Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Annual report 30 June 2008

Directors’ report (including corporate governance statement and remuneration report)	3
Balance sheet	19
Statement of changes in equity	20
Income statement	21
Cash flow statement	22
Index to notes to the financial statements	23
Notes to the financial statements	24
Directors’ declaration	62
Independent auditor’s report	63
Lead auditor’s independence declaration	65
ASX additional information	66

Southern Cross Electrical Engineering Limited

Chairman’s Review

I am pleased to announce that, in its first year as a listed company, Southern Cross Electrical Engineering has exceeded prospectus earnings expectations by $2.1 million. On a proforma basis, the net profit after tax was $13.9 million which is the best result in the Company’s 30 years of operation. As a result, the Company declared total dividends for the year of 6.0 cents per share which is 20% better than the prospectus guidance. The Company’s reported net profit after tax of $11.3 million includes pre-tax IPO costs of $3.7 million.

During 2008, the Company generated revenue of $84.1 million from its Australian and overseas operations. The Australian minerals sector contributed revenue of $65.3 million with the remaining $18.9 million coming from international projects. Southern Cross Electrical Engineering has been involved in overseas projects for over 15 years and the international business unit continues to be an important part of the business having contributed 22% of the revenue for the year and 28% of the Company’s after tax earnings.

With net cash of over $24 million, the balance sheet is a key strength of the business and as a result, provides a strong foundation to invest in future growth opportunities.

We believe our success is largely driven by our reputation for completing a project safely, on time and at the highest level of quality. Our commitment in these areas was recognised during the year by the National Electrical Contractors Association with Southern Cross Electrical Engineering receiving both the national award for excellence in safety and the national award for excellence in quality.

As one of Australia’s leading large scale electrical and instrumentation installation contractors, the demand for our services has never been stronger. This is evident with a record $70 million of revenue contracted at the start of the 2009 financial year representing a substantial start to achieving our targeted revenue of $120 million for 2009.

ABARE in their April 2008 report on major mineral and energy development projects estimated the value of advanced Australian mining and energy development projects over the medium term to be $70.5 billion. With projects valued at $53 billion, Western Australia is the major beneficiary of this investment with $25 billion and $28 billion split between the mining and energy sectors respectively.

Typically the electrical component on the major projects that we target is around 5% of the project value. Based on ABARE’s estimates for the Western Australian market, the value of the potential work that Southern Cross Electrical Engineering may tender on in coming years is around $2.6 billion.

In recent times, we have focussed on servicing the mining sector. In the prospectus released in October 2007, we flagged a return to the energy sector as a potential key growth market. This market provides a compelling growth opportunity for the Company given the level of investment being made in this sector. Over the coming years we look forward to this segment becoming a significant contributor for the Company.

Entry into the energy sector is, however, not a simple process and requires accreditation specific to this industry. This was identified early in developing this growth strategy and we now have a fully accredited team. To assist with the future accreditation of additional people in the energy sector we have developed the ability to complete this accreditation in-house.

Since listing the Company we have added a number of key people to compliment our already strong management team. Amongst these people are Stephen Pearce who was appointed as the Managing Director and Stephen Fewster who was appointed as the Chief Financial Officer. The combination of their public company experience and Simon Buchhorn as Chief Operating Officer with 26 years experience with Southern Cross Electrical Engineering creates a strong executive team to grow the business.

In a year where the capital markets have been volatile and punished those companies that have not delivered on their promises it is satisfying to know that the Company generated a total shareholder return of 28% on its initial public offering (“IPO”) price for the period to 30 June 2008. Furthermore, the Company’s shares have not traded below the IPO price.

The ultimate success of the business to date has been driven by the loyal team at Southern Cross Electrical Engineering. Over the years we have brought together a very talented team and I would like to thank them for their contribution. They delivered a great result in 2008 and have positioned the business well to take advantage of a strong future pipeline of opportunities.

Gianfranco Tomasi Chairman

Southern Cross Electrical Engineering Limited

Directors’ report

For the year ended 30 June 2008

Your directors submit their report for the year ended 30 June 2008.

Directors

The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Name, qualifications and Experience, special responsibilities and other directorships independence status

Gianfranco Tomasi	Frank has over 40 years experience in the electrical construction industry.
Chairperson	Frank has been the owner and Chairman of SCEE since 1978. Prior to SCEE, he worked at Transfield
Non-Executive Director	(WA) Pty Ltd from 1968 – 1978, serving as the National Electrical Manager from 1971 – 1978.
	Frank holds an Electrical Engineering Certificate (NSW).
Stephen Pearce	Stephen brings over twenty years experience in senior management roles in the mining, oil and gas
Managing Director	and utilities industries. He previously held the position of Chief Financial Officer (“CFO”) with Alinta Limited, an A$8 bn energy and utility company based in Perth, Western Australia.
	Stephen has been a director of the following listed company over the last three years:
	Amadeus Energy Limited (July 2008 to present)
Brian Carman	Brian commenced work with SCEE in 1981 as a contracts manager and progressed to Managing
Non-Executive Director	Director. He held this position through to his retirement in August 2007.
	Brian has over 35 years experience in the electrical construction industry having served in senior
	positions with Mt Newman Mining Company, Soake Electrical and Transel Pty Ltd.
	Brian is a member of the Audit and Risk Committee and is the Chairman of the Remuneration and
	Nomination Committee.
John Cooper B.Sc (Building),	John has over 30 years engineering and construction experience in Australia and overseas and has
FIE Aust, FAICD	provided consultancy services for a number of years to the major projects industry.
Independent Non-Executive	John recently served as Australian Chief Executive of Murray & Roberts and was previously a
Director	Director and General Manager of Concrete Constructions Group.
	John is the Chairman of the Audit and Risk Committee and a member of the Remuneration and
	Nomination Committee.
	John has been a director of the following listed company over the last three years:
	Clough Limited August 2006 to present.
	Murray and Roberts International Limited January 2008 to present.
Douglas Fargher BE	Douglas has over 37 years experience in the construction and mining industry in Australia and
(Mechanical), MIE Aust, CP	overseas.
Eng	Douglas has served in a range of senior maintenance and operating roles in underground and open cut
Independent Non-Executive	and was previously Project Manager with Rio Tinto, specialising in construction of new and brown
Director	field projects including Dampier Port Upgrade.
	Douglas is a member of the Audit and Risk Committee and the Remuneration and Nomination
	Committee.

Name, qualifications and independence status

David Lawrence Tomasi

Experience, special responsibilities and other directorships

David resigned as a director of the Company on 30[th] October 2007.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Company Secretary

Stephen Fewster B.Comm, C.A, SA Fin

Stephen Fewster was appointed to the position of company secretary in March 2008. Stephen is a chartered accountant and was previously the Company Secretary for iiNet Limited.

Interests in the shares and options of the company and related bodies corporate

As at the date of this report, the interests of the directors in the shares and options of Southern Cross Electrical Limited were:

Director	Number of ordinary shares	Number of options over ordinary shares
Gianfranco Tomasi#	61,200,000	-
Stephen Pearce*	-	-
Brian Carman	1,500,000	-
John Cooper	100,000	-
Douglas Fargher	100,000	-

Directors’ Meetings

The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are:

Director	Board Meetings	Audit and Risk Committee Meetings	Remuneration and Nomination Committee Meetings
Number of meetings held:	7	1	1
Number of meetings attended:
Gianfranco Tomasi#	7	-	-
Stephen Pearce*	-	-	-
Brian Carman	7	1	1
John Cooper	7	1	1
Douglas Fargher	7	1	1

Gianfranco Tomasi is not a member of the Audit and Risk Committee and the Remuneration and Nomination Committee. As the Board Chairman, Mr Tomasi has a standing invitation to attend committee meetings.

Stephen Pearce did not attend any of the directors’ meetings held during the financial year due to his appointment being made on 18[th] August 2008.

Dividends

	Cents	2007
Declared and paid during the period (fully franked at 30%)
Interim franked dividend for 2008 paid to members prior to listing	5.06	5,056,478
Interim franked dividend for 2008 paid to members prior to listing	2.30	2,300,000
Interim franked dividend for 2008 paid to members subsequent to
listing	2.00	2,400,000
Proposed and not recognised as a liability (fully franked at 30%)
Final franked dividend for 2008	4.00	4,800,000

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Principal Activities

The principal activities during the year of the entities within the consolidated group was the provision of large scale specialised electrical, control and instrumentation installation and testing services for the resources, infrastructure and heavy industrial sectors. The group’s major projects were located in Western Australia and Peru.

Operating and Financial Review

A review of operations of the consolidated entity during the financial year, the results of those operations, the changes in the state of affairs and the likely developments in the operations of the consolidated entity are set out in the Chairman’s Report.

Operating results for the year were:	2008	2007
Revenue from services	84,173,883	81,055,817
Net profit after income tax	11,312,261	10,757,721

Significant Changes in the State of Affairs

Other than the following, there have been no significant changes in the state of affairs of the chief entity during this financial year.

In accordance with a resolution, the Company converted 750,002 ordinary shares into 100,000,000 ordinary shares.

On 26[th] November 2007, the Company issued 20,000,000 ordinary shares under the terms contained in its prospectus dated 30 October 2007. The Company’s ordinary shares began quotation on the Australian Stock Exchange on 28[th] November 2008.

Gianfranco Tomasi (1%) and David Tomasi (1%) sold their respective shares in Cruz Del Sur Ingeneria Electra (Peru) S.A. Limited to Southern Cross Electrical Engineering (WA) Pty Ltd at their historical cost. Southern Cross Electrical Engineering (WA) Pty Ltd was incorporated on 4 October 2007 and is a 100% subsidiary of Southern Cross Electrical Engineering Limited. Southern Cross Electrical Engineering Limited therefore, indirectly acquired the remaining 2% of Cruz Del Sur Ingeneria Electra (Peru) S.A. Limited during the year ended 30 June 2008.

Significant Events After Balance Date

On 25th August 2008, the directors of Southern Cross Electrical Engineering Limited declared a final dividend on ordinary shares in respect of the 2008 financial year. The total amount of the dividend is $4,800,000, which represents a fully franked dividend of 4.0 cents per share. This dividend has not been provided for in the 30 June 2008 Financial Statements.

Other than the above, there are no matters or circumstances that have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent financial years.

Likely Developments and Expected Results

Other than as referred to in this report, further information as to the likely developments in the operations of the consolidated entity would, in the opinion of the directors, be likely to result in unreasonable prejudice to the consolidated entity.

Environmental Regulation and Performance

The operations of the Group are not subject to environmental regulations.

Share Options

As at the date of this report, there were 1,000,000 unissued ordinary shares under options. Refer to the remuneration report for further details of the options outstanding.

Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Indemnification and Insurance of Directors and Officers

During or since the end of the financial year, the company has paid premiums in respect of a contract insuring all the directors of Southern Cross Electrical Engineering Limited against a liability incurred in their role as directors of the company, except where:

a) the liability arises out of conduct involving a wilful breach of duty; or
b) there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.

The total amount of insurance contract premiums paid was $8,382 (2007: $5,862).

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

Non-audit Services

The board of directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and
the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

During the year ended 30 June 2008 the non-audit services performed by the external auditors was due diligence investigations and were paid/payable $39,500 for this service.

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June 2008 has been received and can be found on page 65 of the directors’ report.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Remuneration report – audited

This Remuneration Report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also provides the remuneration disclosures required by paragraphs Aus 25.4 to Aus 25.7.2 of AASB 124 Related Party Disclosures, which have been transferred to the Remuneration Report in accordance with Corporations Regulation 2M.6.04. For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company and includes the five executives in the Parent and the Group receiving the highest remuneration.

For the purposes of this report, the term ‘executive’ encompasses the Chief Executive, senior executives, general managers and secretaries of the Parent and the Group.

Remuneration and Nomination Committee

The Remuneration Committee of the Board of Directors is responsible for determining and reviewing remuneration arrangements for the directors and executive.

The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing director and executive team.

Remuneration Philosophy

The performance of the Company depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives.

To this end the Company embodies the following principles in its remuneration framework:

provide competitive rewards to attract high calibre executives;
link executive rewards to shareholder value;
have a significant portion of executive remuneration ‘at risk’; and
establish appropriate, demanding performance hurdles for variable executive remuneration.

Remuneration Structure

In accordance with best practice corporate governance, the structure of the non-executive director and executive remuneration is separate and distinct.

Non- Executive Director Remuneration

Objective

The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.

