SCOTT Technology Limited
was established in 1913 and is a New Zealand based, publicly listed engineering
company that specialises in the design and manufacture of automated production
and process machinery (For more information
on the company please see previous blog posts, My Company!
and An
Automated Future).
I must
admit, when I was first told that I was going to be given a company at random
and that I had to overlook a their financial statements for the last four years
and explain the key concepts and questions that arise to me; I was super
nervous and had no idea what to expect. For starters, financial statements are
made up of SO MANY different things, and all of these tell a story about the
company. I can easily say I had no idea where to start.
So after
a lot of reading, some thought and some number crunching this is what I
discovered from analysing the financial statements for Scott Technology’s.
The
first thing that jumped out to me whilst reading through the 2014 financial
reports was that the net profit after tax had actually decreased by $2.1m from
the previous year. To me this was surprising as Scott Technology’s sounds like
such a successfully diverse business. So I did some research. In 2012 the company produced a profit before
tax of $8.7 million, which was an increase of 19% on the previous year. So, why
the drop in profit for the following two years?
My
understanding is that during 2014 Scott Technologies was effected by two major
things. Firstly, the high value of the New Zealand dollar, which effected the
manufacturing margins across all market sectors. And secondly, the major
slowdown in mining sector markets. The cycle downturn in the mining sector had
a massive impact on the company, reducing sales to these customers but about
50% on the previous year. Although the profit before tax was decreased from the
previous years, the 2014 annual reports show that there was an increase in
their revenue. I believe that the 73% increase in sales to customers in the
appliance industry from 2013 to 2014 would have been one of the reasons for
this.
After
understanding the challenges that the company has been faced with I still
couldn’t understand why there was such a large decrease in profit, then I saw
it. Scott Technologies acquired a significant amount of debt in the 2014 financial
report. Why was this? This was because
Scott Technologies acquired two new businesses, Rocklabs and Robotworx. I found
in the managing directors report that the company had exchanged a rent bill of
$300,000 for an interest expense of $170,000 for the new Auckland properties
that occupied the business unit, Rocklabs. This seemed like a large amount
however this only has an overall term debt to the total assets ratio of 11%.
You can
see this impact of debt in the liabilities section of the 2014 balance sheet
(bank overdraft and current portion of bank loans). This amount of debt is
something that is not included in the previous years balance sheets, and did
not impact on their profit. Although this had a large impact on the profit of
the business in 2014 it added so much potential for the business to thrive in
the various industry sectors that it offers.
Personally
I don’t believe that the 2014 financial statements indicate that Scott Technologies
is struggling as they have acquired so many assets that can help their business
grow. Their total assets have increased by $18m from the previous year. The way
I see it is that there is plenty of evidence to show that the company is still
developing new technologies, associating business opportunities and investing
in new properties. All of these factors indicate that the company will deliver
long-term results that support a sustainable business. There is a lot about the
financial statements that confuse me, however from looking over them I can see
that Scott Technologies are working hard overcome the challenges they have been
faced with.
Overall
I’m happy with the company that I have been assigned, however there are a
couple things that concern me. It is really hard to find supporting videos on
the actual company, there are plenty on the products they manufacture but not
really anything on the business as a whole. Otherwise, Scott Technologies has
proven to be an interesting find.
Company Website:
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