2018 Full Year Announcement

Scott Technology Limited 
630 Kaikorai Valley Road 
Private Bag 1960 
Dunedin 9054 
New Zealand 
 +64 3 478 8110 
               www.scottautomation.com 
 
©Scott Technology Limited  
 
25 October 2018 
 
Listed Company Relations 
New Zealand Exchange Limited 
PO Box 2959 
Wellington 
 
 
Dear Sir/Madam 
 
R
E:  SCOTT TECHNOLOGY LIMITED 2018 FULL YEAR ANNOUNCEMENT 
 
Highlights  
 
2018   2017 
Revenue $181.8m  +37%  $132.6m 
Operating EBITDA $19.8m  +21%  $16.4m 
Net surplus before tax           
Cash flow from operating activities 
$15.0m 
$0.6m 
+1%  $14.9m 
$13.4m 
Net cash on hand $12.5m   $26.7m 
Shareholder equity $102.9m   $97.2m 
Final dividend ‐ fully imputed 6.0 cps   6.0 cps 
Full year dividend 10.0 cps   10.0 cps 
 
 Substantial growth in revenues across a range of sectors and geographies. 
 Completed two strategic acquisitions. 
 Substantial growth in North America and Europe revenue and surplus. 
 Expanded Research and Development activities. 
 Final dividend 6.0 cents per share with total dividend for the year 10.0 cents per share 
 
 
The Directors of Scott Technology Limited are pleased to report another strong result for the year ended 31 
August 2018, with total revenues up 37%, to $181.8m on the $132.6m revenues achieved in the prior year.  Of 
this revenue growth, 14% was achieved by the business that we started the year with and acquisitions added 
23%.  Operating earnings before interest tax depreciation and amortisation (Operating EBITDA) of $19.8m 
increased 21% from $16.4m in the prior year.  Operating EBITDA in 2018 excludes one‐off due diligence and 
acquisition costs of $0.5m that are now required by accounting rules to be expensed, rather than included in 
the purchase price, and in 2017 a $0.9m fair value gain on purchase of business.   
 
Two acquisitions were successfully completed in the second half of the year and this years’ result includes five 
months from our Alvey operations in Europe and three months from our Transbotics operations in the USA.   
 
Sales into our traditional markets of the Appliances, Meat Processing and Mining sectors all achieved double 
digit growth, with the Appliance sector being the stand out performer, with a 56% increase from the prior year.  
This reflects several large projects successfully sold, worked on and completed collaboratively across the 
company’s New Zealand, German and Chinese operations. 
 
At balance date the company had $12.5m of cash in the bank, with total shareholders’ funds of $102.9m, 
compared to $97.2m in 2017.  During the year cash was used to settle the acquisitions of Alvey in Europe and 
Transbotics in the USA.  Deferred settlements on these purchases will see our surplus cash, held for acquisitions, 
fully expended.  With these acquisitions complete, our focus is now firmly on integrating the businesses 

    
 
©Scott Technology Limited | Confidential document 
 
acquired, driving synergies, operational benefits and efficiencies expected from the combined business.  The 
larger Scott Group is now well positioned to deliver significant growth supported and driven by our strategy. 
 
During the year, the Company added many additional products and technologies to our offering from 
commercialising past Research and Development and through the acquisitions noted above. To ensure Scott 
stays relevant and to capitalise on the many opportunities yet to be exploited, the Company will maintain a 
strong commitment to Research and Development.  Scott’s total gross Research and Development exceeded 
$11.0m in the current year, representing 6% of our total revenues.  Our development focuses on extending our 
capability and range of technologies. In addition to developing new applications across all key industries served, 
the Company has commenced significant projects aimed at transferring our technology and capability from lamb 
deboning to other species, such as beef, pork and poultry.   
 
Where possible, we seek technical and financial support for our Research and Development activities from 
customers, industry bodies and the Governments of Australia and New Zealand.  With their help and Scott’s 
commitment we have established the Company as a leader in this field and as a recognised developer of smart 
automation.  We have also commenced our journey into digital platforms and now have a growing portfolio of 
products and applications ranging from warehouse management software through to machine visualisations 
and machine learning with artificial intelligence. 
 
 
Dividend 
 
The Directors have declared a final dividend of 6.0 cents per share for the year ended 31 August 2018, payable 
on 27 November 2018.  
 
With the interim dividend of 4.0 cents per share paid in April 2018, the total dividend for the year is 10.0 cents 
per share.  The final dividend will be fully imputed and the Dividend Reinvestment Plan will apply. 
 
 
Outlook 
 
The forward project work is at record levels and supports our objective of strong growth in the year ahead.  
Progressively commercialising our Research and Development and expanding our after sales service, spare parts 
and maintenance will ensure our growth is sustainable.  We are looking forward to a full 12 months of operation 
of our acquisitions and achieving productivity increases and the synergy benefits that comes from embedding 
the acquired businesses into the Scott Group.  In addition, good people are our greatest asset, which is why we 
will increase our development and training programmes to build skills and to create the opportunity for growth 
and progression.  
 
The Company’s diversification strategy has been delivered and the acquisition strategy is well advanced, so the 
focus now shifts towards operational excellence and delivery.  The Directors look forward to continuing the 
growth path set over the past two years. 
 
 
Yours faithfully 
 



Stuart J McLauchlan     Chris C Hopkins 
Chairman      Managing Director 
027 433 5481      021 815 975

---

2
SCOTT TECHNOLOGY LIMITED
INDEX TO THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018


Statement of Comprehensive Income 3

Statement of Changes in Equity 4

Balance Sheet 5

Statement of Cashflows 6

Notes to the Financial Statements 7

Summary of Accounting Policies 7

A. Financial Performance 10
A1. Income and Operating Expenses 10
A2. Income Taxes 12
A3. Segment Information 14

B. Assets 17
B1. Trade Debtors 17
B2. Inventories 18
B3. Contract Work In Progress 18
B4. Property, Plant and Equipment 19
B5. Goodwill 20
B6. Intangible Assets 21
B7. Research and Development Costs 23
B8. Commitments for Expenditure 23

C. Capital & Funding 24
C1. Share Capital 24
C2. Earnings & Net Tangible Assets Per Share 24
C3. Borrowings 25
C4. Trade Creditors & Accruals 26
C5. Leases 27
C6. Derivatives 28
C7. Employee Benefits 30
C8. Provision for Warranty 30
C9. Share Based Payment Arrangements 30

D. Risk Management 31
D1. Financial Instruments 31

E. Group Structure & Subsidiaries 38
E1. Acquisition of Business 38
E2. Subsidiaries 40
E3. Investments Accounted for Using the Equity Method 42
E4. Related Party Transactions 44

F. Other Disclosures 45
F1. Notes to the Cashflow Statement 45
F2. Contingent Liabilities 46
F3. Key Management Personnel Compensation 46
F4. Subsequent Events 46

Additional Stock Exchange Information 47

Directors’ Interests 48

Auditor’s Report 52

3
SCOTT TECHNOLOGY LIMITED
STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended 31 August 2018
Note 2018 2017
$’000s $’000s

Revenue A1 181,779 132,631

Other operating income A1 2,064 999
Share of joint ventures’ net surplus E3 510 220
Raw materials, consumables used & operating expenses (109,381) (77,340)
Employee benefits expense (55,171) (40,143)
────── ──────
OPERATING EARNINGS BEFORE INTEREST, TAX, DEPRECIATION
AND AMORTISATION (OPERATING EBITDA) 19,801 16,367

Fair value gain on purchase of business E1 - 936
Due diligence & acquisition costs A1 (496) -
────── ──────
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION
AND AMORTISATION (EBITDA) 19,305 17,303

Interest received 369 664
Depreciation & amortisation B4, B6 (4,225) (2,987)
Finance costs (403) (67)
────── ──────
NET SURPLUS BEFORE TAXATION A1 15,046 14,913

Taxation expense A2 (4,274) (4,648)
────── ──────
NET SURPLUS FOR THE YEAR AFTER TAX 10,772 10,265

Other Comprehensive Income/(Deficit)

Items that may be reclassified to profit or loss:
Cash flow hedges (370) -
Translation of foreign operations (1,449) (607)
────── ──────
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR NET OF TAX 8,953 9,658
══════ ══════
Net surplus for the year after tax is attributable to:
Members of the parent entity (used in the
calculation of earnings per share) 10,768 9,890
Non controlling interests 4 375
────── ──────
10,772 10,265
══════ ══════
Total comprehensive income is attributable to:
Members of the parent entity 8,949 9,283
Non controlling interests 4 375
────── ──────
8,953 9,658
══════ ══════

2018 2017
Cents Per Cents Per
Share Share
Earnings per share (weighted average shares on issue):
Basic C2 14.3 13.2
Diluted C2 14.3 13.2

Net tangible assets per ordinary share (at year end):
Basic C2 47.0 73.5
Diluted C2 47.0 73.5

4
SCOTT TECHNOLOGY LIMITED
STATEMENT OF CHANGES IN EQUITY
For the Year Ended 31 August 2018
Foreign
Note Fully Paid Currency Non Cash flow
Ordinary Retained Translation Controlling Hedge
Shares Earnings Reserve Assets Reserves Total
$’000s $’000s $’000s $’000s $’000s $’000s


Balance at 31 August 2016 71,312 24,279 (1,660) 669 - 94,600

Net surplus for the year after tax - 9,890 - 375 - 10,265
Other comprehensive income/(deficit)
for the year net of tax - - (607) - - (607)
Dividends paid (9.50 cents per share) - (7,095) - - - (7,095)
Acquisition of minority interest in subsidiary - 990 - (997) - (7)
───── ───── ───── ───── ───── ─────
Balance at 31 August 2017 71,312 28,064 (2,267) 47 - 97,156

Net surplus for the year after tax - 10,768 - 4 - 10,772
Other comprehensive income/(deficit)
for the year net of tax - - (1,449) - (370) (1,819)
Dividends paid (10.0 cents per share) - (7,497) - - - (7,497)
Issue of shares under dividend
reinvestment plan C1 4,335 - - - - 4,335
───── ───── ───── ───── ───── ─────
Balance at 31 August 2018 75,647 31,335 (3,716) 51 (370) 102,947
═════ ═════ ═════ ═════ ═════ ═════

5
SCOTT TECHNOLOGY LIMITED
BALANCE SHEET
As at 31 August 2018
Note 2018 2017
$’000s $’000s
CURRENT ASSETS
Cash and cash equivalents 12,473 26,670
Trade debtors B1 37,064 17,833
Other financial assets C6 1,229 144
Sundry debtors 3,523 947
Inventories B2 22,825 16,272
Contract work in progress B3 3,077 4,108
Receivable from joint ventures E4 2,315 1,909
Plant and equipment held for sale 345 345
─────── ───────
82,851 68,228

NON CURRENT ASSETS
Property, plant and equipment B4 16,845 14,249
Capital work in progress 254 319
Investment in joint ventures E3 928 1,118
Other financial assets C6 350 -
Goodwill B5 53,780 29,987
Deferred tax asset A2 - 969
Intangible assets B6 15,103 11,311
─────── ───────
87,260 57,953
─────── ───────
TOTAL ASSETS 170,111 126,181
═══════ ═══════

CURRENT LIABILITIES
Trade creditors and accruals C4 30,322 16,590
Finance lease liabilities C5 187 30
Other financial liabilities C6 2,013 1
Employee entitlements C7, C9 11,286 4,272
Provision for warranty C8 1,857 1,300
Taxation payable 2,738 3,691
Payable to joint ventures E4 673 547
Current portion of term loans C3 3,321 -
Deferred settlement on purchase of business 6,275 -
───────- ───────-
58,672 26,431
NON CURRENT LIABILITIES
Other financial liabilities C6 964 -
Employee entitlements C7, C9 1,643 2,568
Finance lease liabilities C5 159 26
Deferred tax liability A2 1,638 -
Term loans C3 4,088 -
───────- ───────-
8,492 2,594
EQUITY
Share capital C1 75,647 71,312
Retained earnings 31,335 28,064
Foreign currency translation reserve (3,716) (2,267)
Cash flow hedge reserve (370) -
───────- ───────-
Equity attributable to equity holders of the parent 102,896 97,109
Non controlling interests 51 47
───────- ───────-
TOTAL EQUITY 102,947 97,156
───────- ───────-
TOTAL LIABILITIES & EQUITY 170,111 126,181
════════ ════════

6
SCOTT TECHNOLOGY LIMITED
STATEMENT OF CASHFLOWS
For the Year Ended 31 August 2018
Note 2018 2017
$’000s $’000s

CASH FLOWS FROM OPERATING ACTIVITIES

Cash was provided from / (applied to):
Receipts from operations 178,338 126,908
Interest received 369 664
Net GST paid (825) (65)
Payments to suppliers and employees (172,597) (111,365)
Interest paid (403) (67)
Taxation paid (4,267) (2,668)
─────── ───────
Net cash inflow from operating activities F1 615 13,407

CASH FLOWS FROM INVESTING ACTIVITIES

Cash was provided from / (applied to):
Purchase of non-controlling interest in subsidiary - (550)
Purchase of property, plant, equipment and intangible assets (2,434) (12,976)
Sale of property, plant and equipment 21 337
Net advances from/(to) joint ventures 420 (293)
Purchase of business E1 (14,479) (375)
Repayment of advance to Employee Share Purchase Scheme - 2
─────── ──────
Net cash outflow from investing activities (16,472) (13,855)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash was provided from / (applied to):
Repayment of borrowings (257) (31)
Dividends paid (3,162) (7,095)
Proceeds from borrowings 5,079 -
─────── ───────
Net cash inflow/(outflow) from financing activities 1,660 (7,126)
─────── ───────
Net decrease in cash held (14,197) (7,574)

Add cash and cash equivalents at start of period 26,670 34,244
─────── ───────
Balance at end of period 12,473 26,670
═══════ ═══════

Comprised of:
Cash and bank balances 12,473 26,670
═══════ ═══════

7
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SUMMARY OF ACCOUNTING POLICIES

Statement of Compliance

The consolidated financial statements presented are those of Scott Technology Limited (“Company”) and its
subsidiaries (“Group”).

