Chairman & CEO's AGM Addresses
12:00AM, 5 Dec 2002 | CHAIR
Scott Technology has provided the Chairman and CEO's Addresses given at the
AGM on 05/12/2002 as follows:
CHAIRMAN'S ADDRESS - Graeme Marsh
As Chairman of Scott Technology Ltd, it is my pleasure, on behalf of the
Board of Directors, to welcome shareholders to this, the sixth annual
meeting of Scott Technology Ltd since listing on the New Zealand Stock
Exchange in 1997.
Scott Technology Ltd has now completed 89 years of successful trading and
today is a global leader in the design and supply of high technology
production plants for the international appliance industry as well as
robotics and material handling machinery for a wide range of Australasian
At this stage, 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, the Chairman of Directors,
Because of the high level of design and imagineering which is built into
our products, our technical people represent the company's most valuable
assets and accordingly they are very important partners in the business.
Since becoming an independently listed public company in 1997, there has
been significant interest by the investing public in Scott Technology Ltd.
We are a rather unique company in New Zealand, firstly because Scotts is a
world leader in the high-end technology sector and also because it is a
publicly-listed company with no debt, several million dollars in the bank,
and a strong positive cash flow.
We currently have a record workload, with contracts running through to the
year 2004. Our Chief Executive, Kevin Kilpatrick, will cover the
operations of the company a little later in the meeting.
After a slow start, we achieved sales of $29 million in the year ended 31st
August 2002, which is the second highest on record for the company.
Scotts achieved an operating surplus for the year of $3.6 million and an
after-tax profit of $2.4 million, with the greater proportion of sales and
profits achieved in the second half of the financial year.
The company finished its financial year with a record order book and at
this time our forward order position is close to the total sales which the
company achieved last year.
Scotts continue to maintain its international reputation for the design,
building and installation of sophisticated computer-controlled
manufacturing lines for the appliance industry.
A typical manufacturing line will start with a coil of pre-enamelled steel,
straight from the steel mill, which is then processed through a series of
computer controlled functions, leading to the creation of a refrigerator
cabinet or a washing machine cabinet or similar.
One of our earlier contracts in the U.S.A. was for an independent
manufacturer of metal range hoods and recently our client wrote to us to
let us know that after 10 years of continuous operation, the production
line had produced 14 million range hoods. When our marketing people
suggested that it was time for a new production line, they responded that
the line we installed 10 years ago was still running in perfect condition
and they had no need to replace it.
Scott Automation Ltd, the wholly owned subsidiary of Scott Technology Ltd,
was formed to operate the Dunedin engineering division, with a charter to
leverage the company's intellectual knowledge and experience into
non-appliance industries, which have the potential for Scott-type automated
applications. Scott Automation has undertaken considerable research and
development during the year in the field of robotics and the company
recently announced the development of a successful joint venture with PPCS
Ltd, one of New Zealand's leading meat processing co-operatives. Both
Scotts and PPCS are world leaders in their respective markets and are
working together to re-engineer the meat processing industry.
This exciting development has the potential to revolutionise the meat
processing industry and provide both PPCS and Scott with the opportunity to
be an industry leader in the application of robotics to the meat industry.
PPCS have the right to have Scotts build this robotic plant for their own
meat works for a period of two years, then the joint venture will market
the technology to the wider industry, both in New Zealand and off-shore.
Scott is currently completing the first robotic line and this will be in
operation early in 2003.
During the year, Scott Automation Ltd purchased the business of CBS
Engineering Ltd in Auckland to complement their operation in Dunedin. CBS
Engineering was established over forty years ago and has developed its own
line of robotic palletisers, and has a highly skilled staff with
considerable experience in the package handling industry and other robotic
This acquisition included the Betts Wine Equipment business. Our wine
division is one of New Zealand's largest suppliers of equipment to the wine
industry and the importation of world-class wine processing plant is
complemented by the design and construction of specialised robotic and
logistics handling equipment for that industry. This is a strategically
important division which gives Scott the opportunity to design and engineer
larger projects for the food and beverage industries. In a separate
development, Scott subsequently purchased the CBS one hectare site and
factory buildings in West Auckland. It is proposed to extend these
premises to allow the company to also produce specialist equipment for the
Scott Technology appliance contracts. The establishment of Scott
Automation in Auckland has also enabled us to increase the opportunity to
attract skilled staff from within New Zealand's largest city.
