SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Annual Report 2011

Aug 25, 2011

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Southern Cross Electrical Engineering Limited

Preliminary Financial Report and Appendix 4E For the year ended 30 June 2011

Southern Cross Electrical Engineering Limited

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CONTENTS

RESULTS FOR ANNOUNCEMENT TO THE MARKET	3
CONSOLIDATED INCOME STATEMENT	6
CONSOLIDATED COMPREHENSIVE INCOME STATEMENT	7
CONSOLIDATED BALANCE SHEET	8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	9
CONSOLIDATED STATEMENT OF CASH FLOWS	10
NOTES TO THE PRELIMINARY FINAL REPORT	11

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Southern Cross Electrical Engineering Limited

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Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011 Results for Announcement to the Market

	Amount	Percentage
	$	Change
Revenue and Net Profit
Revenue from ordinary activities	$101,779,659	4.5%
Profit/(loss) from ordinary activities after tax attributable to members	($1,651,824)	(119.0%)
Net profit/(loss) for the full year attributable to members	($1,651,824)	(119.0%)
	Amount per	Franked amount
	security	per security
Dividends
Interim dividend for 2011	0.0 cents	0.0 cents
Final dividend	0.0 cents	0.0 cents
Record date for determining entitlements to the dividend	Not applicable
Date the final dividend is payable	Not applicable
Details of dividend or distribution re‐investment plan – The Company	Not applicable
does not operate a dividend re‐investment plan.
NTA Backing	Year Ended 30	Year Ended 30
	June 2011	June 2010
Net tangible asset backing per security (cents per share)	34.2 cps	23.8 cps

The increase in Net Tangible Asset Backing is primarily attributable to the increase in cash following Southern Cross Electrical Engineering Ltd (“SCEE”) undertaking an equity capital raising and share purchase plan at $0.90 per share to fund future working capital requirements.

Details of entities over which control has been gained or lost during the period

During the period there was no change of control of any entities within the consolidated group of Southern Cross Electrical Engineering Ltd.

Details of associates and joint venture entities

The company has no interest in any associates or joint ventures.

Audit

The preliminary financial report is based on financial statements which are in the process of being audited.

Previous Corresponding Reporting Period

The previous corresponding reporting period is the year ended 30 June 2010.

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Southern Cross Electrical Engineering Limited

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Commentary on the Results for the Period

For the year ended 30 June 2011 (“FY11”) SCEE has reported an increase in revenue of $4.4 million (4.5%) to $101.8 million.

The order book, a lead indicator of future performance, is currently at around $75 million, up $48 million as compared to the level of order book 14 months ago at 30 June 2010. This increase was driven by the substantial growth in the number and value of resource projects that have commenced in Australia relative to last year.

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).

The FY11 result reflected a strong turnaround in the second half of the year. Gross margins improved to 25.5% in the June half compared to the December half gross margin of 4.8%. The December half gross margin was impacted by profit recognition assumptions in relation to work undertaken on the Pluto project. Since June 2010, SCEE has worked constructively with Woodside and Foster Wheeler Worley Parson to physically and commercially complete this project. At the date of this report the work was completed on terms to the satisfaction of all parties.

SCEE’s FY11 result also included:

• the Company’s decision to not finalise an agreement to undertake work on the Gorgon project. The costs incurred on this project in FY11 of $600k were fully expensed and reflected in the second half results

• delays in the start of a number of awarded projects which has deferred those projects’ earnings to FY12

• increased employee expenses of $1.6 million reflecting an increase in staff numbers to support the Company’s growth plans, the inclusion of a full 12 months of salary expenses from Oceanic Industries (“Oceanic”), and a general increase in salary levels across the engineering services industry.

• increased interest expense due to the use of the Company’s overdraft facility across to fund SCEE’s working capital requirements.