The Company is a profit oriented entity, registered in New Zealand under the Companies Act 1993. The Company is
an FMC reporting entity for the purposes of the Financial Markets Conduct Act 2013 and its annual financial
statements comply with these Acts.

The Group’s principal activities are the design, manufacture, sales and servicing of automated and robotic production
lines and processes for a wide variety of industries in New Zealand and overseas.

The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting
Practice (“NZ GAAP”) and, for the purposes of complying with GAAP, it is a for profit entity. They comply with New
Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) and other applicable financial reporting
standards as appropriate for profit oriented entities. The financial statements also comply with International Financial
Reporting Standards (“IFRS”).

The financial statements were authorised for issue by the Board of Directors on 25 October 2018.

Basis of Preparation

The financial statements have been prepared on the basis of historical cost except for the revaluation of certain
financial instruments.

Cost is based on the fair value of the consideration given in exchange for assets.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information
satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or
other events is reported.

The accounting policies set out below have been applied in preparing the financial statements for the year ended 31
August 2018 and the comparative information presented in these financial statements for the year ended 31 August
2017.

There have been no changes in accounting policy during the year.

The information is presented in thousands of New Zealand dollars, which is the functional currency of the Company and
the presentation currency of the Group.

Critical Judgements, Estimates and Assumptions

In the application of NZ IFRS the Directors are required to make judgements, estimates and assumptions about
carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstance, the results of which form the basis of making the judgements. Actual results may differ from these
estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods. There are no significant estimates.

Judgements made by the Directors in the application of NZ IFRS that have significant effects on the financial
statements and estimates with a significant risk of material adjustments in the next year include:

 Estimating the percentage of completion for long term construction contracts (note A1)
 Goodwill impairment (note B5)
 Valuation of intangibles recognised on acquisition (note E1)

8
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SUMMARY OF ACCOUNTING POLICIES (Cont.)

Significant Accounting Policies

The principal accounting policies applied in the preparation of the financial report are set out within the particular note
to which they relate. These policies have been consistently applied unless otherwise stated.

Consolidation of Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company and its subsidiaries. Control is achieved when the Company:

 has power over the investee;
 is exposed, or has rights, to variable returns from its involvement with the investee; and
 has the ability to use its power to affect its returns.

The Group financial statements are prepared by combining the financial statements of all the entities that comprise the
Group, being the Company and its subsidiaries as defined by NZ IFRS-10 “Consolidated Financial Statements”.
Consistent accounting policies are employed in the preparation and presentation of the Group financial statements.

Accounting policies of subsidiaries are consistent with the policies of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the
date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is
recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets
acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition.

The results of subsidiaries acquired or disposed of during the year are included in the Group Statement of
Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Standards & Interpretations Effective in the Current Period

In the current year the Group adopted all mandatory new and amended Standards and Interpretations. None of the
new and amended standards had a material impact on the amounts recognised in these financial statements.

Standards & Interpretations in Issue Not Yet Adopted

The Group has reviewed all standards and interpretations to existing standards in issue not yet adopted, with the
exception of:

 NZ IFRS 15 Revenue from Contracts with Customers which is effective for annual periods beginning on or
after 1 January 2018. NZ IFRS 15 was issued on 3 July 2014 and establishes principles for reporting useful
information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's
contracts with customers. Although the Group has made progress in its implementation of NZ IFRS 15, it is
not yet possible to make a reliable estimate of the impact of the new standard on the Group’s financial
statements as the Group is required to implement significant changes to its systems and processes across the
Group in order to collect the new data requirements, as well as compile historical comparatives. The Group
intends to apply the standard from the period ending 31 August 2019.

 NZ IFRS 9 Financial Instruments is effective for annual periods beginning on or after 1 January 2018. NZ
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities
and relaxes the current NZ IAS 39 requirements for hedge accounting. Although the Group has made
progress in its implementation of NZ IFRS 9, it is not yet possible to make a reliable estimate of the impact of
the new standard on the Group’s financial statements. The Group intends to apply the standard from the
period ending 31 August 2019.

9
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SUMMARY OF ACCOUNTING POLICIES (Cont.)

Standards & Interpretations in Issue Not Yet Adopted (Cont.)

 NZ IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. NZ IFRS 16 sets out the
principles for the recognition, measurement, presentation and disclosure of leases. Although the Group has
made progress in its implementation of NZ IFRS 16, it is not yet possible to make a reliable estimate of the
impact of the new standard on the Group’s financial statements. The Group intends to apply the standard for
the period ending 31 August 2020.

Except for the three standards specified above, the Group does not expect the standards and amendments in issue
and not yet adopted will have a material impact on the financial statements.

Goods & Services Tax & Value Added Tax (“GST”)

All items in the Balance Sheet are stated exclusive of GST, with the exception of receivables and payables, which
include GST. All items in the Statement of Comprehensive Income are stated exclusive of GST.

Cash flows are included in the cash flow statement on a net basis. The GST component of cash flows arising from
investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as
operating cash flows.

Foreign Currencies

The individual financial statements of each group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and position of each group entity are expressed in New Zealand dollars, which is the
functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of each individual group entity, transactions in currencies other than the
entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of
the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group's
foreign operations are translated into New Zealand dollars using exchange rates prevailing at the end of each
reporting period. Income and expense items are translated at the average exchange rates for the period, unless
exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the
transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and
accumulated in equity (and attributed to non-controlling interests as appropriate).

10
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SECTION A – FINANCIAL PERFORMANCE

A1. INCOME & OPERATING EXPENSES

Revenue Recognition – Long Term Projects

Policy Profit on long term contracts is accounted for using the percentage of completion method. At
balance date an assessment is made of the percentage of completion and costs associated
with the work done to date relative to the total forecast cost to complete. Included in revenue is
the value attributed to work completed, which includes direct costs, overhead and profit. At the
point at which a project is expected to be loss making, losses would be recognised immediately
in profit or loss.

Judgement The estimation of percentage of completion relies on the Directors estimating future time and
costs to complete long term contracts. If the actual time and costs incurred to complete the
long term contracts differ from the estimates completed by management, the Directors could be
over or under estimating the percentage of completion on the project, and consequently
revenue and profit to date may also be over or under estimated.

Revenue Recognition – Sale of Goods & Other Revenue

Policy Revenue is recognised when the significant risks and rewards of ownership of the goods have
passed to the buyer or when services are provided.

Government Grants

Policy Government grants are not recognised until there is reasonable assurance that the Group will
comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised as other income over the periods necessary to match them
with the costs for which they are intended to compensate, on a systematic basis. Government
grants that are receivable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the Group with no future related costs are
recognised in profit or loss in the period in which they become receivable.

2018 2017
$’000s $’000s
(a) Revenue

Revenue from long term projects 104,756 81,282
Sale of goods 55,446 40,200
Other revenue (including service and short term projects) 21,577 11,149
─────── ───────
181,779 132,631


(b) Other operating income

Rental income 203 -
Government grants related to research and development 1,861 926
Gain on sale of property, plant and equipment - 73
─────── ───────
2,064 999

(c) Non recurring income

Fair value gain on purchase of business - 936

11
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

A1. INCOME AND OPERATING EXPENSES (Cont.)

2018 2017
(c) Operating expenses $’000s $’000s

The surplus is stated after charging:
Auditor’s remuneration - audit of financial statements 210 151
- other assurance services 5 9
- taxation services 55 19
- due diligence services 271 -

The auditor of the Group is Deloitte Limited.

Due diligence services on business combinations have been performed
by a Deloitte network firm that is not involved in the Group audit. These
are included in Due Diligence & Acquisition Costs in the Statement of
Comprehensive Income.

Directors’ fees 208 193
Superannuation scheme contributions 4,148 2,275
Fair value losses on firm commitments - 1
Leasing and rental costs 3,027 1,391
Unrealised fair value losses on foreign exchange derivatives 271 -
Loss on disposal of property, plant and equipment 21 -
Fair value losses on derivatives held as fair value hedges 1,579 -
Unrealised fair value losses on interest rate swap contracts 43 -

and after crediting:
Fair value gains on derivatives held as fair value hedges - 1
Foreign exchange gains 1,627 269
Unrealised fair value gains on foreign exchange derivatives - 143
Fair value gains on firm commitments 1,579 -

12
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

A2. INCOME TAXES

(a) Income tax recognised in net surplus

Policy Current tax is calculated by reference to the amount of income taxes payable or recoverable in
respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws
that have been enacted or substantively enacted by reporting date. Current tax for current and
prior periods is recognised as a liability (or asset) to the extent it is unpaid (or refundable).

The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax
expense in the financial statements as follows:

2018 2017
$’000s $’000s

Net surplus before tax 15,046 14,913
─────── ───────

Income tax expense calculated at 28% (2017: 28%) 4,213 4,175
Non-deductible expenses 426 439
Research & development tax credits claimed (Australia) (563) -
Under provision of income tax in previous year 198 34
─────── ───────
Taxation expense 4,274 4,648
═══════ ═══════

Represented by:

Current tax 2,733 4,447
Deferred tax 1,541 201
─────── ───────
4,274 4,648
═══════ ═══════

Prima Facie Tax Rate

The prima facie tax rate used in the above reconciliation is the corporate tax rate of 28% payable by New Zealand
corporate entities on taxable profits under New Zealand tax law for the 2018 income tax year.

(b) Deferred tax balances

Policy Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred
tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be
available against which deductible temporary differences or unused tax losses and tax offsets can
be utilised. However, deferred tax assets and liabilities are not recognised if the temporary
differences giving rise to them arise from the initial recognition of assets and liabilities (other than
as a result of a business combination) which affects neither taxable income nor accounting profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based on tax rates that have been
enacted or substantively enacted at reporting date. Deferred tax is charged or credited to profit or
loss, except when it relates to items charged or credited to other comprehensive income or directly
to equity, in which case the deferred tax is also dealt with in other comprehensive income or in
equity.

13
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

A2. INCOME TAXES (Cont.)

2018
Opening
Balance
$’000s
Charged to
Income
$’000s
Charged to
Other
Comprehensive
Income
$’000s
Acquisition
of Subsidiary/
Business
$’000s
Closing
Balance
$’000s
Gross deferred tax assets:

Trade debtors 154 262 - 22 438
Other financial assets 160 (14) 143 194 483
Employee entitlements 1,373 (201) - 11 1,183
Provisions 799 (284) - 181 696
Tax losses
539 (532) - - 7
3,025 (769) 143 408 2,807

Gross deferred tax liabilities:

Inventories (206) 836 - - 630
Property, plant and equipment 2,173 (221) - - 1,952
Intangible assets
89 157 - 1,617 1,863
2,056 772 - 1,617 4,445

969 (1,541) 143 (1,209) (1,638)

2017


Opening
Balance
$’000s
Charged to
Income
$’000s
Acquisition
of Subsidiary/
Business
$’000s
Closing
Balance
$’000s
Gross deferred tax assets:

Trade debtors 129 25 - 154
Inventories 336 (130) - 206
Other financial assets (65) 225 - 160
Employee entitlements 1,073 300 - 1,373
Provisions 370 429 - 799
Tax losses 905 (371) 5 539
2,748 478 5 3,231

Gross deferred tax liabilities:

Property, plant and equipment 1,145 679 349 2,173
Intangible assets - - 89 89

1,145 679 438 2,262

1,603 (201) (433) 969


(c) Imputation credit account balances
2018 2017
$’000s $’000s

Imputation credits available to shareholders 1,906 2,567
═══════ ═══════

14
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

A3. SEGMENT INFORMATION

Policy The group has adopted NZ IFRS-8 Operating Segments. NZ IFRS-8 requires operating segments
to be identified on the basis of internal reports about components of the Group that are regularly
reviewed by the chief operating decision maker (the Board) in order to allocate resources to the
segments and to assess its performance.

The Group’s Board allocates resources and assesses performance of the Group by manufacturing
base, therefore under NZ IFRS-8 the Group’s reportable segments are:

 Australasia manufacturing
 Americas manufacturing
 Asia and Europe manufacturing

Australasia is reported as a single segment due to the integrated nature of customers,
management, manufacturing, sales and financing activities across New Zealand and Australia.

Americas is reported as a single segment due to the integrated nature of customers, management,
manufacturing, sales and financing activities across North and South America.

Asia and Europe is reported as a single segment due to the integrated nature of customers,
management, manufacturing and sales activities across Asia and Europe.

Segment Revenues & Results

The following is an analysis of the Group’s revenue and results by reportable segment. For the purposes of NZ
IFRS-8 allocations are based on the operating results by segment. The Group does not allocate certain resources
(such as senior executive management time) and central administration costs by segment for internal reporting
purposes and therefore these allocations may not result in a meaningful and comparable measure of profitability
by segment.

2018 Australasia Americas Asia & Europe
Manufacturing Manufacturing Manufacturing Unallocated Total
$’000s $’000s $’000s $’000s $’000s

Revenue 100,492 29,141 52,146 - 181,779
═══════ ═══════ ═══════ ═══════ ═══════

Segment profit 19,029 3,459 1,745 - 24,233
Due diligence & acquisition costs - - - (496) (496)
Depreciation and amortisation (2,633) (164) (941) (487) (4,225)
Share of net surplus of joint ventures 268 240 2 - 510
Interest revenue 1 12 - 356 369
Central administration costs - - - (4,942) (4,942)
Finance costs (1) (8) (187) (207) (403)
─────── ─────── ─────── ─────── ───────
Net surplus before taxation 16,664 3,539 619 (5,776) 15,046
Taxation expense (4,765) (1,049) (178) 1,718 (4,274)
─────── ─────── ─────── ─────── ───────
Net surplus after taxation 11,899 2,490 441 (4,058) 10,772
═══════ ═══════ ═══════ ═══════ ═══════

15
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

A3. SEGMENT INFORMATION (Cont.)

