CHAIRMAN'S ADDRESS & MANAGING DIRECTOR'S ADDRESS
12:00AM, 6 Dec 2007 | MEETING
SCOTT TECHNOLOGY LTD
Thursday 6th December 2007
It is my pleasure on behalf of the Board of Directors to welcome shareholders
to the Annual Meeting of Scott Technology Ltd. This Annual Meeting is the
eleventh 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. Their value at the time of issue was .60 cents
per share and subsequently in 2002 there was one for eight bonus issues and a
further 1 for 8 bonus issue in 2003.
2007 also marks Scotts 95th year in business, having been founded in Dunedin
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, and I am the Chairman of
Graham Batts Independent Director
Mark Waller Independent Director
Chris Staynes Independent Director
Stuart McLauchlan 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.
Are there any members of the Press present? and if so would you mind
Do we have any representatives from the Shareholder's Association?
At the Annual Meeting held in Dunedin in 2005 I advised my intention to
retire as a Director before the completion of my new term. I have been a
Director of Scott Technology Ltd for 38 years and Chairman for 32 years and
as I am now in my 75th year it is very appropriate that I step down as a
Over the last three years the Board has consciously pursued a revitalisation
of the Company's top management and Board. About 18 months ago Chris Hopkins
was appointed Managing Director, having previously been financial controller
and general manager for 13 years. Chris is an intelligent and dynamic leader
with a strong knowledge of the Company's business gained during his previous
decade with the Company.
Following the earlier retirement as Director of Eion Edgar and more recently
Trevor Scott the Board appointed Mr Chris Staynes who has extensive
experience in the appliance industry having gained a Physics Degree from the
University of Otago before joining HE Shacklock & Co Ltd in Dunedin and
subsequently becoming General Manager of the Fisher & Paykel Division at
The Board was also fortunate in being able to appoint Mr Stuart McLauchlan
who will take over as Chairman upon my retirement at the conclusion of this
Stuart gained a Bachelor of Commerce Degree from the University of Otago and
has practised as a Chartered Accountant for many years as well as serving as
a Director on a number of prominent companies and is a Councillor of the
University of Otago.
The revitalised Board of Directors along with a young focused Management Team
is very well placed to take the Company forward as a leading New Zealand
exporter of world class value added engineering and robotic solutions.
The financial year to 31st August 2007 produced an operating surplus before
tax of $4.6 million on revenue of $29.5 million. This outstanding result was
achieved from a positive mix of international contracts some of which were
secured when the New Zealand dollar was low relative to the US dollar.
Scott Technology Ltd remains a strong contender for appliance lines
throughout the world and with its international reputation is able to face
challenging factors such as distance from the northern hemisphere markets and
a strong New Zealand dollar. The world financial markets are in turmoil with
major fallouts internationally from the so-called 'sub-prime mortgage'
debacle in the United States and record oil prices.
The United States housing market is heavily influenced by major house
builders who build thousands of houses per month and control the marketing
and financing of those houses, often with the help of inflated valuations
which in reality means that the purchaser has little real equity in the
property. When housing sales slow down prices drop and this exacerbates the
reduced equity of home owners in those homes.
The mortgages on these homes often exceed the value of the house and are
therefore referred to as sub prime. Total losses related to the sub prime
mortgage debacle could reach US$250 billion. As a result housing starts
declined as has the market for appliances for those homes. However the normal
replacement market continues and appliance manufacturers continue to look for
more efficient and faster equipment to remain competitive.
This has meant that from an extensive list of prospective appliance machinery
purchasers many are deferring new plant installations while they re-assess
their market position.
The position in the USA is somewhat offset by continuing demand from Europe
and China where some of our present production lines are destined.
The Company's decision to extend its marketing activities to Europe and Asia
is gaining momentum with an appliance line currently being constructed in
Christchurch for Bosch Siemens for installation in China. At the beginning of
2003 one Euro bought one US dollar. Today One Euro buys US $1.50. and now
the decline in the value of the US dollar is causing distortions in the world
Three of the worlds largest oil exporters Iran, Venezuela and Russia are now
demanding payment in Euros rather than US dollars. It is predicted that the
US Dollar will continue to lose favour as the Euro is seen as a worthy
The recent rise in the price of oil is often attributed to growing demand
from developing countries but in reality the world demand for oil in the past
year has only increased by less than 1% and oil reserves are higher than any
time in the past 30 years.