The issue of company corporate governance has been a prominent topic in
international news during the past 12 months, particularly in regard to
some spectacular business failures in the U.S.A. These spectacular
business problems mainly stem from aggressive, over-priced acquisitions and
mergers, with very high levels of debt and goodwill components, as well as
extreme greed on the part of senior executives.
Scott Technology Ltd is at the other end of this spectrum, being a company
with a strong balance sheet, which does not include goodwill or debt, and
very strong positive cash flows resulting in several million dollars cash
in the bank. We expect our senior people to earn attractive incomes and
they can only achieve this because a significant part of their remuneration
package is dependent on the profitability of the company.
During the year, the Directors decided to allocate shares to staff members
and these were issued at $1.30, which was a discount of approximately 20%
of the then share price. The maximum number of shares issued to any one
employee was 1,500, and executive directors were not eligible to receive
these shares. We believe that it is important that as many staff as
practical be shareholder partners in the business, as this provides a very
effective form of motivation and sense of ownership throughout all levels
of the company.
The Directors are very pleased that the recent significant rise in the
share price has already rewarded our very important shareholder employees.
The Directors have considerable confidence in the future development of the
company which is under the experienced leadership of our chief executive
and director, Kevin Kilpatrick, and chief financial officer and director,
Chris Hopkins. Kevin Kilpatrick will shortly address you and introduce his
senior management team.
At the time of the announcement to the Stock Exchange of our year-end
result, the Directors expressed their confidence in the future development
of the company by declaring a final dividend of 8 cents per share, bringing
the total dividend for the year to 11 cents per share, which is the same
level of dividend paid in the 1999 and 2000 years. This dividend is to be
We also expressed the Board's confidence in the future performance of the
company by declaring a one for eight non-taxable bonus issue of shares to
Directors have decided that for the foreseeable future, and subject to
profitability forecasts being met and no unforeseen factors affecting our
markets, to utilise a relatively high proportion of tax paid profits for
the payment of dividends.
Scott Technology is a strong cash flow business, with our depreciation
charge each year covering most of our proposed plant replacement programme.
The company also owns the freehold of its Christchurch engineering complex
and the recently acquired industrial complex in West Auckland, both of
course without borrowings.
I am pleased to be able to advise that the group's sales and operating
profits for the first three months of this year are substantially ahead of
both last year and our current budgets. We anticipate a very good year for
Finally, may I take this opportunity to express the appreciation of the
Directors to all of our Scott Technology people for their on-going
commitment to a company which continues to grow beyond the barriers of what
it previously considered possible. Scott Technology engenders a unique
high-technology, people-focussed culture, and the skills and efforts of
every one of our associates makes a very important contribution to the
overall success of the group.
I would also express my personal appreciation to both the executive
directors and the non-executive directors for their contribution to the
strategy and governance of the company during the past year. We are
enjoying working with management as a co-ordinated team to achieve our
substantially increased performance forecasts for the coming year.
I now formally move that the Annual Report, including the Chairman's
Report, Financial Statements and Auditor's Report of Scott Technology Ltd
for the year ended 31st August 2002 be adopted and invite our Chief
Executive, Kevin Kilpatrick, to address you and second the motion.
CEO'S ADDRESS - Kevin Kilpatrick
Thank you Mr. Chairman,
As Chief Executive of Scott technology Ltd, it is my pleasure to address
this annual meeting of shareholders and to review the company's operations
Scott Technology is a very exciting company. Its business lies at the
leading edge of technology. Scott Technology is also a people company. The
"imagineering" talent of its people, combined with their commitment,
dedication and a "can do" attitude, underpins the company's major strength
and path to success.
