SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — AGM Information 2020

Nov 23, 2020

AGM 2020

Managing Director’s Presentation Graeme Dunn – CEO/Managing Director

24 November 2020

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Rio Tinto Gudai-Darri award

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SCEE awarded over $65m of electrical and instrumentation works at Rio Tinto’s Gudai-Darri iron ore mine (formerly known as Koodaideri) in the Pilbara region of Western Australia

• The $2.6bn Gudai-Darri project will be Rio Tinto’s most technologically advanced mine site and will have an annual capacity of 43 million tonnes of iron ore once completed

• SCEE will perform the plant electrical and instrumentation works at the mine as part of the Gudai-Darri Phase 1 Project

• Mobilising late 2020 with completion of SCEE’s scope planned for December 2021

• Continues SCEE’s long standing relationship with Rio Tinto and follows many successful projects together in the Pilbara

• Provides a solid base of resources construction work into FY22

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Annual General Meeting 2020

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Trivantage acquisition

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Ac uisition overview q

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• SCEE has entered into a Share Purchase Agreement to acquire 100% of Trivantage Holdings Pty Ltd from the current shareholders of Trivantage for an enterprise value of up to $53.5m on a debt free basis, comprising:  $25.0m cash payable on completion, expected to be mid-December 2020

• Following confirmation that Trivantage’s FY21 EBIT is equal to or greater than $10.1m: • $10.0m in cash; and

• • $5.5m in SCEE shares

• $8.0m in additional cash, payable following FY22 and FY23 results, contingent on EBIT of at least $10.1m being achieved

• Up to $5m in additional cash, payable following FY22 to FY23 results, contingent on financial

• Acquisition of outperformance¹ 

• Trivantage The acquisition consideration represents EBIT multiples of (based on the current FY21 forecast EBIT of $10.8m):

  • 3.8x FY21F EV/EBIT assuming achievement of Trivantage FY21 EBIT of at least $10.1m and before potential additional payments in FY22 and FY23;

• 4.5x FY21F EV/EBIT assuming Trivantage maintains EBIT of at least $10.1m in each of FY22 and FY23; and

• 3.7x FY23F EV/EBIT assuming Trivantage achieves earnings in FY22 and FY23 sufficient to receive full portion of outperformance earn-out consideration

• Current management vendors of Trivantage to remain with the business under SCEE ownership  Trivantage Chairman (and significant shareholder of Trivantage), Paul Chisholm, to be invited to join the SCEE Board

(1) Refer Appendix for detailed transaction terms.

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Acquisition overview (continued)

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			Trivantage is a specialised electrical services company with over 50 years of operational experience providing
			complex electrical solutions across Australia
			Trivantage is primarily a services oriented business characterised by a strong degree of recurring and
			maintenance work
Overview of			Operates via three specialist divisions - S.J. Electric (electrical services to commercial and retail markets), SEME
Trivantage			Solutions (electronic security services) and Trivantage Manufacturing (switchboard design and manufacture)
			In FY20 Trivantage had an audited statutory revenue of $116m and profit before tax of $8.2m
			Trivantage is forecasting to achieve FY21 revenue of circa $130m and normalised EBIT of $10.8m
			Headquartered in Melbourne, Trivantage has around 400 employees/sub-contractors Australia-wide with
			offices in Victoria, Western Australia, Queensland, New South Wales, South Australia and Tasmania
			Balanced revenue streams across sectors and geographies1:
			Commercial is 45% of FY21 proforma revenue, Resources 30%, and Infrastructure 25%
Combined Group profile			45% of FY21 proforma revenues generated from NSW & ACT, 30% from WA, 15% from Queensland & NT and 10% from Victoria 68% of FY21 proforma revenues from construction and 32% is recurring, services & maintenance
			Significantly enhanced scale with combined order book (as at 30 June 2020) over $500m and pro-forma FY21
			budgeted revenue of circa $500m1
Transaction funding and financial impact		  	Cash payments to the vendors of Trivantage will be funded through SCEE’s existing cash reserves Following completion, SCEE will maintain a strong balance sheet Strong double digit pro-forma EPS accretion in FY21F

(1) Based on FY21 proforma budgeted revenue

Annual General Meeting 2020

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Acquisition consistent with SCEE’s strategy

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Over the past four years, SCEE implemented a strategy to diversify into commercial, infrastructure, defence, telecommunications, industrial, energy and utilities work across Australia

This strategy was significantly progressed via the successful acquisitions of Heyday and Datatel and also through SCEE’s organic diversification initiatives. A further part of the strategy has been to focus on increasing the level of recurring, services and maintenance work to enhance the consistency of earnings

The acquisition of Trivantage represents significant further steps in the successful execution of this strategy:

• Further end market diversification - through exposure to the resilient supermarket sector and a greater presence in Victoria and Queensland