The main reason for the rise in oil prices is speculation.
Our New Zealand currency value is affected by the drop in the value of the US
Dollar but also by speculation.
Of our total NZ Dollar turnover only 8% relates to international trade and
the other 92% is finance, investment or speculation related.
There are more NZ Dollars traded daily in London and Australia than there are
traded in New Zealand.
Scott Technology is benefiting from the development of their industrial
robotics division and the marketing of our complete boning room development
is continuing. Initial work is also being undertaken within the beef
Chris Hopkins will outline more detail of our robotics development in his
As the world economy changes so must Scotts adapt their strategies.
Scott Technology has a very strong balance sheet with no debt. Earlier this
year the Board made a decision to seek appropriate acquisitions to increase
the level of domestic activity and widen our product range as a part-hedge
against the volatility of our international markets.
This will be a key priority for the new Board of Directors and will
necessarily involve borrowings to facilitate any such purchase.
The Board's confidence in the ongoing development of its Robotic Division in
Dunedin is evidenced by the Company's decision to purchase land in Kaikorai
Valley Dunedin and they will shortly commence the construction of a new
larger purpose built engineering facility and Head Office.
Because of the timing of the completion of existing contracts and a softer
market internationally for our equipment as well as Industrial action our
Directors anticipate that the first six months of the current year will be
somewhat below that of the comparable period in 2007. However, providing
current prospects convert to contracts, as anticipated, the second half of
the current financial year should return to an appropriate level of
During the year Mr Trevor Scott retired from the Board after 10 years of
excellent service and we acknowledge Mr Scott's contribution to the Company,
particularly in the area of financial advice.
As indicated earlier I shall retire as a Director and Chairman at the
conclusion of this meeting.
I have greatly enjoyed my 38 years involvement with Scott Technology and
particularly working with all of the people who form part of the Scott
family. We have a team of very fine engineers and associated personnel all
of whom make a considerable contribution to the design and construction of
our high quality equipment and in return the Company provides top class
working conditions, international travel and the opportunity to earn above
In particular I wish to acknowledge the outstanding contribution made by
Graham Batts over more than 50 years.
Also the contribution to the engineering of projects by Kevin Kilpatrick over
40 years and to extend my best wishes to Kevin in his new career growing
grapes in Malborough.
Our current Managing Director has brought a new perspective to management and
is well qualified to take Scott Technology into the future as world class
company in the fields of design and building of complex automated lines for a
growing number of industries - Chris I wish you ever success in leading the
company over the next decade or two.
I leave the Board knowing that they have the experience and knowledge to
continue the direction of Scotts as an innovative internationally capable
supplier of design and build systems and robotic solutions and I look forward
to attending the company's centenary celebrations in five years time.
I am confident that Stuart McLauchlan, my successor as Chairman, will bring
new drive and experience to the Board and I wish him every success as the
Captain of the Team.
Finally may I thank you as shareholders for your support over the years, and
I look forward to sitting amongst you at future annual meetings.
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 2007 be adopted and I invite our Managing Director Chris
Hopkins to address you and second the motion.
SCOTT TECHNOLOGY LIMITED
THURSDAY, 6th DECEMBER 2007
MANAGING DIRECTOR'S ADDRESS
Thank you Mr Chairman
What I would like to do today is run through the company's business, discuss
the year that we have completed and then I will finish with a look at the
trends that affect the business and touch briefly on the outlook for 2008.
The key customer contact and focus areas of sales, project management and
engineering concept design have been grouped together to ensure seamless
transition from the promise to the customer (in terms of the sale) and
delivery of that promise (in terms of project management and project
outcomes). These areas are headed by Ken Snowling, for Appliances and Andrew
Arnold, for Meat Automation & Robotics. Ken and Andrew have extensive sales,
design and project management experience, which is ideally suited to these
positions. Ken and Andrew, along with other members of the management team,
are here today and you are welcome to meet with them at the conclusion of the
Manufacturing within Dunedin and Christchurch are to operate as business
units, with Christchurch being headed up by Phil Johnston and Dunedin by
Brian Rekittke. Phil and Brian have nearly 60 years experience between them
and given their background, fully understand the demands and practices of a
Mark Jackson, our Finance Manager, heads up the finance and administration
for the company - a very important aspect of any business. We move onto Alan
Prince, who heads up the recently established Scott Service International.