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

Major projects completed during FY11 or underway at year end included:

PROJECT	CLIENT	COMPLETED/ONGOING
Pluto LNG Project	Woodside Burrup Pty Ltd	Complete
Mt Keith Talc Redesign Project	BHP Billiton Nickel West Pty Ltd	Ongoing
Pueblo Viejo Gold Project	Pueblo Viejo Dominicana Corporation	Ongoing
Sino Iron Project	MCC Mining (WA) Pty Ltd	Ongoing
Cadia Expansion Project	Cadia Holdings Pty Ltd	Ongoing
Rio Tinto Iron Ore Sustaining Works	Various Rio Tinto Iron Ore group of	Ongoing
Projects.	companies

SCEE’s balance sheet is strong with current assets exceeding current liabilities by $46 million. The cash flow generated from operations in the June half was $4.6 million following a deficit in the December half of $4.4 million. The overall result for the full year was positive cash flow from operations of $212k.

During FY11 the Company finalised the integration of the acquisitions it undertook in FY10. As part of this process, Oceanic was re‐branded Southern Cross Electrical Engineering Ltd and all Oceanic employees became SCEE employees. This integration has resulted in the Brisbane branch of SCEE being invited to tender on a number of large scale coal seam gas projects.

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Southern Cross Electrical Engineering Limited

Also as part of the integration process, SCEE’s power line business, K.J. Johnson & Co (“KJJ”), relocated to SCEE’s main premises in Naval Base. This provides KJJ with access to project support infrastructure that will assist it in its growth plans. Following this re‐location, the previous KJJ land and buildings are in the process of being sold. These assets are reflected in the balance sheet as assets held for sale.

SCEE 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. SCEE was awarded the Regional Managing Director's Contractors HSE Excellence Award (Australia & New Zealand) by Worley Parsons and the NECA Excellence award for safety for 2011 for the Company’s safety performance at Pluto.

In April 2011, SCEE undertook an equity capital raising and share purchase plan to raise funds for the Company’s future working capital requirements. In addition to the capital raising SCEE also negotiated a $30 million increase to its banking facilities. This provides the Company with a strong balance sheet to fund future growth.

In the light of the current year’s results and strong future growth opportunities, the Directors considered it prudent not to declare a final dividend for FY11. The Board will continue to consider future dividends reflecting the earnings profile of the Company while balancing the growth capital needs of its businesses.

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Southern Cross Electrical Engineering Limited

Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011 Consolidated Income Statement

Preliminary Financial Report and Appendix 4E for the Year Ended Consolidated Income Statement	30 June 2011
Notes	2011 2010 $ $
Contract revenue 3 Contract expenses Gross profit Other income 4 Employee benefits expenses 5 Occupancy expenses Administration expenses Other expenses 6 Business combination expenses Depreciation expense Amortisation of customer contract intangibles Profit/(Loss) from operating activities Finance income Finance expenses Net finance expense Profit/(Loss) before income tax Income tax benefit / (expense) 7 Profit/(Loss) for the period Attributable to members of the parent Earnings per share (cents per share) for (loss) / profit attributable to the ordinary equity holders of the Company: ‐ basic (cents) ‐ diluted (cents)	101,779,659 97,375,796 (85,597,963) (66,777,334)
	16,181,696 30,598,462 (64,293) (32,235) (10,096,437) (8,453,897) (733,120) (739,074) (3,413,630) (2,260,511) (773,540) (845,009) (456,340) (1,871,790) (1,605,130) (1,537,977) (150,600) (1,133,152)
	(1,111,394) 13,724,817 169,679 432,160 (970,099) (298,232)
	(800,420) 133,928
	(1,911,814) 13,858,745 259,990 (5,183,308)
	(1,651,824) 8,675,437
	(1,651,824) 8,675,437
	(1.28) 7.11 (1.28) 7.11

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Southern Cross Electrical Engineering Limited

Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011

Consolidated Comprehensive Income Statement

Consolidated Comprehensive Income Statement
	2011 2010 $ $
Profit/(Loss) for the period Other comprehensive income Foreign currency translation differences for foreign operations Income tax on other comprehensive income Other comprehensive income for the period, net of income tax Total comprehensive income/(loss) for the period Attributed to Owners of the Company	(1,651,824) 8,675,437 358,408 121,336 ‐ ‐
	358,408 121,336
	(1,293,416) 8,796,773
	(1,293,416) 8,796,773

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Southern Cross Electrical Engineering Limited

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Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011 Consolidated Balance Sheet

