Scott Technology in a 'sweet spot' says CEO Hopkins

The interim dividend of 4 cents a share reflects the strong operating cash flow in the first half and the directors' confidence for a "strong full-year result."

Scott Technology posted a 48 percent jump in first-half profit and chief executive Chris Hopkins says a global drive for increased automation means the industrial robotics firm is in a "sweet spot".

Net profit was $2.89 million in the six months ended Feb. 28 versus $1.95 million a year earlier, the Dunedin-based company said in a statement. Revenue was $56.7 million, up 32 percent on the year.

Hopkins told BusinessDesk the increased revenue was on the back of increased demand across all industries for automation in the segments where it operates, which include appliances, meat processing, mining, high-temperature superconductor products, and other industrial automation including robotics.

"It's a general trend which we have seen pick up. There is a lot of talk about automation and robotics. We are in a reasonably sweet spot at the moment," he said. Growth continued in the meat processing sector and Hopkins said the mining sector is showing signs of recovery, driven by the general environment in the mining and commodities sector.

Another strong growth area comes from new products, he said. Scott Technolog invests 5-to-10 percent of its turnover on research and development, although Hopkins said it's hard to quantify as much of the development is driven by customer demand for increased automation to improve productivity, quality and to offset a decline in available labour. "Believe it or not labour is becoming a more scarce resource in many of the countries we sell into. That's a key driver too," he said.

He declined to provide any specific guidance for the full year but said the interim dividend of 4 cents a share reflects the strong operating cash flow in the first half and the directors' confidence for a "strong full-year result."

Last year Scott Technology completed a scheme of arrangement which brought in $41 million of new capital after Brazilian meat processor JBS took a 50.1 percent stake, some existing shareholders sold down, and others took up their entitlements under the associated rights issue. As at Feb. 28 the company has cash and cash equivalents of $32.8 million versus $7.4 million in the prior year.

Hopkins said JBS, an international company with annual turnover equal to about 60 percent of Auckland's gross domestic product, had opened up more markets for his company.

"It has certainly given us a bit more confidence, a stronger balance sheet ... we are well positioned to capitalise on our skills, capabilities and the opportunities ahead of us," he said. The company continues to evaluate acquisitions and there are some opportunities in Australasia "and our other areas of interest would be the Americas and Europe."

In the second half of the previous financial year, Scott expanded its manufacturing in Europe and Asia by buying German engineering firm, Somako Hirsh & Attig. Hopkins said it was "early days yet" but that "it is a long-term strategy for us to be in that market." One of the constraints in the past was not having local support to take technologies wider, he said. "We needed to have a footprint."

It also bought BladeStop bandsaw safety technology last October, which helped boost its Australasian manufacturing segment.

Regarding China, he said the automated equipment it sells into that market is largely driven by the appliance industry, which can be "lumpy." The company aims to diversify its sales into China into other industries - like the meat processing industry - but it will be "a slow gradual path." He noted the Chinese business is a valuable source of lower cost manufactured inputs for its Australasian activities.

The stock was up 4.3 percent at $2.92 and has gained 73 percent over the past year.

(BusinessDesk)