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Great Scott

By Jenny Ruth

Monday 1st September 2003

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 Jenny Ruth
Little known, but much loved South Island manufacturer Scott Technology started life in the heavy manufacturing business 90 years ago and now designs and builds automated assembly lines for whiteware manufacturers. It boasts big name clients such as General Electric, Electrolux, Frigidaire and Whirlpool, and exports to South America, Europe and Asia.

VITAL STATISTICS:
The company listed on the stock exchange as a separate entity in 1997 when it was spun out of another then-listed company, Donaghys. Shareholders' equity has risen from $9.1 million in 1997 to $14.6 million in February 2003. Annual sales have gone from $19.5 million to $29.2 million in the year to August 2002, and $23.4 million in the six months to February. Shareholders were rewarded last year with a one for eight bonus issue.

Its profit history has been patchy, however, rising from $2.4 million in the year to June 1997 to $3.6 million in the year to August 2000 (it changed its balance date after listing), but then slumping to $415,000 in 2001. A $2.5 million first-half profit was posted for the period to February 2003, and in July the company said it was looking at an even larger second-half result and a record annual total. However, it warned the weak global economy and strengthening Kiwi dollar makes it unlikely this will be matched in the 2004 year.

The share price has followed a roller-coaster ride to match its profit performance, ranging from under $1 in late 2001 to a peak of $2.90 in May this year. The price has slumped since the 2004 profit warning.

MANAGEMENT:
The company has a culture that seems to foster employee retention. Managing director Kevin Kilpatrick joined Scott Technology in 1968 as an engineering drafting apprentice. One employee celebrated 50 years with the company earlier this year and between 20 and 30 people have more than 20 years experience at Scott.

CURRENT STRATEGY:
Scott aims to diversify geographically, and in January established a representative office in Shanghai, where 60% of China's appliances are manufactured. It hopes the Chinese market will grow to exceed the US, currently its biggest. It is also diversifying into new areas of operation to insulate itself from appliance industry downswings.
As part of this strategy it has established subsidiary Scott Automation, which, over the past two years, has worked in a joint venture with meat processor PPCS to develop a high-precision lamb-boning robot. Another diversification move was the purchase early last year of Auckland-based CBS Engineering, which specialises in automating package handling and in supplying wine-making equipment.

RECENT TRACK RECORD:
The last orders announced by the company were a $2 million upgrade of an existing line in April and a $US14 million order in January. Kilpatrick says that although Scott has been enjoying a surge in orders since 2001, the same hasn't been true for its mainly European competitors. That's made those competitors "much hungrier" and they have been cutting margins in attempt to regain market share. While he believes his company is likely to continue winning orders, and says a number are on the verge of crystalising, the margins are likely to be less than in the recent past. Nevertheless, it still has a fair head of steam, with more than $20 million of orders in the pipeline.

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