Alan has been extremely successful in setting up the business and I will
touch more on this later in my address. The last member of our management
team, who can't be with us here today, is Tony Joyce. Tony has relocated to
Qingdao in China with his family and is responsible for customer support
within China and beyond and is the champion of our international procurement
Kevin Kilpatrick, who plans to retire in August 2008, will continue to mentor
and assist in the area of technical and engineering design concepts. Beyond
his retirement in August, Kevin has indicated his willingness and desire to
continue to assist the company from a technical perspective, as a consultant.
The company believes this to be a very beneficial arrangement and I would
personally like to thank Kevin for his 40 years service to the company and to
his commitment to the future beyond his retirement.
This management team has a total of nearly 190 years service with the
Now I want to recap on our business and what we do so well. An overview of
our resources as they stand today includes well equipped manufacturing
facilities in Maces Road, Christchurch and Crawford Street, Dunedin and
between these two sites we have approximately 160 staff, of which 152 are
engineers. As you can see we are very much an engineering company and a
company of engineers and well positioned to undertake specialised design and
build engineering projects. In addition to this New Zealand resource we have
people looking after sales and service in USA and China and we are expecting
to have a representative based in Europe very soon and are also committed to
having a future presence in Australia. In addition to this direct presence
we have service representation in various forms located in Brazil, Poland and
Following our diversification strategy, which commenced in 2001, the company
now has two main business streams:
1. Our traditional appliance business, which remains our engine house;
2. Robotics and automation activities, which enhances our activities in
New Zealand and Australia and consists of meat processing automation, in
addition to specialised robotic and process automation solutions
To recap for new shareholders, our appliances business is worldwide, 100%
export and although we still consider North America to be our home market, we
have a growing presence in Asia and Europe. The European exposure is
important when it comes to lessening the impact and exposure the company has
to the American economy and the US dollar.
Within the Robotic Automation and Meat industry the market is predominantly
Australia and New Zealand, with the meat automation being undertaken in
conjunction with PPCS through our joint venture company (Robotic Technologies
Limited). This has been a successful partnership, with PPCS providing their
extensive meat industry experience and Scott providing automation expertise
and skill. Robotic Technologies Limited does not employ any staff, it
formalises the cooperation between PPCS and Scott, holds the intellectual
property that we have developed over the past five years and is the primary
vehicle for contracting with funding agencies and meat industry customers.
Scott Technology Ltd has a manufacturing agreement to ensure we continue to
provide R&D, along with design and build services to the Joint Venture.
Pictures (videos) can say so much more than I can so what I would like to do
now is show some short videos. The first one is of a refrigerator door end
forming line supplied to Bosch Siemens in Turkey and Greece. The total
project consisted of two similar lines and is a testament to the design and
engineering excellence of our company.
This next video animation is of the meat processing automation. The
graphical view illustrates the development room at PPCS Silverstream and what
we plan for the front end of the automated lamb boning room. We anticipate
having this integrated system operational by April 2008. It is for this
system, and the following stages, that we were granted the government
assistance announced earlier in the year.
Commercialisation of meat processing automation has been slower than
expected. However progress is being made and we have several enquiries and
commercial prospects currently being worked on.
Before we move on too much further I'd like to talk about the results for the
year ended 31 August 2007. After two years of difficult trading conditions
and a high and very volatile exchange rate, projects undertaken during the
year were at exchange rates more favourable than the previous years. This
combined with a reasonably high throughput, produced a good result.
Highlights from the year ended 31 August 2007 include:
- Strong balance sheet with no term debt.
- Working capital of $9m at balance date.
- Additional marketing in Euro zone.
- Fully imputed dividends of 9 cents per share for the year (equivalent to 13
We are an exporter and this is highlighted by the fact that 97% of our sales
were outside New Zealand.
Earning rate achieved on average shareholders equity was 18% and after two
subdued years in 2005 / 2006 represents a move toward expected levels.
The chart shows our net surplus and dividend paid over the last ten years.
