Scott Tech turns to investors in bid for $9.5m

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Manufacturing firm Scott Technology is looking to raise $9.5 million from shareholders to shore up its balance sheet, build stock and pursue new business opportunities, says its boss.

The Dunedin-based company has announced a one-for-four renounceable rights issue open to existing investors.

At $1.20 per new share, the offer is a 17 per cent discount on Friday's closing price of $1.45.

Shares briefly rose 5c to $1.50 during trading yesterday, but fell back to close unchanged at $1.45 last night.

Shareholders who take part will receive one new share for every four shares held at the July 6 record date, the company said.

The offer opens on July 6 and closes on July 28, with the new shares being allotted on August 4.

Scott Technology said shareholders who do not want to participate would be able to sell their rights, which would be tradeable on the NZX.

Managing director Chris Hopkins said the offer was not an indication that the company, which reported cash and cash equivalents of $199,000 at the end of February, was desperate for capital.

"We've got very good support from the bank and we could survive happily without this [offer]," he said.

"This capital raising enables us to repay debt to recharge the balance sheet and improve our working capital to address new opportunities we have ahead of us at the moment."

Hopkins said Scott Technology would also use the additional capital to shorten delivery times for customers of its mining equipment business - Onehunga-based Rocklabs, which it acquired in 2008 - through increasing stock levels.

"We never like to hold stock unless we've got a very good reason for it, and this requires some investment from us to hold that stock."

Hopkins said proceeds of the offer could also be used to fund existing research and development projects.

"We've got a project we're undertaking in the dairy industry that we've been investing quite heavily in," he said.

"Further capital will be required to take that through to market."

Hopkins said the current strength of the New Zealand dollar against currencies like the greenback was a "dark cloud" that was having a dramatic impact on the business.

"A lot of our sales are denominated in US dollars," he said.

Hopkins said the company was able to adjust prices to compensate for the exchange rate - but only to a point.

"Price is important," he said. "We can't just pass that on all the time."

Hopkins said the firm used foreign exchange contracts to deal with currency pressure, and some benefit was gained through buying componentry in US dollars.

In April Scott Technology took a $4.4 million controlling stake in HTS-110, a commercial offshoot of a Crown Research Institute that designs and manufactures electromagnets using superconductors.

Superconductors allow electricity to pass through them with no resistance, improving energy efficiency.

"It's high technology, world-leading, New Zealand-based, it typifies what Scott is about," Hopkins said at the time of the acquisition.