Structure

The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. The aggregate remuneration as set out in the prospectus issued 30[th] October 2007 is $400,000 per year.

The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process.

Each non-executive director receives a base fee of $55,000 for being a director of the Group. An additional fee of $7,500 is also paid for each Board committee on which a non-executive director sits and $10,000 if the director is a Chair of a Board Committee. Directors receive superannuation at the statutory rate in addition to their director fees and committee fees. The payment of additional fees for serving on a committee recognises the additional time commitment required by the non-executive directors who serve on one or more sub-committees.

The non-executive directors do not receive retirement benefits, nor do they participate in any incentive programs.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

The remuneration of non-executive directors for the period ended 30 June 2008 and 30 June 2007 is detailed in table 1 and 2 respectively of this report.

Executive Remuneration

Objectives

The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to:

reward executives for Group, business unit and individual performance against targets set by reference to appropriate benchmarks;
align the interests of executives with those of shareholders; and
ensure remuneration is competitive by market standards.

Structure

In determining the level and make-up of executive remuneration, the Remuneration Committee reviews comparative Australian listed companies as well as referencing independent research on executive remuneration.

The Company has entered into contracts of employment with the Managing Director and the executives. Details of these contracts contain the following key elements:

Fixed remuneration;
At risk remuneration;
Short term incentive (STI); and
Long term incentive.

The proportion of fixed remuneration and variable remuneration (potential and long term incentives) for each executive is set out in table 1.

Fixed Remuneration

Objective

Fixed remuneration is reviewed annually by the Remuneration Committee. This process consists of a review of company, business unit and individual performance, relevant comparative remuneration externally and internally and, where appropriate external research.

Structure

Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without undue cost for the Group. There are no guaranteed base pay increases for any executive.

The fixed remuneration component of executives is detailed in table 1.

Variable Remuneration – Short Term Incentive (STI)

Objective

The purpose of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances.

Structure

Actual STI payments granted to each executive depend on the extent to which specific targets as set at the beginning of the financial year are met. The targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial, corporate and individual measures of performance. Typically included are measures such as net profit after tax, product mix, leadership/team contribution, safety, quality, and processes and systems. These measures were chosen as they represent the key drivers for the short term success of the business and provide a framework for delivering long term value.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

The Group has predetermined benchmarks that must be met in order to trigger payments under the STI scheme. On an annual basis, after consideration of performance against KPIs, the Remuneration Committee, in line with their responsibilities, determine the amount of the short term incentive to be paid to each executive. This process usually occurs within 3 months of the reporting date.

The aggregate of annual STI payments available for executives across the Group is subject to the approval of the Remuneration Committee. Payments made are delivered as a cash bonus in the following reporting period.

Variable Remuneration – Long Term Incentive (LTI)

Objective

The objective of the LTI plan is to retain and reward the members of the executive management team in a manner which aligns this element of remuneration with the creation of shareholder wealth.

Structure

LTI grants to executives are delivered at the discretion of the Remuneration Committee in the form of options under the Senior Management Long Term Incentive Plan. During the year ended 30 June 2008, there were no options issued as part of the director remuneration and 1,000,000 options granted as part of the executive remuneration. The key terms of the options issued are as follows:

Each option is over 1 unissued share;
Each option is granted at no cost;
The exercise price of each option is $1.15, which is payable by the holder on exercise of each vested option;
The options will vest, and only become exercisable, in three annual tranches commencing from the anniversary date of grant and provided that the Performance Hurdles are achieved; and
The exercise period for the options will expire on the date 4 years after vesting.

Performance Hurdle

The company uses a relative Total Shareholder Return (TSR) as the performance hurdle for the LTI plan. Relative TSR was selected as the LTI hurdle as it ensures an alignment between comparative shareholder return and reward for the executives.

In assessing whether the performance hurdles for each grant have been met, the Group will source independent data from an external adviser, which provides both the Group’s TSR growth from the commencement of each grant date and that of the pre-selected peer group. The peer group selected reflects the Group’s competitors for capital and talent.

The Group’s performance against the hurdle is determined according to the Company’s ranking against the peer group TSR growth over the performance period.

Where Southern Cross Electrical Engineering Limited is ranked at the 51[st] percentile (target performance), 50% of the share options will vest;
Where Southern Cross Electrical Engineering Limited is ranked at the 75[th] percentile (target performance), 100% of the share options will vest;
Where Southern Cross Electrical Engineering Limited is ranked below the 51[st] percentile (target performance), the options will lapse;
For rankings between the 51[st] and the 75[th] percentile, a sliding scale will be applied to determine the proportion of share options that vest.

Where a participant ceases employment prior to the vesting of their share options, the share options are forfeited unless cessation of employment is due to termination initiated by the Company or death. In the event of a change of control of the Company, all options that have not lapsed may be exercised.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Employment Contracts

All executives have non-fixed term employment contracts. The company or executive may terminate the employment contract by providing the other party notice as follows:

Managing Director 12 months Other executives 3 months

Company Performance

The graph below shows SCEE’s Net Profit after Tax history for the past four years (including the current period)

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NPAT $m
15
12
9
6
3
0
FY05 FY06 FY07 FY08
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SCEE shares were admitted to the Official List of the ASX on 26[th] November 2007 following an Initial Public Offering at an issue price of $1.00 per share. The total shareholder return since initial quotation on 28[th] November 2007 to 30 June 2008 was 28%.

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Table 1 Remuneration of Key Management Personnel

Details of the nature and amount of each major element of remuneration of each director of the Company, each of the five named Company executives and relevant Group executives who receive the highest remuneration and other key management personnel are:

in AUD			Short-te	rm		Post-employment	Termination benefits $	Share-based payments	Total $	Proportion of remuneration performance related %	Value of options as proportion of remuneration %
		Salary & fees $	STI cash bonus $(A)	Non-monetary benefits $	Total $	Super-annuation benefits $		Options and rights (B) $
Directors Non-executive directors Brian Carman (appointed 27 June 1988) John Cooper (appointed 28 October 2007) Douglas Fargher (appointed 27 October 2007) Sub-total non-executive directors Executive directors Gianfranco Tomasi, Executive Director Brian Carman, Managing Director (Resigned 31 July 2007) David Lawrence Tomasi (Resigned 30 October 2007) Sub-total executive directors Executives Simon Buchhorn Chief Operating Officer Stephen Fewster Chief Financial Officer (appointed 4 March 2008)	2008 2008 2008	42,694 42,694 41,222	- - -	- - -	42,694 42,694 41,222	3,843 3,843 3,710	- - -	- - -	46,537 46,537 44,932	- - -	- - -
	2008	126,610	-	-	126,610	11,396	-	-	138,006	-	-
	2008 2007 2008 2007 2008 2007	266,666 266,665 116,512 161,894 46,805 100,381	- - - - - -	64,728 11,093 16,150 29,180 - -	331,394 277,758 132,662 191,074 46,805 100,381	24,000 24,000 10,487 105,008 4,215 9,000	- - 262,500 - 107,488 -	- - - - - -	355,394 301,758 405,649 296,082 158,508 109,381	- - - - - -	- - - - - -
	2008	429,983	-	80,878	511,461	38,702	369,988	-	919,551	-	-
	2007	528,940	-	40,273	569,213	138,008	-	-	707,221	-	-
	2008 2007 2008	201,996 167,624 75,572	50,000 50,000 -	23,775 18,886 -	275,771 236,510 75,572	50,004 42,308 6,880	- - -	43,722 - 32,792	369,497 278,818 115,244	25.4% 17.9% 28.5%	11.8% - 28.5%
*Sub-total executives*	2008	277,568	50,000	23,775	351,343	56,884	-	76,514	484,741	26.0%	13.8%
	2007	167,624	50,000	18,886	236,510	42,308	-	-	278,818	17.9%	-
*Total compensation: key management* *personnel(consolidated)*	2008	834,161	50,000	104,653	989,414	109,625	369,988	76,514	1,542,298	8.2%	5.0%
	2007	696,564	50,000	59,159	805,723	180,316	-	-	986,039	5.1%	-
*Total compensation: key management* *personnel(company)*	2008	834,161	50,000	104,653	989,414	109,625	369,988	76,514	1,542,298	8.2%	5.0%
	2007	696,564	50,000	59,159	805,723	180,316	-	-	986,039	5.1%	-

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Table 2 Compensation Options : Granted and vested during the year (Consolidated)

		Granted		Terms and Conditions for each	Terms and Conditions for each	Grant
			Fair value	Exercise
	No.	Grant date	per option at grant	price per option	First Exercise Date	Last Exercise	No.	%
			date ($)	($)
Executives
Simon Buchhorn	166,667	28-November-2007	0.2063	1.15	28-November-2008	28-November-2012	-	-
Simon Buchhorn	166,667	28-November-2007	0.2195	1.15	28-November-2009	28-November-2013	-	-
Simon Buchhorn	166,666	28-November-2007	0.2324	1.15	28-November-2010	28-November-2014	-	-
Stephen Fewster	166,667	4-March-2008	0.2063	1.15	4-March-2009	4-March-2013	-	-
Stephen Fewster	166,667	4-March-2008	0.2195	1.15	4-March-2010	4-March-2014	-	-
Stephen Fewster	166,666	4-March-2008	0.2324	1.15	4-March-2011	4-March-2015	-	-
	1,000,000						-	-

Table 3 Options granted as part of remuneration (Consolidated)

	Value of options	Value of options	Value of options	Total value of	Remuneration
	granted during the	exercised during	exercised during	options granted,	consisting of
	year	the year	the year	exercised and	options for the
				lapsed during the	year
				year
	$	$	$	$	%
Simon Buchhorn	109,700	-	-	109,700	11.8
Stephen Fewster	109,700	-	-	109,700	28.5
	219,400	-	-	219,400	13.8

For details on the options, please refer to note 26.

There were no alterations to the terms and conditions of options granted as remuneration since their grant date.

There were no forfeitures during the period.

The maximum grant, which will be payable assuming the service and performance criteria is met, is equal to the number of options multiplied by the fair value at the grant date. The minimum grant payable assuming that service and performance are not met is zero.

Signed in accordance with a resolution of the directors.

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Gianfranco Tomasi Director 26[th] September 2008

Corporate governance statement

The Board of Directors of Southern Cross Electrical Engineering Limited (“SCEE” or “the Company”) is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of SCEE on behalf of the shareholders by whom they are elected and to whom they are accountable.

The table below summarises the Group’s compliance with the Corporate Governance Council’s Recommendations.

	Recommendation Comply	Yes / No	Explanation
1.1	Formalise and disclose the functions reserved to the Board and those delegated to management.	Yes	Page 11
2.1	A majority of the Board should be independent directors.	Yes	Page 12
2.2	The chairperson should be an independent director.	No	Page 12
2.3	The roles of chairperson and chief executive officer should not be exercised by the same individual.	Yes	Page 12
2.4	The Board should establish a nomination committee.	Yes	Page 14
3.1	Establish a code of conduct to guide the directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to: • the practices necessary to maintain confidence in the Company’s integrity; • the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.	Yes	Website
3.2	Disclose the policy concerning trading in Company securities by directors, officers and employees.	Yes	Page 12
4.1	Require the chief executive officer (or equivalent) and the chief financial officer (or equivalent) to state in writing to the Board that material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards.	Yes	Page 13
4.2	The Board should establish an audit committee.	Yes	Page 13
4.3	Structure the audit committee so that it consists of: • only non-executive directors; • a majority of independent directors; • an independent chairperson, who is not chairperson of the Board; • at least three members.	Yes	Page 13
4.4	The audit committee should have a formal charter.	Yes	Website
5.1	Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance.	Yes	Website
6.1	Design and disclose a communication strategy to promote effective communication with shareholders and encourage effective participation at general meetings.	Yes	Website
6.2	Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.	Yes	Yes
7.1	The Board or appropriate Board committee should establish policies on risk oversight and management	Yes	Page 13
7.2	The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the Board in writing that:	Yes	Page 13

	Recommendation Comply	Yes / No	Explanation
	• the statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board • the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.
8.1	Disclose the process for performance evaluation of the Board, its committees and individual directors, and key executives.	Yes	Page 8
9.1	Provide disclosure in relation to the Company’s remuneration policies to enable investors to understand (i) the costs and benefits of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance.	Yes	Page 8
8.2	The Board should establish a remuneration committee.	Yes	Page 14
9.3	Clearly distinguish the structure of non-executive directors’ remuneration from that of executives.	Yes	Page 8
9.4	Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.	Yes	Page 10
10.1	Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate shareholders.	Yes	Website

SCEE’s corporate governance practices were in place throughout the year ended 30 June 2008, unless otherwise stated. SCEE complies in all material respects with the Council’s best practice recommendations.

