand
exporters to succeed and to achieve adequate returns. Simplicity for us is a
key valued driver and as I often say, it's not easy, but if it was everyone
would be doing it and I for one certainly don't want that.
Finally I would just like to cover some trends for 2007 and beyond and a
brief outlook for the future. The trends that we see in our market is an
uplift in enquiry from USA and Mexico. We expect that we will continue to
have a volatile currency and that continues to be a challenge. China has a
very interesting market, it is both a threat to New Zealand manufacturers, in
fact manufacturers all over the world, but it can also be an opportunity. We
also see many appliance manufacturers in Europe heading further east, much
like the manufacturers drifting from USA to Mexico. We see that our meat
automation developments and investment in R&D as ongoing and that
commercialisation will be slow but steady. A key focus for Scott and other
New Zealand manufacturers, is productivity. To remain competitive and to
prosper as a manufacturer and exporter facing significant cost increases,
productivity gains are essential.
The outlook for 2007 and beyond:
- We will focus on increasing profitability.
- Scotts will continue to meet market expectations for quality and
- We will seek to lower our cost of manufacture and/or gains in
productivity to lower our cost to customers in a competitive market.
- We will continue to strengthen our sales and marketing efforts,
predominantly New Zealand-based, but also improve our presence and
effectiveness in Dallas and China.
- Continue with Research and Development to upscale and grow our
What I call the China influence will drive global costs lower and we need to
use this to our advantage, not only to lower our own cost of production but
also to assist expansion of our market opportunities. We are looking to
develop and build our service and upgrade offerings to customers. This is an
area where we see growth opportunity, not only in the revenue, but more
importantly in contributions. We will continue with meat innovation and
unfunded research and development will be expensed in our Statement of
Financial Performance. Commercialisation of meat development will be a key
focus and is likely to be in stages as each piece of our automated boning
room puzzle is created.
That ends my address, but before I pass back to the Chair I would like to
acknowledge the work and effort put in by all Scott staff and in particular
the management team. Also the assistance and guidance provided to us by the
Board of Directors, and in particular the Chairman. Certainly the enthusiasm
and passion shown by everybody involved with the company is a great source of
motivation as we more forward with confidence in our future.
So I am now pleased to second the motion moved by the Chairman that the
Annual Report, including the Director's Report, Financial Statements and
Auditor's Report of Scott Technology Limited for the year ended 31 August
2006 be adopted.