equity capital raising investor presentation july 2011€¦ · this presentation may contain...

Equity Capital Raising

Investor Presentation

July 2011

This document has been prepared by Scott Technology Limited (the “Company”, or “SCT”) to provide the recipient (Recipient) with information and a preliminary understanding of the proposed rights issue of shares in the Company, and the Company’s business. Forsyth Barr Limited (Forsyth Barr) is acting as NZX Organising Participant and Lead Manager of the offer by the Company. This document is part of and to be read in conjunction with an oral briefing to be given by the Company. This document is provided to the Recipient on the conditions set out below. By opening and reading it you agree to those conditions. This document is not a recommendation, offer or invitation by any person or to any person to sell or apply for securities in the Company. This document is not a prospectus under New Zealand (“NZ) law or under any other law. It is for information purposes only. Accordingly, this document neither purports to be exhaustive nor contain all of the information which a prospective investor or the Recipient may require to make an investment decision and it does not contain all of the information which would otherwise be required by NZ law or any other law to be disclosed in a prospectus. The rights issue referred to in this document will be made pursuant to a Simplified Disclosure Prospectus that was registered on 24 June 2011.The only representations or warranties in relation to the preparation of this document and the information in it (such as its accuracy, fairness, reliability, completeness of any statements, estimates or opinions and the reasonableness of any assumptions) are those which are implied by law and which cannot be excluded by law. Otherwise, all such representations or warranties are excluded and the Recipient releases the Company, Forsyth Barr, their advisors and the officers of each of the aforementioned persons from any liability or responsibility for this document.Neither the Company, Forsyth Barr or their officers has any responsibility or obligation to inform Recipients of any matter arising or coming to their notice, after the date of this document, which may affect any matter referred to in this document.The document is provided to the Recipient on the basis that the Recipient must rely on their own inquiries and seek appropriate professional advice in relation to the information and statements in relation to the proposed prospects, business and operations of the Company. The data contained in this document is for illustrative purposes only. The Company reserves the right to alter any term of the rights issue. Past performance is not a guarantee of future performance and must not be relied on as such.This document is not to be sent or given to any person in circumstances in which the offer outlined herein or distribution of this document would be unlawful. The distribution of this document (including an electronic copy) outside New Zealand may be restricted by law. If you come into possession of this document, you should seek your own advice on any restrictions and observe them. Any failure to comply with such restrictions may contravene applicable securities laws. The Company disclaims all liability to such persons.This presentation may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks. Although management may indicate and believe that the assumptions underlying the forward looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realised. Furthermore, while all reasonable care has been taken in compiling this presentation, the Company accepts no responsibility for any errors or omissions.There is no guarantee by any party (including SCT, its directors and advisors, and the Lead Manager and Organising Participant) in respect of the New Shares or any potential return from the New Shares. There is no guarantee or warranty of any return or dividend on the New Shares, in respect of future performance of Scott Technology, or that the amount payable for the New Shares will be recovered by a subscriber.Application has been made to NZX for quotation of the rights and all the requirements of NZX relating thereto that can be complied with on or before the date of distribution of this document have been duly complied with. However, NZX accepts no responsibility for the contents or any statement in this document. NZX is a registered exchange, regulated under the Securities Markets Act 1988 A copy of the simplified disclosure prospectus dated 24 June 2011 can be obtained free of charge from the Company’s website, www.scott.co.nz

DisclaimerSTOP! DO NOT OPEN OR READ THIS DOCUMENT UNTIL YOU HAVE READ THIS DISCLAIMER.