Various corporate governance practices are discussed within this statement. For further information on corporate governance policies adopted by SCEE refer to our website:

www.scee.com.au

Board Functions

The Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks.

To ensure that the Board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of directors and for the operation of the Board.

The responsibility for the operation and administration of the company is delegated, by the Board, to the Managing Director and the executive management team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the Managing Director and the executive management team.

Whilst at all times the Board retains full responsibility for guiding and monitoring the company, in discharging its stewardship it makes use of sub-committees. Specialist committees are able to focus on a particular responsibility and provide informed feedback to the Board.

To this end the Board has established the following committees:

Audit and Risk Committee; and
Remuneration and Nomination Committee.

The roles and responsibilities of these committees are discussed throughout this Corporate Governance Statement. The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risk identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved including:

Board approval of a strategic plan designed to meet stakeholders’ needs and manage business risk;
ongoing development of the strategic plan and approving initiatives and strategies designed to ensure continued growth and success of the entity; and

Corporate governance statement (continued)

implementation of budgets by management and monitoring progress against budgets – via the establishment and reporting of both financial and non-financial key performance indicators.

Other functions reserved to the Board include:

approval of the annual and half-yearly financial reports;
approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;
ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored;
reporting to shareholders.

Structure of the Board

The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report is included in the Directors’ Report on page 3. Directors of SCEE are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement.

In the context of director independence, ‘materiality’ is considered from both the company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the director in question to shape the direction of the company’s loyalty.

In accordance with the definition of independence above, and the materiality thresholds set, Mr J Cooper and Mr D Fargher are considered to be independent directors. There are procedures in place, agreed by the Board, to enable directors, in furtherance of their duties, to seek independent professional advice at the company’s expense.

The Board believes that while the Chairman is not independent, the composition of the Board with its combined skills and capability, best serve the interests of the shareholders.

The term in office held by each director in office at the date of this report is as follows:

G Tomasi 30 years (Non-Executive Director)

S T Pearce 0 years (Managing Director)

B Carman 20 years (Non-Executive Director)

J Cooper 1 year (Non-Executive Director)

D Fargher 1 year (Non-Executive Director)

Trading Policy

Under the company’s Share Trading Policy, a Director, executive or other employee must not trade in any securities of the company at any time when they are in possession of unpublished, price-sensitive information in relation to those securities. A Director or Executive is not allowed to deal in Securities of the Company as a matter of course in the following periods:

from balance date to the release of annual or half yearly results;
within the period of 1 month prior to the issue of a prospectus; and
where there is in existence price sensitive information that has not been disclosed because of an ASX Listing Rule exception.

Directors and Executives should wait at least 2 hours after the relevant release before dealing in Securities so that the market has had time to absorb the information.

Before commencing to trade, a Director, executive or other employee must first notify the company Secretary of their intention to do so. The notification must state that the proposed purchase or sale is not as a result of access to, or being in possession of, price sensitive information that is not currently in the public domain. As required by the ASX Listing Rules, the company notifies the ASX of any transaction conducted by the Directors in the securities of the company.

Corporate governance statement (continued)

Audit and Risk Committee

The Board has an audit and risk committee which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated responsibility for the establishing and maintaining a framework of internal control and ethical standards to the audit and risk committee.

The committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the audit committee are non-executive directors. The members of the audit committee during the year were:

J Cooper (Chairman)

D Fargher

B Carman

Qualifications of audit committee members

J Cooper has over 30 years experience in the management of risks associated with the industry in which we operate.

D Fargher has over 37 years experience in the management of risks associated with the construction industry.

B Carman has significant experience in the management of SCEE having served as the managing director of SCEE for 19 years.

Risk

The Board determines the company’s risk profile and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. The company’s process of risk management and internal compliance and control includes:

establishing the company’s goals and objectives, and implementing and monitoring strategies and policies to achieve these goals and objectives;
continuously identifying and measuring risks that might impact upon the achievement of the company’s goals and objectives, and monitoring the environment for emerging factors and trends that affect these risks;
formulating risk management strategies to manage identified risks, and designing and implementing appropriate risk management policies and internal controls;
monitoring the performance of, and continuously improving the effectiveness of, risk management systems and internal compliance and controls, including an annual assessment of the effectiveness of risk management and internal compliance and control. To this end, comprehensive practices are in place that are directed towards achieving the following objectives:
effectiveness and efficiency in the use of the company’s resources;
compliance with applicable laws and regulations;
preparation of reliable published financial information.

For details on the number of meetings of the audit and risk committee held during the year and the attendees at those meetings, refer to page 5 of the Directors’ Report.

Managing Director and CFO Certification

The Chairman and Chief Financial Officer have provided a written statement to the Board that:

their views provided on the company’s and consolidated entity’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the Board; and
that the company’s and consolidated entity’s risk management and internal compliance and control systems are operating effectively in all material respects.

Corporate governance statement (continued)

Performance

The performance of the Board and key executives is to be reviewed regularly against both measurable and qualitative indicators. Due to the Company having been listed for 7 months, the remuneration and nomination committee has not conducted performance evaluations during the reporting period. This will occur in the forthcoming period and will involve an assessment of the Board’s performance against qualitative and quantitative performance criteria. The performance criteria against which the Board and executives are assessed are aligned with the financial and non-financial objectives of SCEE.

Remuneration and Nomination Committee

It is the company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the remuneration and nomination committee links the nature and amount of executive directors’ and officers’ emoluments to the company’s financial and operational performance. The expected outcomes of the remuneration structure are:

retention and motivation of key executives;
attraction of quality management to the Company; and
performance incentives which allow executives to share the rewards of the success of SCEE.

For full discussion of the company’s remuneration philosophy and framework and the remuneration received by directors and executives in the current period, please refer to the Remuneration Report, which is contained within the Directors’ Report.

In relation to the issuing of options, discretion is exercised by the Board, having regard to the overall performance of SCEE and the performance of the individual during the period. The SCEE Senior Management Long Term Incentive Plan rules have been approved by shareholders.

There is no scheme to provide retirement benefits, other than statutory superannuation, to directors.

The Board is responsible for determining and reviewing compensation arrangements for the directors themselves and the executive team. The Board has established a remuneration committee, comprising three non-executive directors including two independent directors. Members of the remuneration committee throughout the year were:

B Carman (Chairman) (appointed to Remuneration and Nomination Committee on 29 October 2007)

D Fargher (appointed to Remuneration and Nomination Committee on 29 October 2007)

J Cooper (appointed to Remuneration and Nomination Committee on 29 October 2007)

The committee is also responsible for ensuring that the Board continues to operate within the established guidelines, including when necessary, selecting candidates for the position of director.

For details of directors’ attendance at meetings of the remuneration and nomination committee, refer to page 5 of the Directors’ Report.

Southern Cross Electrical Engineering Limited

Balance Sheet

As at 30 June 2008

*Note* ASSETS Current Assets Cash and cash equivalents 13 Trade and other receivables 14 Inventories 15 Construction work in progress 16 Financial assets 22 Other assets 17 Total Current assets Non-Current Assets Property, plant and equipment 19 Deferred tax assets 11 Other receivables 14 Total Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables 20 Loans and borrowings 23 Provisions 21 Current tax payable Total current liabilities Non-Current Liabilities Loans and borrowings 23 Provisions 21 Trade and other payables 20 Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed Equity 24 Reserves Retained earnings Total equity attributable to equity holders of the Company Minority interest TOTAL EQUITY	Consolidated Company 2008 2007 2008 2007 $ $ $ $ 25,689,555 9,179,161 25,154,287 9,039,068 10,817,972 11,714,168 8,559,165 10,601,168 365,513 - - - 1,571,837 668,589 - - 612,827 - 612,827 - 1,114,683 - 1,114,683 -
	40,172,387 21,561,918 35,440,962 19,640,236
	6,562,716 5,686,264 5,975,507 5,611,732 750,510 291,353 1,222,061 491,930 172,672 35,723 172,672 49,932
	7,485,898 6,013,340 7,370,240 6,153,594
	47,658,285 27,575,258 42,811,202 25,793,830
	9,590,717 9,418,810 7,819,512 8,800,833 821,932 800,900 821,933 800,900 619,977 616,466 619,977 616,466 2,530,207 2,711,030 1,605,759 2,711,030
	13,562,833 13,610,206 10,867,181 12,929,228
	325,105 665,309 325,105 665,309 70,978 70,592 70,978 70,592 396,782 396,782 396,782 396,782
	792,865 1,132,683 792,865 1,132,683
	14,355,698 14,742,889 11,660,046 14,061,911
	33,302,587 12,832,369 31,151,156 11,731,919
	19,792,706 750,002 19,792,706 750,002 174,337 60,957 70,152 - 13,335,544 11,779,761 11,288,298 10,981,917
	33,302,587 12,590,720 31,151,156 11,731,919 - 241,649 - -
	33,302,587 12,832,369 31,151,156 11,731,919

The above balance sheet should be read in conjunction with the accompanying notes.

Southern Cross Electrical Engineering Limited

Statement of Changes in Equity

As at 30 June 2008

Consolidated

Balance at 1 July 2006 Profit for the period Dividends to equity holders Foreign currency translation Adjustments Balance at 30 June 2007 Balance at 1 July 2007 Profit for the period Issue of ordinary shares Dividends to equity holders Foreign currency translation Acquisition of minority interest Cost of share based payments Balance at 30 June 2008	Share Capital Translation reserve Options Reserve Retained earnings Total Minority Interest Total equity
	750,002 (12,578) - 7,539,908 8,277,332 153,621 8,430,953
	- - 10,757,721 10,757,721 219,545 10,977,266
	- - (6,972,742) (6,972,742) (142,301) (7,115,043)
	- 73,535 - - 73,535 1,687 75,222
	- - - 454,874 454,874 9,097 463,971
	750,002 60,957 - 11,779,761 12,590,720 241,649 12,832,369

	750,002 60,957 - 11,779,761 12,590,720 241,649 12,832,369
	- - - 11,312,261 11,312,261 - 11,312,261
	19,042,704 - - - 19,042,704 - 19,042,704
	- - - (9,756,478) (9,756,478) - (9,756,478)
	- 36,866 - - 36,866 - 36,866
	- - - - - (241,649) (241,649)
	- - 76,514 - 76,514 - 76,514
	19,792,706 97,823 76,514 13,335,544 33,302,587 - 33,302,587

Company

ompany
Balance at 1 July 2006 Profit for the period Dividends to equity holders Foreign currency translation Adjustments Balance at 30 June 2007 Balance at 1 July 2007 Profit for the period Issue of ordinary shares Dividends to equity holders Foreign currency translation Acquisition of minority interest Cost of share based payments Balance at 30 June 2008	Share Capital Translation reserve Options Reserve Retained earnings Total
	750,002 - - 7,539,908 8,289,910
	- - - 9,771,937 9,771,937
	- - - (6,972,742) (6,972,742)
	- - - - -
	- - - 642,814 642,814
	750,002 - - 10,981,917 11,731,919

	750,002 - - 10,981,917 11,731,919
	- - - 10,062,859 10,062,859
	19,042,704 - - - 19,042,704
	- - - (9,756,478) (9,756,478)
	- (6,362) - - (6,362)
	- - - - -
	- - 76,514 - 76,514
	19,792,706 (6,362) 76,514 11,288,298 31,151,156

The above statement of changes in equity should be read in conjunction with the accompanying notes.

Southern Cross Electrical Engineering Limited

Income Statement

For the year ended 30 June 2008

*Note* Continuing operations Revenue 5 Cost of sales Gross profit Other income 6 Employee benefits expenses 8 Occupancy expenses Administration expenses Australian Stock Exchange listing expenses Other expenses 7 Depreciation expense 10 Results from operating activities Finance income Finance expenses Net finance expense 9 Profit before income tax Income tax expense 11 Profit after income tax Attributable to: Minority interest Members of the parent Earnings per share: Basic earnings per share 12 Diluted earnings per share 12	Consolidated Company 2008 2007 2008 2007 $ $ $ $ 84,173,883 81,055,817 68,231,413 75,989,127 (53,936,523) (55,768,244) (42,548,284) (52,537,127)
	30,237,360 25,287,573 25,683,129 23,452,000 1,284,751 99,244 2,096,383 81,848 (7,425,325) (6,813,197) (7,425,325) (6,813,197) (528,544) (485,701) (528,544) (485,701) (1,548,473) (736,725) (809,971) (736,725) (3,684,403) - (3,684,403) - (1,019,688) (1,114,421) (1,019,688) (747,816) (1,130,563) (862,291) (1,043,634) (862,291)
	16,185,115 15,374,482 13,267,947 13,888,118 832,360 415,538 830,811 415,538 (838,884) (334,469) (355,630) (254,011)
	(6,524) 81,069 475,181 161,527
	16,178,591 15,455,551 13,743,128 14,049,645 (4,866,330) (4,478,285) (3,680,269) (4,277,708)
	11,312,261 10,977,266 10,062,859 9,771,937 - 219,545 - - 11,312,261 10,757,721 10,062,859 9,771,937
	10.11 10.97 10.07 10.97

The above income statement should be read in conjunction with the accompanying notes.

