Chairman's and CEO's AGM Addresses
12:00AM, 8 Dec 2005 | ADDRESS
Below are the Chairman's and CEO's addresses at the Scott Technology Ltd AGM.
Copies can be requested from firstname.lastname@example.org
SCOTT TECHNOLOGY LTD
Thursday 8th December 2005
As Chairman of Scott Technology Ltd, it is my pleasure on behalf of the Board
of Directors to welcome shareholders to the ninth Annual General Meeting of
Scott Technology Ltd since the company was re-listed 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-third 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
Eion Edgar Independent Director
Graham Batts Independent Director
Mark Waller Independent Director
All of these gentlemen are non-executive independent directors.
Kevin Kilpatrick Chief Executive/Director
Chris Hopkins General Manager/Director
Kevin and Chris as executives of Scott Technology Ltd are executive
Also Mark Jackson Financial Controller
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.
Three years ago the directors announced plans to extend its technical
expertise into the field of robotics for industry including the meat, food
and beverage sectors.
The company's recent development of robotics for the meat industry at its
Dunedin Technology centre and the development of the food and beverage
handling robotics at its Auckland Technology centre has considerably expanded
the scope of Scott's domestic and offshore marketing opportunities.
The past year has been a difficult one for all exporters but particularly so
for Scott Technology Ltd.
We began the year with a record level of contracts secured at a $ value
somewhat higher than previous years but with the expectation that through
planned efficiencies, increased out-sourcing and higher productivity that
these contracts would be able to be completed with reasonable profit margins.
However our best expectations were thwarted by having to sub-contract into a
market which became over committed and which impacted sub-contract prices and
delivery times. In addition one large contract in particular was more
technically complex than anticipated and this required substantial additional
engineering and installation costs.
During the year the company entered lengthy and challenging discussions with
the Engineers Union regarding levels of remuneration, and whilst this was
ultimately settled amicably it did affect productivity during that period.
However the Dunedin Automation Division had a successful year with
considerable activity in the Robotics area for the Meat Industry, as well as
a contract to build ten identical machines for an Australian manufacturer
with the prospect of further repeat orders.
While the Auckland package handling division traded successfully its rate of
growth was lower than planned.
During the year Scotts purchased the Australasian rights to the Munck Robotic
Aisle Cranes and this holds considerable potential for our Auckland division.
Chris Hopkins has just returned from a marketing trip to Australia visiting
several Munck Crane operators with considerable interest for further
development of this robotic product.
The loss in the second half of Scott's year was disappointing and it is
anticipated that the first half of the current financial year ending on 28th
February 2006 is unlikely to be in profit.
However several contracts in the USA are currently being quoted with an
expectation that some of these will be achieved at reasonable margins and
hasten a return to profitability during 2006.
The Directors commitment to maintaining a relatively high dividend payout is
evidenced by a total of $10.4 million in dividends being paid over the past
five years from tax paid earnings of $12.5 million. The disappointing
trading results in the second half of the year lead the directors to
reluctantly pass the final dividend and shareholders can be assured that
dividends will resume when the company's profitability deems it prudent.
I would like to refer to the current economic conditions within New Zealand
which the Government appears to have no plans to address other than through
the blunt instrument of Reserve Bank interest increases. Our economy is in a
vicious circle in that it is generally acknowledged that our NZ$ is
considerably higher than its real value and this is caused primarily by
offshore money seeking to take advantage of the Reserve Bank inspired high
interest rates. The Reserve Bank has raised interest rates several times
this year for the sole purpose of curbing inflation which is caused by
significantly increased spending power.
There is unquestionably a need to control inflation but it seems that the
primary role of the Governor of the Reserve Bank is to supervise the Trading
Banks and announce increases or decreases in the OCR according to policy set
Surely it is time for some visionary thinking from the Government and Reserve
Bank about how to change NZ's current path to becoming one of the worst
performing countries in the OECD.
The Sector of the economy of NZ which has showed the greatest rate of growth
over the past six years is the Banking and Financial Institutions sector,
mostly controlled from Australia.
The financial sector gains from interest rate hikes as Banks in particular
borrow offshore at lower rates than in NZ and lend in NZ at higher rates
such as Credit Card interest rates of 19% p.a.
New Zealand's most frequently reported Economists work for the Trading Banks.
Craig Ebert, a Senior Economist at the Bank of New Zealand which is owned by
National Australia Bank was reported in last Saturday's O.D.T. under the
heading ECONOMISTS DEMAND HIGHER INTEREST RATES
As saying "the Reserve Bank must bite the bullet and act decisively to curb
spiralling domestic spending.......