• Increasing recurring, services and maintenance revenue streams - circa 75% of Trivantage’s revenues are derived from existing relationships as an approved contractor/preferred supplier

• Diversifies group capabilities - with sharing of best practices between business units and potential synergies

• Further cross-selling opportunities - particularly with the addition of high-quality switchboard design and manufacturing capability

Annual General Meeting 2020

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Transaction hi hli hts and strate ic rationale g g g

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The acquisition of Trivantage is consistent with SCEE’s strategy and will deliver significant benefits for shareholders including:

• Aligned operating model – strategically aligned business model and complementary focus on electrical services

• Recurring service and maintenance – provides SCEE with greater exposure to recurring service and maintenance work

• Diversification benefits – further diversification across sectors, customers and geographies delivering deepening exposure to commercial and social infrastructure markets

• Cross-selling opportunities – potential synergies and opportunity to further leverage the combined group’s customer relationships and skills. Additionally, Trivantage’s in-house high-quality switchboard manufacturing capability provides an opportunity to recapture margin and provide an increasingly integrated offering

• Enhanced scale and relevance – significantly enhanced scale and geographic coverage with combined pro-forma FY21F revenue of circa $500m

• Highly experienced management team and an excellent cultural fit – strong incentive structure and ongoing alignment underpinned by earn-out acquisition structure

• Financial benefits – immediate and significant pro-forma EPS accretion

Annual General Meeting 2020

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Overview of Trivantage

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Overview of Trivantage

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Trivantage is a leading specialised electrical services provider with an over 50 year track record and longstanding relationships with a range of blue chip clients across multiple sectors

Business Overview

Geographic Footprint[(1)]

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• Trivantage is a Victorian headquartered provider of specialised electrical services across a range of sectors

• The origins of the business span back over 50 years, over which time Trivantage has developed a strong reputation for delivering value-add services under an integrated solution

• Trivantage operates under three divisions:

• ⁻ S.J. Electric : leading provider of electrical services solutions to the commercial and retail sector

• ⁻ SEME Solutions : provider of electronic security access across the law enforcement, custodial, industrial, resources and health sectors

• ⁻ Trivantage Manufacturing : leading manufacturer of premium quality switchboards to a range of end users

• The group employs circa 400 full-time employees/sub-contractors including tradespeople, engineers, project managers, apprentices, estimators and executive management

• Trivantage has a highly experienced management team with an average tenure of circa 20 years with the business. The team is led by Russell Stanley who has over 40 years experience in the business and has a deep knowledge of the sectors in which Trivantage operates

• Trivantage is currently expected to generate revenues of around $130m and normalised EBIT of $10.8m in FY21

Key Office Locations

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----- Start of picture text -----

FY20 Revenue
FTEs
Mackay
$39m
125
Brisbane
$23m
69 $5m
21
Perth $14m
42
Sydney
Adelaide
Head Office : Melbourne
$33m
123
$1m
5
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• (1) Employees as at June 2020. Victoria includes 14 staff allocated to shared services and head office.

Annual General Meeting 2020

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Divisional overview and capabilities

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Trivantage provides a diverse range of high-value electrical services including electrical construction, maintenance and manufacturing and installation of specialist switchboards across three divisions

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Electrical Construction and Maintenance Electronic Security and Access Systems Switchboards
Division
 Installation of electrical infrastructure and commercial  Installation and maintenance of access control,  In-house switchboard manufacturing facilities to
perimeter detection, CCTV, duress and intercom develop and deliver premium quality custom made
refrigeration
Services  Complete service solutions including prioritised break-  systemsProject management with complete turnkey solutions  switchboards and kiosk substationsManages all design, sheet-metal, powder-coating and
down, preventative maintenance, comprehensive
for specialist services, with a team on standby to assembly work in-house under strict quality control,
maintenance and small ad-hoc projects
dispatch technicians 24 hours, 7 days a week ensuring production standards and deadlines are met
Sectors / Clients  management providersLeading Australian supermarkets, retailers and facilities  Law enforcement, custodial, industrial, resources and healthcare  Infrastructure, supermarkets and utilities
Client Snapshot
49% 21% 30%
FY20 Revenue
Contribution
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Strong management team

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Trivantage is run by a highly experienced and senior management team, many of whom have longstanding ties to the business and will remain with the business following acquisition

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Russell Stanley CEO

• Group CEO and has been Executive Director of S.J. Electric since 2015

• Appointed as Director of Trivantage Group in 2008 after being part of the Board of Directors of S.J. Electric Australia since 2001

• Was previously Managing Director of its QLD operations (19842001), NSW operations (1990-2001) and WA operations (19942001)

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Ben Weston

CFO

• Appointed to the role in October 2014 after holding the position of Financial Controller since joining in 2011

