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Scott Technology M&A spree delivers 62% boost in 1H profit

Thursday 4th April 2019

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Scott Technology is near the end of its latest round of acquisitions, which helped boost first-half profit 62 percent. 

Net profit rose to $5.1 million in six months ended Feb. 28 from $3.1 million a year earlier. New businesses it bought during the past year helped drive a 65 percent increase in revenue to $111.4 million. 

Dunedin-based Scott has established a track record of expansion through mergers and acquisitions during the past decade, growing annual revenue to $184 million in the 2018 financial year from $31 million in 2009. Its global workforce more than doubled to 778 from 324 in that time. 

Scott spent $24.2 million on Belgian industrial automation specialist Alvey Group and North Carolina-based automated guided vehicle manufacturer Transbotics during the 2018 financial year. In the latest period, it spent another $300,000 for the spares and sundries business of Milmeq Meat Slaughter. 

"With our acquisition cycle virtually complete, our management team is focused on improving efficiencies and outcomes," chair Stuart McLauchlan and managing director Chris Hopkins said in a statement. 

At its annual meeting in November, Scott said its M&A strategy means it can deliver end-to-end automation products, spanning customer interface systems, materials handling, primary and secondary processing, packaging, and logistics. 

Scott's raw materials, consumables and other costs climbed 75 percent to $68.7 million in the first half, while wages were up 57 percent at $35.7 million. 

Australasian manufacturing sales were up 5.9 percent at $50.2 million, but the unit faced increased research and development spending and some project cost overruns. 

McLauchlan and Hopkins said one meat industry project faced longer commissioning times than expected, while two mining projects underestimated the challenges of deploying new technology.

"While disappointing, problems with projects are to be expected from time to time. However, with the business now well diversified, these instances can now be absorbed by the group," they said. 

Scott reported $14.4 million of contract work in progress at Feb. 28, which it said contributed to the $9.1 million operating cash outflow in the period. Capital spending was $6.6 million, while dividends paid and debt repayment of $2.5 million meant the company reported a net cash outflow of $18.1 million.

The company had a bank overdraft of $5.7 million at Feb. 28 in addition to $6.9 million in term loans. 

McLauchlan and Hopkins said the cash position was driven by several key projects and associated payment terms.

"Final payments for businesses acquired and asset purchases, including progress payments for the Dunedin building extensions, also utilised significant cash during the period," they said. 

Scott said the company is still seeing good demand in most regions. It has a strong forward order book and sales pipeline and is confident it can hit its targets. 

"In addition to our efforts to streamline the business and drive operational and performance improvements, we will also focus on enhancing our service and spare parts business. This includes further developing our after-sales product and service offering to customers," it said. 

The board declared an unchanged interim dividend of 4 cents per share, or $3.1 million, payable on May 14. 

The shares last traded at $2.55 and have dropped 7.3 percent so far this year. 


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