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INVESTOR PRESENTATION | JULY 2011

http://www.scott.co.nz

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Contents

Page1. Investment Highlights and Offer Summary 42. SCT Overview and Strategy 83. Key Financial Information 204. Terms of Offer and Timetable 22


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1.1 Investment Highlights

SCT – a global innovator in automation

Origins in the appliance industry with the design and building of appliance production systems

Now, a leading provider of innovative engineered manufacturing solutions to a range of industries worldwide

Diversified revenue streams in terms of markets and geography

Five major business divisions: appliances, mining, meat processing automation, industrial automation and high temperature superconductors

Revenue streams from North and South America, Europe, Australia, Asia and Russia

Leading international blue-chip customer base, including

Bosch and Siemens Home Appliances, Electrolux, GE, Haier and Whirlpool (appliances)

BHP Billiton, Bureau Veritas, Newcrest Mining and SGS (mining/laboratory services)

ALC Australia, Alliance Group, JBS Swift, Northern Co-operative Meat Company and Silver Fern Farms (meat processing)

Hitachi, Pfizer and Seagate (high temperature superconductors)


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1.1 Investment Highlights (cont’d)

New Zealand based with a global presence

Approximately 220 NZ based staff operating from Dunedin, Christchurch, Wellington and Auckland

International sales and service offices in four locations worldwide

Diversification and Growth

Ongoing strategy to diversify and grow the existing business into complementary high technology areas

Aggressive programme of R&D creating new business initiatives and opportunities

Growth by acquisition, having successfully acquired and integrated Rocklabs in 2008 and Malcolm Smith Reference Materials in 2010

Recently acquired a 50.65% shareholding in HTS-110, a designer and manufacturer of powerful electromagnets and other high temperature superconductor associated technology

Sound financial performance and position

Revenue has increased steadily from $25.0 million in the 2008 financial year to $46.6 million for the 2010 financial year, while pre-tax profits have improved from a loss of $1.2 million to a profit of $5.5 million over the corresponding period

As at 31 May 2011 SCT had a net debt to net debt plus equity ratio of 24.9%


1.2 Board of Directors

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Mr Waller is Chief Executive and Managing Director of EBOS Group Ltd, Health Support Ltd, EBOS Group Pty Ltd, EBOS Health & Science Pty Ltd and Global Science & Technology LtdMr Waller is based in Christchurch and was appointed a Director of SCT in 2004

Mark B WallerBCom, ACA, FNZIM(Independent Director)

Mr Batts joined SCT in 1956 and was Managing Director from 1969 to 1999He spent a further 18 months in an executive role based in London assessing the European marketSince retirement from his executive role in 2000, Mr Batts has remained a consultant to SCT

Graham W BattsCEng., FIPENZ, NZCE(Independent Director)

Mr McLauchlan is the Managing Partner of GS McLauchlan & Co Business Advisors and Accountants, a prominent businessman and company directorHe is a Director of Scenic Circle Hotels Ltd, Dunedin International Airport Ltd, Dunedin City Holdings Ltd, Dunedin Casinos Ltd, Aurora Energy Ltd and several other companies

Stuart J McLauchlan (Chairman and Independent Director)

Mr Staynes commenced his career in in product design and production engineering in 1973He became engineering manager and lastly General Manager for a major NZ appliance manufacturer from 1980 until his retirement in 2006Mr Staynes was appointed a Director of SCT in 2006

Christopher J StaynesBSc(Independent Director)

Mr Hopkins joined Donaghys Group in 1994 as Corporate Services ManagerIn 1996 he assumed responsibility for the finance and administration of SCT and oversaw the transition to a public listed companyHe was appointed a Director of SCT in 2001 and Managing Director for SCT in 2006

Chris C Hopkins BCom, CA(Managing Director)


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1.3 Offer Summary

1. The theoretical ex-rights price is calculated based on SCT’s closing price on 23 June 2011 of NZ$1.45

Traditional 1 for 4 pro-rata entitlement offer with Rights Trading Period on the NZSXNew Shares attributable to Rights not taken up under the Entitlement Offer and not subscribed for under the Oversubscription Facility will be offered to Eligible Investors via a Shortfall Bookbuild process

Offer Structure

Application price of NZ$1.20 per New Share20.5% discount to SCT’s 15 day VWAP as at 23 June 201117.2% discount to SCT’s closing market price on 23 June 201114.3% discount to the theoretical ex-rights price (TERP)1

Offer Price

Equity raising of up to approximately NZ$9.5 million (subject to rounding)Offer Size

Equity is being sought to repay term debt incurred to complete recent acquisitions and to provide the Company with the funding capacity to maximise future opportunities

