SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Annual Report 2011

Aug 25, 2011

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SOUTHERN CROSS

ELECTRICAL ENGINEERING LIMITED

ASX Release

26 August 2011

Southern Cross Electrical Engineering Full Year Results

Electrical and instrumentation construction specialist, Southern Cross Electrical Engineering Limited (ASX:SXE) today released its full year financial results for the year ended 30 June 2011.

The result reflects two distinct periods of financial performance, with a strong turnaround occurring in the second half year. The table below shows the key financial results, for the two half years, and for the 12 month period.

6 months to	6 months to		12 months to	12 months to
Dec	June	($m)	June	June
2011	2010		2011	2010
47.3	54.5	Sales revenue	101.8	97.4
2.3	13.9	Gross profit	16.2	30.6
(5.4)	6.0	EBITDA	0.6	16.4
(4.8)	3.1	Statutory NPAT	(1.7)	8.7
(10.1)%	5.7%	Statutory NPAT margin	(1.6)%	8.9%
		Earnings per share (cps)	(1.3)	7.1
nil	nil	Dividend (cps)	nil	6.5

For the year ended 30 June 2011 SXE recorded an increase in revenue of $4.4 million (4.5%) to $101.8 million driven by the substantial growth in the number and value of resources projects that have commenced in Australia relative to last year. The revenue in H2 was 16% above levels recorded in the first half at $54.5 million reflecting the turnaround in performance.

On 17 August 2011, SXE announced it had won another contract at the Sino Iron Project and this contract increased the Company’s order book to approximately $75 million. The order book covers projects across all the SXE business units and represents work to be completed during FY12.

Managing Director Simon High commented, “Whilst overall 2011 was a difficult year, it was very encouraging to see the turnaround in performance in the second half. As an electrical engineer we feature later in the project cycle, and we are now seeing the earnings and revenue momentum growing strongly. Our order book is a lead indicator of future performance and it currently stands at

around $75 million, up $48 million compared to 30 June 2010. We have recently won a major project with Sino and further project wins are expected in the near term.”

Whilst revenue increased over FY11, earnings decreased due to a combination of competitive pressures and some challenging projects, particularly in the first half of FY11. This resulted in gross margin for the year being 15.9% (FY10: 31.4%). Reduced margins led to a net loss after tax of $1.7 million (FY10: profit of $8.7 million). Gross margins improved to 25.5% in the June half compared to the December half gross margin of 4.8%. The margin improvement coincides with a successful completion and commercial resolution to the Pluto project.

“The Pluto project’s successful completion has provided Southern Cross with a hallmark project in the oil and gas sector. We are confident our successful completion of this project will result in further work being generated in this segment”, said Mr High.

SXE retains a strong balance sheet with current assets exceeding current liabilities by $46 million, and a net cash position which was assisted by the successful capital raising undertaken earlier in the year. The operational cashflow showed a strong positive turnaround in the past six months recording $4.6 million in operational cash flow in the six months to 30 June.

The integration of the acquisitions undertaken in FY10 have been successfully completed. As part of this process, Oceanic was re‐branded Southern Cross Electrical Engineering Ltd and has resulted in an increase in tenders for a number of large scale coal seam gas projects in Queensland.

“Our acquisitions are now starting to bear fruit, our tender pipeline is much broader than previously, and we now have added an additional business line of ‘Operation, Support and Maintenance’.This will provide us with recurrent revenues into the future, to help alleviate the troughs that we saw in the first half of the year”, said Mr High.

SXE continues to maintain its exceptional safety record having completed its seventh consecutive lost time injury free year. The Company also received AS 4801 and ISO 14001 accreditation for its safety and environmental management systems. SXE was awarded the Regional Managing Director's Contractors HSE Excellence Award (Australia & New Zealand) by Worley Parsons and the NECA WA Excellence award for safety for 2011 for the Company’s safety performance at Pluto.

Outlook

Mr High concluded “We are well placed to win further contracts across all of our five major business lines. Our numbers of tenders are increasing and we expect to make further announcements of contract wins in the near term. This, together with our current work in hand of $75 million, provides us with confidence for stronger performance in 2012 and beyond. Our margins should improve further over 2012 as the lower margin contracts unwind and are replaced with the current improved margin environment, and revenues should show double digit growth over the next twelve months.”

For further information contact:

Mr Simon High Mr Stephen Fewster Managing Director Chief Financial Officer Southern Cross Electrical Engineering Limited Southern Cross Electrical Engineering Limited +61 (8) 9410 1833 + 61 (8) 9410 1833 www.scee.com.au www.scee.com.au