2017 Australasia Americas Asia & Europe
Manufacturing Manufacturing Manufacturing Unallocated Total
$’000s $’000s $’000s $’000s $’000s

Revenue 99,846 17,055 15,730 - 132,631
═══════ ═══════ ═══════ ═══════ ═══════

Segment profit 19,309 2,068 (509) - 20,868
Fair value gain on purchase of
business (refer Note A1) - - - 936 936
Depreciation and amortisation (2,267) (155) (197) (368) (2,987)
Share of net surplus of joint ventures 175 44 1 - 220
Interest revenue 1 - 2 661 664
Central administration costs - - - (4,721) (4,721)
Finance costs (4) - - (63) (67)
─────── ─────── ─────── ─────── ───────
Net surplus before taxation 17,214 1,957 (703) (3,555) 14,913
Taxation expense (5,031) (670) 19 1,034 (4,648)
─────── ─────── ─────── ─────── ───────
Net surplus after taxation 12,183 1,287 (684) (2,521) 10,265
═══════ ═══════ ═══════ ═══════ ═══════

Revenue reported above represents revenue generated from external customers. Inter-segment sales, which are
eliminated on consolidation, were $7.1 million for the year ended 31 August 2018 (2017: $7.9 million).

The accounting policies of the reportable segments are the same as the Group’s accounting policies. Segment
profit represents the profit earned by each segment without allocation of central administration costs and
investment revenue.

Industry Information

The Group focuses its marketing on five principal industries: appliances, materials handling and logistics, meat
processing, mining, and other industrial automation, including robotics. The Group’s revenue from external
customers by industry is detailed below:

2018 2017
$’000s $’000s

Appliances 41,069 26,308
Materials handling and logistics 26,708 -
Meat processing 45,032 39,581
Mining 33,313 26,461
Other industrial automation, including robotics 35,657 40,281
─────── ───────
181,779 132,631
═══════ ═══════

16
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

A3. SEGMENT INFORMATION (Cont.)

Geographical Information

The Group operates in eight principal geographical areas. The Group’s revenue from external customers by
geographical location (of the customer) is detailed below:


2018 2017
$’000s $’000s

New Zealand (country of domicile) 11,840 8,267
North America, including Mexico 51,450 35,614
Australia and Pacific Islands 47,505 49,632
South America 6,270 3,215
Asia 10,609 15,987
Russia and former states 2,983 4,955
Africa and Middle East 4,752 2,327
Other Europe 46,370 12,634
─────── ───────
181,779 132,631
═══════ ═══════

The Group holds $20.2 million of non-current assets in geographical areas outside of New Zealand, the country of
domicile (2017: $12.1 million).

Information About Major Customers

Sales to the Group’s largest single customer, who is from the Australasia Manufacturing segment and the Meat
industry, accounted for approximately 6.7% of total Group sales (2017: Australasia Manufacturing segment and
the Meat Industry 10.6%).

17

SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SECTION B - ASSETS

B1. TRADE DEBTORS

Policy Trade debtors are initially recognised at fair value and are subsequently measured at amortised
cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable
amounts are recognised in profit or loss when there is objective evidence that the asset is
impaired. The allowance recognised is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows discounted at the effective interest
rate computed at initial recognition.
2018 2017
$’000s $’000s

Trade debtors 37,625 18,574
Allowance for doubtful debts (i) (561) (741)
─────── ───────
37,064 17,833
═══════ ═══════
Credit Period

The credit period on sales of goods ranges from 30 to 120 days depending on the terms negotiated by the
customer for large contracts. No interest is charged on the trade debtors.

(i) Allowance for doubtful debts
2018 2017
$’000s $’000s

Balance at beginning of financial year 741 452
Recovery of trade debtors previously treated as doubtful (188) -
Doubtful debts written off (53) -
Impairment loss recognised on trade debtors 61 289
─────── ───────
Balance at end of financial year 561 741
═══════ ═══════

Recoverability

In determining the recoverability of trade debtors, the Group considers any change in the credit quality of the trade
debtor from the date credit was initially granted up to the reporting date. The Directors believe that there is no
further credit provision required in excess of the allowance for doubtful debts. All doubtful debts are aged beyond
90 days (2017: all aged beyond 90 days).

(ii) Past due but not impaired

Included in the Group’s trade debtors are debtors with a carrying amount of $10.1 million (2017: $2.9 million) which
are past due at the reporting date for which the Group has not provided as there has not been a significant change
in credit quality and the amounts are considered recoverable.
2018 2017
$’000s $’000s
Ageing of past due but not impaired:

30 – 60 days 5,132 981
60 – 90 days 1,048 1,089
90 days + 3,942 831
─────── ───────
10,122 2,901
═══════ ═══════

Projects are invoiced on achieving agreed milestones, however customers may delay payment until agreed
warranty issues are resolved, which then impacts on the ageing of past due debtors.

18
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

B2. INVENTORIES

Policy Inventories are valued at the lower of cost and net realisable value. Costs, including an
appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the
method most appropriate to the particular class of inventory, with the majority being valued on a
first-in-first-out basis. Net realisable value represents the estimated selling price for inventories
less all estimated costs of completion and costs necessary to make the sale.

2018 2017
$’000s $’000s

Raw materials 5,396 3,158
Work in progress 713 416
Finished goods 16,716 12,698
─────── ───────
22,825 16,272
═══════ ═══════

Write Downs

The cost of inventories recognised as an expense during the year includes $0.3 million (2017: $0.3 million) in
respect of write downs of inventory to net realisable value.


B3. CONTRACT WORK IN PROGRESS

Policy Contract work in progress is recorded as an accumulation of the costs incurred to date, including
overhead, plus any recognised profit less amounts received or receivable by way of progress
payments on each particular contract

2018 2017
$’000s $’000s
Costs incurred and estimated earnings on
uncompleted contracts 205,396 110,372
Progress claims received or receivable (202,319) (106,264)
─────── ───────
3,077 4,108
═══════ ═══════
Represented by:
Sales recognised to be recovered by invoices 24,495 22,761
Contracts invoiced in advance of sales recognised (21,418) (18,653)
─────── ───────
3,077 4,108
═══════ ═══════

19

SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

B4. PROPERTY, PLANT & EQUIPMENT

Policy All items of Property, Plant and Equipment are stated at cost less accumulated depreciation and
impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In
the event that settlement of all or part of a purchase consideration is deferred, cost is determined by
discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is calculated on a straight line basis so as to write off the net cost of the asset over its
expected useful life to its estimated residual value. The following estimated useful lives are used in
the calculation of depreciation:

Buildings 40 years
Plant, equipment & vehicles 1 - 13 years





Freehold
Land
at Cost
$’000s

Freehold
Buildings
at Cost
$’000s
Plant,
Equipment
& Vehicles
at Cost
$’000s



Total
$’000s
Gross carrying amount
As at 31 August 2016 2,429 6,980 19,921 29,330
Acquisitions through business combinations - - 1,631 1,631
Additions - 85 1,659 1,744
Disposals
- - (1,483) (1,483)
As at 31 August 2017
2,429 7,065 21,728 31,222

Acquisitions through business combinations

3

629

2,767

3,399
Additions - 84 1,723 1,807
Disposals - - (533) (533)
As at 31 August 2018
2,432 7,778 25,685 35,895



Accumulated depreciation & impairment

As at 31 August 2016 - 1,756 14,743 16,499
Disposals - - (1,220) (1,220)
Depreciation expense - 216 1,478 1,694
As at 31 August 2017
- 1,972 15,001 16,973


Disposals - - (490) (490)
Depreciation expense - 217 2,350 2,567
As at 31 August 2018
- 2,189 16,861 19,050

Net book value

As at 31 August 2017
2,429 5,093 6,727 14,249
As at 31 August 2018
2,432 5,589 8,824 16,845

Aggregate depreciation allocated during the year:
2018 2017
$’000s $’000s

Freehold buildings 217 216
Plant, equipment and vehicles 2,350 1,478
─────── ───────
2,567 1,694
═══════ ═══════

20
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

B5. GOODWILL

Policy Goodwill represents the excess of the purchase consideration over the fair value of the
identifiable tangible and identifiable intangible assets, liabilities and contingent liabilities of the
subsidiary recognised at the time of acquisition of a business or subsidiary. Goodwill is initially
recognised as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-
generating units expected to benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount
of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
2018 2017
$’000s $’000s
Gross Carrying Amount
Balance at beginning of financial year 29,987 29,911
Additional amounts recognised from business combinations
occurring during the period (refer Note E1) 23,793 76
─────── ───────
Balance at end of financial year 53,780 29,987
═══════ ═══════
There has been no impairment recognised during the year or in prior periods.

Judgement Determining whether goodwill is impaired requires an estimation of the value in use of the cash-
generating units to which goodwill has been allocated. The value in use calculation requires
the Directors to estimate the future cash flows, particularly in relation to future project wins and
market conditions, expected to arise from the cash-generating unit and a suitable discount rate
in order to calculate present value.

Allocation of Goodwill to Cash-Generating Units
The Group’s cash-generating units are:
 Australasia manufacturing
 Americas manufacturing
 Asia and Europe manufacturing

Australasia is reported as a single cash-generating unit due to the integrated nature of customers, management,
manufacturing, sales and financing activities across New Zealand and Australia.

Americas is reported as a single cash-generating unit due to the integrated nature of customers, management,
manufacturing, sales and financing activities across North and South America.

Asia and Europe is reported as a single cash-generating unit due to the integrated nature of customers,
management, manufacturing and sales activities across Asia and Europe.

Goodwill has been allocated for impairment testing purposes to the cash-generating units:
2018 2017
$’000s $’000s

Australasia manufacturing 24,051 24,051
Americas manufacturing 12,522 5,422
Asia and Europe Manufacturing 17,207 514
─────── ───────
53,780 29,987
═══════ ═══════

21

SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

B5. GOODWILL (Cont.)

Australasia Manufacturing

The recoverable amount of the Australasia Manufacturing cash-generating unit is determined based on a value in
use calculation which uses cashflow projections based on financial budgets and forecasts covering a five-year
period, and using the Group’s approximate weighted average cost of capital as the discount rate. The discount rate
used is 10%.

Cashflow projections during the budget and forecast period for the Australasia Manufacturing cash-generating unit
are also based on historical gross margins during the budget and forecast period and a constant rate of revenue
and materials price inflation during the budget period of 3% reflecting a growing global demand for automation and
robotics and consistent with past experience. Cashflows beyond that five year period have been extrapolated
using a steady 2% p.a. growth rate. Management believes that any reasonably possible change in the key
assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed
the aggregate recoverable amount of the Australasian Manufacturing cash-generating unit.

Americas Manufacturing

The recoverable amount of the Americas Manufacturing cash-generating unit is determined based on a value in
use calculation which uses cashflow projections based on financial budgets and forecasts covering a five-year
period, and using the Group’s approximate weighted average cost of capital as the discount rate. The discount rate
used is 10%.

Cashflow projections during the budget and forecast period for the Americas Manufacturing cash-generating unit
are also based on historical gross margins during the budget and forecast period and a constant rate of revenue
and materials price inflation during the budget period of 3% reflecting a growing global demand for automation and
robotics and consistent with past experience. Cashflows beyond that five year period have been extrapolated
using a steady 2% p.a. growth rate. Management believes that any reasonably possible change in the key
assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed
the aggregate recoverable amount of the Americas Manufacturing cash-generating unit.

Asia & Europe Manufacturing

The recoverable amount of the Asia and Europe Manufacturing cash-generating unit is determined based on a
value in use calculation which uses cashflow projections based on financial budgets and forecasts covering a five-
year period, and using the Group’s approximate weighted average cost of capital as the discount rate. The
discount rate used is 10%.

Cashflow projections during the budget and forecast period for the Asia and Europe Manufacturing cash-
generating unit are also based on historical gross margins during the budget and forecast period and a constant
rate of revenue and materials price inflation during the budget period of 3% reflecting a growing global demand for
automation and robotics and consistent with past experience. Cashflows beyond that five year period have been
extrapolated using a steady 2% p.a. growth rate. Management believes that any reasonably possible change in
the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to
exceed the aggregate recoverable amount of the Asia and Europe Manufacturing cash-generating unit.


B6. INTANGIBLE ASSETS

Policy Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a
straight line basis over their estimated useful lives. Intangible assets with indefinite useful lives
that are acquired separately are carried at cost less accumulated impairment losses.

Intangible assets that are acquired in a business combination and recognised separately from
goodwill are initially recognised at fair value at the acquisition date (which is regarded as their
cost). Subsequent to initial recognition, intangible assets acquired in a business combination are
recognised on the same basis as intangible assets that are acquired separately.

22


SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

B6. INTANGIBLE ASSETS (Cont.)

At each balance sheet date, the Group reviews the carrying amounts of its non financial tangible
and intangible assets to determine whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Goodwill is tested for impairment
annually. Where the asset does not generate cash flows that are independent from other assets,
the Group estimates the recoverable amount of the cash-generating unit to which the asset
belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a discount
rate that reflects current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the
asset is carried at fair value, in which case the impairment loss is treated as a revaluation
decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-
generating unit) is increased to the revised estimate of its recoverable amount, but only to the
extent that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (cash-generating unit) in
prior years. A reversal of an impairment loss is recognised as income immediately unless the
asset is carried at fair value, in which case the reversal of the impairment loss is treated as a
revaluation increase. Impairment losses in relation to goodwill are not reversed.





Conveyor &
Palletiser
Technology
at Cost
$000’s

Bladestop
Technology
at Cost
$’000s


URLs
at Cost
$’000s

Non-
compete
at Cost
$’000s

HTS
Technology
at Cost
$’000s

Centrifuge
Technology
at Cost
$’000s



Total
$’000s
Gross carrying amount

As at 31 August 2016 - - 1,492 69 271 - 1,832
Acquisitions through
business combinations
-
-

-

-

-

338

338
Additions
- 10,568 - - - - 10,568
As at 31 August 2017
- 10,568 1,492 69 271 338 12,738


Acquisitions through
business combinations 4,758 - - - - - 4,758
Additions
681 - - - 11 - 692
As at 31 August 2018
5,439 10,568 1,492 69 282 338 18,188

Accumulated amortisation
and impairment

As at 31 August 2016 - - - 20 114 - 134
Amortisation expense
- 1,261 - 1 25 6 1,293
As at 31 August 2017
- 1,261 - 21 139 6 1,427
Amortisation expense
201 1,366 - 6 59 26 1,658
As at 31 August 2018
201 2,627 - 27 198 32 3,085

Net book value

As at 31 August 2017
- 9,307 1,492 48 132 332 11,311
As at 31 August 2018
5,238 7,941 1,492 42 84 306 15,103

23
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

B6. INTANGIBLE ASSETS (Cont.)