Purpose


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2.1 SCT Overview

SCT operates internationally providing advanced high technology engineered solutions to major companies around the world Approximately 220 NZ based staff, providing engineering design, build, project management and administration

services

Manufacturing facilities and extensive resources based in Dunedin, Christchurch, Wellington and Auckland

International sales and support offices in the Australia, China, Italy and the USA

- approximately 30 sales agents located worldwide for global mining service provider, Rocklabs Ltd

Co-operation partners in Turkey, Poland, Brazil, and Mexico

The Company focuses on niche markets in specific industries, including whitegoods manufacturers

mining companies and laboratories serving mining industries

meat processors, in particular lamb and beef


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1 91 0 1 92 0 1 9 30 1 9 40 1 95 0 1 96 0 1 9 70 1 98 0 1 99 0 2 00 0 2 0 10 2 02 0

1913: J & AP Scott commenced trading

Post WWII: Involved in the appliance industry

Developed and merged – part of Donaghy’s

Removed from the Dunedin stock exchange

1997: Relisted on the stock exchange

2000: A 100% export company

2001: Diversified into niche markets and began exporting to Asia and Europe

SCT focuses on design and building of appliance production systems

2011: Acquired a 50.65% controlling stake of HTS-110 in March

2010: Completed purchased of reference materials business from Malcolm Smith

2008: Purchased international mining services business Rocklabs Ltd.

2.2 History


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FY2010 Revenue by Geography1FY2010 Revenue by Market1

2.3 Revenue and Geographic Diversification


Other Industrial Automation

$1.0mMeat Processing

$4.9m

Mining$19.1m

Appliances $21.6m

Africa and Middle East

$1.3m

Russia and former states

$3.8mAsia

$4.8m

Australia and Pacif ic Islands

$5.2m

New Zealand$5.3m Other Europe

$5.3m

South America$8.0m

North America, including Mexico

$12.9m

1: Information as at 31 August 2011 Source: Audited financials from SCT’s 2010 annual report Note: The figures are those of Scott Group (defined as Scott Technology Limited and its subsidiaries

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2.4 Key Market Divisions

With the acquisition of HTS-110, SCT now has five main market divisions

Worldwide in approximately 100 countries

30 agents globally

Historically – standard, off the shelf solutions (ringmills, crushes), then combined individual units together into automated solutions

Current and future –combining SCT’s robotics and automation expertise with Rocklabs industry knowledge

Mining

High temperature superconductor electromagnets

Worldwide

Multiple industries –non specialised

Magnets supplied to original equipment manufacturers (OEM’s)

Ongoing R&D for new products and applications

New division

Predominantly NZ and Australia

Multiple industries – non specialised

Largely robotic

Stepping stone (incubator) for future specialisation

Predominantly NZ and Australia

3 – 5 projects per year with project values of up to NZ$4m

Substantial R&D in areas that have traditionally been difficult to achieve automated solutions

100% export

Worldwide (in particular North America, Asia and Europe)

5 – 10 systems per year

Project values range from NZ$1m to NZ$18m

Preferred supplier to most of the major global appliance companies

High Temperature Superconductors

Industrial Automation Solutions

Meat ProcessingAppliances


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SCT designs and builds turnkey solutions for a number of the world’s leading appliance manufacturers

World leader in this field since 1980’s and a preferred supplier to most of the major global appliance companies

One of the first Western companies to enter this field in China - well established as a premium brand with Chinese appliance companies

5 – 10 systems are produced per year, all for export

Project values range between NZ$1m to NZ$18m

Increased activity in the American market and anticipating robust growth in the Chinese and Asian markets- impending new energy requirements for appliances in North America should drive

demand for new capital equipment


Appliances

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SCT, through its Rocklabs brand, supplies a range of solutions to operators in the mining industry in approximately 100 countries worldwide

Products are used in preparing mine and exploration samples (core drill or blast hole) for analysis and include a range of standard products through to fully automated solutions- also supply spare parts which provides steady cashflow and strong margins

Invested heavily in developing a new enhanced range of products over the past three years- expertise in automation leveraged to develop large scale automated systems

