Scott Technology Chairman & Managing Director's Address
12:00AM, 11 Dec 2008 | MEETING
SCOTT TECHNOLOGY LTD
Thursday 11th December 2008
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
twelfth since the company was relisted on the New Zealand Stock Exchange in
2008 also marks Scotts 96th 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.
My name is Stuart McLauchlan and I am the Independent Chairman of Directors.
Graham Batts Independent Director
Mark Waller Independent Director
Chris Staynes Independent Director
All of these gentlemen are non-executive independent directors.
Chris Hopkins Managing Director
Chris is an executive director.
Greg Chiles - Our Secretary and Chief Financial Officer.
I would like to acknowledge Mr Graeme Marsh, who retired at the Annual
Meeting in Dunedin last year for his significant
contribution to the fortunes of Scott Technology during his 38 years as a
director, 32 years of this were as Chairman.
I would also like to acknowledge Mr Kevin Kilpatrick, who retired in August
for the contribution he also made to Scott Technology during his 40 years of
I extend my best wishes to Graeme in his retirement and Kevin with his new
career in Blenheim growing grapes.
The financial year to the 31st August 2008 produced an operating loss after
tax of $818,000 on revenue of $25 million. The second half of the year
produced a group profit after tax of $18,000 compared to a loss after tax of
$836,000 in the first half of the year.
As noted at last year's Annual Meeting, due to the timing of the completion
of existing contracts, and a softer market internationally for our equipment,
the first six months was well below the year before.
Additionally the predicted return to an appropriate level of profitability
has been slower than anticipated due to the world financial markets being in
far worse shape than most pessimistic forecasts a year ago.
This was not helped by the continued high New Zealand dollar which has now
fallen to the 50-55 cent range as against the 70-80 cent range we have
experienced for most of the past year.
The turmoil in the US housing market is still hampering our prospective
appliance machinery purchasers.
Many are deferring new plant installations while they re-assess their market
Despite this, 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
The position in the USA is somewhat offset by continuing demand from Eastern
Europe and China where some of our present production lines are destined.
I am pleased to be able to announce Scott Technology has been successful in
winning a $7 million order from a major high end European appliance
manufacturer this week and the company is continuing to field enquiries on a
At last year's Annual Meeting Mr Graeme Marsh indicated the Board had been
charged to look for acquisitions that would make a good fit with the existing
Scott strengths in engineering and design.
As reported earlier in the year, your Board has been successful in acquiring
the business of Rocklabs which will be covered in more depth by our Managing
Director Chris Hopkins.
We are pleased with this outcome and Rocklabs is already making a significant
contribution to the sales and profits of the company.
The company has recently opened its new larger purpose built engineering
facility and Head Office in Kaikorai Valley in Dunedin. This investment is
due to the confidence the Board has in the ongoing development of its Robotic
Division; this confidence has been turned into the company's first commercial
sale of an x-ray primal cutter, for a lamb boning room at Alliance's
Lorneville Plant in Invercargill, which is presently being commissioned.
The company has been focused over the past year on continuing to be a leading
New Zealand exporter of world class value-added engineering and robotic
solutions, and has resisted moving away from its core activities.
This I believe will deliver a sound recovery of fortunes over the next few
years, as our past investment in research and development will deliver
continuing opportunities in the markets we operate in.
Scott Technology continues to have a very strong balance sheet with a modest
level of borrowings, which were used in part consideration for the Rocklabs
The company is still looking for further acquisitions, but these must fit
within the areas where we are presently operating, in order to gain leverage
off the skill base that the company has.
I would like to thank Chris Hopkins and his senior management team for their
dedication and hard work during the past year.
It has been a difficult year, but despite this the company is now
well positioned to take advantage of the opportunities that will arise once
the economies of the world improve.
To my fellow directors, I would like to thank you for your support and I look
forward to working with you in the coming years as the company capitalizes on
the wise decisions made around the board table to enhance the company's world
Finally, may I thank you as shareholders for your support over the past year
and I look forward to delivering a much improved result at next year's
I now formally move that the Annual Report, including the Director's Report,
Financial Statements and Audit Report of Scott Technology for the year ended
31st August 2008 be adopted, and I invite our Managing Director Chris Hopkins
to address you and second the motion.
Scott Technology's Year to 31 August 2008
It has certainly been a big year, full of events, even if not a profitable
year. The financial details have been provided in the Annual Report. We
have additional copies available should you not have received one. This
year's result included 5 months of profitable trading by Rocklabs. The
underlying sales within our other core business were much lower than previous
years and with insufficient project margins to cover expense, we suffered a
loss for the year of $818,000.