At Scott Technology the word "team" has real meaning. We understand that
individual talent is important but has little value in isolation. The most
positive and consistent results will be achieved through a supportive and
collective effort and not through isolated individual brilliance.
The Canterbury rugby personality, Robbie Deans, has demonstrated the power
of a great team. He once said:
_"A champion team will always beat a team of champions".
This philosophy forms one of Scott Technology's cultural cornerstones.
Everyone and every role are important to the success of the company - we
have no place for "prima donnas" - we are one team.
At this stage, please allow me to introduce several members of the team to
From Scott Technology - Christchurch
Gordon Todd General Manager of Sales & Marketing
Philip Johnston Operations Manager
Iain Sillars Works Manager
Damon Page Chief Design Engineer
Glen Rose Chief Controls Engineer
From Scott Automation - Dunedin
Andrew Arnold General Manger - SAL
Brian Rekittke Operations Manager
Richard Aimers Chief Design Engineer
Andrew Burt Chief Controls Engineer
From Scott Automation -- Auckland
Paul Denton Manager - SAL PHD.
The year to 31 August 2002 has been a period of recovery, diversification,
acquisition and growth for the company.
The year began with several "lower margin" projects carried forward from
the previous year. These orders, secured within a very competitive
environment, provided an initial base workload however allowed little
opportunity to improve performance in terms of profitability.
During the first half of the year, several orders of significant value were
secured from Australia, from the United States of America and from Mexico.
Further orders were secured during the second half of the year from China,
from Australia, from the United States of America and from New Zealand.
The total value of these orders exceeds 45 million NZD and sets a new
record for orders received by the company during any one-year period.
This release of capital expenditure, particularly from within the North
American appliance manufacturing industry, provided the base for a highly
accelerated and significant lift in the company's performance through
year-end and on into the future.
At year-end the company had nine major systems under construction or
undergoing test. Four of these were automated production systems situated
at the company's Dunedin facility. Five were large appliance production
systems situated at the company's Christchurch facility.
Subsequent to year-end, a further two confirmed orders have been received.
The two orders, for appliance production systems destined for Mexico and
Brazil, have a total value of 6 million NZD.
Personnel numbers have increased significantly during the last 12 months.
Thirty (30) people have joined Scott in Auckland as a result of the CBS
acquisition however the major portion of the increase in personnel numbers
has occurred at Scott Technology's Christchurch facility.
This growth in Christchurch is aligned with the implementation of the
company's strategic plan to centralise its appliance business in
Christchurch. During the last 12 months, Christchurch employee numbers have
grown from 80 to 140 (including 25 temps) representing an increase of 60
people (a 75% increase).
The total number of Scott employees has grown from 130 one year ago to 230
at the present time representing an increase of 100 people (a 77%
During the company's previous peak period of 1999/2000, the Dunedin and
Christchurch operations were both dedicated to the appliance business.
During that period, the two sites collectively employed 180 people and
achieved annual sales of 30 million NZD.
Current personnel (One year ago)
Christchurch 140 (081)
Dunedin 055 (045)
Auckland 030 (000)
Dallas 003 (004)
Sydney 002 (000)
TOTAL 230 (130)
The centralisation of the company's appliance business in Christchurch has
allowed major efficiency gains to be realised and the establishment of
Scott Automation in Dunedin has set the course for diversification. The
acquisition of CBS Engineering during the year and its integration into
Scott Automation both achieves and allows further diversification and
SCOTT TECHNOLOGY - Christchurch & Dallas
Scott Technology's Christchurch operation achieved record levels of sales
for the year and cemented the division's position as a supplier of choice
for the major American appliance manufacturers.
The current demand from the North American market is driven by economic
recovery factors combined with the emergence of niche markets for higher
cost "fashion" products. This demand is expected to continue for several
The production of whiteware appliances in China continues to increase at a
phenomenal rate in terms of units produced for both local consumption and
During the year, an appliance production system was constructed and shipped
to a customer in China. This project, the company's second for the Chinese
producer, was integrated with a system previously provided by Scott. The
successful completion of this project further cemented our excellent
relationship with our client and further developed the company's reputation
within the Chinese market.