• Evolved Trivantage’s finance function by implementing better risk management practices and introducing cost saving initiatives led by a centralisation of shared services

• Previously a Manager at KPMG (circa 6 years tenure) and is a Chartered Accountant

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Dragan Jancic

Divisional General Manager – SEME Solutions

• Appointed to the role in May 2017

• Experience in leading the execution of sales and operations teams nationally with previous roles at Vitalcare (Sales & Marketing Director) and Ascom Australia (National Sales Manager)

• Extensive industry experience in wireless communications, intercom systems and health technology

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Denis Jackson

Divisional General Manager – Trivantage Manufacturing

• Appointed to the role in July 2016

• Extensive manufacturing experience in low and medium voltage markets holding previous General Manager roles at LAI Switchboards Australia and PSG Manufacturing

• Maintains a large national customer network with suppliers, electrical consultants and end-users

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Paul Stanley

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Divisional General Manager – S.J. Electric

• 39 years with S.J. Electric and has led the Commercial Refrigeration sector for 15 years

• Responsible for QLD operations since 2013 and continues to manage the Commercial Refrigeration sector nationally

• Recognised industry leader in the Electrical Refrigeration industry with significant long-term relationships

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John Dover

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Group Commercial Manager

• Experienced commercial manager and professional in construction law with over 20 years experience in the construction industry

• Involved in executive level advice and decision making

• Holds a Masters in Commercial Law and Graduate diploma in Construction Law

Annual General Meeting 2020

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Diversified business mix with service focus

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Trivantage has strong technical capabilities in delivering business critical services across a range of markets including supermarkets, custodial, datacentres, healthcare and municipal services

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FY20 Revenue by End Markets
Health & Aged Care
4% Telco & Data Centres
Public Infra & Defence 3%  Diversified end market
6%
exposure
Custodial
6%  Retail sector represents
the largest end market
Industrial, Energy
& Utilities (over 60% of revenue)
7% which is underpinned by
Retail
Resources 63% longstanding
11% relationships with core
customers such as Coles
and Woolworths
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FY20 Revenue by Capability

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Security Maintenance Switchboard
5%
Manufacturing
Security
27%
Installation
17%
Refrigeration
16%
Electrical
Electrical Infrastructure
Maintenance 20%
15%
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• Strong diversification across services lines

• Switchboard manufacturing represents the largest contributor of revenue, followed by electrical infrastructure

FY20 Revenue by Geography

FY20 Revenue by Type

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SA TAS
4% 1%
NSW QLD
12% 34%
WA
20%
VIC
29%
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• National presence

• VIC and QLD represent the largest states and contribute over 60% of revenue

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Construction
26%
Recurring,
services &
maintenance
74%
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Strong market fundamentals

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Australia’s largest supermarkets continue to invest in their store networks, with spend on new stores and refurbishments being relatively stable over the past 3 years. As a leading provider to this sector, Trivantage is well placed to benefit from ongoing investment which is expected to remain strong

Supermarket store network

Commentary

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Coles
835 839 843
821 824
809
801
787
776
762
756
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21F FY22F FY23F
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• Capital investment is expected to remain strong in the near term, with Coles in particular increasing its spend following a period of underinvestment during its ownership by Wesfarmers

• Woolworths has invested heavily in IT and store renewals after launching its Renewal & Upgrade program in late 2015 which is expected to continue through to FY21. Whilst Woolworths’ pace of renewals is now moderating, the business is still targeting 60-80 store refurbishments per year in the medium term

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Woolworths
1,082
1,072
1,062
1,052
1,024
1,008
992 995
961
931
897
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21F FY22F FY23F
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 Both Coles and Woolworths are also investing strongly in new store formats/fit out options to address evolving consumer demands and particularly with respect to fresh food offerings, which will continue to drive spend in the sector

• Trivantage’s forecast earnings derived from Woolworths and Coles is expected to be underpinned by consistent and robust mediumterm capital spend targets

Source: Broker Research, Company Filings.

Annual General Meeting 2020

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Combined Group profile

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Increased diversification

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A combination of SCEE and Trivantage will create a more balanced and diversified electrical contractor with greater exposure to recurring service and maintenance work and an enhanced national footprint

FY20 SCEE stand-alone FY21 Proforma Budget Combined Group

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Resources
11%
Resources
30%
Commercial Commercial
42% 45%
Infrastructure Infrastructure
47% 25%
SA VIC & TAS VIC & TAS
QLD & NT 0% 1% SA 8%
10% 1%
QLD & NT
16%
WA
17%
NSW & ACT
44%
WA
NSW & ACT 31%
72%
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Revenue by Sector
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SA VIC & TAS
QLD & NT 0% 1%
10%
WA
17%
NSW & ACT
72%
Revenue by State
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Recurring, services and maintenance work