The major change in the balance sheet is the addition of Rocklabs, which adds
Goodwill and some modest long term debt. We have faced major challenges,
with the turmoil in the US housing market, which decimated our key US
appliance customers, and the global equity crisis, which has created
uncertainty over the future shape of the world economies. Droughts in
Australia and New Zealand, combined with reducing sheep numbers and low
returns to farmers, also negatively impacted on our ability to establish a
market for our meat processing solutions.
Even though the year to 31 August 2008 was a challenging year, when we look
back we can certainly say that we have achieved much. Highlights of our
Acquisition of the Rocklabs business, with the addition of a manageable $5m
of debt on our balance sheet.
A small profit for the second half of the year, after a significant loss for
the first half of the year. This second half profit was achieved after
absorbing the cost of a number of non recurring items, such as redundancies,
which were forced on the company by the global market conditions.
Survived the highest NZ / USA dollar exchange rate in over 25 years. I am
pleased to say that at the current levels we feel much more comfortable than
only a few short months ago when the level was approaching 80 cents to the
The first commercial orders for automated boning room systems for the meat
industry through our Joint Venture with Silver Fern Farms (Robotic
Continued and ongoing expenditure on research and development in several key
aspects of the business. This included both meat processing systems and also
a key development project where we are planning to incorporate our automation
within the dairy industry.
We have completed the new Kaikorai Valley Road, Dunedin manufacturing
facility. The building and layout has been planned in a way that enables us
to expand, as and when our business expands.
We have established a European branch (Scott Technology Euro Limited) and are
currently finalising negotiations to further strengthen our onsite presence
in Europe by forming a close working relationship with a small service and
manufacturing company in Turkey, with a view to providing a rapid response to
our growing customer base in Europe.
The difficult period we have come through forced the company to take drastic
action, review where we were going to, and to broaden our horizons and seek
opportunities that we may not have otherwise pursued.
During the year, our senior management team reviewed the strategic direction
of the business and we have defined Scott Technology's vision, which is "To
be the Global Innovator in Automation". To expand on this, and to provide
you, our shareholders, with a deeper understanding of our business, I will
outline the activities in each of our key areas of focus.
To define Scott Technology as the global innovator in Automation, defines the
over arching drive and future for our business. We now have three superb
engineering bases in New Zealand that concentrate on three key business
areas, which is overlaid by, and brought together by, our expertise and
excellence in Automation. Here in Christchurch we focus on being "The Global
Innovator in Appliance Systems Automation"; in Dunedin as "The Global
Innovator in Meat Processing and Robotic Automation"; and in Auckland, "The
Global Innovator in Laboratory Sample Preparation Automation".
Taking each area of our business in turn:
Appliance Manufacturing Systems
Despite a low level of demand in the global market during the year, we
completed several systems for North America, China and Mexico, including our
first laundry system for Bosch Siemens. Appliance Manufacturing Systems is a
key driver of our business, and indeed, an icon, for Scott Technology. This
business unit is headed by Ken Snowling, who is well supported by an amazing
team of skilled and experienced engineers.
Although we entered the year with a large number of prospects, we did advise
the market that our biggest challenge was to secure sufficient orders from
customers that were constrained by market conditions. After completing
several large successful projects in 2007, there were insufficient orders to
maintain our momentum through 2008. As noted by your Chairman, we are
pleased to report that we are currently in final contract negotiations with a
major European customer and it is expected that this will provide a base line
of work through 2009, and further, has a roll out of future similar systems,
promised, but not guaranteed, through to the end of 2011.
In recent months we have had two major orders cancelled, but we also see
pockets of activity that provide sufficient confidence in our ability to
secure further profitable work in the year ahead. Arising from the current
world turmoil, there are opportunities to work with customers on automation
projects that target efficiency and production processes, including reduced
raw material usage and reduced energy consumption.
Scott Service International
This is our recently established subsidiary based here in Christchurch and
responsible for developing our service and support offering to customers.
This business had a very successful year and we are looking to build and
develop this success as we move forward on several new fronts. Scott Service
International Limited completed it's first full year of trading in 2008 and
achieved excellent results with a positive contribution to the group, both
financially and operationally.
Meat Processing Automation
I am very pleased to report that during 2008 we commenced commercialisation
of our meat processing activities. For the management and staff, and
certainly for many of you, it has been a long time coming, from our early
ideas and concepts in 2002. We have had some major ups and downs, but
fortunately our vision of a fully automated boning room has enabled us to
remain focussed and committed to the task. We have in 2008 achieved
commercial sales of our beef boning assist devices and more importantly, our
x-ray primal cutter for the lamb boning room, which is currently being
commissioned at a customer's facility in Invercargill. There are many
companies in the meat processing industry, both in New Zealand and Australia,
who are closely watching these developments with interest, and provided
market conditions do not deteriorate, we expect current enquiries to convert
to further work through 2009 and beyond.