Scott Technology is currently pursuing specific options to gain further
credibility and to improve our ability to penetrate this market. It is
anticipated that the developing China market will provide significant
opportunities for Scott Technology.
The growth in Scott Technology's design and manufacturing capacity has
boosted the division's level of response and sustainable throughput. The
implementation of strong project management programmes combined with
resource utilisation improvements has overcome previous efficiency
barriers. Resource utilisation improvements include the introduction of an
extensive nightshift operation and the adoption of a significant
outsourcing regime both of which allow greater throughput, shorter
deliveries and greater ability to process multiple projects simultaneously.
Scott Technology's operational computer system was upgraded during the year
to allow the implementation of powerful computer aided design (CAD) and
computer aided manufacturing (CAM) tools. The upgrade effectively moved the
company away from apple based systems to PC based systems allowing access
to software tools not previously available to us. The move also greatly
improved our ability exchange files with our customers, suppliers and
Scott Technology's Technical Services Division, which includes the
company's Dallas operation, continues to provide and develop after-sales
customer services. This division provides a significant business
contribution by way of profitable service contracts and the enhancement of
major sales opportunities through customer contact and market awareness.
SCOTT AUTOMATION - Dunedin, Auckland & Sydney
Since establishment, Scott Automation has progressed well through the year
with a large "milestone" robotic automation system being designed and
constructed in Dunedin for an Australian customer. This project establishes
Scott automation as a serious contender within the robotics automation
industry and generates significant export opportunities for the division.
The recently announced joint venture with leading meat processor PPCS Ltd,
provides further exciting business opportunities for Scott Automation
within the meat processing industry and provides an excellent base from
which to develop specialised skills with great export potential.
The primary stage of a robotic meat processing system has been field tested
at one of PPCS's processing plants with initial production trials scheduled
to commence early in 2003. The development of this system is expected to
progress to a fully automated boning room, with major benefits for PPCS and
its farmer owners. A patent is pending which has been filed to protect the
intellectual property developed on this project.
The establishment of Scott Automation's Package Handling Division in
Auckland has created a bridgehead for Automation within the center of New
Zealand industry and has established connections in Australia. The Package
Handling Division adds a further dimension to Automation's business
including materials handling and palletising expertise particularly within
the food, wine & beverage industries.
A patent application has been filed for the design of a "zero pressure"
accumulation conveyor that has recently been developed by the division and
showcased with much interest at the recent Packtech exhibition in Auckland.
The Wine & Beverage (previously Betts) division, as a major supplier to the
New Zealand wind and grape industry of predominantly indented specialty
equipment, is of important strategic value and complements our own robotic
palletising and package handling systems for this sector of the market.
Scott Automation has established a systems partnership with Kuka Roboter
GmbH of Germany. This partnership provides the Scott Group with commercial
and technical benefits that enhance group business opportunities and
increases the package handling division's competitive advantage.
The prime challenge for the management of Scott Technology Ltd for the
coming year will be resource management to achieve throughput requirements
to meet schedule and maintain profit expectations.
An important element of the companies diversification and growth strategy
is to retain a high degree of operational synergies in order to maximise
"interdivisional support" opportunities. The ability to move workload
across the group will ensure all company capacity can be fully utilised.
The management of Scott Technology Ltd faces the future with considerable
confidence, arising from a record level of secured orders and customer
negotiations for future contracts.
The North American market has emerged from the downturn, as signified by
the contracts both secured and pending and the current level of activity is
expected to continue for several years.
The Chinese economy continues to grow rapidly and is expected to provide a
substantial market for the company in the future, with greater long term
potential than even the United States of America.
Scott Technology has a very positive future.
Finally, may I take this opportunity to express my personal appreciation
and thanks to my fellow Directors, Managers and Scott employees and to my
fellow shareholders for your guidance, support, dedication and passionate
It is my pleasure to now formally second the motion.