Scott Technology blames dollar for profit drop

Scott Technology today reported its February half year net profit fell 40 per cent to $1.1 million with the high New Zealand dollar blamed for much of the fall.

Sales for the six months were $21.9m, the majority of which were in international currencies and this compared to $16.9m a year earlier.

"The principal challenge facing Scott Technology Ltd was the high value of the New Zealand dollar and the company indicated it would meet this challenge by continuing to secure contracts in the global market, albeit sometimes at lower margins," the company said.

Margins had been maintained through efficiency and productivity initiatives.

"Our international sales have increased substantially but on conversion to New Zealand dollars the result is a reduction in our reported profit."

However, the company said that with a very high level of overseas forward orders, it was confident of the future.

"The challenges facing Scott Technology Ltd are those facing all exporters and manufactures alike and the directors see the current position as part of our business and global currency cycle."

It declared a fully-imputed dividend of 4cps, down from 6cps last year. The dividend will be paid on May 5.

Scott's core business is the design, manufacture and installation of sophisticated, customised production systems.

It said that its new representative office in Shanghai had produced excellent results with the securing of several contracts, including the supply of an appliance production system to Haier, one of the world's leading appliance manufacturers.

"This contract, to be installed in China, is of significant strategic value and is expected to lead to further contracts with Asian appliance producers."

The Shanghai office also contributed significantly to the company's procurement of technical components from China.

A further highlight of the period was the securing from a major Turkish public company, a contract to build an appliance production system to be installed in Russia. This is in addition to the contract secured late last year to supply three appliance production systems for installation in Turkey.

Both of these contracts were secured with the provision of long term finance supported by a payment guarantee issued by the New Zealand Government through the Export Credit Office.

Scott said it had invested heavily in the research and development of automation for the meat industry and also in robotic and automated warehousing technology particularly for the food industry. Successful trials were being undertaken in the meat industry.

"This investment, the cost of which has been expensed and not capitalised, is expected to begin generating sales during the second half of this year," the company said.

Australasian meat industry systems sales would help balance Scott's exposure to other foreign currencies.

The company said it had also secured a very significant contract to build multiple production systems for an Australian company about to embark on a global launch of an innovative patented product. This initial contract, valued at $9 million, would open up a long term opportunity for the company with multiple repeat contracts anticipated.

Scott said it was looking to increase overseas component sourcing and installing new machinery to cut operating costs and improve margins.

The timing of current contracts had increased its work in progress and working capital requirements, but this was expected to correct itself later in the year.

Scott shares fell 1c to an 18 month low of $2.69, having fallen from $3.90 on October.

- NZPA