Assets

Intangible assets comprise:
 Conveyor and palletiser technology used in the materials handling industry purchased through the
acquisition of the Alvey business in April 2018 and is being amortised on a straight line basis over an
estimated remaining useful life at the time of purchase of ten years.
 Bladestop bandsaw safety technology purchased in October 2017 which is being amortised on a straight
line basis over an estimated remaining useful life at the time of purchase of eight years.
 Domain names (URLs) and a non-compete arrangement resulting from the purchase of the RobotWorx
business in May 2014.
 Intangible assets associated with the RobotWorx non-compete arrangement are being amortised on a
straight line basis over a fifteen year period, while intangible assets related to the URLs are indefinite life
intangibles as the rights to the URLs are held indefinitely and are assessed for impairment annually.
 Intellectual property associated with current leads and flux pumps which were largely acquired on the
purchase of HTS-110 Limited and are being amortised over an estimated remaining useful life at the time of
purchase of eight years.
 Centrifuge technology used in the honey and fish oil industry purchased through the acquisition of the other
joint venture partners’ interests in Scott Separation Technology Limited in May 2017 and is being amortised
on a straight line basis over an estimated remaining useful life at the time of purchase of thirteen years.

The amortisation expense has been included in the line item “depreciation and amortisation” in the Statement of
Comprehensive Income.


B7. RESEARCH & DEVELOPMENT COSTS

Policy Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An asset arising from development (or from the development phase of an internal project) is
recognised if, and only if, all of the following are demonstrated:

 The technical feasibility of completing the asset so that it will be available for use or sale
 The intention to complete the asset and use or sell it
 The ability to use or sell the asset
 How the asset will generate probable future economic benefits
 The availability of adequate technical, financial and other resources to complete the
development and to use or sell the asset
 The ability to measure reliably the expenditure attributable to the asset during the
development


B8. COMMITMENTS FOR EXPENDITURE

2018 2017
$’000s $’000s
Commitments for future capital expenditure
for purchase of property, plant and equipment 4,045 139
══════ ══════


In June 2017 Scott Technology Limited announced plans to extend the building and associated facilities at 630
Kaikorai Valley Road, Dunedin, New Zealand with the expectation that it would nearly double the available floor
space. As at 31 August 2018 designs have been completed, building consents have been granted, preliminary
groundwork is in progress and contracts for the extension have been entered into.

24
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SECTION C – CAPITAL & FUNDING

C1. SHARE CAPITAL

Policy Equity instruments issued by the Group are recorded at the proceeds received (net of issue costs).

2018 2017 2018 2017
Number Number $’000s $’000s
Fully paid ordinary shares at
beginning of financial year 74,680,754 74,680,754 71,312 71,312
Issue of shares under dividend
reinvestment plan 1,222,185 - 4,335 -
──────── ──────── ──────── ────────
Balance at end of financial year 75,902,939 74,680,754 75,647 71,312
════════ ════════ ════════ ════════

All shares have equal voting rights and participate equally in any dividend distribution or any surplus on the
winding up of the Group.


C2. EARNINGS & NET TANGIBLE ASSETS PER SHARE
2018 2017
Cents Per Cents Per
Share Share

Earnings per share from continuing operations
Basic 14.3 13.2
Diluted 14.3 13.2

Net tangible assets per ordinary share
Basic 47.0 73.5
Diluted 47.0 73.5


2018 2017
$’000s $’000s
Net surplus for the year used in the calculation
of basic and diluted earnings per share from continuing
operations 10,768 9,890
═══════ ═══════

Net tangible assets (excluding goodwill, intangible
assets and deferred tax) 35,702 54,889
═══════ ═══════

Weighted average number of ordinary shares used in
the calculation of basic and diluted earnings per share
from continuing operations 75,394 74,681
═══════ ═══════

Ordinary shares at year end used in the calculation of net
tangible assets per ordinary share (Note C1) 75,903 74,681
═══════ ═══════

25
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

C3. BORROWINGS

Policy Borrowings are recorded initially at fair value, net of transaction costs.

Subsequent to initial recognition, borrowings are measured at amortised cost with any difference
between the initial recognised amount and the redemption value being recognised in the profit or
loss over the period of the borrowings using the effective interest rate method.

Limit Utilised Interest Rate
Lender Currency
2018
$’000s
2017
$’000s
2018
$’000s
2017
$’000s
2018
%
2017
%

Working Capital Facilities

ANZ Bank New Zealand Ltd NZD 5,000 500 - - 5.98% 10.50%
BB&T Bank (USA) USD 752 - 582 - 6.00% -

5,752 500 582 -


Loan Facilities
ANZ Bank New Zealand Ltd USD 3,524 - 3,524 - 4.82% -
Equal monthly principal repayments of US$28,571 over a five year period, followed by a lump sum payment of
US$714,286 in May 2023.

KBC Bank (Belgium) EUR 878 - 878 - 2.20% -
Working capital loan, maturing monthly.

KBC Bank (Belgium) EUR 483 - 483 - 1.75% -
Working capital (vacation pay) loan, repayable in equal instalments over one year with a final repayment in July 2019.

KBC Bank (Belgium) EUR 241 - 241 - 0.75% -
Working capital (prepaid tax) loan, repayable in equal instalments over one year with a final repayment in July 2019.

Ceskoslovenska obchodni banka a.s.
(Czech Republic)

CZK

682

-

43

-

4.95%

-
Working capital loan, maturing monthly.

Participatiemaatschappij Vlaanderen
(PMV) (Belgium)

EUR

1,713

-

1,713

-

8.00%

-
Subordinated business development loan taken over on the acquisition of the Alvey business. Repayable in equal
quarterly instalments of €90,228, with a final lump sum repayment of deferred interest in June 2020. The intention is
to repay or refinance this loan through a commercial bank.

Maarten van Leeuwen EUR 527 - 527 - 8.00% -
Subordinated loan from the previous owner of the Alvey business, but under the terms of the PMV loan the Maarten
van Leeuwen loan can only be repaid following repayment of the PMV loan. Maarten van Leeuwen is an employee of
the business and therefore is a related party.

8,048 - 7,409 -


The outstanding portion of the loan
facilities is disclosed in the financial
statements as:


2018
$’000s
2017
$’000s


Current liability 3,321 -
Non current liability 4,088 -

7,409 -

26
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

C3. BORROWINGS (Cont.)

Limit Utilised
Lender Currency
2018
$’000s
2017
$’000s
2018
$’000s
2017
$’000s

Financial Guarantee & Trade
Performance Bonds

ANZ Bank New Zealand Ltd Varies 20,400 10,700 7,938 7,634
KBC Bank (Belgium) EUR 8,775 - 4,569 -
Bank of China CNY - 152 - 152
(Refer note F2, Contingent Liabilities)
29,175 10,852 12,507 7,786


Credit Card Facilities
ANZ Bank New Zealand Ltd NZD 750 750 101 61
Australia and New Zealand Banking
Group Ltd

AUD

328

220

173

178

PNC Bank (USA) USD 301 139 97 59
KBC Bank (Belgium) EUR 28 - 1 -

1,407 1,109 372 298

The total amount of credit card facilities
used is included in trade creditors and
accruals.



Security

The bank facilities from ANZ Bank New Zealand Limited are secured by general security agreements over all the
present and after acquired property of Scott Technology Limited and its subsidiaries, and therefore all property,
plant and equipment assets are pledged as security for these facilities. The bank facilities from ANZ Bank New
Zealand Limited are also secured by mortgages over the 630 Kaikorai Valley Road, Dunedin and 10 Maces Road,
Christchurch properties.

The bank facilities from KBC Bank are secured by a registered pledge on the business assets of Alvey NV for a
total of €3.8 million and a registered pledge on the bank guarantee line of 50% of any amount exceeding €3.5
million.



C4. TRADE CREDITORS & ACCRUALS

Policy Trade creditors are initially measured at fair value and subsequently measured at amortised cost
using the effective interest rate method.
2018 2017
$’000s $’000s

Trade creditors 18,453 10,866
Accruals 11,869 5,724
─────── ───────
30,322 16,590
═══════ ═══════
Terms

All trade creditors are current and paid within the terms agreed with individual suppliers.

27
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

C5. LEASES

Operating Leases

Policy Operating lease payments are recognised as an expense on a straight line basis over the lease
term, except where another systematic basis is more representative of the time pattern in which
economic benefits from the leased asset are consumed.

Non Cancellable Operating Lease Payments

Operating leases relate to vehicles, printers and manufacturing and warehouse facilities with original lease terms
of between six months to six years. All operating lease contracts contain market review clauses in the event that
the Group exercises its option to renew. The Group have options to purchase the leased property used for the
RobotWorx business and for Alvey’s Belgium business.
2018 2017
$’000s $’000s

Not later than one year 3,535 1,941
Later than one year and not later than two years 2,303 1,685
Later than two years and not later than five years 3,641 2,624
Later than five years 2,405 399
─────── ───────
11,884 6,649
═══════ ═══════

Finance Leases

Policy Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.

Group Entity as Lessor

Amounts due from finance leases are recorded as receivables. Finance lease receivables are
initially recognised at amounts equal to the present value of the minimum lease payments
receivable plus the present value of any unguaranteed residual value expected to accrue at the
end of the lease term. Finance lease payments are allocated between interest revenue and
reduction of the lease receivable over the term of the lease in order to reflect a constant periodic
rate of return on the net investment outstanding in respect of the lease.

Group Entity as Lessee

Assets held under finance lease are initially recorded at their fair value or, if lower, at amounts
equal to the present value of the minimum lease payments, each determined at the inception of
the lease. The corresponding liability to the lessor is included in the Balance Sheet as a finance
lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligations
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged directly against income.

Finance leased assets are depreciated on a straight line basis over the estimated useful life of the
asset or the lease term, whichever is shorter.

28
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

C5. LEASES (Cont.)

Finance Leases (Cont.)

Non Cancellable Finance Lease Payments
Minimum Future Present Value of
Lease Payments Minimum Lease
2018 2017 2018 2017
$’000’s $000s $’000s $’000s

Not later than one year 197 31 187 30
Later than one year and not later than five years 164 27 157 26
Later than five years 2 - 2 -
───── ───── ───── ─────
Minimum future lease payments 363 58 346 56
Less future finance charges (17) (2) - -
───── ───── ───── ─────
Present value of minimum lease payments 346 56 346 56
═════ ═════ ═════ ═════
Classified as:
Current borrowings 187 30
Non-current borrowings 159 26
───── ─────
346 56
═════ ═════



C6. DERIVATIVES

Policy Derivatives are initially recognised at fair value on the date the derivative contract is entered into
and are subsequently re-measured to their fair value at each reporting date. The resulting gain or
loss is recognised in profit or loss unless the derivative is designated and effective as a hedging
instrument, in which event, the timing of the recognition depends on the nature of the hedge
relationship.

The Group entity designates certain derivatives as hedges of the fair value of firm commitments
(fair value hedge) or as hedges of forecast future sales (cash flow hedge). Open firm
commitments reflect contractual agreements to provide goods to customers at an agreed price
denominated in a foreign currency on specified future dates.

Fair Value Hedge

Changes in fair value of derivatives that are designated and qualify as fair value hedges are
recorded in profit and loss immediately, together with any changes in the fair value of the firm
commitment that is attributable to the hedged risk.

Hedge accounting is discontinued when the hedge instrument expires, or is sold, terminated,
exercised, or no longer qualifies for hedge accounting. The carrying amount of the firm
commitment at that time continues to be recognised as a firm commitment until the forecast
transaction ultimately impacts profit or loss.

Cash Flow Hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges are recognised in other comprehensive income and accumulated as a separate
component of equity in the hedging reserve. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss, and is included in the other expenses line.

29
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

C6. DERIVATIVES (Cont.)

Policy Amounts recognised in the hedging reserve are reclassified from equity to profit or loss (as a
reclassification adjustment) in the periods when the hedged item is recognised in profit or loss, in
the same line as the recognised hedged item.

However, when the forecast transaction that is hedged results in the recognition of a non-financial
asset or a non-financial liability, the gains and losses previously recognised in the hedging reserve
are reclassified from equity and included in the initial measurement of the cost of the asset or
liability (as a reclassification adjustment).

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging
instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.
Any cumulative gain or loss recognised in the hedging reserve at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was recognised in the
hedging reserve is recognised immediately in profit or loss.

2018 2017
Assets $’000s $’000s

At fair value:
Foreign currency forward contracts held as effective
fair value hedges - 1
Fair value hedge of open firm commitments 1,579 -
Foreign exchange derivatives - 143
─────── ───────
1,579 144
═══════ ═══════
Represented by:

Current financial assets 1,229 144
Non current financial assets 350 -
─────── ───────
1,579 144
═══════ ═══════

Liabilities

At fair value:
Foreign currency forward contracts held as effective
fair value hedges 1,579 -
Foreign exchange derivatives 271 -
Foreign currency forward contacts held as cash flow hedges 513 -
Interest rate swap contracts 614 -
Fair value hedge of open firm commitments - 1
─────── ───────
2,977 1
═══════ ═══════
Represented by:

Current financial liabilities 2,013 1
Non current financial liabilities 964 -
─────── ───────
2,977 1
═══════ ═══════

30
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

C7. EMPLOYEE BENEFITS

Policy Provision is made for benefits accruing to employees in respect of wages and salaries, annual
leave, long service leave and sick leave when it is probable that settlement will be required and
they are capable of being measured reliably.

Provision made in respect of employee benefits expected to be settled within twelve months are
measured at their nominal values using the remuneration rate expected to apply at the time of
settlement.

Provisions made in respect of employee benefits which are not expected to be settled within
twelve months are measured at the present value of the estimated future cash outflows to be
made by the Group in respect of services provided by employees up to reporting date.


C8. PROVISION FOR WARRANTY

Policy The provision for warranty claims represents the present value of the Directors’ best estimate of
the future outflow of economic benefits that will be required under the Group’s twelve month
warranty programme for certain equipment. The estimate has been made on the basis of
historical warranty trends and may vary as a result of new materials, altered manufacturing
processes or other events affecting product quality.