Southern Cross Electrical Engineering Limited

Cash Flow Statement

For the year ended 30 June 2008

*Note* Cash flows from operating activities Cash receipts from customers (inclusive of GST) Cash paid to suppliers and employees (inclusive of GST) Inter-company dividend Interest received Interest paid Income taxes paid Net cash from operating activities 25 Cash flows from investing activities Proceeds from sale of assets Acquisition of property, plant and equipment Net cash from (used in) investing activities Cash flows from financing activities Proceeds from issue of share capital 24 Proceeds from borrowings Repayment of borrowings Dividends paid 24 Net cash from (used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June 2008 13	Consolidated Company 2008 2007 2008 2007 $ $ $ $ 92,112,032 79,872,309 76,623,135 75,419,725 (76,713,977) (62,016,218) (64,451,929) (58,094,041) - - 1,518,075 - 832,360 415,538 830,811 415,538 (838,884) - (355,630) - (5,515,672) (2,804,078) (5,515,672) (2,804,078)
	9,875,859 15,467,551 8,648,790 14,937,144
	152,108 22,864 152,108 22,864 (2,079,668) (1,856,192) (1,480,061) (1,766,998)
	(1,927,560) (1,833,328) (1,327,953) (1,744,134)
	19,042,704 - 19,042,704 - - 1,566,898 - 1,566,898 (724,131) (879,956) (491,844) (879,956) (9,756,478) (7,115,043) (9,756,478) (7,115,043)
	8,562,095 (6,428,101) 8,794,382 (6,428,101)
	16,510,394 7,206,122 16,115,219 6,764,909 9,179,161 1,967,483 9,039,068 2,279,715 - 5,556 - (5,556)
	25,689,555 9,179,161 25,154,287 9,039,068

The above cash flow statement should be read in conjunction with the accompanying notes.

Southern Cross Electrical Engineering Limited Index to notes to the financial statements

Reporting entity
Basis of preparation
Significant accounting policies
4 Segment reporting
Revenue
Other income
Other expenses
Employee benefits expense
Finance income and expense
Depreciation expense
Loans and borrowings
Capital and reserves 25. Reconciliation of cash flows from operating activities
Related parties
Share-based payments
Commitments
Contingencies
Subsequent events 31. Change in accounting policy 32. Auditor’s remuneration
Income tax expense
Earnings per share
Cash and cash equivalents
Trade and other receivables
Inventories
Construction work in progress
Other Assets
Investments in subsidiaries
Property, plant and equipment 20. Trade and other payables 21. Provisions 22. Financial instruments

Southern Cross Electrical Engineering Limited

Notes to the financial statements

1. Reporting entity

The financial report of Southern Cross Electrical Engineering Limited (the Company) for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 25[th] September 2008. The consolidated financial statements of the Company as at and for the year ended 30 June 2008 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”).

Southern Cross Electrical Engineering Limited (the parent) is a company incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report.

The address of the Company’s registered office is 41 Macedonia Street Naval Base, Western Australia.

2. Basis of preparation

(a) Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations and other authoritive pronouncements adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the Group and the financial report of the Company comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB).

(b) Basis of measurement

The consolidated financial statements have been prepared on an accruals basis based on historical cost except for the following:

Derivative financial instruments are measured at fair value;
Financial instruments at fair value through profit or loss are measured at fair value;
Liabilities for share-based payment arrangements are measured at fair value; and
Cash flow statement.
(c) Functional and presentation currency

(i) Functional and presentation currency

Both the functional and presentation currency of Southern Cross Electrical Engineering Limited and its Australian subsidiaries is Australian dollars ($). The Peruvian subsidiary’s functional currency is United States Dollars which is translated to presentation currency (see below).

(ii) Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(iii) Translation of Group Companies functional currency to presentation currency

The results of the Peruvian subsidiaries are translated into Australian Dollars as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at balance date.

Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity.

On consolidation, exchange differences arising from the translation of the net investment in the Peruvian subsidiary are taken to the foreign currency translation reserve. If the Peruvian subsidiary was sold, the proportionate share of exchange differences would be transferred out of equity and recognised in the income statement.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

2. Basis of preparation (continued)

(d) Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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 and in any future periods affected.

Southern Cross Electrical Engineering Limited

Notes to the financial statements[1]

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

Certain comparative amounts have been reclassified to conform with the current year’s presentation.

(a) Basis of consolidation

(i) Subsidiaries

In preparing the consolidated financial statements, all inter-company balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is obtained by the Group and ceases to be consolidated from the date on which control is transferred out of the Group.

Investments in subsidiaries held by the Company are accounted for at cost in the separate financial statements of the parent entity.

(b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-forsale equity instruments or a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges which are recognised directly in equity.

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Australian dollars at exchange rates at the dates of the transactions.

The income and expenses of foreign operations in hyperinflationary economies are translated to Australian dollars at the exchange rate at the reporting date. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial statements for the current period are restated to account for changes in the general purchasing power of the local currency. The restatement is based on relevant price indices at the reporting date.

Foreign currency differences are recognised directly in equity. Since 1 July 2004, the Group’s date of transition to AASBs, such differences have been recognised in the foreign currency translation reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.

Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in equity in the FCTR.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

3. Significant accounting policies (continued)

(c) Financial instruments

(i) Recognition and initial measurement

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Accounting for finance income and expense is discussed in note 9.

Classification and subsequent measurement

Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.

(ii) Derivative financial instruments

The Group holds derivative financial instruments to hedge its foreign currency risk exposure. These derivatives are recognised initially at fair value through the profit and loss when incurred. Subsequent to initial recognition, these derivatives are measured at fair value and changes therein are accounted for through the profit and loss.

(iii) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Dividends

Dividends are recognised as a liability in the period in which they are declared.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

3. Significant accounting policies (continued)

(d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are recognised in profit or loss as incurred.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-today servicing of property, plant and equipment are recognised in profit or loss as incurred.

(iii) Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

•	Freehold buildings	40 years
•	Plant and equipment	5 – 15 years
•	Leasehold improvements	Lease term

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

(e) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Group as a lessee

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease payment at the fair value of the leased asset or, if lower, at the net present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability. Finance charges are recognised as an expense in the income statement.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

3. Significant accounting policies (continued)

(f) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in firstout principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. The cost of inventory may also include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of inventory.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of items transferred from biological assets is their fair value less estimated point-of-sale costs at the date of transfer.

(g) Construction work in progress

Construction work in progress represents the costs incurred and expected to be collected from customers for contract work performed to date. It is measured at cost recognised to date. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

(h) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss.

(i) Employee benefits

(i) Long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated or government bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise.

(ii) Termination benefits

Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

3. Significant accounting policies (continued)

(i) Employee benefits (continued)

(iii) Short-term benefits

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related oncosts, such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services, are expensed based on the net marginal cost to the Group as the benefits are taken by the employees.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(iv) Share-based payment transactions

The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except for those that fail to vest due to market conditions not being met.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.

When the Company grants options over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant.

(j) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

(k) Revenue

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Contract revenue

Revenue from contracting services rendered under a fixed lump sum agreement is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

Revenue from services rendered under a cost plus agreement is recognised in profit or loss as the cost of the work completed plus the agreed profit margin for the reporting period.

All revenue is stated net of the amount of goods and services tax (GST).

Southern Cross Electrical Engineering Limited

Notes to the financial statements

3. Significant accounting policies (continued)

(l) Finance income and expense

Finance income comprises interest income on funds invested, dividend income and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Finance expenses comprise interest expense on borrowings, bank charges and lease payments. All borrowing costs are recognised in profit or loss using the effective interest method.

(m) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

(i) Tax consolidation

The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax-consolidated group are taxed as a single entity from that date. The head entity within the tax-consolidated group is Southern Cross Electrical Engineering Limited.

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the “separate taxpayer within group” approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head entity in the tax-consolidated group and are recognised by the Company as amounts payable (receivable) to/(from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

3. Significant accounting policies (continued)

(m) Income tax (continued)

The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only.

(n) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(o) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

(p) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Group’s geographical segments.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments (other than investment property) and related revenue, loans and borrowings and related expenses, corporate assets (primarily the Company’s headquarters) and head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

(q) Financial guarantees

Financial guarantee contracts are measured at their fair values initially and subsequently measured at the higher of:

the amount of obligation under the contract, as determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets; and
the amount recognised initially less cumulative amortisation recognised in accordance with revenue recognition policies.

The fair value of financial guarantee contracts has been assessed using a probability weighted discounted cash flow approach. The probability has been based on:

the likelihood of the guaranteed party defaulting in a year period;
the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and
the maximum loss exposed if the guaranteed party were to default.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

4. Segment reporting

Geographical segments

The Group’s primary segment reporting format is geographical segments.

The Group’s geographical segments are determined based on the location of the Group’s assets.

The following table presents revenue, expenditure and certain asset information regarding geographical segments for the years ended 30 June 2007 and 30 June 2008.

Revenue from external customers Segment assets Capital expenditure	Australia South America Total 2008 2007 2008 2007 2008 2007 65,264,599 75,989,127 18,909,284 5,066,690 84,173,883 81,055,817
	42,811,202 25,793,830 4,847,083 1,781,428 47,658,285 27,575,258
	1,480,061 1,766,998 599,607 89,194 2,079,668 1,856,192

5. Revenue

Contract revenue

Consolidated	Consolidated	Company	Company
2008	2007	2008	2007
84,173,883	81,055,817	68,231,413	75,989,127
84,173,883	81,055,817	68,231,413	75,989,127

6. Other income

Dividends received from wholly owned subsidiaries Other Foreign exchange gains/(losses) Net gain on foreign currency derivatives Net gain/(loss) on sale of non-current assets	Consolidated Company 2008 2007 2008 2007 - - 1,518,075 - 255,091 86,077 97,835 83,972 496,287 9,332 (52,900) (5,556) 612,827 - 612,827 - (79,454) 3,835 (79,454) 3,432
	1,284,751 99,244 2,096,383 81,848

7. Other expenses

Repairs and maintenance Motor vehicles Other	2008 2007 2008 2007 (126,503) (246,720) (126,503) (246,720) (583,962) (281,127) (583,962) (281,127) (309,223) (586,574) (309,223) (219,969)
	(1,019,688) (1,114,421) (1,019,688) (747,816)

Southern Cross Electrical Engineering Limited

Notes to the financial statements

8. Employee benefits expense

mployee benefits expense
Remuneration, bonuses and on-costs Amounts provided for employee entitlements Share based payments expense	Consolidated Company 2008 2007 2008 2007 (7,040,196) (6,878,904) (7,040,196) (6,878,904) (308,615) 65,707 (308,615) 65,707 (76,514) - (76,514) -
	(7,425,325) (6,813,197) (7,425,325) (6,813,197)

9. Finance income and expense

Interest income on bank deposits Finance income Interest expense Finance charges payable under hire purchase contracts Bank charges Finance expense Net finance income and expense	Consolidated Company 2008 2007 2008 2007 832,360 415,538 830,811 415,538
	832,360 415,538 830,811 415,538
	(483,408) (17,155) (154) (17,155) (115,244) (118,826) (115,244) (118,826) (240,232) (198,488) (240,232) (118,030)
	(838,884) (334,469) (355,630) (254,011)
	(6,524) 81,069 475,181 161,527

10. Depreciation expense

epreciation expense
Leasehold improvements Plant and equipment Motor vehicles Office furniture and equipment	Consolidated Company 2008 2007 2008 2007 (29,284) (28,922) (29,284) (28,922) (511,618) (388,541) (424,689) (388,541) (524,135) (394,928) (524,135) (394,928) (65,526) (49,900) (65,526) (49,900)
	(1,130,563) (862,291) (1,043,634) (862,291)