Certified reference materials are used worldwide for quality assurance and benchmarking- acquisition of raw materials supplier in the current financial year, Malcolm Smith

Reference Materials, allows SCT to benefit from controlling the supply chain

SCT expects growing demand for products and solutions, driven by the world’s appetite for commodities and its customers’ need for quality assurance and increased productivity


Mining – (Rocklabs Ltd)

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Partnered with Silver Fern Farms Ltd in 2002 to jointly develop the vision of a fully automated lamb boning room- applications and technology are world leading - able to commercialise various subcomponents and systems- x-ray analysis of carcasses has lead to other commercial applications, such as yield

analysis and grading information

Further strengthened position through a joint venture with Australian beef processor Northern Co-operative Meat Company

Commercial sales in NZ, Australia, Brazil and Ireland

3 – 5 projects per year with project values of up to NZ$4m

Many of the world’s meat processing companies are engaging with SCT and this is expected this to translate to major growth as that interest converts to orders

Expect sales revenue for the 2011 financial year to increase from that recorded in the 2010 financial year

Meat Processing Automation


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New division focused on robotic and automation solutions for industry- predominantly NZ and Australia based across multiple industries – non specialised- development and application of SCT’s intellectual property

Partner with companies with intellectual property but lack the engineering know-how and resources to fully maximise opportunity

Past projects include- steel framing manufacturing lines- sheetmetal cabinet and welding systems for gaming machines- handling equipment for smelters- water heater fabrication systems

Current developments underway include- partnership with a dairy farmer group to develop and apply automation, including robotics, to on-farm activities- on 29 June 2011 SCT announced the signing by SCT of a conditional agreement for SCT (or its nominee) to

purchase a 75% share in a Chinese-based manufacturing company


Industrial Automation Solutions

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HTS-110 designs and builds electromagnets using high temperature superconductor technologies

SCT recently acquired 50.65% in HTS-110 for approximately NZ$4.4 million- other shareholders include Industrial Research Limited (35.8%) and American

Superconductor Corporation (13.6%)

High temperature superconducting (HTS) technology enables:- transmission of electricity without resistance or the loss of energy- manufacture of lighter, smaller and more energy efficient machines than can be

achieved with existing copper wire technology

HTS-110’s magnets are used to analyse a wide variety of materials and are attractive for industrial applications

Applications range from nanotechnology, ultra high capacity hard drives, accelerated drug development to more efficient electrical power systems


High Temperature Superconductors – (HTS-110)

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There are synergies between HTS-100 and SCT with processes, people and skills, and in market segments across its customers and in the application of engineering automation

HTS-110 will have access to SCT’s wider design, manufacturing and procurement resources- SCT has expertise in scaling up machinery enabling HTS-110 to enhance its product

offering

Despite its early stage of development, SCT expects HTS-110 to be both earnings and cash flow positive (albeit minimal) from the date of acquisition

Revenues and earnings are expected to grow significantly in the medium to long term as the product range moves through to full commercialisation


High Temperature Superconductors (HTS-110) (Cont’d)

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2.6 Growth Strategy

Continued focus on organic growth opportunities by way of ongoing research and development, joint ventures, and acquisition opportunities

Acquisition criteria: operates in a high technology industry or produces a high technology engineered product

number 1 or number 2 in its field

significant growth potential

has existing, or potential for, international export

strong existing management that can operate substantially independently

potential for SCT to add value, and for the acquisition to add value to SCT

synergies with SCT’s culture, processes, markets and products

contribution to SCT’s profitability in the short or medium term


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2.7 Outlook

Strong market position with core strength in appliance, meat processing and mining innovation and engineering design and manufacture

Scale up HTS-110 and leverage off wider SCT design, procurement and manufacturing processes

Capital raising to further strengthen the balance sheet and allow SCT to take advantage of organic growth and acquisition opportunities

SCT has a full order book and growing demand across all target markets with a high level of enquiry and engagement from customers

Notwithstanding the high value of the NZD, the Board is confident that SCT will achieve improved operating results for the full year to 31 August 2011 relative to the corresponding period in 2010