2018 2017
$’000s $’000s

Balance at beginning of financial year 1,300 1,100
Provisions recognised on acquisition of business 460 -
Additional provisions recognised 874 550
Reductions arising from payments (777) (350)
─────── ───────
Balance at end of financial year 1,857 1,300
═══════ ═══════

Obligation

The provision for warranty reflects an obligation for after sales service work in relation to completed contracts and
products sold to customers. The provision is expected to be utilised within two years of balance date, however this
timing is uncertain and dependent upon the actual level of after sales service work required.


C9. SHARE BASED PAYMENT ARRANGEMENTS

Policy For cash-settled share-based payments, a liability is recognised for the goods or services
acquired, measured initially at the fair value of the liability. At the end of each reporting period until
the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with
any changes in fair value recognised in profit or loss for the year.

Details of Arrangement

The Group has a long term bonus scheme for certain executives and senior employees of the Group. In
accordance with the terms of the plan, executives and senior employees who remain in employment with the
Group at the vesting dates will be granted a cash incentive based on the movement in Scott Technology Limited’s
share price from the beginning of the scheme to the vesting date. The fair value of the scheme is measured at year
end with reference to the share price. At balance date there is a liability of $2.3 million (2017: $1.4 million)
included in employee entitlements in the balance sheet. The impact of the movement in the liability on profit for
the year was $0.9 million (2017: $0.8 million) and is included in the employee benefits expenses. No shares or
share options in Scott Technology Limited are issued under the plan.

31
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SECTION D – RISK MANAGEMENT

D1. FINANCIAL INSTRUMENTS

Policy The Group enters into derivative financial instruments to manage its exposure to foreign exchange
rate risk.

Impairment of Financial Assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets
are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

Objective evidence of impairment could include:

 Significant financial difficulty of the issuer or counterparty; or
 Default or delinquency in interest or principal payments; or
 It becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for
a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the
number of delayed payments in the portfolio past an average credit period, as well as observable changes in
national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original
effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance for doubtful
debts. When a trade receivable is considered uncollectible, it is written off against the allowance account.

Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss
is reversed through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortised cost would have been had the impairment not been
recognised.

32
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

D1. FINANCIAL INSTRUMENTS (Cont.)

Financial Risk Management Objectives

The Group’s finance function provides services to the business, co-ordinates access to domestic and international
financial markets and monitors and manages the financial risks relating to the operations of the Group through
internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk
(including currency risk and fair value interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.

The Group seeks to minimise the effects of these risks by using derivative financial instruments to hedge certain of
these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the Board
of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of
financial derivatives and non-derivative financial instruments and the investment of excess liquidity. Compliance
with policies and exposure limits is reviewed on a continuous basis. The Group does not enter into or trade
financial instruments, including derivative financial instruments, for speculative purpose.

Capital Risk Management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s
overall strategy remains unchanged from 2017.

The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued
capital and retained earnings.

The Group has sufficient liquid assets to fund the operational assets. To the extent that additional working capital
funding is required the Group has bank facilities available as disclosed in note C3. Where the Group requires
funding for a significant capital acquisition, separate funding facilities are established, provided the Directors
consider that the Group has adequate equity to support these facilities.

Market Risk

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. The
Group enters into a variety of derivative financial instruments to manage its exposure to foreign currency risk,
including forward foreign exchange contracts to hedge the exchange rate risk arising on the export of
manufactured products.

There has been no change to the Group’s exposure to market risks or the manner in which it manages and
measures the risk.

33
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

D1. FINANCIAL INSTRUMENTS (Cont.)

Foreign Currency Risk Management

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate
fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward
foreign exchange contracts. The carrying amounts in New Zealand Dollars of the Group’s foreign currency
denominated monetary assets and monetary liabilities at the reporting date are as follows:

Assets Liabilities
2018 2017 2018 2017
$’000s $’000s $’000s $’000s

United States Dollar 20,073 13,169 10,795 2,810
Euros 16,077 2,542 16,198 1,974
Australian Dollar 5,908 8,460 1,491 4,956
Japanese Yen 6 7 - -
Great Britain Pound 168 1 30 36
Chinese Yuan 3,930 797 2,103 931
Czech Koruna 544 - 1,141 -
───── ───── ───── ─────
46,706 24,976 31,758 10,707
═════ ═════ ═════ ═════
Forward Foreign Exchange Contracts

It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency
payments and receipts. The Group also enters into forward foreign exchange contracts to manage the risk
associated with anticipated sales and purchase transactions.

The following table details the forward foreign currency (FC) contracts outstanding as at reporting date:

Average
Exchange Rate Foreign Currency
NZ$ Contract
Value

Fair Value
2018 2017 2018
FC’000s
2017
FC’000s
2018
$’000s
2017
$’000s
2018
$’000s
2017
$’000s
Foreign currency forward
contracts held as
effective fair value
hedges


Sell United States Dollars

Less than 3 months 0.6929 0.7204 1,315 79 1,898 110 (80) (1)
3 to 6 months 0.6951 0.6999 6,084 1,275 8,753 1,822 (392) 35
6 to 12 months 0.7003 0.6921 10,217 823 14,590 1,189 (725) 34
1 to 2 years 0.7010 - 5,275 - 7,525 - (350) -
22,891 2,177 32,766 3,121 (1,547) 68

Sell Euros

0 to 3 months - 0.6511 - 118 - 181 - (16)
3 to 6 months 0.5789 0.6461 56 59 97 91 (3) (8)
56 177 97 272 (3) (24)


Sell Australian Dollars

Less than 3 months 0.9343 0.9059 656 1,400 702 1,545 (14) 1
3 to 6 months 0.9333 0.9048 525 1,470 562 1,625 (10) 2
6 to 12 months 0.9333 0.9330 263 1,444 282 1,548 (5) (46)
1,444 4,314 1,546 4,718 (29) (43)

34,409 8,111 (1,579) 1

34
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

D1. FINANCIAL INSTRUMENTS (Cont.)


Average
Exchange Rate

Foreign Currency

NZ$ Contract
Value


Fair Value
2018

2017

2018
FC’000s
2017
FC’000s
2018
$’000s
2017
$’000s
2018
$’000s
2017
$’000s
Foreign exchange
derivatives


Sell United States Dollars

Less than 3 months 0.6963 0.6972 1,540 2,459 2,212 3,527 (105) 86
3 to 6 months 0.7202 0.6843 1,675 573 2,326 837 (192) 35
6 to 12 months - 0.7012
- 1,820 - 2,595 - 39

3,215 4,852 4,538 6,959 (297) 160
Sell Euros

Less than 3 months 0.5808 - 92 - 158 - (4) -
3 to 6 months 0.5662 - 6,930 - 12,239 - (106) -
7,022 - 12,397 - (110) -
Buy Euros

Less than 3 months 0.5840 - 2,793 - 4,783 - 136 -


Sell Australian Dollars

Less than 3 months - 0.9346 - 525 - 562 - (17)


21,718 7,521 (271) 143


Foreign currency forward
contracts held as cash
flow hedges



Sell United States Dollars

Less than 3 months 0.6919 - 3,000 - 4,336 - (177) -
3 to 6 months 0.6888 - 3,000 - 4,356 - (154) -
6 to 12 months 0.6901 - 5,165 - 7,485 - (264) -

11,165 - 16,177 - (595) -
Sell Australian Dollars

Less than 3 months 0.8994 - 2,250 - 2,502 - 46 -
3 to 6 months 0.8994 - 1,750 - 1,946 - 36 -

4,000 -
4,448 - 82 -

20,625 - (513) -

The fair value of foreign exchange contracts outstanding is recognised as other financial assets/liabilities.

Interest Rate Swap Contracts

Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate
interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate
the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow exposures on the
issued floating rate debt. The fair value of interest rate swaps at the reporting date is determined by discounting
the future cash flows using the curves at reporting date and the credit risk inherent in the contract, and is disclosed
below. The average interest rate is based on the outstanding balances at 31 August.

The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts
outstanding as at 31 August.

35
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

D1. FINANCIAL INSTRUMENTS (Cont.)

Interest Rate Swap Contracts (Cont.)

Outstanding receive floating pay fixed contracts

Average
Contracted Fixed
Interest Rate
Notional Principal
Amount Fair Value

2018
%
2017
%
2018
$’000s
2017
$’000s
2018
$’000s
2017
$’000s
5 years +
2.7% -
3,376 - (614) -

The interest rate swap contract obligation was taken over through the acquisition of the Alvey business. The loan
facility is not currently being used.

Foreign Currency Sensitivity Analysis

The Group is mainly exposed to the United States Dollar, the Euro, the Australian Dollar and the Chinese Yuan.

The following table details the Group’s sensitivity to a 10% increase and decrease in the New Zealand Dollar
against the relevant foreign currencies. 10% represents management’s assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency
denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency
rates. A positive number below indicates an increase in profit and equity where the New Zealand Dollar weakens
10% against the relevant currency.

10% Increase in 10% Decrease in
New Zealand Dollar New Zealand Dollar
2018 2017 2018 2017
$’000s $’000s $’000s $’000s

United States Dollar (474) (340) 474 340
Euro (450) (57) 450 57
Australian Dollar (442) (294) 442 294
Japanese Yen (1) - 1 -
Great Britain Pound (14) - 14 -
Chinese Yuan (182) (13) 182 13
Czech Koruna 60 - (60) -

These movements are mainly attributable to the exposure to outstanding foreign currency bank accounts,
receivables, payables and derivatives at year end in the Group.

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the
year end exposure does not reflect the exposure during the year.

Credit Risk Management

In the normal course of business, the Group incurs credit risk from trade receivables and transactions with financial
institutions. The Group has a credit policy which is used to manage this exposure to credit risk, including requiring
payment prior to shipping to high credit risk countries and customers, the use of Export Credit Office financing
facilities and customer credit checks. The Group, as a result of the industries in which they operate, can be
exposed to significant concentrations of credit risk from trade receivables and counterparty risk with the bank in
relation to the outstanding forward exchange contracts. They do not require any collateral or security to support
financial instruments as these represent deposits with, or loans to, banks and other financial institutions with high
credit ratings.

At year end the amount receivable from the five largest trade debtors is $7.9 million (2017: $3.8 million).

36
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

D1. FINANCIAL INSTRUMENTS (Cont.)

Credit Risk Management (Cont.)

The maximum credit risk of on balance sheet financial instruments is their carrying amount.

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses,
represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral
obtained.

Liquidity & Interest Rate Risk Management

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an
appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term
funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate
reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash
flows and matching the maturity profiles of financial assets and liabilities. Included in Note C3 are details of
additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.

There is no reasonable movement in interest rates that could have a material impact on the financial statements.

The following table details the Group’s remaining undiscounted contractual maturity for its non derivative financial
liabilities. The tables below have been drawn up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to pay.

The tables include both interest and principal cash flows.




Weighted
Average
Effective
Interest
Rate




On
Demand



Less
than
1 Year




1-2
Years




2-3
Years




3-5
Years




5+
Years





Total

% $’000s $’000s $’000s $’000s $’000s $’000s $’000s

2018
Financial Liabilities

Finance lease liabilities 3.89% - 197 97 44 23 2 363
Term loans 5.14% 591 3,000 1,798 624 2,113 - 8,126
Deferred settlement on
purchase of business
- - 6,275 - - - - 6,275
Payable to joint
ventures

-

-

673

-

-

-

-

673
Trade creditors &
accruals

-

30,322

-

-

-

-

-

30,322

30,913 10,145 1,895 668 2,136 2 45,759


2017
Financial Liabilities

Finance lease liabilities 3.47% - 31 12 8 7 - 58
Payable to joint
ventures

-

-

547

-

-

-

-

547
Trade creditors &
accruals

-

16,590

-

-

-

-

-

16,590

16,590 578 12 8 7 - 17,195

The Group has access to financing facilities, of which the total unused amount is $23.3 million at the balance sheet
date, (2017: $4.4 million). The Group expects to meet its other obligations from operating cash flows and
proceeds of maturing financial assets.

37
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

D1. FINANCIAL INSTRUMENTS (Cont.)

Fair Value Measurements Recognised in the Balance Sheet

The following table provides an analysis of financial instruments that are measured subsequent to initial
recognition at fair value, grouped into Levels 1 to 3 on the degree to which fair value is observable:

The fair values of financial assets and financial liabilities are determined as follows:

 Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for
identical assets and liabilities;
 Level 2 fair value measurements are those derived from inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and;
 Level 3 fair value measurements are those derived from valuation techniques that include inputs for the
asset or liability that are not based on observable market data (unobservable inputs).

The fair value of forward exchange contracts and options is based on their quoted market price, if available. If a
quoted market price is not available, then fair value is estimated by discounting the difference between the
contractual forward price and the current forward price for the residual maturity and options of the contract using a
market rate of interest.


Level 1 Level 2 Level 3 Total
$’000s $’000s $’000s $’000s

2018

Financial assets at fair value through profit and loss
Fair value hedge of open firm commitments - 1,579 - 1,579

Financial liabilities at fair value through profit and loss
Foreign currency forward contracts held as effective
fair value hedges - (1,579) - (1,579)
Foreign exchange derivatives - (271) - (271)
Foreign currency forward contracts held as
cash flow hedges - (513) - (513)
Interest rate swap contracts - (614) - (614)
───── ───── ───── ─────
- (1,398) - (1,398)
═════ ═════ ═════ ═════

2017

Financial assets at fair value through profit and loss
Foreign currency forward contracts held as effective
fair value hedges - 1 - 1
Foreign exchange derivatives - 143 - 143

Financial liabilities at fair value through profit and loss
Fair value hedge of open firm commitments - (1) - (1)
───── ───── ───── ─────
- 143 - 143
═════ ═════ ═════ ═════
Fair Value

The fair value of financial instruments not already measured at fair value approximates their carrying value.

38
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SECTION E – GROUP STRUCTURE & SUBSIDIARIES

E1. ACQUISITION OF BUSINESS

Business Acquired

Name Principal Activity Location
Date of
Acquisition
Proportion of
Shares /
Assets
Acquired
Cost of
Acquisition
$’000s

Alvey Materials handling & logistics automation Europe 23 April 2018 100% 19,303
Transbotics Automated guided vehicles USA 31 May 2018 100% 4,873

The Alvey acquisition was by way of the purchase of 100% of the shares in various Alvey group companies, while
the Transbotics acquisition was by way of the purchase of the net business assets. Both businesses acquired
were for the purpose of expanding the Group’s business in key geographies and to expand and enhance the
solutions that the Group can offer to its customers.