Southern Cross Electrical Engineering Limited

Notes to the financial statements

11. Income tax expense

ncome tax expense
(a) Income Statement Current tax expense Current period Deferred tax expense Origination and reversal of temporary differences Income tax expense reported in the income statement (b) Amounts charged or credited directly to equity Expenses relating to initial public offering Income tax expense reported in equity	Consolidated Company 2008 2007 2008 2007 5,023,182 4,700,785 4,108,095 4,700,785
	5,023,182 4,700,785 4,108,095 4,700,785
	(156,852) (222,500) (427,826) (423,077)
	(156,852) (222,500) (427,826) (423,077)
	4,866,330 4,478,285 3,680,269 4,277,708
	(302,304) - (302,304) -
	(302,304) - (302,304) -

Numerical reconciliation between tax expense and pre-tax accounting profit

Accounting profit before income tax Income tax using the Company’s domestic tax rate of 30% (2007: 30%) Tax effect of permanent differences Foreign tax credits Income tax expense reported in the income statement The applicable effective tax rates are:	Consolidated Company 2008 2007 2008 2007
	16,178,591 15,455,551 13,743,128 14,049,645 4,853,577 4,636,665 4,122,938 4,214,894 31,328 (158,380) (424,094) 62,814 (18,575) - (18,575) -
	4,866,330 4,478,285 3,680,269 4,277,708
	30.1% 29.0% 26.8% 30.4%

The decrease in the weighted average effective company tax rate for 2008 is a result of receiving dividends from a wholly owned subsidiary.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

11. Income tax expense (continued)

Deferred Tax Assets and Liabilities

Deferred tax liabilities Forward contracts Retentions Work in progress Property, plant and equipment Deferred tax assets Accruals Employee benefits Future IPO related tax benefits (Income statement) Future IPO related tax benefits (charged to equity) Disposals

Deferred Tax Assets and Liabilities

Deferred tax liabilities Forward contracts Retentions Property, plant and equipment Deferred tax assets Accruals Employee benefits Future IPO related tax benefits (Income statement) Future IPO related tax benefits (charged to equity) Disposals

		Consolidated	Consolidated
Balance Sheet		Income	Statement	Equity
2008	2007	2008	2007	2008	2007
(167,978)	-	167,978	-	-		-
(179,435)	(14,292)	165,143	(406,878)	-		-
(471,551)	(200,577)	270,975	200,577	-		-
(45,314)	(44,970)	344	17,996	-		-
(864,278)	(259,839)	604,440	(188,305)	-		-
18,000	-	(18,000)	-	-		-
491,666	551,192	59,526	(34,194)	-		-
857,951	-	(857,951)	-	-		-
302,304	-	-	-	(302,304)		-
(55,133)	-	55,133	-	-		-
1,614,788	551,192	(761,292)	(34,194)	(302,304)		-

		Parent	Parent
Balance Sheet		Income Statement		Equity
2008	2007	2008	2007	2008	2007
(167,978)	-	167,978	-	-		-
(179,435)	(14,292)	165,143	(400,878)	-		-
(45,314)	(44,970)	344	17,996	-		-
(392,727)	(59,262)	333,465	(382,882)	-		-
18,000	-	(18,000)	-	-		-
491,666	551,192	59,526	(34,194)	-		-
857,951	-	(857,951)	-	-		-
302,304	-	-	-	(302,304)		-
(55,133)	-	55,133	-	-		-
1,614,788	551,192	(761,292)	(34,194)	(302,304)		-

Southern Cross Electrical Engineering Limited

Notes to the financial statements

12. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 30 June 2008 was based on the profit attributable to ordinary shareholders of $11,312,261 (2007: $10,977,266) and a weighted average number of ordinary shares outstanding of 111,857,923 (2007: 100,000,000), calculated as follows:

Profit attributable to ordinary shareholders

rofit attributable to ordinary shareholders
Profit for the period Weighted average number of ordinary shares *Note* Issued ordinary shares at 1 July 24 Effective new balance resulting from share split 24 Effect of 20,000,000 shares issued on 26 November 2007 24 Weighted average number of ordinary shares at 30 June	Consolidated 2008 2007 11,312,261 10,977,266
	Consolidated 2008 2007 750,002 750,002 100,000,000 100,000,000 11,857,923 -
	111,857,923 100,000,000

Weighted average number of ordinary shares

Diluted earnings per share

The calculation of diluted earnings per share at 30 June 2008 was based on profit attributable to ordinary shareholders of $11,312,261 (2007: $10,977,266) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 112,315,574 (2007: 100,000,000), calculated as follows:

Profit attributable to ordinary shareholders (diluted)

rofit attributable to ordinary shareholders (diluted)
Profit for the period Weighted average number of ordinary shares (diluted) *Note* Weighted average number of ordinary shares for basic earnings per share 24 Effect of dilution: Share options 24 Weighted average number of ordinary shares at 30 June	Consolidated 2008 2007 11,312,261 10,977,266
	Consolidated 2008 2007 111,857,923 100,000,000 457,650 -
	112,315,573 100,000,000

Weighted average number of ordinary shares (diluted)

Southern Cross Electrical Engineering Limited

Notes to the financial statements

13. Cash and cash equivalents

ash and cash equivalents
Bank balances Short term deposits Cash and cash equivalents in the statement of cash flows	Consolidated Company 2008 2007 2008 2007 4,354,120 4,072,188 3,818,852 3,932,095 21,335,435 5,106,973 21,335,435 5,106,973
	25,689,555 9,179,161 25,154,287 9,039,068

The effective interest rate on short-term bank deposits was 7.25% (2007: 6.5%); these deposits have an average maturity of 19 days.

14. Trade and other receivables

rade and other receivables
Current Trade receivables (a) Retentions (b) Wholly owned subsidiary Non-current Other related parties	Consolidated Company 2008 2007 2008 2007 10,219,854 11,666,529 7,946,837 10,553,529 598,118 47,639 598,118 47,639 - - 14,210 -
	10,817,972 11,714,168 8,559,165 10,601,168
	172,672 35,723 172,672 49,932

(a) Trade receivables

Trade receivables are non-interest bearing and are generally on 30 day terms. A provision for impairment loss has not been recognised due to the collection record of the counterparties the Group transacts with.

(b) Retentions

Retentions relate to amounts withheld by clients under the terms of the Group’s construction agreements. These are remitted by the client upon completion of the contracted works.

15. Inventories

Raw materials and consumables – at cost	Consolidated Company 2008 2007 2008 2007 365,513 - - -
	365,513 - - -

16. Construction work in progress

Costs incurred to date Recognised profit Progress billings Amounts due from customers Retentions on construction work in progress Progress billings receivable on construction contracts in progress – at cost	Consolidated Company 2008 2007 2008 2007 14,303,174 3,899,706 - - 6,177,947 1,835,789 - - (18,909,284) (5,066,690) - -
	1,571,837 668,589 - - - - - -
	1,571,837 668,589 - -

Work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost. Cost includes all expenditure related directly to specific projects.

17. Other Assets

ther Assets
Prepayments	Consolidated Company 2008 2007 2008 2007 1,114,683 - 1,114,683 -
	1,114,683 - 1,114,683 -

Southern Cross Electrical Engineering Limited

Notes to the financial statements

18. Investments in subsidiaries

The consolidated financial statements include the financial statements of Southern Cross Electrical Engineering Ltd and the subsidiaries listed in the following table.

he following table.
	Country of	Equity Interest	Investment
	Incorporation	(%)		($)
		2008 2007	2008	2007
Cruz Del Sur Ingenieria Electra
(Peru) S.A Ltd	Peru	100 98		1	1
Southern Cross Electrcial
Engineering (WA) Pty Ltd	Australia	100 100		2	2
SCEE Tanzania Pty Ltd	Tanzania	100 100		1	1
SCEE Ghana Pty Ltd	Ghana	100 100		1	1

Southern Cross Electrical Engineering Limited

Notes to the financial statements

19. Property, plant and equipment

Cost or deemed cost Balance at 1 July 2006 Additions Disposals Balance at 30 June 2007 Balance at 1 July 2007 Additions Disposals Balance at 30 June 2008 Depreciation and impairment losses Balance at 1 July 2006 Depreciation for the year Disposals Balance at 30 June 2007 Balance at 1 July 2007 Depreciation for the year Disposals Adjustment Balance at 30 June 2008 Carrying amounts At 1 July 2006 At 30 June 2007 At 1 July 2007 At 30 June 2008	Consolidated Land and Buildings Leasehold Improvements Plant and equipment Motor Vehicles Office Furniture and Equipment Total 671,375 1,089,345 2,476,214 3,100,077 366,953 7,703,964 - 23,921 1,481,041 714,175 52,450 2,271,587 - - - (68,448) - (68,448)
	671,375 1,113,266 3,957,255 3,745,804 419,403 9,907,103
	671,375 1,113,266 3,957,255 3,745,804 419,403 9,907,103 - - 1,490,592 1,004,069 84,167 2,578,828 - - - (580,486) (6,026) (586,512)
	671,375 1,113,266 5,447,847 4,169,387 497,544 11,899,419
	- (250,891) (1,279,890) (1,652,009) (200,750) (3,383,540) - (28,922) (412,565) (394,928) (49,900) (886,315) - - - 49,016 - 49,016
	- (279,813) (1,692,455) (1,997,921) (250,650) (4,220,839)
	- (279,813) (1,692,455) (1,997,921) (250,650) (4,220,839) - (29,284) (511,618) (524,135) (65,526) (1,130,563) - - - 394,643 6,026 400,669 - - (385,970) - - (385,970)
	- (309,097) (2,590,043) (2,127,413) (310,150) (5,336,703)
	671,375 838,453 1,196,324 1,448,068 166,203 4,320,424 671,375 833,453 2,264,800 1,747,883 168,753 5,686,264 671,375 833,453 2,264,800 1,747,883 168,753 5,686,264
	671,375 804,169 2,857,804 2,041,974 187,394 6,562,716

Southern Cross Electrical Engineering Limited

Notes to the financial statements

19. Property, plant and equipment (continued)

Cost or deemed cost Balance at 1 July 2006 Additions Disposals Balance at 30 June 2007 Balance at 1 July 2007 Additions Disposals Balance at 30 June 2008 Depreciation and impairment losses Balance at 1 July 2006 Depreciation for the year Disposals Balance at 30 June 2007 Balance at 1 July 2007 Depreciation for the year Disposals Balance at 30 June 2008 Carrying amounts At 1 July 2006 At 30 June 2007 At 1 July 2007 At 30 June 2008	Parent Land and Buildings Leasehold Improvements Plant and equipment Motor Vehicles Office Furniture and Equipment Total 671,375 1,089,345 2,466,852 3,100,077 366,953 7,694,602 - 23,921 1,391,847 714,175 52,450 2,182,393 - - - (68,448) - (68,448)
	671,375 1,113,266 3,858,699 3,745,804 419,403 9,808,547
	671,375 1,113,266 3,858,699 3,745,804 419,403 9,808,547 - - 510,962 1,004,069 84,167 1,599,198 - - (30,000) (580,486) (6,026) (616,512)
	671,375 1,113,266 4,339,661 4,169,387 497,544 10,791,233
	- (250,891) (1,279,890) (1,652,009) (200,750) (3,383,540) - (28,922) (388,541) (394,928) (49,900) (862,291) - - - 49,016 - 49,016
	- (279,813) (1,668,431) (1,997,921) (250,650) (4,196,815)
	- (279,813) (1,668,431) (1,997,921) (250,650) (4,196,815) - (29,284) (424,690) (524,135) (65,526) (1,043,634) - - 24,055 394,643 6,026 424,723
	- (309,097) (2,069,066) (2,127,413) (310,150) (4,815,726)
	671,375 838,454 1,186,962 1,448,068 166,203 4,320,424 671,375 833,453 2,190,268 1,747,883 168,753 5,611,732 671,375 833,453 2,190,268 1,747,883 168,753 5,611,732
	671,375 804,169 2,270,595 2,041,974 187,394 5,975,507

Southern Cross Electrical Engineering Limited

Notes to the financial statements

20. Trade and other payables

Trade and other payables
Current Trade payables Accrued expenses Annual leave Other creditors Goods and services tax payable Payroll clearing Non-current Other creditors	Consolidated Company 2008 2007 2008 2007 5,922,034 5,244,165 4,657,867 5,244,165 1,657,709 662,399 1,657,709 662,399 1,454,967 1,150,249 947,929 1,150,249 473,005 1,813,633 473,005 1,132,656 (1,816) 394,277 (1,816) 394,277 84,818 217,087 84,818 217,087
	9,590,717 9,481,810 7,819,512 8,800,833 396,782 396,782 396,782 396,782
	396,782 396,782 396,782 396,782

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 22.

