Work In Progress (WIP) 5 year picture: FY2020 perspective
Quote:
Originally Posted by
Snoopy
So how does all this relate to the SCT situation? My next task is to find out!
|
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
HY2021 |
'Contract Liabiliities' {A} |
NM |
NM |
$21.418m |
$16.529m |
$29.052m |
$16.385m |
'Contract Assets' {B} |
NM |
NM |
$24.495m |
$32.863m |
$25.381m |
$12.264m |
Work In Progress {A}-{B} |
NM |
NM |
-$3.077m |
-$16.334m |
$3.671m |
$4.121m |
'Contract Work In Progress' |
$1.137m |
-$4.108m |
-$3.077m |
NM |
NM |
NM |
Recent Past and Current Work {A}+{B} |
NM |
NM |
$45.913m |
$49.342m |
$54.433m |
$28.649m |
Annual Long Term Contract Revenue |
$67.704m |
$81.282m |
$104.756m |
$127.934m |
$92.620m |
$59.275m (*) |
(*) = half year figure
Notes
1/ NM = 'Not Mentioned' in the annual report directly.
2/ I have used the convention that when 'Contract Liabilities' exceed 'Contract Assets' we have a positive value of 'Work In Progress'
3/ It was only in FY2019 where the 'Contract Liabilities' and 'Contract Assets' were separately listed. Prior to that a calculated 'Contract Work In Progress' was given. If I use the 'Contract Liabilities' and 'Contract' Assets' for FY2018, as back referenced in the FY2019 year and do the subtraction myself I get the same 'Work In Progress' figure listed in AR2018. This confirms Ferg's way to calculate 'Work In Progress' from those latter reports is correct.
4/ In those earlier years Scott's seem quite happy to list their 'Contracted Work In Progress' as either a 'Current Asset' or a 'Current Liability'. That means WIP can be either a positive or negative value. In the above table, I am listing Work in Progress as 'positive' when the 'Contract Liabilities' (a promise of signed up work to do) exceed the 'Contract Assets' (the completed work).
The declared position of WIP is most likely a combined summary position of many projects currently active at balance date. My natural instinct says that having lots of 'positive' work in progress is good, as that means the workforce is busy. However, in a strict snapshot balance sheet sense, having positive work in progress (by this definition) is bad because such WIP cannot be invoiced at balance sheet date. Positive WIP by this definition is a liability on the balance sheet, notwithstanding the fact that this 'liability' will -hopefully- turn into a profit source over the ensuing financial year as the work it represents is completed.
The above thinking is consistent with the tone of the Chairman and CEOs comments in AR2020 being rather negative (remember this period includes the sub period from End of February 2020 to the end of August 2020 where the effects of Covid-19 were at their worst). However, apart from the $6.295m of project impairments - which I presume are removed from WIP by balance sheet date already - I can find no specific comments on the difficulty and profit viability of current projects.
From a particular contract perspective, the timing of the end of the Scott financial year is arbitrary. So perhaps a better indicator of Scott's profitability might be to add the Contract Revenue to the Contract Liabilities TOGETHER, as that would represent work recently completed AND that still underway?
SNOOPY
John Kippenberger's 'kip' is over
Quote:
Originally Posted by
Snoopy
https://www.odt.co.nz/business/some-...w-unpaid-leave
New CEO JK looks to have handled this in a sub-optimal way.
Perhaps JK needs to learn that a glib Covid 19, 19th March update which states:
"Scott’s first commitment is to the health and safety of its people."
is not consistent with sending some workers home with absolutely no pay, while saying that:
-----
"the executive and broader leadership team at Scott had agreed to a pay cut."
" "It comes at a time when we’re working very hard ... we just thought it was the right thing to do to show empathy and understanding with the group."
"He would not say how much the pay cut was but that it was a "meaningful number" and "an absolute sign that we’re all in this together"."
-------
This article is particularly worrying, because Dunedin is Scott's back yard. If they can't get it right 'at home', what does that say for what is happening in Scott's staff in the USA and Europe?
"Dear John" may have been having a 'kip' when all the Covid-19 business started, being a bit tardy to get onto the wage subsidy bandwagon. But it appears our CEO Kippenberger has come to the end of his kip and is finally wide awake accumulating SCT shares on the sharemarket. 20,000 shares bought by JK in the latter half of June. Then we find out 5,000 shares were bought on 5th July disclosed today. 73,232 shares held now by JK. SCT closed up 6c today at $2.66, the highest close in almost two years.
SNOOPY
HTS-110 Superconducting Magnet Technology Division sold
Quote:
Originally Posted by
Snoopy
From a profitability perspective almost all profits that are reported have come from ‘Appliance Manufacturing Systems’ and ‘Laboratory Sample Preparation’. The most advanced of the new pipeline businesses, the joint venture lamb automated lamb boning room with Silver Fern Farms (Robotic Technologies Limited) contributed a mere $124k to net profit in FY2011 (AR2011 p36). And that joint venture business was founded eight long years ago!
There are two lessons we can draw from this:
1/ Genuinely new and innovative technology takes a long time to commercialize.
2/ There is little market value attributed to Robotic Technologies Limited, NS Innovations (the Australian market beef chain joint venture), HTS-110 (High Temperature Superconductors), and the Dairy Sector Automation project that is reflected in a Scott Technology share price at $1.55.
The existing profitable businesses have in effect entirely subsidized the new ventures thus far. In accounting terms almost all research and development costs have simply been written off as they were incurred.
If you think this sounds distortionary then take a minute to think about the alternative: that shareholders should continually front up development cash on new ventures until they become profitable. This funding method for new ventures is the essence of why I like Scott Technology.
Here is an established business that over the business cycle generates dividend returns that compare favourably with bank term deposits. Yet underlying everything, we are in effect being given ‘lottery tickets for free’ in some very exciting new business ventures. If even one of these new ventures comes off, there is potential for a significant market revaluation of the prospects of Scott Technology.
It is interesting to reflect on the above post from ten years ago. The reason I reflect on this today is that as an SCT shareholder, I am throwing away another dud lottery ticket. Scott's today announced the sale of their high tech HTS-110 superconducting magnet division to the HTS CEO Donald Pooke, supported by a series of venture capital outfits:
1/ 'New Zealand investment fund', run by venture capitalists Weijing CHEN and Li Yi CHEN,
2/ Booster Tahi Limited Partnership (https://www.booster.co.nz/booster-in...vestments.aspx) and
3/ Venture Capital fund, Matū (https://matu.co.nz/portfolio/hts-110/)/.
No sale price was announced of course. The business has been 'on the block' since John Kippenberger took over as CEO nearly two years ago. Anyway it was good to see HTS-110 not closed down. NS Innovations, an Australian take on the automated beef boning room, and the automated milking shed project were simply shuttered. So three lottery tickets are gone since the 'Kippenbeger coming'. The automated lamb boning room did eventually come good. But it has been hampered from greatness by being such a relatively small target market.
The HTS-110 sale will end up being little more than a footnote in the upcoming SCT annual report. A sad end, as far as SCT shareholders are concerned. Yet somehow, when you are given a lottery ticket for free, that loss doesn't seem quote so bad.
SNOOPY