Analysis of Assets & Liabilities Acquired and Provisional Fair Values

Alvey Transbotics

Book
Value
$’000s

Fair Value
Adjustment
$’000s
Fair
Value on
Acquisition
$’000s

Book
Value
$’000s

Fair Value
Adjustment
$’000s
Fair
Value On
Acquisition
$’000s
Total Fair
Value on
Acquisition
$’000s
Assets & Liabilities
Cash & Bank
balances 4,039 - 4,039 - - - 4,039
Trade debtors & other
receivables 11,992 - 11,992 1,429 (105) 1,324 13,316
Inventories 946 - 946 827 - 827 1,773
Plant & equipment 3,475 (220) 3,255 144 - 144 3,399
Intangible assets 4,548 210 4,758 - - - 4,758
Contract work in
progress 1,609 (1,391) 218 (1,893) (168) (2,061) (1,843)
Bank overdraft - - - (558) - (558) (558)
Trade creditors &
accruals (12,175) - (12,175) (1,179) (573) (1,752) (13,927)
Taxation payable (582) - (582) - - - (582)
Provision for warranty (173) - (173) - (287) (287) (460)
Employee
entitlements (4,797) - (4,797) (78) - (78) (4,875)
Financial liabilities - (571) (571) - - - (571)
Finance leases (379) - (379) - - - (379)
Term loans (2,498) - (2,498) - - - (2,498)
Deferred tax
- (1,423) (1,423) - 214 214 (1,209)
Total assets &
liabilities 6,005 (3,395) 2,610 (1,308) (919) (2,227) 383
Goodwill on
acquisition
16,693

7,100 23,793
Cost of acquisition

19,303

4,873 24,176

39
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

E1. ACQUISITION OF BUSINESS (Cont.)

Cost of Acquisition

The cost of acquisition of the Alvey and Transbotics businesses was paid in a combination of cash and a deferred
portion.

Alvey Transbotics Total
$’000s $’000s $’000s

Cash 14,522 3,438 17,960
Deferred settlement on purchase of business 4,781 1,435 6,216
───── ───── ─────
19,303 4,873 24,176
═════ ═════ ═════

The deferred settlement on the Alvey business is contingent on the vendor and the acquirer completing agreed
post-acquisition conditions of the sale agreement. The deferred settlement on the Transbotics business is
contingent on the business achieving agreed revenue targets. The fair values on acquisition are based on the
expectation that all post-acquisition conditions and targets will be met.

Impact of Acquisition on the Results of the Group

Included in the Group financial statements is revenue of $26.7 million and an operating EBITDA of $0.9 million
attributable to the purchase of the Alvey business and revenue of $4.0 million and an operating EBITDA of $0.8
million attributable to the purchase of the Transbotics business.

Had these acquisitions been effected at 1 September 2017, the revenue of the Group from continuing operations
would have been approximately $225 million and the operating EBITDA would have been approximately $22
million. The Directors of the Group consider these '‘pro-forma’ numbers to represent an approximate measure of
the performance of the combined Group on an annualised basis and to provide a reference point for comparison in
future periods.

Net Cash Outflow on Acquisition

Alvey Transbotics Total
$’000s $’000s $’000s

Total purchase consideration paid in cash 14,522 3,438 17,960
Overdraft/(cash at bank) acquired (4,039) 558 (3,481)
───── ───── ─────
Net cash outflow on acquisition 10,483 3,996 14,479
═════ ═════ ═════

Goodwill Arising on Acquisition

The consideration paid for the acquisition of Alvey and Transbotics businesses effectively included amounts in
relation to the benefit of expected synergies, current product development and knowhow. These benefits are not
recognised separately from goodwill as the future economic benefits arising from them cannot be readily
measured and they do not meet the definition of identifiable intangible assets. It will not be deductible for tax
purposes.

Fair Value Gain on Purchase of Business

In 2017 the inventories, plant and equipment of the DC Ross business were purchased from DC Ross’ receivers
for an agreed total value which was less than market value resulting in a fair value gain on acquisition.

40
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

E1. ACQUISITION OF BUSINESS (Cont.)

Fair Value Gain on Purchase of Business (Cont.)

Judgement The Group acquired a 100% equity interest in Alvey and the business of Transbotics between
April and May 2018 for $24.2 million. Due to the timing of the acquisitions, the acquisition
accounting fair value adjustments have been identified as being on a provisional basis. On
completion of final valuations the balances for the acquisition may be revised since the valuation
exercise is not yet finalised.

The provisional fair value of intellectual property was based on a valuation performed at
acquisition. The intellectual property was provisionally valued using the relief from royalty method.
Key assumptions used in the valuation were: royalty rate of 5% to 12%, depending on the nature
of the intellectual property being valued; cashflow projections based on financial budgets and
forecasts covering a five year period and an annual revenue growth rate of 2% beyond the initial
five year period for a further five years; and a discount rate of 12% to 20%, depending on the
nature of the intellectual property being valued.

E2. SUBSIDIARIES
Name of Entity Balance Date Country of
Incorporation
Ownership Interest &
Voting Rights
2018
%
2017
%
Parent Entity

Scott Technology Limited (i) 31 August New Zealand

New Zealand Trading Subsidiaries

Scott Technology NZ Limited (ii) 31 August New Zealand 100 100
Scott Automation Limited (iii) 31 August New Zealand 100 100
Scott Technology USA Limited (iv) 31 August New Zealand 100 100
QMT General Partner Limited (v) 31 August New Zealand 93 93
QMT New Zealand Limited
Partnership (vi)

31 August

New Zealand

92

92
Scott Separation Technology (vii) 31 August New Zealand 100 100
Scott Technology Americas Limited (viii) 31 August New Zealand 100 -
Scott Technology Europe Limited (ix) 31 August New Zealand 100 -


New Zealand Non Trading Subsidiaries

Scott LED Limited 31 August New Zealand 100 100
Rocklabs Limited 31 August New Zealand 100 100

Overseas Subsidiaries

Scott Technology Australia Pty Ltd (x) 31 August Australia 100 100
Applied Sorting Technologies Pty Ltd (xi) 31 August Australia 100 100
Scott Automation & Robotics Pty Ltd (xii) 31 August Australia 100 100
QMT Machinery Technology (Qingdao) Co
Limited (xiii)

31 December (*)

China

70

70
Scott Systems International Incorporated (xiv) 31 August USA 100 100
Scott Systems (Qingdao) Co Limited (xv) 31 December (*) China 95 95
Scott Technology GmbH (xvi) 31 December (*) Germany 100 100
Scott Technology Belgium bvba (xvii) 31 August Belgium 100 -
Alvey NV (xviii) 31 March Belgium 100 -
FLS Group bvba (xix) 31 December Belgium 100 -
FLS Systems NV (xx) 31 December Belgium 100 -
Alvey do Brazil Comercio de Maquinas de
Automacao (xxi) 31 December Brazil 100 -
Alvey Manex a.s. (xxii) 31 March Czech Republic 100 -
Alvey Samovie sasu (xxiii) 31 March France 100 -
Alvey Systems & Services Limited (xxiv) 31 March United Kingdom 100 -

(*) Determined by local regulatory requirements

41
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

E2. SUBSIDIARIES (Cont.)

New Zealand Trading Subsidiaries

(i) Scott Technology Limited is the ultimate parent entity of the Group. It is an investment holding company
and owns all New Zealand properties.
(ii) Scott Technology NZ Limited is the main trading company for New Zealand operations, including the design
and manufacture of automated and robotic systems (under the “Scott” brand), the service and upgrade of
Scott equipment worldwide (under the “Scott Service International” brand), the manufacture and sale of
automated laboratory sampling equipment for the mining industry (under the “Rocklabs” brand) and
development, design and manufacture of high temperature superconductor equipment (under the “HTS-110”
brand).
(iii) Scott Automation Limited’s principal activity is the design and manufacture of automation systems.
(iv) Scott Technology USA Limited is a financing subsidiary for the USA businesses, as well as owning a
number of domain names (URLs) associated with the RobotWorx business.
(v) QMT General Partner Limited is the general partner for the QMT New Zealand Limited Partnership and
directly owns 1% of QMT New Zealand Limited Partnership.
(vi) QMT New Zealand Limited Partnership is an investment holding entity and owns 75% of QMT Machinery
Technology (Qingdao) Co Limited.
(vii) Scott Separation Technology Limited develops and markets patented centrifuge technology with particular
application to the honey and fish processing industries.
(viii) Scott Technology Americas Limited is a holding company for Americas operations
(ix) Scott Technology Europe Limited is a holding company for European operations

Overseas Subsidiaries

(x) Scott Technology Australia Pty Limited is a holding company for Australian activities.
(xi) Applied Sorting Technologies Pty Limited’s principal activity was the manufacture and sale of x-ray and
sorting technology. These activities are now conducted through Scott Automation & Robotics Pty Limited.
(xii) Scott Automation & Robotics Pty Limited is the main trading company for Australia operations, designing
and manufacturing automated and robotic systems.
(xiii) QMT Machinery Technology (Qingdao) Co Limited is a general engineering business located in Qingdao,
China. The woodworking lathes and parts business has ceased and the automation engineering business
has been transferred to Scott Systems (Qingdao) Co Limited. The company is currently being wound up.
(xiv) Scott Systems International Incorporated’s principal activities are in North America for the sale of robot
systems under the “RobotWorx” brand, the design and manufacture of automated guided vehicles under the
“Transbotics” brand and undertaking sales and service for the wider Group.
(xv) Scott Systems (Qingdao) Co Limited is a general engineering business located in Qingdao, China.
(xvi) Scott Technology GmbH designs and manufactures automation and robotic systems and is located in
Kurnbach, Germany.
(xvii) Scott Technology Belgium bvba is a holding company for Belgium operations.
(xviii) Alvey NV designs and manufactures automation and robotic systems and is located in Deerlijk, Belgium.
(xix) FLS Group bvba designs and manufactures automation and robotic systems and is located in Deerlijk,
Belgium.
(xx) FLS Sysytems NV designs and manufactures automation and robotic systems and is located in Deerlijk,
Belgium.
(xxi) Alvey do Brazil Comercio de Maquinas de Automacao is a non-trading Brazilian subsidiary.
(xxii) Alvey Manex a.s. is a general engineering business located in Podivin, Czech Republic.
(xxiii) Alvey Samovie sasu’s principal activity is the sale and service of automated and robotic equipment and is
based in Ploemeur and Marseille, France.
(xxiv) Alvey Systems & Service Limited’s principal activity us the sale and service of automated and robotic
equipment and is based in Warrington and Glasgow, United Kingdom.

42
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

E3. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Interests in Joint Ventures

Policy: A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint arrangement. Joint control is the
contractually agreed sharing of control of an arrangement, which exists only when decisions about
the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of joint ventures are incorporated in these consolidated
financial statements using the equity method of accounting. Under the equity method a joint
venture is initially recognised in the consolidated statement of financial position at cost and
adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive
income of the joint venture. In assessing the Group’s share of the profit or loss or other
comprehensive income of the joint venture, the Group’s share of any unrealised profits or losses
on transactions between Group companies and the joint venture is eliminated. Dividends or
distributions received from a joint venture reduce the carrying amount of the investment in that
joint venture in the Group financial statements. When the Group’s share of losses of a joint
venture exceeds the Group’s interest in that joint venture, the Group discontinues its share of
further losses. Additional losses are recognised only to the extent that the Group has incurred
legal or constructive obligations or made payments on behalf of the joint venture.

An investment in a joint venture is accounted for using the equity method from the date on which
the investee becomes a joint venture until the date it ceases to be a joint venture. On acquisition
of the investment in a joint venture, any excess of the cost of the investment over the Group’s
share of the net fair value of the identifiable assets and liabilities of the investee is recognised as
goodwill, which is included within the carrying value of the investment. Any excess of the Group’s
share of the net fair value of the identifiable assets and liabilities over the cost of the investment,
after reassessment, is recognised immediately in profit or loss in the period in which the
investment is acquired.


Country
of
Incorporation
Ownership Interest Carrying Value

Name of Entity
2018
%
2017
%
2018
$’000s
2017
$’000s


Joint Ventures

Robotic Technologies Limited (i) New Zealand 50 50 552 983
Scott Technology Euro Limited (ii) Ireland 50 50 80 78
NS Innovations Pty Limited (iii) Australia 50 50 - -
Scott Technology S.A. (iv) Chile 50 50 7 50
Rocklabs Automation Canada Limited (v) Canada
50 50
289 7
Balance at end of financial year
928 1,118

(i) Scott Technology Limited’s joint venture with Silver Fern Farms Limited, Robotic Technologies Limited (RTL),
was formed in October 2003 and has a balance date of 31 August. RTL’s principal activity is the marketing
and development of (primarily) lamb meat processing equipment and the management of the intellectual
property associated with these developments. Scott Technology Limited’s share of RTL’s net surplus was
$268,000 (2017: $176,000) and RTL paid a dividend to Scott Technology Limited of $700,000 (2017: $Nil).

(ii) Scott Technology Euro Limited (STEL) is a European sales agency for Scott Technology Limited and is a joint
venture between Scott Technology Limited and Industrial Process Solution of Italy. STEL was formed in 2009
and has a balance date of 31 August. Scott Technology Limited’s share of STEL’s net surplus was $2,000
(2017: $1,000).

43
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

E3. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Cont.)

Interests in Joint Ventures (Cont.)

(iii) NS Innovations Pty Limited (NSIL) is a joint venture between Scott Technology Limited and Northern Co-
Operative Meat Company Limited of Australia. NSIL was formed in August 2009 and has a balance date of 30
June, in line with Australian tax rules. NSIL’s principal activity was the marketing and development of
(primarily) beef meat processing equipment and the management of the intellectual property associated with
these developments. NSIL is no longer operating and is in the process of being wound up. Scott Technology
Limited’s share of NSIL’s net surplus was $Nil (2017: $Nil).