Over this time the surplus has totalled nearly $25m and with a pay out ratio
of 79% nearly $20m has been paid to shareholders. This is more than the
value allocated to Scott shares when they were distributed in 1997.
Over the same period our equity has grown from just under $10m to $18m
I would like to now move to trends and outlook.
We have been looking for some time for new premises for the Dunedin facility.
Aided by longer term confidence in our meat processing automation, the Board
approved the purchase of a large block of industrial land in Kaikorai Valley
Road. Plans are being finalised and construction of our new technology
centre will soon be underway. It is anticipated that relocation to the new
premises will be in May 2008.
Looking now at other issues for the year ahead.
I would like to touch briefly on our current forward work situation. With
the completion of several large projects toward the end of 2007, and with the
ongoing global challenges facing the appliance and meat industries, as
outlined by our Chairman just now, the company's forward work situation is
not as strong as we would generally expect at this time of the year. The
Board and management are very aware that sales, and in particular profitable
sales, are what this business is about. With a high level of enquiries our
attention is focussed on converting these to sales. The difficulty we have
is a cautious market with their own challenges resulting in customers'
reluctant to commit to their capital projects. Our approach is to maintain
regular personal contact with our customers and in some circumstances where
appropriate, reduce our margin expectations. We are not alone in these
challenges and many other New Zealand exporters and providers of capital
equipment to similar industries are encountering this hurdle.
We are attempting to conclude our collective employment agreement
negotiations with the Engineers Union. Some of the things I've mentioned
just now, such as the results for the year, and the forward work and sales
prospects, is the environment in which we entered negotiations. The Union's
initial demands were extremely high, seeking a 15 - 25% base pay increase and
an additional week's annual leave after 6 years. Scott Technology has been,
and continues to be, a good long term employer, providing excellent
facilities working conditions and technical training and development. This
combines with an interesting and challenging workload and an opportunity for
international travel. We have made our best endeavours to provide an offer
which we consider to be more than reasonable and keeps us at the higher end
of the market.
I would like to expand on acquisitions and growth initiatives, which were
mentioned in our Annual Report. One such initiative commenced in 2007 is the
establishment of Scott Service International Limited. SSI was established
when we purchased the trading assets and business of a tooling company in
Christchurch. Alan Prince, who had previous experience as an engineer and
project manager for Scott Technology, was employed and charged with the task
of establishing SSI as a customer focussed service and upgrade provider.
Promoting these services to our customers worldwide, Alan, along with John
Dalzell and his small capable team, have launched into the task with
enthusiasm and as we stand today SSI currently has a substantial and growing
workload. Staff numbers have grown and we are searching for larger, more
suitable, premises. SSI contributed positively in the year to August 2007
and we fully expect it to provide a significant contribution in the current
As noted by the Chairman, Scott Technology is actively looking for suitable
acquisitions. It is easy to find a company to buy, it is hard to find a good
company to buy. Shareholders can be assured that we will only proceed where
value is added, the risks are acceptable and there is business fit and
We also expect other organic growth initiatives to come from within the
business. This will be in the form of meat processing systems, co-operations
and joint ventures where appropriate, and further expansion into industries,
where we can leverage off our expertise and skill set. Some promising
prospects are currently being explored but cannot be detailed at this time
due to confidentiality.
In summary the outlook for 2008 is more challenging than the past year, but
also more exciting. The company structure, the customer focus and the growth
initiatives puts us in a very strong position with a bright future. We as a
company must pull together, get through our current short term concerns and
focus on the longer term benefit for all stakeholders.
The final slide shows some photos from the Otago Southland RoboCup
Competition which we sponsored in 2007. Young people entering into our
industry are our future and we recognise this is many ways. We place
emphasis on training young bright people and we currently have a total of 27
apprentices and designers in training.
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 staff, my colleagues and
friends. I would also like to thank the Board and in particular Mr Marsh for
his wise counsel, his encouragement and enthusiasm through the ups and downs
of our business and his guidance to me over the past 13 years. I have looked
upon Graeme as a friend and as a mentor who has taught me, not just Scott's
business, but also about business in general. The enthusiasm and passion
shown by everybody involved with the company is a great source of motivation
that moves us forward with confidence.
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
2007 be adopted.