Consolidated Balance Sheet
	2011 2010 $ $
Assets Current assets Cash and cash equivalents Term deposits Trade and other receivables Inventories Construction work in progress Prepayments Assets held for sale Total current assets Non‐current assets Property, plant and equipment Intangible assets and goodwill Total non‐current assets Total assets Liabilities Current liabilities Trade and other payables Unearned revenue Loans and borrowings Employee entitlements Total current liabilities Non‐current liabilities Loans and borrowings Employee entitlements Deferred tax liability Total non‐current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity	26,280,190 7,497,712 5,000,000 ‐ 17,507,949 12,464,990 1,301,457 1,268,865 5,930,884 15,680,806 172,607 40,780 3,610,000 ‐
	59,803,087 36,953,153
	9,083,281 12,519,400 17,701,249 17,851,851
	26,784,530 30,371,251
	86,587,617 67,324,404
	7,000,745 9,199,104 600,000 ‐ 3,486,492 1,998,923 2,623,172 2,756,932
	13,710,409 13,954,959
	‐ 2,935,492 205,357 278,879 3,436 2,735,103
	208,793 5,949,474
	13,919,202 19,904,433
	72,668,415 47,419,971
	56,984,100 24,964,368 340,002 (128,586) 15,344,313 22,584,189
	72,668,415 47,419,971

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Southern Cross Electrical Engineering Limited

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Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011 Consolidated Statement of Changes in Equity

Share Capital Retained Earnings Options Reserve	Translation Reserve Total Equity
Balance as at 1 July 2009 19,777,237 21,822,037 209,689 Total comprehensive income for the period Profit for the period ‐ 8,675,437 ‐ Foreign currency translation ‐ ‐ ‐	(571,405) 41,237,558 ‐ 8,675,437 121,336 121,336
Total comprehensive Income ‐ 8,675,437 ‐	121,336 8,796,773
Transactions with owners, recorded directly in equity Issue of ordinary shares 5,187,131 ‐ ‐ Dividends to equity holders ‐ (7,913,285) ‐ Cost of share based payment ‐ ‐ 111,794	‐ 5,187,131 ‐ (7,913,285) ‐ 111,794
Total transactions with owners 5,187,131 (7,913,285) 111,794	‐ (2,614,360)
Balance as at 30 June 2010 24,964,368 22,584,189 321,483	(450,069) 47,419,971
Share Capital Retained Earnings Options Reserve	Translation Reserve Total Equity
Balance as at 1 July 2010 24,964,368 22,584,189 321,483 Total comprehensive income for the period Profit for the period ‐ (1,651,824) ‐ Foreign currency translation ‐ ‐ ‐	(450,069) 47,419,971 ‐ (1,651,824) 358,408 358,408
Total comprehensive Income ‐ (1,651,824) ‐	358,408 (1,293,416)
Transactions with owners, recorded directly in equity Cost of share based payment ‐ ‐ 110,180 Issue of new shares 32,019,732 ‐ ‐ Dividends ‐ (5,588,052) ‐	‐ 110,180 ‐ 32,019,732 ‐ (5,588,052)
Total transactions with owners 32,019,732 (5,588,052) 110,180	‐ 26,541,860
Balance as at 30 June 2011 56,984,100 15,344,313 431,663	(91,661) 72,668,415

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Southern Cross Electrical Engineering Limited

Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011 Consolidated Statement of Cash Flows

Consolidated Statement of Cash Flows
Note	2011 2010 $ $
Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Interest received Interest paid Income taxes received / (paid) Net cash from operating activities 8 Cash flows from investing activities Acquisition of subsidiaries (net of cash acquired) Proceeds from the sale of assets Acquisition of property, plant and equipment Net cash (used in) investing activities Cash flows from financing activities Proceeds from the exercise of options Proceeds from issue of ordinary shares Proceeds from borrowings Repayment of borrowings Dividends paid Payment for term deposits Net cash (used in) financing activities Net increase (decrease) 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	105,141,952 98,628,622 (103,530,906) (93,756,236) 169,679 432,160 (970,099) (298,232) (598,572) (4,847,779)
	212,054 158,535
	‐ (19,734,960) ‐ 6,614 (1,779,013) (1,185,055)
	(1,779,013) (20,913,401)
	‐ 575,000 32,019,731 ‐ ‐ 4,975,000 (1,447,923) (757,153) (5,588,052) (7,913,285) (5,000,000)
	19,983,757 (3,120,438)
	18,416,798 (23,875,304) 7,497,712 31,305,768 365,680 67,248
	26,280,190 7,497,712

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Southern Cross Electrical Engineering Limited

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Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011

Notes to the Preliminary Final Report

1. Basis of Preparation

The preliminary final report is presented in Australian dollars and has been prepared on an accrual basis and is based on historical cost basis except for selected current and non‐current assets which are measured at fair value at reporting date.

