Scott Technology meat industry robotics, at work at Silver
Fern's Finegand plant. Photo by Stephen Jaquiery.
Listed Dunedin manufacturer and exporter Scott Technology
has reported a more than 60% profit plunge for its first-half
The strong New Zealand dollar and Australian mining sector
downturn have played a part in eroded profit margins.
Revenue for Scott - involved in automated production line
manufacturing, mining sector work and robotics in the meat
industry - was down 5.7% to $25.3 million, for the six months
ended in February, while profit dropped 63%, from $2.2
million a year ago to $820,000.
A market update by Scott chief executive Chris Hopkins in
mid-February, flagged to shareholders the erosion on profit
margins. Scott was reviewing in-house costs, looking to buy
more components overseas and continuing its use of forward
hedging contracts to try to mitigate the high kiwi, which had
appreciated almost 25% against its Australian counterpart in
Leasing, rather than selling, equipment to the mining and
meat sectors was a new initiative for Scott.
Scott shares were unchanged at $1.55, following the
announcement. The interim dividend is 2.5c per share.
Yesterday, in a release by Mr Hopkins and chairman Stuart
McLauchlan, the pair said activity and sales across the
business were at strong levels, but due to the high New
Zealand dollar and the competition to win project work,
margins were lower than historical levels.
''The global economic environment is such that many of our
customers, particularly in the mining sector, have slowed, or
in some cases, ceased, their spend on capital equipment and
fixed assets,'' Mr Hopkins said.
Craigs Investment Partners broker Peter McIntyre said
Scott was in a good position to ''weather the storm'', of the
high kiwi, with a strong balance sheet, cash in hand and the
confidence to maintain its dividends.
''Like many in the manufacturing export sector, they are
doing well, but feeling the dollar [exchange] pain, when
translating sales back to New Zealand,'' he said.
''The mining sector in particular has gone from hero to zero
for Scott,'' Mr McIntyre said.
Mr Hopkins said the mining sector was ''hit the hardest''
during the global economic downturn.
''We have seen a significant slowdown in this sector,
particularly in Australia, and this is closely linked to the
cyclical movement in the price of relevant commodities, such
as gold, nickel and zinc,'' he said.
While Scott's reported sales for the first half fell from
$26.8 million to $25.2 million, Mr Hopkins said if adjusted
for the negative effect of the exchange rate, sales would
have been higher than the previous year.
He said Scott's balance sheet remained strong, with total
working capital of $18 million at the end of February, up
from $16.5 million a year earlier.
Revenue for Scott's previous full year to last August
declined from $63.7 million to $60 million, while after tax
profit declined from $6.1 million the year before to $5.14
million; the $6.1 million profit having been a record for the
Mr Hopkins said the appliance-line manufacturing division
performed strongly in terms of sales and forward work and
''significant'' contracts were won with customers in North
America, China and Germany.
''However, the rapid increase in value of the New Zealand
dollar and the associated higher cost of manufacture in New
Zealand has impacted on the margin we are able to obtain and
deliver,'' Mr Hopkins said.
''The directors are aware of the difficulties of the current
economic environment, but are confident that the initiatives
we have in place and have planned will deliver the required
results for all stakeholders,'' he said.
On its meat processing equipment, Mr Hopkins said Scott
delivered several new systems to Australian and New Zealand
companies, including two new processing systems, and interest
and level of inquiries continued to grow in Australasia and
Scott's presence in the Chinese market, with an office in
Shanghai, had produced positive results, with several
appliance sales contracted, directly within China.
''These sales are incremental and the company expects this
area of the business to show strong growth,'' he said.
Scott has continued to invest in new products and
technologies, one such area being the development of a
robotic milking system, at present in late stage production
trials on a working South Canterbury farm.
''This development is nearing the performance specifications
that will provide the confidence needed to install additional
systems, which will precede full commercialisation,'' Mr