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3.1 Profit & Loss and Operating Cash Flow

4,5044Net cash inflow /(outflow) from operating activities

31.8%(38,781)(29,417)Payments to suppliers and employees

50.0%44,52529,681Receipts from operations

(1,860)375Net increase/(decrease) in cash held

-23.8%(414)(543)Finance costs

9.5%(958)(875)Depreciation

1,320.5%5,540390NPBT

538.2%5,954933EBIT

672.7%8.5c1.1cEPS

953.6%2,792265NPAT

6,912

46,621

FY 2010

1,808

31,494

FY 2009

282.3%EBITDA

48.0%Total revenue

% ChangeYear ending 31 August(NZ$ ‘000s)


Source: Audited financials from SCT’s 2010 annual report Note: The figures are those of Scott Group (defined as Scott Technology Limited and its subsidiaries

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3.2 Balance Sheet

11.3%21,41119,238Net equity

-6.2%15,16716,177Total liabilities

32.3%4,5713,456Trade creditors and accruals

-7.3%4,1774,506Bank loans and overdraft

-12.8%3,4874,000Inventories

2.9%16.3%13.4%Net debt/(net debt + equity)

40.6%4,1772,971Net debt

3.3%36,57835,415Total assets

0.0%6,6076,607Goodwill

10,409

6,555

-

FY 2010

10,361

6,827

1,535

FY 2009

0.5%PP&E

-4.0%Trade debtors

-100.0%Cash

% ChangeAs at 31 August(NZ$ ‘000s)


Source: Audited financials from SCT’s 2010 annual report Note: The figures are those of Scott Group (defined as Scott Technology Limited and its subsidiaries

4.1 Offer Overview

1. The theoretical ex-rights price is calculated based on SCT’s closing price on 23 June 2011 of NZ$1.45

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7,944,127 (subject to rounding)Maximum New Shares Issued

NZ$1.20 per New ShareApplication Price

The New Shares are of the same class as existing SCT NZSX listedordinary shares

Ranking

Forsyth Barr LimitedLead ManagerThe Offer is not underwrittenUnderwriting

20.5% discount to SCT’s 15 day VWAP as at 23 June 201117.2% discount to SCT’s closing market price on 23 June 201114.3% discount to the theoretical ex-rights price (TERP)1

Offer Discount

NZ$9,532,952.40 (subject to rounding)Maximum Issue Size (before costs)

1 New Share for every existing 4 SharesEntitlement Ratio


4.1 Offer Overview (cont’d)

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The Offer is renounceable and the Rights not taken up may be sold on the NZSX during the Rights Trading Period

Rights Trading

Existing shareholders on the Record Date of 6 July 2011 who accept their entitlement in full are able to apply for any number of additional New Shares (subject to the scaling rules)

Oversubscription Facility

A stamping fee of 0.5% will be paid to NZX Primary Market Participants (subject to a maximum of $250 per valid application) on the aggregate dollar value of New Shares allotted.

Broker Stamping Fee

New Shares attributable to Rights not taken up by the Closing Date that remain unallocated following completion of allocations under theOversubscription Facility will be offered to Eligible Investors via a bookbuild process on 5 August 2011

Shortfall Bookbuild

Shareholders resident in New Zealand on the Record Date excluding employees participating in the SCT employee share scheme

Eligible Shareholders


4.2 Offer Timetable1

1. The company reserves the right to amend this timetable

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Fri, 5 August 2011Statement of holding sent to shareholders

Thu, 4 August 2011Allotment of new shares under entitlement offer and oversubscriptions

Fri, 5 August 2011Shortfall Bookbuild for entitlements not taken up

Thu, 28 July 2011Rights issue closing date

Wed, 10 August 2011Allotment of new shares under shortfall bookbuild

Wed, 6 July 2011Record date for calculation of rights entitlements

Fri, 8 July 2011Mail offer document and entitlement and acceptance forms

Fri, 22 July 2011Rights cease trading on NZSX

Fri, 12 August 2011Mailing of statements of issue of new shares under the shortfall bookbuild

Mon, 4 July 2011Ex-date, and rights commence trading on NZSX

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