People are still spending like crazy to buy into housing" said Mr Ebert.
That article also reported Dr John McDermott, Chief Economist at the National
Bank as saying "The Reserve Bank has no real choice, other than to raise
We read an article in the Christchurch Press by James Weir that the same Bank
of NZ sent unsolicited credit card offers of up to $5,000 to thousands of
people at random from a 'FLY BUYS' data base.
Some of the recipients of a no questions asked credit line of up to $5,000
were unemployed, mentally impaired and bankrupt.
James Weir states that total household debt in New Zealand is now about $128
billion, up a staggering $32 billion in just two years.
The same report states that Westpac Branch bank consultants to get pay rises
and keep their jobs, have to lend between $2 million and $5.2 million a year,
get personal lending of $660,000 and pull in $26,000 a year in fees from
Inflation is caused by excessive demand when credit is freely available.
If a financial institution lends 100% of the value of a house, then it
benefits them to have the value of that house rise thus creating some equity
in the loan. The "Flexible Home Loan" is a trap for many people who see the
value of their house increase as per an easily acquired Quotable Value
enabling them to borrow more thus further fuelling inflation.
New Zealand is an isolated country of 4 million people using fiscal policies
designed for countries many times our size. Interest rates are an important
element of Fiscal management but the Reserve Bank needs to come up with a new
vision, that addresses New Zealand's love affair with debt driven spending
and the resulting artificially high New Zealand dollar which is having such a
negative effect on every exporter including farmers, fruit growers,
manufacturers and professionals.
The result of this current policy is a record international trade deficit of
$6 billion which is close to 9% of our G.D.P.
This trade deficit is the worst in 45 years since statistics began and is 50%
higher than just one year ago. It is interesting that 92% of transactions in
New Zealand dollars are finance or investment related and only 8% relates to
The New Zealand dollar turnover per day is approximately US$25 Billion or
enough to transact New Zealand's annual exports in just over one day.
In fact there are more New Zealand dollars traded daily in both London and
Australia than in New Zealand.
Consider that the New Zealand current account deficit was almost NZ$12
billion in the year to 30 June 2005. Over the same period NZ $15 billion of
NZ denominated Bonds were issued to Foreign Investors.
These are often the so-called Belgian Dentists who are attracted by our
interest rates which are now the highest in the industrialised world.
The Reserve Bank increases the OCR rate to effectively take money out of
circulation in New Zealand i.e. more of the borrowers income goes to pay
mortgage interest. But this extra interest flows out of New Zealand thus
increasing the already record high Trade Deficit.
Although unpopular it would be more beneficial to New Zealand if interest
rates remained lower and an alternative means of extracting funds from the
economy was implemented where the funds extracted remained in New Zealand.
Imagine the delight of the Tokyo housewife who gets zero interest from her
local Bank but can get 7.25% in Eurokiwis.
This is because the saving rate in New Zealand is very low and spending very
high whereas in Japan the saving rate is high and the spending rate low.
I can assure you that the Directors of Scott Technology are doing everything
possible to improve the company's trading position but a significant drop in
the value of the New Zealand dollar as predicted by many economists, will be
an important aspect of our profit recovery programme.
Scott Technology remains a successful international high technology company
with a strong client base in many countries around the world and a proven
record in innovative production machinery design.
With regard to corporate governance you will note that Mr Eion Edgar has
advised that he is not available for re-election as a Director because of his
increasing time commitments, particularly as President of the New Zealand
Olympic Committee. Mr Edgar joined the Board of Scotts when it was refloated
on the Stock Exchange in 1997 and has been a valuable member of our Board
with his wide experience in the financial and investment markets. We will
miss his wise counsel and extensive business contacts and wish him every
success with his new responsibilities.
Later in the meeting a resolution will be put to re-elect myself as a
Director and this is the last time that I will be available for re-election
with my intention to retire as a Director before the completion of my new
term if re-elected today. I have been a Director of Scotts for 36 years and
Chairman for over 30 years and as time progresses we will bring new members
to our Board as we have done with last years appointment of Mark Waller as a
Director. The Board is also undertaking a review of our overall corporate
governance procedures and this will include advice on any additional matters
which could be included in future Annual Reports.
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.
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 a very challenging year.
As shareholders I thank you for your continued support and as your Directors
and many of Scotts employees are significant shareholders we all have a
common goal to return the company to an attractive level of profitability.
I now formally move that the Annual Report, including the Chairman's Report,
Financial Statements and Auditors Report of Scott Technology Ltd for the year
ended 31st August 2005 be adopted and invite our Chief Executive Kevin
Kilpatrick to address you and second the motion.