Other long term creditors are expected to be settled within 12 – 18 months.

21. Provisions

Provisions
Current Long service leave Non-current Long service leave	Consolidated Company 2008 2007 2008 2007 619,977 616,466 619,977 616,466
	70,978 70,592 70,978 70,592

A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits has been included in Note 1 to this report.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments

Overview

The Company and Group have exposure to the following risks from their use of financial instruments:

credit risk
liquidity risk
market risk.

This note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit and Risk Management Committee, which is responsible for assisting and advising the Board in fulfilling its responsibilities in relation to the accounting and reporting practices of the Group and the identification and management of significant financial risk areas and regulatory compliance, and developing and monitoring risk management policies. Formal systems have been introduced for regular reporting to the Board on financial risks and compliance matters.

Risk management policies are established to identify and analyse the risks faced by the Company and Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s and Group’s activities. The Company and Group, through their training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit and Risk Management Committee oversees how management monitors risk and reviews the adequacy of the risk management framework in relation to the risks faced by the Company and Group.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. For the Company it also arises from receivables due from customers.

Exposure to credit risk

The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was:

credit risk at the reporting date was:
		Carrying amount
	*Note*	2008	2007
Cash		25,689,555	9,179,161
Trade receivables		10,990644	11,749,891
Forward exchange contracts		612,827	-

The Company’s maximum exposure to credit risk at the reporting date was $25,154,287 (2007:$9,039,067) for cash, $8,559,165 (2007:$10,651,100) for trade receivables and $612,827 (2007:nil) for forward exchange contracts, totalling $34,326,279 (2007:$19,592,596).

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Trade and other receivables

The Company’s and Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Approximately 82 percent (2007: 65 percent) of the Group’s trade receivables are attributable to transactions with two major customers. Geographically, the concentration of credit risk is within Australia and industry wise the concentration is within the mining industry.

When entering into new customer contracts for service, the Group only enters into contracts with reputable companies. Management monitors the Group’s exposure on a monthly basis.

100 percent (2007: 100 percent) of the Group’s current customers have been transacting with the Group for several years, and losses have occurred infrequently if at all. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, aging profile, maturity and existence of previous financial difficulties.

The Group does not require collateral in respect of trade and other receivables.

The Company and Group have not established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other receivables as it not considered necessary based on the payment history of their client base.

The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

Australia South America Other regions	Carrying amount 2008 2007 8,731,837 10,231,686 2,258,807 1,113,000 - 405,205
	10,990,644 11,749,891

The Company’s maximum exposure to credit risk for receivables at the reporting date by geographic region was $8,731,837 (2007:$10,245,895) for Australia, $2,258,807 (2007:$1,113,000) for South America and $nil (2007:$405,205) for other regions.

Impairment losses

None of the Company’s receivables are past due (2007: nil). The aging of the Group’s trade receivables at the reporting date was:

as:
Not past due Past due 0-30 days Past due 30-60 days Past due 90 days and over More than one year	Gross Impairment Gross Impairment 2008 2008 2007 2007 7,826,965 - 8,738,294 - 836,088 - 3,011,597 - 2,284,649 - - - 42,942 - - - - - - -
	10,990,644 - 11,749,891 -

Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables as the customers that have a good credit history with the Group.

There was no renegotiation in credit terms during the period.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group uses project costing to assess the cash flows required for each project currently underway and entered into. Management monitors cash flow using rolling forecasts and annual budgets that are monitored at a Board level on a monthly basis.

In addition, the Group maintains a $15 million overdraft facility that is secured by various securities.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

Consolidated

30 June 2008

Non-derivative financial assets Cash and cash equivalents Trade and other receivables Construction work in progress Non-derivative financial liabilities Finance lease liabilities Trade and other payables 30 June 2007 Non-derivative financial assets Cash and cash equivalents Trade and other receivables Construction work in progress Non-derivative financial liabilities Finance lease liabilities Trade and other payables	Effective rate	Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years

	7.25%	25,689,555 25,689,555 25,689,555 - - - -
	-	10,990,644 10,990,644 10,219,854 - 770,790 - -
	-	1,571,837 1,571,837 1,571,837 - - - -
		38,252,036 38,252,036 37,481,246 - 770,790 - -

	8.5%	1,147,037 1,147,037 437,570 384,363 287,323 37,781 -
	-	8,532,532 8,532,532 8,532,532 - - - -
		9,679,569 9,679,569 8,970,102 384,363 287,323 37,781 -
	Effective rate 7.25% - - 8.5% -	Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years 9,179,161 9,179,161 9,179,161 - - - - 11,749,891 11,749,891 11,666,529 - 83,362 - - 668,589 668,589 668,589 - - - -
		21,597,641 21,597,641 21,514,279 - 83,362 - -
		1,466,209 1,611,473 455,372 429,516 653,251 73,335 - 8,728,343 8,728,343 8,331,561 - 396,782 - -
		10,194,552 10,339,816 8,786,933 429,516 1,050,033 73,335 -

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Company

30 June 2008

Non-derivative financial assets Cash and cash equivalents Trade and other receivables Non-derivative financial liabilities Finance lease liabilities Trade and other payables 30 June 2007 Non-derivative financial assets Cash and cash equivalents Trade and other receivables Non-derivative financial liabilities Finance lease liabilities Trade and other payables	Effective Rate	Carrying amount Contractual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years
	7.25%	25,154,287 25,154,287 25,154,287 - - - -
	-	8,731,837 8,731,837 8,133,719 - 598,118 - -
		33,886,124 33,886,124 33,288,006 - 598,118 37,781 -

	8.5%	1,147,037 1,147,037 437,570 384,363 287,323 37,781 -
	-	7,268,365 7,268,365 7,268,365 - - - -
		8,415,402 8,415,402 7,705,935 384,363 287,323 37,781 -
	6.5% - 8.5% -	9,039,068 9,039,068 9,039,068 - - - - 10,651,100 10,651,100 10,553,529 - 49,932 - -
		19,690,168 19,690,168 19,592,597 - 49,932 -
		1,466,209 1,611,473 455,372 429,516 653,251 73,335 - 8,047,365 8,047,365 7,650,583 - 396,782 - -
		9,513,574 9,658,838 8,105,955 429,516 1,050,033 73,335 -

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Group enters into derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Audit and Risk Management Committee.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency in which they are measured. The Group has exposures to the United States dollar (USD) and Peru nuevo sol (PEN).

During the period, the Group has hedged its foreign currency exposure in respect of specific transactions that occurred. The Group has used forward exchange contracts to hedge its currency risk, with all contracts having a maturity of less than one year from the reporting date. When necessary, forward exchange contracts are rolled over at maturity.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

As at balance date the details of the outstanding forward exchange contracts are:

		Consolidated Group	Consolidated Group
	Contract Value		Average Rate
	2008	2007	2008	2007
Sell USD		-			-
Settlement		-			-
Less than 6 months	9,000,000	-	0.9195		-
6 months to 1 year	3,900,000	-	0.9195		-


	Contract Value			Average Rate
	2008	2007		2008	2007
Sell USD			-			-
Settlement			-			-
Less than 6 months	9,000,000		-	0.9195		-
6 months to 1 year	3,900,000		-	0.9195		-

Exposure to currency risk

The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts:

Cash Trade receivables Trade and other payables Gross balance sheet exposure Forward exchange contracts Net exposure	USD USD 30 June 2008 30 June 2007 2,455,786 134,252 5,815,287 405,205 (2,313,552) -
	5,957,521 539,457
	12,900,000 -
	18,857,521 539,457

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Currency risk (continued)

The Company’s exposure to foreign currency risk was as follows, based on notional amounts:

Cash Trade receivables Trade and other payables Gross balance sheet exposure	USD USD 30 June 2008 30 June 2007 1,941,126 134,252 1,467,616 405,205 - -
	3,408,742 539,457

The following significant exchange rates applied during the year:

		Average rate		Reporting	date spot rate
	2008		2007	2008	2007
USD:AUD	0.90		0.79	0.96	0.85

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Sensitivity analysis

A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2007.

30 June 2008 USD 30 June 2007 USD 30 June 2008 USD 30 June 2007 USD	Consolidated Profit or loss Equity 10% increase 10% decrease 10% increase 10% decrease	Consolidated Profit or loss Equity 10% increase 10% decrease 10% increase 10% decrease
	(563,279) 688,452	- -

	(49,042) 59,940	- -
	Company Profit or loss Equity 10% increase 10% decrease 10% increase 10% decrease
	(322,294) 393,915	- -

	(49,042) 59,940	- -

Interest rate risk

The Group’s borrowings are not directly exposed to interest rate risk due to the interest bearing liabilities being fixed-rate contracts.

Profile

At the reporting date the interest rate profile of the Company’s and the Group’s interest-bearing financial instruments was:

In thousands of AUD Fixed rate instruments Financial liabilities Variable rate instruments Financial assets	Consolidated Carrying amount Company Carrying amount 2008 2007 2008 2007 (1,147,037) (1,466,209) (1,147,037) (1,466,209)
	25,689,555 9,179,161 25,154,287 9,039,068

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (forward exchange contracts) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

22. Financial instruments (continued)

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2007.

30 June 2008 Variable rate instruments Cash flow sensitivity (net) 30 June 2007 Variable rate instruments Cash flow sensitivity (net)	Profit or loss 100bp increase 100bp decrease	Equity 100bp increase 100bp decrease
	256,986 (256,986)	- -
	256,986 (256,986)	- -
	91,792 (91,792)	- -
	91,792 (91,792)	- -

Fair values

Fair values versus carrying amounts

The fair values of financial assets and liabilities equates to the carrying values shown in the balance sheets.

Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, where applicable, are the weighted average effective interest rate applicable during the period, and were as follows:

pplicable during the period, and were as follows:
	2008	2007
Cash	7.25%	6.5%
Trade receivables	n/a	n/a
Forward exchange contracts	n/a	n/a
Finance lease liabilities	8.5%	8.5%
Trade and other payables	n/a	n/a

Other Price Risk

The Group is not directly exposed to any other price risk.

Capital Management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors has not implemented a formal capital management policy however they have implemented a dividend policy.

The Group intends to distribute to shareholders approximately 50% of net profit after tax in the form of fully franked dividends, subject to general business and financial conditions, the Group’s taxation position, its working capital and future capital expenditure requirements, the availability of sufficient franking credits and any other factors the Board considers relevant.

There were no changes in the Group’s approach to capital management during the year.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

23. Loans and borrowings

This note provides information about the contractual terms of the Company’s and Group’s interest-bearing loans and borrowings which are measured at amortised cost. For more information about the Company’s and Group’s exposure to interest rate, foreign currency, liquidity and risk, see note 22.

Current liabilities Obligations under finance leases and hire purchase contracts Non-current liabilities Obligations under finance leases and hire purchase contracts	Consolidated Company 2008 2007 2008 2007 821,932 800,900 821,933 800,900
	821,932 800,900 821,933 800,900
	325,105 665,309 325,105 665,309
	325,105 665,309 325,105 665,309

The above hire purchase liabilities are carried in the accounts at their carrying value.

24. Capital and reserves

Share capital

Note Ordinary shares Issued and fully paid Movements in shares on issue Balance at the beginning of the financial year Conversion of ordinary shares (i) Shares issued as part of initial public offering (ii) Cost of capital raising Balance at the end of the financial year	Consolidated and Company 2008 2007 Number $ Number $ 120,000,000 19,792,706 750,002 750,002 750,002 750,002 750,002 750,002 99,249,998 - - - 20,000,000 20,000,000 - - - (957,296) - -
	120,000,000 19,792,706 750,002 750,002

(i) There was a conversion of 750,002 shares to 100,000,000 shares in accordance with a Members’ resolution.

(ii) The Company issued 20,000,000 shares on 26[th] November 2007 as part of the initial listing of the Company’s securities on the Australian Stock Exchange.

The Company does not have authorised capital or par value in respect of its issued shares.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Option reserve

The option reserve records the value of share based payments provided to employees.

