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SCT - Scott Technology Limited Interim Report

12:00AM, 1 Apr 2009 | INTERIM

DIRECTORS' REPORT

Financial Commentary

The Group's unaudited result for the six months ended 28 February 2009 was a
loss of $474,000, compared to an unaudited loss of $836,000 for the six
months ended 29 February 2008.  Group sales for the six months were $13.5
million, compared to Group sales of $8.3 million for the six months ended 29
February 2008.  The current six months includes sales and contribution from
Rocklabs Limited, which was acquired on 1 April 2008.

Review of Operations

The addition of Rocklabs increased both sales and contribution from
operations and assisted the Group's overall performance.

In early 2008 we reported that the global economic situation had seen many
international customers deferring new capital projects, and that this would
affect the level of sales for both the Appliance and Automation Divisions.
Since then, the global economic recession deepened and the events around the
globe that directly affect our markets are unprecedented since the Great
Depression of the 1930's.

In late 2008 the Group was successful in securing two significant orders, one
from an appliance manufacturer in North America and the other from a major
mining company, and we saw the opportunity to rebuild momentum with these
projects.  However, before these projects advanced beyond the engineering
concept stage, they were cancelled due to the global economic crisis and the
momentum was lost.

The early success in winning a contract for a sophisticated automation
project in the mining sector provided significant confidence in our strategic
direction of developing automation systems for the mining sector.  In this
area we seek to combine the best of Rocklabs with Scott's process automation
expertise.  These opportunities still exist, however the timing is likely to
be dependent on broader economic recovery.
Despite the current difficult macro economic environment, the Group has
continued to invest in research and development in our meat processing
technology and in several other areas that will maintain us as world leaders
in automation.
Given the nature of our research and development, the Group has been
conservative and expensed close to $1 million in this half year.  The Group
has now registered eleven patents, three of which are granted and eight
pending.

Also included in the half year result are significant costs and disruption
due to the relocation of our Dunedin operation to our new purpose built
facility, and we are confident that operational efficiencies will be obtained
as a result of this shift.

Through the Group's joint venture, Robotic Technologies Limited, we
successfully installed and commissioned our first commercial automated system
for the meat processing sector and we expect further commercial sales in the
second half of 2009.

During this half year we completed automation systems destined for China,
North America and Europe, as well as Australia and New Zealand.
The Group's European subsidiary, Scott Euro, assisted in the winning of a
major project from Europe that has the potential to not only provide work for
the coming year, but the agreement also provides the customer with options to
purchase similar equipment for Turkey, Poland and Russia, with a timetable
extending through to 2012.

The Group's global service provider, Scott Service International, continues
its strong growth and has been a strong contributor since its inception in
2007.
Rocklabs, which operates in the worldwide mineral sector providing sample
preparation equipment to mine laboratories and commercial laboratories, has
been impacted by the downturn in the mining sector.  However, with 80% of its
business in the more buoyant gold mining sector, Rocklabs' performance has
been, and will continue to be, positive.

Current development opportunities, and a recent increase in our forward work,
provide confidence and encouragement for the medium term future.

The Directors have decided not to pay an interim dividend and will focus on
improving the operating performance and cashflow to return the Group to
profit and to enable it to resume paying dividends.

The current economic conditions are difficult for us as a manufacturer and
exporter of capital equipment.  We have great skills, expertise and
experience which we are using to develop a range of opportunities for future
income streams.  This, combined with a strong balance sheet, provides the
Directors and management with confidence that the Group can work through the
current economic situation and look forward to future profitable growth.