(iv) Scott Technology S.A. (STSA) is a joint venture between Scott Technology Limited and Canadian private
company STG Holdings Limited. STSA commenced trading in June 2014 and has a balance date of 31
August. STSA is a sales agency for mining equipment in the Americas and is based in Chile. Scott
Technology Limited’s share of STSA’s net deficit was $42,000 (2017: share of net deficit $38,000).

(v) Rocklabs Automation Canada Limited (RAC) is a joint venture between Scott Technology Limited and
Canadian private company STG Holdings Limited. RAC commenced trading in 2013 and has a balance date
of 31 August. RAC is a sales agency for mining equipment in North America. Scott Technology Limited’s
share of RAC’s net surplus was $282,000 (2017: $82,000).

Carrying value of equity accounted investments:
2018 2017
$’000s $’000s

Balance at beginning of financial year 1,118 923
Share of net surplus 510 220
Share of dividends (700) -
Sale of interest in joint venture - (25)
─────── ───────
Balance at end of financial year 928 1,118
═══════ ═══════

Summarised statement of comprehensive income of joint Joint Ventures
ventures from continuing operations: 2018 2017
$’000s $’000s

Income 16,945 12,136
Expenses (15,925) (11,696)
─────── ───────
Net surplus and total comprehensive income 1,020 440
═══════ ═══════
Group share of net surplus 510 220
═══════ ═══════

Summarised balance sheets of joint ventures: Joint Ventures
2018 2017
$’000s $’000s

Current assets 3,851 3,937
Non-current assets 1,964 1,731
Current liabilities (1,601) (2,049)
Non-current liabilities (2,316) (1,349)
─────── ───────
Net assets 1,898 2,270
═══════ ═══════
Group share of net assets 949 1,135
═══════ ═══════

RTL, STEL, NSIL, STSA and RAC do not have any contingent assets, contingent liabilities or commitments for
capital expenditure. The Group is not jointly and severally liable for any of the joint ventures’ liabilities.

44
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

E4. RELATED PARTY TRANSACTIONS
2018 2017
Joint Ventures $’000s $’000s

Project work undertaken by the Group for RTL 6,092 8,095
Administration, sales and marketing fees
charged by the Group to RTL 234 173
Sales revenue received by RTL from the Group 13,616 8,875
Advance from RTL to Scott Technology (585) (371)
Interest charged by RTL to Scott Technology on advance 96 29

Administration fees charged by the Group to STEL 6 6
Commission received by STEL from the Group 211 199
Advance from STEL to Scott Technology (88) (176)

Project work undertaken by the Group for SSTL - 2

Project work undertaken by the Group for STSA 406 1,466
Advance from Scott Technology to STSA 1,298 1,223

Project work undertaken by the Group for RAC 2,459 1,583
Advance from Scott Technology to RAC 1,017 686


Advances

Advances to/from joint ventures are unsecured, interest free and repayable on demand.

Directors

C C Hopkins and S J McLauchlan are trustees of the Scott Technology Employee Share Purchase Scheme. The
balance of the interest free advance owing to the scheme at 31 August 2018 was $3,000 (2017: $4,000). During
the year no shares vested with employees and no shares (2017: no shares) which had not vested with employees
were disposed of at market value. As at 31 August 2018 17,779 (2017: 17,779) shares were being held on trust
which had vested with the Trustees upon the resignation of employees during the period of the Scheme and are
available for sale. These shares have been treated as equity under share capital.

Substantial Shareholders

C C Hopkins is a Director of Oakwood Group Limited, which owns Oakwood Securities Limited, a substantial
shareholder of Scott Technology Limited. C C Hopkins has received Directors’ fees of $21,000 from Oakwood
Group Limited during the year (2017: $17,000).

JBS Australia Pty Limited owns a 50.1% shareholding in Scott Technology Limited. The Group has recognised
sales to JBS Companies of $5.6 million (2017: $3.2 million) and has made purchases from JBS Companies of $1.8
million (2017: $2.5 million). As at balance date the Group had $0.8 million receivable from JBS Companies (2017:
$1.4 million).

45
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

SECTION F – OTHER DISCLOSURES

F1. NOTES TO THE CASHFLOW STATEMENT

Policy The Statement of Cashflows is prepared exclusive of GST, which is consistent with the method
used in the Statement of Comprehensive Income.

Definition of terms used in the Statement of Cashflows:

 Cash includes cash on hand, demand deposits, and other short-term highly liquid
investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value, net of bank overdrafts.
 Operating activities include all transactions and other events that are not investing or
financing activities.
 Investing activities are those activities relating to the acquisition and disposal of current and
non-current investments and any other non-current assets.
 Financing activities are those activities relating to changes in the equity and debt capital
structure of the Group and those activities relating to the cost of servicing the Group’s
equity.

2018 2017
$’000s $’000s

Net surplus for the year 10,772 10,265

Adjustments for non-cash items:
Depreciation and amortisation 4,225 2,987
Net loss/(gain) on sale of property, plant and equipment 21 (73)
Deferred tax 1,541 201
Share of net surplus of joint ventures and associates (510) (220)
Fair value gain on purchase of business - (936)

Add / (less) movement in working capital:
Trade debtors (19,231) (2,000)
Other financial assets – derivatives (1,435) 1,332
Sundry debtors (2,576) 174
Inventories (6,553) (3,929)
Contract work in progress 1,031 (5,245)
Taxation payable (953) 1,779
Trade creditors and accruals 13,732 8,228
Other financial liabilities – derivatives 2,463 (619)
Employee entitlements 6,089 1,195
Provision for warranty 557 200

Movements in working capital disclosed in investing/financing activities:
Working capital relating to purchase of business and non controlling interest (7,109) 675
Movement in foreign exchange translation reserve relating to working capital (1,449) (607)
─────── ───────
Net cash inflow from operating activities 615 13,407
═══════ ═══════

Reconciliation of Movement in Debt Facilities

1 September
2017
$’000s

Acquisitions
$’000s
Net
Drawings
$’000s
Net
Repayment
$’000s
31 August
2018
$’000s
Bank loans - 2,498 5,079 (168) 7,409
Finance leases 56 379 - (89) 346

56 2,877 5,079 (257) 7,755

46
SCOTT TECHNOLOGY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the Year Ended 31 August 2018

F2. CONTINGENT LIABILITIES
2018 2017
$’000s $’000s

Payment guarantees and performance bonds 12,432 7,711
Stock Exchange bond 75 75
Maximum contract penalty clause exposure 6,979 1,501

Payment guarantees are provided to customers in respect of advance payments received by the Group for
contract work in progress, while performance bonds are provided to some customers for a period of up to one year
from final acceptance of the equipment.

Scott Technology Limited has a payment bond to the value of $75,000 in place with ANZ Bank New Zealand
Limited in favour of the New Zealand Stock Exchange.

The Group has exposure to penalty clauses on its projects. These clauses relate to delivery criteria and are
becoming increasingly common in international contractual agreements. There is a clearly defined sequence of
events that needs to occur before penalty clauses are imposed.

F3. KEY MANAGEMENT PERSONNEL COMPENSATION

The compensation of the Directors and executives, being the key management personnel of the entity, is set out
below:
2018 2017
$’000s $’000s

Short term benefits - employees 2,156 2,535
Short term benefits – executive Director 607 708
Short term benefits – non-executive Directors 208 193
Long term benefits – employees 494 604
Long term benefits – executive Director 268 284
─────── ───────
3,733 4,324
═══════ ═══════

The composition of the executive team changed during the year following the acquisition of the Alvey and
Transbotics businesses.


F4. SUBSEQUENT EVENTS

Dividend

On 25 October 2018 the Board of Directors approved a final dividend of six cents per share with full imputation
credits attached to be paid for the 2018 year (2017: six cents per share).

47
SCOTT TECHNOLOGY LIMITED

ADDITIONAL STOCK EXCHANGE INFORMATION

Substantial Shareholders

Names of Substantial Security Holder Number of shares in which a relevant interest
was held as at 17 September 2018
1. JBS Australia Pty Limited 38,476,592
2. Oakwood Securities Limited 5,500,000

The total number of issued voting securities of the company as at 17 September 2018 was 75,902,939 ordinary
shares.

Distribution of Shares by Holding Size # of Shareholders % of Total Number % of Total
1 - 1,000 726 27.12 367,553 0.49
1,001 - 5,000 1,120 41.84 2,847,858 3.75
5,001 - 10,000 397 14.83 2,880,135 3.79
10,001 - 50,000 366 13.67 7,080,901 9.33
50,001 - 100,000 34 1.27 2,325,741 3.06
100,001 and over 34 1.27 60,400,751 79.58
Total and percentage
2,677 100.00 75,902,939 100.00


Twenty Largest Shareholders as at 17 September 2018 Shares % of Total
1. JBS Australia Pty Limited 38,476,592 50.69
2. Oakwood Securities Limited 5,500,000 7.25
3. New Zealand Central Securities Depository Limited 5,020,992 6.62
4. Russell John Field & Anthony James Palmer (JI Urquart Family A/C) 2,000,000 2.63
5. JB Were (NZ) Nominees Limited 1,645,888 2.17
6. Forsyth Barr Custodians Limited (1-33 A/C) 1,062,795 1.40
7. Leveraged Equities Finance Limited 706,563 0.93
8. Jarden Custodians Limited 479,982 0.63
9. Jack William Allan & Helen Lynette Allan 450,000 0.59
10. FNZ Custodians Limited 403,790 0.53
11. Rosebery Holdings Limited 384,994 0.51
12. Forsyth Barr Custodians Limited 379,890 0.50
13. Kenneth William Wigley 373,709 0.49
14. Custodial Services Limited (4 A/C) 324,333 0.43
15. Michael Walter Daniel, Nigel Geoffrey Burton and Michael Murray Benjamin 290,000 0.38
16. Margaret Ann Ring & Melissa A Henderson 270,000 0.36
17. Opito Investments Pty Ltd 220,000 0.29
18. Investment Custodial Services Limited 218,691 0.29
19. Custodial Services Limited (3 A/C) 206,713 0.27
20. Harry McMillan Hearsay Salmon 200,000 0.26

58,614,932 77.22

Employee Remuneration

Remuneration and other benefits of $100,000 per annum or more, received or receivable by employees in their
capacity as employees were:

Salary Range Number of Employees Salary Range Number of Employees
$100,000 - $110,000 27 $210,001 - $220,000 1
$110,001 - $120,000 20 $220,001 - $230,000 2
$120,001 - $130,000 15 $230,001 - $240,000 5
$130,001 - $140,000 21 $240,001 - $250,000 1
$140,001 - $150,000 13 $250,001 - $260,000 1
$150,001 - $160,000 9 $270,001 - $280,000 1
$160,001 - $170,000 6 $320,001 - $330,000 1
$170,001 - $180,000 9 $340,001 - $350,000 1
$180,001 - $190,000 5 $350,001 - $360,000 1
$190,001 - $200,000 2 $360,001 - $370,000 1
$200,001 - $210,000 5 $370,001 - $380,000 1
$490,001 - $500,000 1

48
SCOTT TECHNOLOGY LIMITED
DIRECTORS’ INTERESTS
For the Year Ended 31 August 2018

Directors’ Shareholding as at 31 August 2018


Beneficially Owned Held by Associated
persons
Non-Beneficially Held ***
(Jointly)

2018 2017 2018 2017 2018 2017

C C Hopkins**** 55,964 54,526 5,612,297 5,609,410 17,779 17,779
S J McLauchlan 384,994 375,096 - - 17,779 17,779
J M Thorman - - - - - -
M B Waller* n/a 90,562 - - - -
C J Staynes** n/a 228,375 - - - -
A Nogueira - - - - 38,476,592 37,415,058
H B Eastwood - - - - 38,476,592 37,415,058
E Alvares - - - - 38,476,592 37,415,058
J K Berry (alternate) - - - 38,476,592 37,415,058

440,958 748,559 5,612,297 5,609,410



* Retired 30 April 2018

** Retired 30 November 2017

*** The non-beneficially held shares that are held jointly by C C Hopkins and S J McLauchlan are in their
capacity as trustees for the Scott Technology Employee Share Purchase Scheme. The non-beneficially
held shares that are jointly attributed to A Nogueira, H B Eastwood, E Alvares and J K Berry are in their
capacity as Directors representing JBS Australia Pty Limited.

**** 5,500,000 associated persons shares are in C C Hopkins’ capacity as a Director of Oakwood Group Limited

Directors’ Share Dealings

The details of disclosures by Directors of acquisitions or disposals of shares Directors held a relevant interest in
were:


Number of Shares
Acquired/(Disposed)
Date
Consideration Paid
$’000s
C C Hopkins (beneficially) 836 28 Nov 2017 3
C C Hopkins (beneficially) 602 24 April 2018 2
C C Hopkins (associated person) 1,678 28 Nov 2017 6
C C Hopkins (associated person) 1,209 24 April 2018 4
S J McLauchlan (beneficially) 5,751 28 Nov 2017 21
S J McLauchlan (beneficially) 4,147 24 April 2018 14

The above share acquisitions were all in relation to the dividend reinvestment plan.

Use of Company Information

There were no notices from Directors regarding the use of Company information.