SCOTT TECHNOLOGY LIMITED
DUNEDIN THURSDAY 8th DECEMBER 2005
CHIEF EXECUTIVE OFFICER'S ADDRESS
Thank you. Mr. Chairman.
One year ago, the company entered the 2005 year with an extensive order book.
These orders, secured at lower than traditional margins within highly
competitive markets against less than favourable currency factors, presented
management with a demanding challenge to design and build these systems to
meet project schedules and to maintain profitability.
The year ended 31 August 2005, in fact, proved to be a very demanding and
most difficult year for the Company, particularly in respect to Appliance
Systems. Group sales for the year were the Company's second highest ever at
$40.3 million. Actual throughput, or productivity measured in terms of the
number, the sophistication and the value expressed in the currency of
purchase (predominately USD), was at a record high level. The Company's
pre-tax operating surplus on these sales, however, was extremely
disappointing at $459,000.
In his address, the Chairman elaborated on several global and domestic
factors that contributed to the difficult business environment experienced by
the company during the year.
Project margins were placed under considerable pressure and anticipated the
achievement of significant project cost reductions to partially offset the
negative impact of both currency and market competition upon revenues.
To put into perspective the impact of currency variables upon the company, a
0.05 movement of the NZ to US exchange rate represents a 5% gross margin
percentage change. The lower the margin percentage, the greater the impact
this change would have upon that margin.
During the course of the year, the project cost reductions anticipated were
not realised; in fact the company faced cost increases, as outlined by the
Chairman, as the year and contracts progressed. The magnitude and impact of
these costs became increasingly more apparent during the second half of the
year resulting in an operating loss for this period.
Two prime factors contributed to the late development and recognition of this
Firstly, an abnormally high proportion of contract schedules became aligned
such that resource demands could not be staggered resulting in a much greater
degree of dependency upon outsourced support during this period.
Secondly, an unprecedented level of equipment development and commissioning
occurred during the second half of the year. With budgets trimmed, little
contingency allowance remained to cover unforeseen events or circumstances
often associated with the initial commissioning of complex production
The Company, however, is committed to improve profitability through the
continual development and implementation of measures to bolster its
competitive advantage and to improve its operational efficiency. As part of
this commitment, the Board and Management have undertaken a major review of
the company's operating structure and this continues to be an ongoing
process. The goal of course is to ensure that the company's performance and
competitiveness is continually honed through refined design and cost
reduction and efficiency measures to improve margins.
To support this process and to strengthen Corporate Management, Mr. Chris
Hopkins, formally Chief Financial Officer, was appointed Group General
Manager during the year. Associated with this appointment, Mr. Mark Jackson,
formerly Company Accountant, was appointed to the position of Financial
Controller. Mr. Jackson has assumed the financial control and reporting
responsibilities previously held by Mr. Hopkins.
These appointments build upon management strengths within the company and
free the Chief Executive of general management demands in order to focus more
intently upon business innovation and development including design and
marketing. The General Manager reports directly to the Chief Executive and
assumes responsibility for the operational, management of the Company.
The control and reduction of operating costs, including purchasing, within
the company's global business environment is a key target of Management. To
mitigate the impact of the high currency exchange rates upon our
predominantly export driven manufacturing business, offshore outsourcing and
component supply opportunities, especially from within lower cost countries
such as China, continue to be actively pursued and developed at this time.
During the year the Company delivered equipment to clients in the United
States of America, Mexico, Turkey, Poland, China, Australia and locally
within New Zealand. This global activity required a considerable number of
staff to travel to various places around the world to install and commission
Scott equipment. Carried forward into the 2006 year, the company has
contracts to ship and install appliance equipment in Russia, China and the
United States of America and our meat and package handling divisions have
contracts to ship and install equipment in Australia and New Zealand
highlighting our continuing global market.
The strong interdivisional operational synergies that form a key element of
the Company's diversification strategy were positively exploited during the
year with group wide resources being pooled to support Appliance Systems
heavy workload. This support included the assembly and testing of one
complete production line in both Auckland and Dunedin under Christchurch
management and supervision
In keeping with the company's policy to maintain state of the art machine
tools and improve efficiencies, several CNC machine tools were purchased
during the year to complement the existing machine shop facilities at all
three locations. These machine tools contribute positively to the efficiency
and technological capability of the company. They also enhance the training
of our apprentices who will ultimately become our next generation of skilled
SCOTT Appliance Systems (Christchurch)
The company's core business is the production of sophisticated manufacturing
systems for the home appliance industry.