Acquisitions of minority interests

During the year the Group acquired an additional 2 percent interest in Cruz Del Sur Ingenieria Electra (Peru) S.A Ltd from Frank Tomasi (1%) and David Tomasi (1%) for their historical cost in the company ($1), increasing its ownership from 98 to 100 percent.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

24. Capital and reserves (continued)

Dividends

Dividends recognised in the current year by the Group are:

Dividends recognised in the current year by the Group are:
Cents per share	Total amount Franked Date of payment
2008
Interim 2008 ordinary 5.06	5,056,478 Franked 31 October 2007
Interim 2008 ordinary 2.3	2,300,000 Franked 21 November 2007
Interim 2008 ordinary 2.0	2,400,000 Franked 21 March 2008
Total amount	9,756,478
2007 Final 2006 ordinary 7.1 Total amount	7,115,043 Franked 30 June 2008 7,115,043

Franked dividends declared or paid during the year were franked at the tax rate of 30%.

After 30 June 2008 the following dividends were proposed by the directors for 2008. The dividends have not been provided. The declaration and subsequent payment of dividends has no income tax consequences.

			Cents per share	Total amount	Franked	Date of
						payment
Final	2008	ordinary	4.0	4,800,000	Franked	26 September 2008

The financial effect of these dividends have not been brought to account in the financial statements for the financial year ended 30 June 2008 and will be recognised in subsequent financial reports.

	Company	Company
	2008	2007
Franking account balance	3,337,300	1,676,059

The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:

(a) franking credits that will arise from the payment of the current tax liabilities; and

(b) franking debits that will arise from the payment of dividends recognised as a liability at the year end.

The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $2,057,143.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

25. Reconciliation of cash flows from operating activities

25.
Reconciliation of cash flows from operating activities

Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Gain on sale of property, plant and equipment
Equity-settled share-based payment transactions
Net (gain)/loss on foreign exchange
Other non-cash items
(Increase)/decrease in assets
Change in trade and other receivables
Change in work in progress
Change in inventories
Change in derivatives
Change in prepayments
Increase/(decrease) in liabilities
Change in trade and other payables
Change in provisions and employee benefits
Change in income tax payable
Change in deferred income tax
Net cash from operating activities

Consolidated
Company
2008
2007
2008
2007
11,312,261
10,977,266
10,062,859
9,771,937
1,130,563
862,291
1,043,634
862,291
(79,454)
(3,835)
(79,454)
(3,835)
76,514
-
76,514
-
36,866
-
(6,362)
-
-
638,285
-
300,819
931,919
(995,782)
2,091,935
(650,818)
(903,249)
(668,589)
-
-
(365,512)
-
-
-
(612,827)
-
(612,827)
-
(1,114,683)
-
(1,114,683)
-
(195,812)
3,531,227
(779,001)
3,658,745
308,615
(168,338)
(198,423)
(168,338)
(190,185)
1,517,526
(1,105,271)
1,517,526
(459,157)
(222,500)
(730,131)
(351,183)

9,875,859
15,467,551
8,648,790
14,937,144

Southern Cross Electrical Engineering Limited

Notes to the financial statements

26. Related parties

Details of Key Management Personnel

Directors Gianfranco Tomasi Chairman (non-executive) Stephen Pearce Managing Director Appointed 18[th] August 2008 Brian Carman Director (non-executive) John Cooper Director (non-executive) Appointed 28[th] October 2008 Douglas Fargher Director (non-executive) Appointed 27[th] October 2008 David Tomasi Director (non-executive) Resigned 30[th] October 2007 Executives Simon Buchhorn Chief Operating Officer Stephen Fewster Chief Financial Officer Appointed 4[th] March 2008

Other than the appointment of Mr Stephen Pearce, there were no other changes of key management people after reporting date and before the date the financial report was authorised for issue.

Key management personnel compensation

The key management personnel compensation is as follows:

Short-term employee benefits Post-employment benefits Share-based payments	Consolidated Company 2008 2007 2008 2007 351,343 236,510 351,343 236,510 56,880 42,308 56,880 42,308 76,514 - 76,514 -
	484,737 278,818 484,737 278,818

Individual directors and executives compensation disclosures

Information regarding individual directors and executives’ compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M.3.03 are provided in the Remuneration Report section of the Directors’ Report on pages 6 to 15.

Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end.

Other key management personnel transactions

The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year. The terms and conditions of the transactions with the related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arm’s length basis.

asis.
			Transactions value year
			ended 30 June
		*Note*	2008	2007
Other related parties
F & A Tomasi Superannuation Fund	Rental income	(i)	159,504	152,000
Frank Tomasi Family Trust	Rental income	(ii)	30,000	56,100
G & A Tomasi	Rental income	(iii)	109,584	89,760
Frank Tomasi Family Trust	Rental income	(iv)	17,959	-

(i) F & A Tomasi Superannuation Fund owns the property at 41 Macedonia St , Naval Base WA, which is leased to Southern Cross Electrical Engineering Ltd.

(ii) Frank Tomasi Family Trust owns the properties at 46, 48 & 50 Burlington St, Naval Base WA, which is leased to Southern Cross Electrical Engineering Ltd.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

26 Related parties (continued)

Other key management personnel transactions (continued)

(iii) G & A Tomasi own the property at Lot 2 Covehill Road Tasmania, which is leased to Southern Cross Electrical Engineering Ltd.
(iv) Frank Tomasi Family Trust owns the property which is leased to the Denver branch of Southern Cross Electrical Engineering Ltd.

Gianfranco Tomasi and spouse are sole directors of Frank Tomasi Nominees Pty Ltd and are the sole shareholders. Frank Tomasi Nominees Pty Ltd as trustee for the Frank Tomasi Family Trust is a major shareholder of Southern Cross Electrical Engineering Ltd.

Under the terms of each of the above property leases, the rent payable is subject to an annual review. This review adjusts the annual rent by the movement in the consumer price index. At the completion of every third year the annual rent is subject to a market review.

Loans from related parties

At balance date Southern Cross Electrical Engineering Limited owed $150,170 to Southern Cross (Chile) Ingeneria Electrica Ltda which is ultimately a company wholly owned by Mr Gianfranco Tomasi. The debt has no fixed maturity date and interest is not charged on the outstanding balance.

Options and rights over equity instruments

The movement during the reporting period in the number of options over ordinary shares in Southern Cross Electrical Engineering Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

Executives Simon Buchhorn Chief Operating Officer Stephen Fewster Chief Financial Officer	Held at 1 July 2007 Granted as compensation Exercised Other changes Held at 30 June 2008 Vested during the year Vested and exercisable at 30 June 2008

	- 500,000 - - 500,000 - -
	- 500,000 - - 500,000 - -
	1,000,000 - - 1,000,000 - -

During the year ended 30 June 2008 the Company established the Senior Management Long Term Incentive Plan. The key terms of the options issued are as follows:

Each option is over 1 unissued share;
Each option is granted at no cost;
The exercise price of each option is $1.15, which is payable by the holder on exercise of each vested option;
The options will vest, and only become exercisable, in three annual tranches commencing from the anniversary date of grant and provided that the Performance Hurdles are achieved; and
The exercise period for the options will expire on the date 4 years after vesting.

The weighted average fair value of the options granted during the year was $0.2194. The price was calculated using a Black Scholes option model applying the following inputs:

Weighted average exercise price	$1.15
Weighted average life of option	3.5 years
Underlying share price	$1.00
Expected share volatility	25.00%
Risk free rate	6.52%

Southern Cross Electrical Engineering Limited

Notes to the financial statements

26 Related parties (continued)

Options and rights over equity instruments (continued)

Due to the Company’s shares being quoted on the Australian Stock Exchange from 28[th] November 2007, the historical volatility of similar companies has been the basis for determining expected share price volatility as it is assumed that this is indicative of future tender, which may not eventuate.

Movements in shares

The movement during the reporting period in the number of ordinary shares in Southern Cross Electrical Engineering Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows

	Held at			Received			Held at
	1 July			on exercise			30 June
	2007		Purchases	of options	Other*	Sales	2008
Directors
Gianfranco Tomasi	750,002		-	-	99,249,998	(38,800,000)	61,200,000
Brian Carman	-		1,500,000	-	-	-	1,500,000
John Cooper	-		100,000	-	-	-	100,000
Douglas Fargher	-		100,000	-	-	-	100,000
Executives
Simon Buchhorn		-	500,000	-	-	-	500,000

Conversion of 750,002 ordinary shares into 100,000,000 ordinary shares.

Changes in key management personnel in the period after the reporting date and prior to the date when the financial report is authorised for issue

On 18 August 2008, Mr Stephen Pearce was appointed as the Managing Director of Southern Cross Electrical Engineering Limited.

On 1 September 2008, Mr Gianfranco Tomasi retired as an executive and continues as the Non-Executive Chariman of Southern Cross Electrical Engineering Limited.

Subsidiaries

Interest-free loans made by the Company to its subsidiary Cruz Del Sur Ingenieria Electra (Peru) S.A Ltd are repayable on demand. At 30 June 2008, the amount owed to the Company was $794,241 (2007: $14,209).

Other related parties

Key management persons related parties

For details of these transactions refer to key management personnel related disclosures.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

27. Share-based payments

On 30 October 2007 a Senior Management Long Term Incentive Plan that entitles key management personnel and senior employees to purchase shares in the Company was offered to the executives. During the period options were granted to the executives. In accordance with the disclosure contained in the prospectus, the options are exercisable at $1.15.

The terms and conditions of the grants are as follows. All options are to be settled by physical delivery of shares.

Grant date / employees entitled Option grant to Simon Buchhorn on 28 November 2007 Option grant to Simon Buchhorn on 28 November 2007 Option grant to Simon Buchhorn on 28 November 2007 Option grant to Stephen Fewster on 4 March 2008 Option grant to Stephen Fewster on 4 March 2008 Option grant to Stephen Fewster on 4 March 2008 Total share options	Number of intruments Vesting conditions 166,667 Employed 1 year after grant date and exceed Performance Hurdle 166,667 Employed 2 years after grant date and exceed Performance Hurdle 166,666 Employed 3 years after grant date and exceed Performance Hurdle 166,667 Employed 1 year after grant date and exceed Performance Hurdle 166,667 Employed 2 years after grant date and exceed Performance Hurdle 166,666 Employed 3 years after grant date and exceed Performance Hurdle 1,000,000	Contractual life of options
		4 years after vesting
		4 years after vesting
		4 years after vesting
		4 years after vesting
		4 years after vesting
		4 years after vesting

28. Commitments

Leasing commitments

Operating lease commitments – Group as lessee

The Group has entered into commercial property leases. These leases have an average life of 9 years remaining with options to renew at the end of the initial term.

Future minimum rentals payable under non-cancellable operating leases as at 30 June 2008 are

Within one year After one but no more than five years After more than five years Total minimum lease payments	Consolidated Company 2008 2007 2008 2007 265,713 - 265,713 - 1,062,853 - 1,062,853 - 1,175,993 - 1,175,993 -
	2,504,559 - 2,504,559 -

Southern Cross Electrical Engineering Limited

Notes to the financial statements

28. Commitments (continued)

Finance lease and hire purchase commitments – Group as lessee

The Group has finance lease and hire purchase contracts for various items of plant and equipment. These contracts expire within 1 and 3 years. Ownership of the asset passes to the company on completion of the final payment.

Finance lease and hire purchase commitments of the group are payable as follows:

Consolidated

Consolidated
Less than one year Between one and five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments	Future minimum lease payments Present value of minimum lease payments Future minimum lease payments Present value of minimum lease payments 2008 2008 2007 2007 880,925 880,925 884,217 884,217 339,578 339,578 694,092 694,092
	1,220,503 1,220,503 1,578,309 1,578,309
	(73,465) (73,465) (112,099) (112,099)
	1,147,038 1,147,038 1,466,210 1,466,210

Parent

Less than one year Between one and five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments	Future minimum lease payments Present value of minimum lease payments Future minimum lease payments Present value of minimum lease payments 2008 2008 2007 2007 880,925 880,925 884,217 884,217 339,578 339,578 694,092 694,092
	1,220,503 1,220,503 1,578,309 1,578,309
	(73,465) (73,465) (112,100) (112,100)
	1,147,038 1,147,038 1,466,209 1,466,209

29. Contingencies

The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

	Consolidated	Consolidated	Company	Company
	2008	2007	2008	2007
Bank Guarantees	5,661,321	10,496,100	5,246,854	10,496,100

Total bank guarantee facilities at 30 June 2008 were $15,000,000 and the unused portion was $9,753,146. This facility is subject to annual review.

30. Subsequent events

There are no matters or circumstances that have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent financial years.