49
SCOTT TECHNOLOGY LIMITED
DIRECTORS’ INTERESTS
For the Year Ended 31 August 2018

Disclosures of Interest by Directors
The following are general disclosures of interest given by Directors of the company under section 140 of the
Companies Act 1993:

S J McLauchlan

Chairman Analogue Digital Instruments Group
Chairman BPAC Clinical Solutions Management
Ltd
Chairman Compass Agribusiness Management
Ltd
Chairman Dunedin International Airport Ltd
Chairman Otago Community Hospice
Chairman UDC Finance Limited
Chairman University of Otago Foundation
Studies Ltd
Chairman Woodworks Southern Ltd
Partner/
Director GS McLauchlan & Co Ltd
Director Argosy Property Ltd
Director Cargill Hotel 2002 Ltd
Director Dunedin Casinos Ltd
Director Dunedin City Council Subsidiaries
Director Extra Eight Ltd
Director Ngai Tahu Tourism Ltd
Director Openwave Systems (New Zealand)
Ltd
Director QMT Machinery Technology
(Qingdao) Co Ltd
Director Scenic Circle Hotels & Subsidiaries
Director Scott Technology NZ Ltd
Board Member Otago Southland Employers
Association
Board Member NZ On Air
Trustee Scott Technology Employee Share
Purchase Scheme

H B Eastwood

Chief Executive
& Director JBS Australia Pty Ltd and
Associated Companies
Director Afoofa Development Pty Ltd
Director Andrews Meat Industries Pty Ltd
Director Enunga Enterprises Pty Ltd
Director JBS Holdings Hong Kong Co Ltd
Director Premier Beehive NZ
Director Primo Moraitis Fresh Pty Ltd
Director SPM Fresh 2013 Pty Ltd
Director SPM Fresh Holdings Pty Ltd
Member Business Council of Australia


A Nogueira

Chief Executive JBS USA
Director Cattle Production Systems Inc
Director Gold’N Plump Farms, LLC
Director Gold’N Plump Poultry, LLC
Director JBS Canada Partners, Inc
Director JBS Carriers, Inc
Director JBS Foods Canada, ULC
Director JBS Finco, Inc
Director JBS Green Bay, Inc
Director JBS Live Pork, LLC
Director JBS Packerland, Inc
Director JBS Plainwell, Inc
Director JBS Souderton, Inc
Director JBS Tolleson, Inc
Director JBS USA Finance, Inc
Director JBS USA Food Company
Director JBS USA Food Company Holdings
Director JBS USA Leather, Inc
Director JFC LLC
Director Miller Bros Co, Inc
Director Mopac of Virginia, Inc
Director Pilgrim’s Pride Corporation
Director Pilgrim’s Pride, LLC
Director Poppsa 3, LLC
Director Poppsa 4, LLC
Director S&C Resale Company
Director Sampco, LLC
Director Sampco Holdings, LLC
Director Skippack Creek Corporation
Director Swift & Company International Sales
Corporation
Director Swift Beef Company
Director Swift Brands Company
Director Swift Pork Company
Director JBS Food Canada ULC
Director TO-RICOS Distribution Ltd
Director TO-RICOS Ltd
Director North American Meat Institute
Member Rabobank’s North American
Agribusiness Advisory Board


E Alvares

Director JBS Australia Pty Ltd & Associated
Companies
Director Andrews Meat Industries Pty Ltd
Director JBS (Bejing) Co Ltd
Director JBS Holdings Hong Kong Co Ltd
Director Premier Beehive NZ

50
SCOTT TECHNOLOGY LIMITED
DIRECTORS’ INTERESTS
For the Year Ended 31 August 2018


C C Hopkins

Chairman Dunedin Engineering Inc
Chairman Robotic Technologies Ltd
Chairman NS Innovations Pty Ltd
Director Alvey Manex a.s
Director Alvey NV
Director Alvey Samovie sasu
Director Alvey Systems & Services Ltd
Director Applied Sorting Technologies Pty Ltd
Director City Forests Ltd
Director FLS Group bvba
Director FLS Systems NV
Director Oakwood Group Ltd
Director QMT General Partner Ltd
Director QMT Machinery Technology
(Qingdao) Co Ltd
Director Rocklabs Ltd
Director Rocklabs Automation Canada Ltd
Director Scott Automation Ltd
Director Scott Automation & Robotics Pty Ltd
Director Scott LED Ltd
Director Scott Separation Technology Ltd
Director Scott Systems International Inc
Director Scott Systems (Qingdao) Co Ltd
Director Scott Technology Americas Ltd
Director Scott Technology Australia Pty Ltd
Director Scott Technology Belgium bvba
Director Scott Technology Euro Ltd
Director Scott Technology Europe Ltd
Director Scott Technology NZ Ltd
Director Scott Technology USA Ltd
Trustee Scott Technology Employee Share
Purchase Scheme
Shareholder Penfold Transmission Ltd




J M Thorman

Director Attenti New Zealand Ltd
Director AVC Title Queenstown Ltd
Director Envision Energy (New Zealand) Ltd
Director EWNZ Ltd
Director Halo Business Intelligence Ltd
Director Haumi Company Ltd
Director Haumi Development Auckland Ltd
Director Hikvision New Zealand Ltd
Director Hoffend International General Partner Ltd
Director International Paper (New Zealand) Ltd
Director Kiri General Partner Ltd
Director LPI Marketing Ltd
Director Oceanbeach Capital Ltd
Director Openbet New Zealand Ltd
Director Ora New Zealand Ltd
Director Orbcomm New Zealand Ltd
Director TBM Finance Ltd
Director Thorman Holdings Ltd
Director TMF Corporate Services New Zealand Ltd
Director TMF Fiduciaries New Zealand Ltd
Director TMF General Partner Ltd
Director TMF Trustees New Zealand Ltd
Director Travel Helpline Ltd
Director Vega Industries Ltd


J K Berry (alternate for A Nogueira, H B Eastwood & E
Alvares)

Chairman Australian Meat Processor Corporation
Director JBS Australia Pty Ltd & Associated
Companies
Director Andrews Meat Industries Pty Ltd
Director Premier Beehive NZ

51
SCOTT TECHNOLOGY LIMITED
DIRECTORS’ INTERESTS
For the Year Ended 31 August 2018

Remuneration of Directors

During the year ended 31 August 2018, the total remuneration and other benefits attributed to the Directors of the
Company were as follows:




Directors’
Fees
$’000s



Directors’
Salary
$’000s

Other
Remuneration
& Benefits
(Short Term)
$’000s

Other
Remuneration
& Benefits
(Long Term)
$’000s

C C Hopkins* - 377 230 268
S J McLauchlan 125 - - -
J M Thorman 23 - - -
M B Waller*** 41 - - -
C J Staynes*** 19 - - -
A Nogueira** - - - -
H B Eastwood** - - - -
E Alvares** - - - -
J K Berry (alternate)** - - - -

* Denotes an Executive Director who receives a salary.
** Remuneration and meeting costs of Directors representing JBS Australia Pty Limited are paid directly by the
JBS Group of Companies.
*** Up to retirement: C J Staynes, 30 November 2017; M B Waller, 30 April 2018.

Directors’ Indemnity & Insurance

The Company has made insurance arrangements covering risks arising out of acts or omissions of Directors and
officers in their capacity as such.

Gender Composition

The gender composition of the Directors, Officers and Senior Management of the Company as at 31 August was:

2018
Male
2018
Female
2017
Male
2017
Female

Directors (excluding alternate) 6 - 7 -
Executive Officers 3 3 8 2
Senior Management 11 1 9 3

20 4 24 5

Donations

The Company made donations of $5,000 during the year (2017: Less than $1,000).

Independent Auditor’s Report
To the Shareholders of Scott Technology Limited
Opinion We have audited the consolidated financial statements of Scott Technology Limited and its
subsidiaries (the ‘Group’), which comprise the consolidated balance sheet as at 31 August
2018, and the consolidated statement of comprehensive income, statement of changes in
equity and statement of cash flows for the year then ended, and notes to the consolidated
financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements, on pages 3 to 46,
present fairly, in all material respects, the consolidated financial position of the Group as
at 31 August 2018, and its consolidated financial performance and cash flows for the year
then ended in accordance with New Zealand Equivalents to International Financial
Reporting Standards (‘NZ IFRS’) and International Financial Reporting Standards (‘IFRS’).
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’)
and International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing
and Assurance Standards Board and the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
Our firm carries out other assignments for the Group in the area of taxation advice, due
diligence services and other assurance services. These services have not impaired our
independence as auditor of the Company and Group. In addition to this, partners and
employees of our firm deal with the Company and its subsidiaries on normal terms within
the ordinary course of trading activities of the business of the Company and its
subsidiaries. The firm has no other relationship with, or interest in, the Company or any of
its subsidiaries.
Audit materiality


We consider materiality primarily in terms of the magnitude of misstatement in the
financial statements of the Group that in our judgement would make it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced
(the ‘quantitative’ materiality). In addition, we also assess whether other matters that
come to our attention during the audit would in our judgement change or influence the
decisions of such a person (the ‘qualitative’ materiality). We use materiality both in
planning the scope of our audit work and in evaluating the results of our work.
We determined materiality for the Group financial statements as a whole to be $750,000.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated financial statements of the current period.
These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.


52

Key audit matter How our audit addressed the key audit matter
Recognition of Profit on Long Term Projects
The Group’s most significant revenue stream relates to long
term projects for customers in various industries. Revenue
and profit on long term projects are accounted for based on
management’s estimate of the percentage of completion of
the individual contracts as detailed in note A1.
There is a significant level of judgement involved in the
recognition of revenue and profit on long term projects
driven by factors which arise throughout the life of the
project requiring estimation, and contract conditions
differing between projects. For these reasons, we have
identified this area as a key audit matter.
Our procedures included, among others:
 Assessment of controls – Assessing the group’s
processes and controls around preparation/calculation
of the percentage of completion.

 Hindsight consideration – For a sample of projects
in place at the end of the prior year, we compared the
current year actual results to prior year forecasts to
assess the reliability of management estimates
relating to the cost of completion.

 Testing of contract revenue – For a sample of
contracts, we performed the following procedures:
- Assessed whether the key estimates made by
management reflect the terms and conditions of the
contract;
- Evaluated cost to complete forecasts by challenging
management’s key assumptions and comparing
revenue recognition calculations to project cost
forecasts prepared by project managers;
- Obtained evidence of scope variations and claims
and verified that these have not been included in
management’s determination of revenue recognition
until agreed with the customer; and
- Tested contract costs incurred during the year to
validate the costs and assess whether they have
been applied to contracts appropriately.
Goodwill Impairment Assessment
As at 31 August 2018, there is $53.8 million (including
goodwill in respect of the current year acquisitions which is
addressed below) (2017: $30 million) of goodwill included
on the balance sheet of the Group as detailed in note B5.
The balance is held across three cash generating units.
NZ IAS 36: Impairment of Assets require the Group to
complete an impairment test related to goodwill annually.
The assessment of value in use is performed using a
discounted cash flow calculation.
This calculation is subjective, and requires the use of
judgement, primarily in respect of:
 Forecast cash flows, particularly in relation to future
project wins and market conditions; and
 Discount rates.
We have assessed a key audit matter in relation to the
significant judgements and estimates required in preparing
the value in use model.







We considered whether the Group’s methodology for
assessing impairment is compliant with NZ IAS 36. We
focused on testing and challenging the suitability of the
models and reasonableness of the assumptions used by the
Group in conducting their impairment reviews.
Our procedures included, among others:
 Assessment of controls – Assessing the group’s
processes and controls around the value in use
calculation.

 Cash generating units (CGU) – We assessed
management’s determination of cash generating units
and our understanding of the Group’s business and
operating environment.

 Past performance – We assessed the
reasonableness of forecast figures by looking at
historical performance against past forecasts.

 Use of specialists – We used our internal valuation
experts to assist in our evaluation of the
reasonableness of the discount rates applied by the
Group through consideration of the relevant risk
factors for each CGU or impairment model, the cost of
capital for the Group, and market data on comparable
businesses.

 Integrity check – We assessed the mathematical
accuracy of the models.

 Sensitivity analysis –We evaluated the sensitivity
analysis performed by management to consider the
extent to which a change in one or more of the key
assumptions could give rise to impairment in the
goodwill.

53

Key audit matter How our audit addressed the key audit matter
Acquisition Accounting
As detailed in note E1, the Group acquired 100% of the
shares in a variety of companies comprising Alvey Group
(“Alvey”) and the business of Transbotics Corporation
(“Transbotics”) for a total consideration of NZD $24.2 million
between April 2018 and May 2018. Due to the timing of the
acquisitions, the acquisition balance sheets were assessed
on a provisional basis.
Accounting for these acquisitions involved judgement in
order to:
 Measure the provisional fair value of assets and
liabilities recorded in the financial records of the
entities acquired;
 Identify and measure the provisional fair value of
intangible assets not recorded in the financial
records of the entities acquired; and
 Allocate the purchase price between all the
identifiable assets and liabilities, and goodwill.
We included the Alvey and Transbotics acquisitions as a key
audit matter given the level of estimation and judgement
required in identifying and establishing the fair values.
In particular, there is significant judgement relating to
identifying the fair value of unrecognised intangible assets.
The acquisition accounting resulted in the recognition of
finite life intangible assets, comprising intellectual property
provisionally valued at $4.8 million, and $23.8 million of
goodwill.
The intellectual property has been valued using the the relief
from royalty method. The key assumptions applied in the
model were:
 cashflow projections;
 discount rate;
 royalty rate; and
 terminal growth rate.

Our procedures included, amongst others:
 Considering the completeness of the identified assets
and liabilities acquired by comparison to the sale and
purchase agreement, through discussions with the
Group and internal experts, and based on our
understanding of the acquired business;
 Utilising industry knowledge to assess the Group’s
identification of intangible assets and consider what the
residual goodwill represents;
 Assessing the Group’s determinations of provisional fair
values for assets and liabilities acquired and the
methods used to value the underlying assets; and
 Challenging the rationale for allocation of goodwill to
CGU’s or groups of CGU’s and evaluating the Group’s
assessment that there is no impairment of goodwill by
comparing the forecast results included in their
impairment models to the due diligence reports and
group budgets.

We used our internal valuation specialists to assess the
appropriateness of the nature and provisional valuation of
the intellectual property identified by the Group as part of
the acquisitions. This assessment included:

 evaluating the appropriateness of the valuation
methodology and testing the mathematical integrity of
the model;
 evaluating the discount rate applied in the model
through comparison to the cost of capital for the
business and to external market data; and
 comparing the Group’s assumed royalty rate charge to
market data for similar intangible assets.


Other information

The directors are responsible on behalf of the Group for the other information. The other
information comprises the information in the Financial Report that accompanies the
consolidated financial statements and the audit report, and the Annual Report, which is
expected to be made available to us after the date of the audit report.
Our opinion on the consolidated financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and consider whether it is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If so, we are required to report that
fact. We have nothing to report in this regard.
When we read the Annual Report, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and consider further
appropriate actions.
Directors’ responsibilities for
the consolidated financial
statements
The directors are responsible on behalf of the Group for the preparation and fair
presentation of the consolidated financial statements in accordance with NZ IFRS and
IFRS, and for such internal control as the directors determine is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible on behalf
of the Group for assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of

54