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The transaction presents a transformational change in the breadth and depth of the Group’s recurring, services and maintenance offerings

FY20 SCEE stand-alone revenue

FY21 Proforma Budget Combined Group

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Recurring, Services & Recurring, Services &
Maintenance Mainenance
18% 32%
Construction
Construction
82%
68%
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• Acquisition substantially increases SCEE’s exposure to recurring and service & maintenance style work, providing greater forecast revenue visibility

• Opportunity to consolidate SCEE’s existing service and maintenance offering into Trivantage, creating a national and multi-sector services platform

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Synergies and cross-selling opportunities

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The transaction is likely to generate strong synergies and cross-selling opportunities, examples of which are outlined below

• Opportunity to supply Trivantage switchboards across the SCEE, Datatel and Heyday businesses

• Potential to offer widened scopes in retail sector

• Potential to offer Trivantage security and access control systems into commercial projects

• Cross-selling opportunities across existing Datatel government and educational customer base

• Opportunities for Datatel to deliver fibre related works currently subcontracted out by Trivantage

• Knowledge sharing across combined group in business development and estimation

• Overhead savings through combining back office functions

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Questions?

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Appendix

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Detailed transaction terms

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• Acquisition of 100% of Trivantage Holdings Pty Ltd

Acquisition

• Due diligence finalised

• Completion is expected to occur in mid-December 2020

Up to a total of $53.5m payable as follows and on a debt free basis:

1. Deal Completion Initial Cash Consideration

• $25.0m in cash at completion

2. FY21 Results Confirmation Payment

• Following confirmation that Trivantage FY21 EBIT is equal to or greater than $10.1m: a) $10.0m in cash; and

• b) $5.5m in SCEE shares (refer further details below)

If FY21 EBIT less than $10.1m elements 2(a) and 2(b) each reduced on a pro-rata basis to nil at EBIT of $4.0m. If FY21 EBIT greater than

• $10.1m then incremental EBIT above $10.1m added to FY22 EBIT for purpose of calculating FY22 earn-out consideration 3(a) below

Consideration

3. Earn-out: Deferred Consideration

• a) $4.0m in cash if Trivantage EBIT result for FY22 is equal to or greater than $10.1m

• b) $4.0m in cash if Trivantage EBIT result for FY23 is equal to or greater than $10.1m

To the extent that EBIT is below $10.1m in either FY22 or FY23, the Deferred Consideration payment in that year would be calculated based on the following formula reducing the payment to zero: $4.0m less 5 x ($10.1m less actual EBIT)

4. Earn-out: Outperformance Consideration

• a) Up to $1.7m of cash payable if Trivantage EBIT results for FY22 is equal to or greater than $11.4m. Reduced on a pro-rata basis down to nil at EBIT of $10.1m

• b) Up to $3.3m of cash payable if Trivantage EBIT results for FY23 is equal to or greater than $14.4m. Reduced on a pro-rata basis down to nil at EBIT of $10.1m

Terms of SCEE Share Issue

• SCEE shares issued under FY21 Results Confirmation Payment will be ordinary fully paid shares in SCEE

• Shares issued at the VWAP over the 10 trading day period commencing 5 trading days before announcement

• 50% of SCEE shares will be escrowed for 12 months from completion, and remaining 50% escrowed for 24 months from completion

Vendor Involvement

• Vendors that are currently executives of Trivantage will continue in their same executive roles with SCEE post-completion

• Paul Chisholm (significant shareholder and current Chairman of Trivantage) to be invited to join the SCEE Board

Condition Precedent

• Completion of the transaction is only conditional on there being no material adverse change in the period prior to completion

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Disclaimer

Some of the information contained in this presentation contains “forward-looking statements” which may not directly or exclusively relate to historical facts. These forward-looking statements reflect the current intentions, plans, expectations, assumptions and beliefs of Southern Cross Electrical Engineering Limited (“SCEE”) about future events and are subject to risks, uncertainties and other factors, many of which are outside the control of SCEE.

Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Because actual results could differ materially from SCEE's current intentions, plans, expectations, assumptions and beliefs about the future, you are urged to view all forward-looking statements contained in this presentation with caution and not to place undue reliance on them. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct.

SCEE does not undertake to update or revise any forwardlooking statement, whether as a result of new information, future events or otherwise. Past performance information

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given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

This presentation is for information purposes only. It is not financial product or investment advice or a recommendation, offer or invitation by SCEE or any other person to subscribe for or acquire SCEE shares or other securities. The presentation has been prepared without taking into account the objectives, financial situation or needs of the reader. Before making an investment decision, prospective investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and seek the appropriate professional advice.

Statements made in this presentation are made as at the date of the presentation unless otherwise stated. The information in this presentation is of a general background nature and does not purport to be complete. It should be read in conjunction with SCEE's other periodic and continuous disclosure announcements.

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