On 18 August 2008, Mr Stephen Pearce was appointed as Managing Director of Southern Cross Electrical Engineering Limited.

On 1 September 2008, Mr Gianfranco Tomasi retired as an executive and continues on as the Non-Executive Chairman of Southern Cross Electrical Engineering Limited.

On 25 August 2008 the Directors of Southern Cross Electrical Engineering Ltd declared a final dividend on ordinary shares in respect of the 2008 financial year. The total amount of the dividend is $4,800,000, which represents a fully franked dividend of 4.0 cents per share.

Southern Cross Electrical Engineering Limited

Notes to the financial statements

31. Change in accounting policy

The consolidated group changed its accounting policy for the financial year ending 30 June 2008 relating to the measurement of construction work in progress.

Construction work in progress was not previously recognised by the group and all expenses incurred on a project were expensed as they were incurred. Construction work in progress represents the costs incurred and expected to be collected from customers for contract work performed to date. It is measured at cost recognised to date. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity

The aggregate effect of the change in accounting policy on the annual financial statements for the year ended 30 June 2008 is as follows:

	Previously		Restated	Previously		Restated
	Stated 2008	Adjustment	2008	Stated 2007	Adjustment	2007
Consolidated
Income Statement
Changes in construction work in
progress	-	1,571,837	1,571,837	-	668,589	668,589
Profit after tax	10,211,975	1,100,286	11,312,261	10,289,711	468,010	10,757,721
Basic earnings per share	9.13	0.98	10.11	10.29	0.47	10.76
Diluted earnings per share	9.09	0.98	10.07	10.29	0.47	10.76
Balance Sheet
Construction work in progress	-	1,571,837	1,571,837	-	668,589	668,589
Retained earnings	12,235,258	1,100,286	13,335,544	12,364,359	468,010	12,832,369
Company
Income Statement
Changes in construction work in
progress	-	-	-	-	-	-
Profit after tax	-		-	-	-	-

Southern Cross Electrical Engineering Limited

Notes to the financial statements

31. Change in accounting policy (continued)

The following Australian Accounting Standards have been issued or amended and are applicable to the parent and consolidated group but are not yet effective. They have not been adopted in preparation of the financial statements at reporting date.

AASB Amendment	Standards Affected	Outline of Amendment	Application date of the standard	Application date for Group
AASB 2007-3 Amendments to Australian Accounting Standards	AASB 5: Non-current Assets Held for Sale and Discontinued Operations AASB 6: Exploration for and Evaluation of Mineral AASB 102: Inventories AASB 107: Cash Flow Statements AASB 119: Employee Benefits AASB 127: Consolidated and Separate Financial Statements AASB 134: Interim Financial Reporting AASB 136: Impairment of Assets AASB 1023: General Insurance Contracts AASB 1038: Life Insurance Contracts	The disclosure requirements of AASB 114: Segment Reporting have been replaced due to the issuing of AASB 8: Segment Reporting in February 2007. These amendments will involve changes to segment reporting disclosures within the financial report. However, it is anticipated there will be no direct impact on recognition and measurement criteria amounts included in the financial report.	1 Jan 2009	1 July 2009
AASB 8 Operating Segments	AASB 114: Segment Reporting	As above.	1 Jan 2009	1 July 2009
AASB 2007-6 Amendments to Australian Accounting Standards	AASB 1: First time adoption of AIFRS AASB 101: Presentation of Financial Statements AASB 107: Cash Flow Statements AASB 111: Construction Contracts AASB 116: Property, Plant and Equipment AASB 138: Intangible Assets	The revised AASB 123: Borrowing Costs issued in June 2007 has removed the option to expense all borrowing costs. This amendment will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. However, there will be no direct impact to the amounts included in the financial group as they already capitalise borrowing costs related to qualifying assets.	1 Jan 2009	1 July 2009
AASB 123 Borrowing Costs	AASB 123: Borrowing Costs	As above.	1 Jan 2009	1 July 2009

AASB Amendment	Standards Affected	Outline of Amendment	Application date of the standard	Application date for Group
AASB 2007-8 Amendments to Australian Accounting Standards	AASB 101: Presentation of Financial Statements	The revised AASB 101: Presentation of Financial Statements issued in September 2007 requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity.	1 Jan 2009	1 July 2009
AASB 101	AASB 101: Presentation of Financial Statements	As above.	1 Jan 2009	1 July 2009

31. Auditors’ remuneration

uditors’ remuneration
Remuneration of Grant Thornton as the auditor of the parent entity for: - Auditing or reviewing the financial report - Independent Accountant’s Report Remuneration of KPMG as auditor of the financial report of a subsidiary	Consolidated Company 2008 2007 2008 2007 102,299 32,000 102,299 32,000 39,500 - 39,500 - 20,800 - 20,800 -
	162,599 32,000 162,599 32,000

Directors’ declaration

The directors of the company declare that:

the financial statements and notes, as set out on pages 19 to 61, are in accordance with the Corporations Act 2001 and:
a. comply with Accounting Standards and the Corporations Regulations 2001; and
b. give a true and fair view of the financial position as at 30 June 2008 and of the performance for the year ended on that date of the company and consolidated group;
the Chief Executive Officer and Chief Finance Officer have each declared that:
a. the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001
b. the financial statements and notes for the financial year comply with the Accounting Standards; and
c. the financial statements and notes for the financial year give a true and fair view;
in the directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

On behalf of the Board

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Gianfranco Tomasi Director Perth 26[th] September 2008

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Grant Thornton (WA) Partnership ABN: 17 735 344 518 Level 1 10 Kings Park Road West Perth WA 6005 PO BOX 570 West Perth WA 6872

INDEPENDENT AUDITOR’S REPORT To the members of Southern Cross Electrical Engineering Ltd

T +61 8 9480 2000 F +61 8 9322 7787 E [email protected] W www.grantthornton.com.au

Report on the Financial Report

We have audited the accompanying financial report of Southern Cross Electrical Engineering Ltd (the company) which comprises the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

Liability limited by a scheme approved under Professional Standards Legislation.

Grant Thornton (WA) Partnership is an independent business entitled to trade under the international name Grant Thornton. Grant Thornton is a trademark owned by Grant Thornton International and used under licence by independent firms and entities throughout the world.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Electronic Presentation of Audited Financial Report

This auditor’s report relates to the financial report of Southern Cross Electrical Engineering Ltd for the year ended 30 June 2008 included on Southern Cross Electrical Engineering Ltd’s web site. The company’s directors are responsible for the integrity of the web site. We have not been engaged to report on the integrity of the web site. The auditor’s report refers only to the statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report to confirm the information included in the audited financial report presented on this web site

Independence

In conducting our audit, we complied with applicable independence requirements of the Corporations Act 2001 .

Auditor’s Opinion

In our opinion:

(a) the financial report of Southern Cross Electrical Engineering Ltd is in accordance with the Corporations Act 2001 , including:
i. giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and
ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 ; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.

Report on the Remuneration Report

We have audited the Remuneration Report included on pages 8 to 13 of the directors’ report for the year ended 30 June 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of Southern Cross Electrical Engineering Ltd for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001 .

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GRANT THORNTON (WA) PARTNERSHIP

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Michael J Hillgrove Partner

Perth, 26 September 2008

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AUDITOR’S INDEPENDENCE DECLARATION

Grant Thornton (WA) Partnership ABN: 17 735 344 518 Level 1 10 Kings Park Road West Perth WA 6005 PO BOX 570 West Perth WA 6872 T +61 8 9480 2000 F +61 8 9322 7787 E [email protected] W www.grantthornton.com.au

TO THE DIRECTORS OF SOUTHERN CROSS ELECTRICAL ENGINEERING LIMITED

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Southern Cross Electrical Engineering Limited for the year ended 30 June 2008, I declare that, to the best of my knowledge and belief, there have been:

(a) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) No contraventions of any applicable code of professional conduct in relation to the audit.

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GRANT THORNTON (WA) PARTNERSHIP

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Michael J Hillgrove Partner

Perth

Date: 26 September 2008

Liability limited by a scheme approved under Professional Standards Legislation.

ASX additional information

Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below.

Shareholdings (as at 25 September 2008)

Substantial shareholders

The number of shares held by substantial shareholders and their associates are set out below:

Shareholder	Number	Number
Gianfranco Tomasi	61,200,000	51.0%
Perpetual Limited	8,619,434	7.18%
Hunter Hall Investment Management Limited	6,286,174	5.24%
Portfolio Partners Limited	6,065,554	5.05%

Voting rights

Ordinary shares

Refer to note 26 in the financial statements

Options

There are no voting rights attached to the options.

Distribution of equity security holders

Category 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,000 - 100,000 100,000 and over	Number of equity security holders Ordinary shares Options 48 - 304 - 229 - 352 - 47 2
	980 2

The number of shareholders holding less than a marketable parcel of ordinary shares is 13.

Securities Exchange

The Company is listed on the Australian Securities Exchange. The Home exchange is Perth.

Other information

Southern Cross Electrical Engineering Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.

ASX additional information (continued)

Twenty largest shareholders

Name
Frank Tomasi Nominees Pty Ltd
J P Morgan Nominees
Cogent Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited (PIIC A/C)
National Nominees Limited
Citicorp Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited (PIPooled A/C)
REC Investments Pty Ltd
Mr Brian Carman + Mrs Margaret Carmen
Citicorp Nominees Pty Limited
Queensland Investment Corporation
AMP Life Limited
RBC Dexia Investor Services Australia Nominees Pty Limited (MLCI A/C)
Mr Simon Buchhorn
Mr Brian Carman
Mr Rex Gardner
Mr Casio Della Rocca
Mr Nigel Taylor
Bond Street Custodians Limited
Zero Nominees Pty Ltd

Number of ordinary
shares held
Percentage of
capital held
61,200,000
51.0
8,822,238
7.35
6,137,083
5.11
4,887,182
4.07
4,811,564
4.01
4,109,699
3.42
3,745,973
3.12
1,050,000
0.88
1,000,000
0.83
949,019
0.79
651,445
0.54
578,000
0.48
502,623
0.42
500,000
0.42
500,000
0.42
500,000
0.42
500,000
0.42
500,000
0.42
468,643
0.39
468,500
0.39

101,881,969
84.90

Offices and officers

Company Secretary

Stephen Fewster

Principal Registered Office

Southern Cross Electrical Engineering Limited 41 Macedonia Street Naval Base Western Australia 6165 +618 9410 1833 +618 9410 2504

Locations of Share Registry

Perth

Computershare Limited 31 Howe Street Osborne Park Western Australia 6017 +618 9323 2000

AI assistant

SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Annual Report 2008

65884_rns_2008-09-28_1cfda32b-d5e2-4833-a210-e30b138d3e86.pdf

Contents

Southern Cross Electrical Engineering Limited

Chairman’s Review

Southern Cross Electrical Engineering Limited

Directors’ report

For the year ended 30 June 2008

Directors

Name, qualifications and Experience, special responsibilities and other directorships independence status

Name, qualifications and independence status

Experience, special responsibilities and other directorships

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Company Secretary

Interests in the shares and options of the company and related bodies corporate

Directors’ Meetings

Gianfranco Tomasi is not a member of the Audit and Risk Committee and the Remuneration and Nomination Committee. As the Board Chairman, Mr Tomasi has a standing invitation to attend committee meetings.

Dividends

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Principal Activities

Operating and Financial Review

Significant Changes in the State of Affairs

Significant Events After Balance Date

Likely Developments and Expected Results

Environmental Regulation and Performance

Share Options

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Indemnification and Insurance of Directors and Officers

Proceedings on Behalf of Company

Non-audit Services

Auditor’s Independence Declaration

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Remuneration report – audited

Remuneration and Nomination Committee

Remuneration Philosophy

Remuneration Structure

Non- Executive Director Remuneration

Objective

Structure

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Executive Remuneration

Objectives

Structure

Fixed Remuneration

Objective

Structure

Variable Remuneration – Short Term Incentive (STI)

Objective

Structure

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Variable Remuneration – Long Term Incentive (LTI)

Objective

Structure

Performance Hurdle

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Employment Contracts

Company Performance

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Table 1 Remuneration of Key Management Personnel

Southern Cross Electrical Engineering Limited

Directors’ report (continued)

Corporate governance statement

www.scee.com.au

Board Functions

Corporate governance statement (continued)

Structure of the Board

Trading Policy

Corporate governance statement (continued)

Audit and Risk Committee

Risk

Managing Director and CFO Certification

SOUTHERN CROSS ELECTRICAL ENGINEERING LTD Annual Report 2008