Andrew Arnold heads this area of the business and has been heavily involved,
and after spending many years on our appliance production lines, has
transitioned and grown into the role of leading our meat processing
automation. Even though we expect commercial sales and contribution during
2009, the total contribution will be suppressed due to the commitment to
research and development expenditure in the other areas, our vision of the
fully automated lamb boning room. The x-ray, primal and automated
hindquarter robots complete approximately one half of our total vision for
the automated lamb boning room and we are currently investing with our
partner, Silver Fern Farms Limited, in completing the forequarter and middle
processing systems, which when combined with the x-ray, primal and
hindquarters, will essentially complete our vision of the fully automated
lamb boning room.
It has certainly been a long time coming, but we need to constantly remind
ourselves that what we are doing is world leading - there is no one else as
far as we know anywhere in the world developing this level of technology.
Our pioneering and patented x-ray and robotic technology is clearly leading
edge, and with industry leaders now adopting the technology, we believe it
will quickly become an industry standard for lamb processors in New Zealand,
Australia and worldwide.
Rocklabs Sample Preparation
If you are anything like I was some 10 months ago you are probably wondering
exactly what this business is about. Rocklabs provide equipment for
preparing rock samples taken from mines and breaks these down into small
representative samples that can be analysed for whatever mineral the customer
is searching for, be it gold, copper, zinc, etc. Rocklabs is an ideal
addition to the Scott Group. With ongoing stand alone equipment sales,
equipment such as rock crushers, rotary sample dividers and ring mills,
Rocklabs has more regular sales and cashflow, which we do not see in the
other areas of our business. In addition, there are engineering, design and
build synergies between the Scott and Rocklabs businesses in which we plan to
promote in the largely under-developed market for automated robotic
Breakdown of sales:
Reference Materials 13%
Standard Equipment and spare / wear parts 70%
It was reported in our annual report that ahead of expectation we had already
achieved success with the commencement of a major automation project, which
combined the skill and expertise of Rocklabs and Scott. Unfortunately, this
is one of the projects that has been cancelled due to the global economic
climate. Regardless, it was very pleasing to have been selected as the
preferred supplier ahead of the traditional competitors in this industry, and
I personally believe that this bodes well for successful future growth in
this area of the business.
Other Automation Activities
With a growing reputation for automation excellence, we continue to work with
a few selected manufacturers and innovators where we bring automation
expertise to create a successful partnership. A good example of this is our
relationship with Unistraw, the international company which markets and
promotes flavoured drinking straws, and more recently pro-biotics, in an
enormous world market. We had previously built eight machines for Unistraw
and are currently working on finalising a contract to develop and build a new
range of machines to produce small compact straws to fit on consumer packs of
milk, and other beverages.
Scott Technology is a truly global business. With in excess of 85% of our
sales originating outside New Zealand, we are a leading global player in our
chosen fields of activity. Supporting our efforts around the globe we have
dozens of agents and reps in some 30 countries and we now have staff located
in Dallas - USA, Sydney - Australia, Qingdao and Shanghai - China, and Milan
As an exporter the global markets will continue to have a major impact on our
performance. We not only have to contend with market uncertainty, but also
the volatility that this brings to the New Zealand dollar. As a company we
have seen these conditions come and go over the years and although the world
economies are facing a level of uncertainty not seen for many decades, we
believe Scott is now well positioned to not only survive, but to grow.
The company commenced trading in 1913, and is now in its 96th year of
operation. Our goal for 100 years is to be a profitable $100m turnover
company, and we believe this is achievable. We continue to seek growth
opportunities, both through acquisitions and partnerships, and we are
confident that our research and development will lead to further organic
growth. It was noted in our annual report there are still projects being
considered by our major customers, but we see their conversion to firm orders
as being slow. Our recent selection by a major European Appliance
Manufacturer is fine reward for our efforts and perseverance in Europe. Our
meat processing systems rely on our ability to showcase to potential
customers our first commercial system in New Zealand.
In summary, although we have had a difficult year:
Our balance sheet remains strong;
Our funding is adequate; and
Our opportunities are very good in all areas.
However, our markets are uncertain, but our currency is favourable (at
present). Our year to 31 August 2009 will have a slow start, but we are
confident that momentum will build, provided the current economic environment
does not deteriorate further.
With patience, dedication and hard work, our endeavours will provide the
returns that all our stakeholders seek.
Again, like last year, the final slide shows some photos from the RoboCup
Competition which we have sponsored for the past two years. Young people
entering into our industry are our future and recognise this in many ways.
We place emphasis on training young, bright people. Encouraging these people
into our industry has been difficult in the past, and our efforts and support
of events, such as the RoboCup, are ways in which we can engage young people
at an early stage, and hopefully encourage some to enter our exciting
I am now pleased to second the motion moved by the Chairman, that the annual
report, including the directors' report, financial statements and auditors
report of Scott Technology Limited for the year ended 31 August 2008, be