Scott Technology's Christchurch based "Appliance Systems" throughput for the
year was at a record level. Intense market pressures and rising cost however
impacted margins with significant effect upon the group result.
During the year, a number of major systems were delivered to various
customers around the globe. Among these, a technically sophisticated
manufacturing plant consisting of three major production lines was designed,
constructed, shipped and installed for an appliance manufacturer in Turkey.
This was a very ambitious project having a very tight deadline and it
incurred additional costs in part due to a significant amount of
subcontracting work and increased developmental costs. The commissioning of
this equipment, however, is now well advanced and the system will soon be a
strong marketing point for future sales with this customer and within the
eastern European region.
The outlook for Appliance Systems is positive. The majority of the systems
constructed during 2005 year are now installed and in production. Of the
systems carried forward, one is to be shipped to China later this month and
one to Russia in February. The current level of secured forward orders is not
high however several contracts of significant value are expected to be
secured early in the New Year.
Appliance Systems has to date received a letter of intent and a preliminary
engineering purchase order in respect to one of these prospects. The client,
who has two Scott systems already, produces high quality high value
appliances to meet the demands of their rapidly growing niche market. Scott
has been selected on the basis of being a producer of quality production
systems suited to the production of their quality product.
The vast majority of a significant number of current high ranking prospects
originate from within Appliance Systems' traditional North America market,
underlining a welcome resurgence of demand from this region. With exception
to Eastern Europe, the level of activity within our developing markets,
including China, is not extensive at this time.
Appliance Systems exports 100% of its product and its business performance is
influenced by both global and domestic factors. An easing of the NZD against
the USD appears to be imminent and this, along with a slowing of the NZ
economy, will provide much sought after relief and benefit.
SCOTT Package Handling Systems (Auckland)
Scott Technology's Auckland based "Package Handling Systems" achieved further
market share in the industry during the year with significant orders being
secured in both New Zealand and Australia. The division enters the 2006 year
with a good forward order book including a substantial contract to provide an
automated conveying and robotic palletising system to a large New Zealand
dairy products company.
During the year, Package Handling Systems also provided a significant level
of support to Appliance Systems by facilitating the assembly and testing of a
major production system in Auckland and then assisting with its subsequent
installation and commissioning on site in Adelaide, Australia.
The outlook for Package Handling Systems is reasonably positive however
business development opportunities, particularly within Australia, have not
progressed in line with expectations. Management has been challenged to
direct greater attention to this during the 2006 year and the Group General
Manager, Mr. Hopkins, shall lead this effort.
SCOTT Automation Systems (Dunedin)
Scott Technology's Dunedin based "Automation Systems" made considerable and
exciting progress during the year with the development of its meat industry
robotics programme. Several machines are now operating at a PPCS plant with
others at various stages of development. The Company continues to work
closely with PPCS and with Meat and Livestock Australia 'MLA' in Australia,
where the Company expects to develop a substantial market.
Automation Systems enters the 2006 year with a high level of meat processing
automation work ahead of it. A significant portion of this workload will be
carried out in conjunction with MLA, along with several Australian meat
processors. The Company's investment in research and development within the
meat industry is expected to lead to the progressive and significant
commercialisation of this equipment in the future.
Automation Systems also carries forward into the 2006 year a significant
project to design and build multiple production systems for an Australian
company which will globally market their innovative product and those
machines which manufacture the product. The company is also looking to expand
its contribution to include equipment associated with the raw materials
handling and the packaging of finished product for distribution. The
manufacture and supply of such equipment would be ideally suited to our
The outlook for the company is strong but there will be a period of recovery
following on from the present economic condition. The Company's major
priority for the year ahead is to improve profitability through efficiency
and cost reduction programmes.
The Company's focus will be to maintain a high level of forward work for
both the Dunedin and Auckland divisions from their Australasian markets and
to secure significant orders for the Christchurch division from the strong
enquiries for appliance systems globally.
Every member of our staff has made a valuable contribution and many have put
in an exceptional effort, in what has been one of our more challenging years
because of the high work load. The past year has placed significant pressure
on staff and we look forward to improving the work environment and returns to
all stakeholders in the year ahead.
I take this opportunity to acknowledge and thank all the Staff and my
Management team for their huge effort and contribution during the year.
I also thank my fellow Directors for their support during what has been a
difficult period with my special thanks to the Chairman, Mr. Graeme Marsh for
his counsel and guidance.
It is now my pleasure to second the motion, moved by the Chairman, that the
annual report, including the Chairman' Report, Financial Statements and
Auditors Report of Scott Technology Ltd for the year ended 31 August 2005 be