The preliminary final report of the Company for the year ended 30 June 2011 comprises the Company and its controlled entities (“the Consolidated Entity” or “Group”).

The preliminary final report has been prepared in accordance with Australian Securities Exchange Listing Rules as they relate to Appendix 4E and in accordance with the recognition and measurement requirements of the Australian Accounting Standards (including Australian Accounting Interpretations) adopted by the AASB and the Corporations Act 2001.

As such, the preliminary final report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide a full understanding of the financial performance and financial position as the full financial report. It is recommended that the preliminary final report be considered together with any public announcements made by the Company in accordance with the continuous disclosure obligations of the Australian Securities Exchange Listing Rules.

2. Segment reporting

Revenue is principally derived by the Group from the provision of electrical and instrumentation services to the resources, energy and infrastructure sectors. The Group therefore operates within one operating segment.

3. Revenue

Contract revenue	Consolidated 2011 2010 101,779,659 97,375,796
	101,779,659 97,375,796

4. Other income/(loss)

Other Net gain/(loss) on sale of non‐current assets	Consolidated 2011 2010 (71,566) (31,370) 7,273 (865)
	(64,293) (32,235)

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Southern Cross Electrical Engineering Limited

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Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011

Notes to the Preliminary Final Report (continued)

5. Employee benefits expense

ployee benefits expense
Remuneration, bonuses and on‐costs Amounts provided for employee entitlements Share based payments expense	Consolidated 2011 2010 (9,622,117) (7,978,672) (364,140) (363,431) (110,180) (111,794)
	(10,096,437) (8,453,897)

6. Other expenses

Repairs and maintenance Motor vehicles Other me tax (expense)/benefit (a) Income Statement Current tax (expense)/benefit Current period Under provision from prior year Deferred tax expense Origination and reversal of temporary differences Income tax (expense)/benefit reported in the income statement	Consolidated
	2011 2010 (190,623) (149,199) (504,339) (645,536) (78,578) (50,274)
	(773,540) (845,009)
	Consolidated 2011 2010 (2,029,324) (844,358) (64,235)
	(2,093,559) (844,358)
	2,353,549 (4,338,950)
	259,990 (5,183,308)

7. Income tax (expense)/benefit

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Southern Cross Electrical Engineering Limited

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Preliminary Financial Report and Appendix 4E for the Year Ended 30 June 2011 Notes to the Preliminary Final Report (continued)

(b) Amounts charged or credited directly to equity Expenses relating to issuing capital (tax effected) Income tax expense reported in equity (tax effected) (c) Numerical reconciliation between tax expense and pre‐tax accounting profit Accounting profit/(loss) before income tax Income tax using the Company’s domestic tax rate of 30% (2010: 30%) Tax effect of permanent differences Tax losses of foreign operations not recognised Non deductible acquisition costs Non deductible contract intangible amortisation Other Effect of different tax rate applicable to Denver branch of 35% (2010: 35%) Income tax benefit/(expense) reported in the income statement The applicable effective tax rates are:	Consolidated 2011 2010 (378,112) ‐
	(378,112) ‐
	(1,911,814) 13,858,745 573,544 (4,157,624) (262,492) (86,898) ‐ (561,537) (45,180) (317,356) (44,142) (59,493) 38,260 (400)
	259,990 (5,183,308)
	(2.2%) 36.6%

8. Reconciliation of cash flows from operating activities

Cash flows from operating activities Profit/(loss) for the year Adjustments for: Depreciation and amortisation (Gain)/Loss on sale of property, plant and equipment Equity‐settled share‐based payment transactions (Increase)/decrease in assets Change in trade and other receivables Change in work in progress Change in inventories Change in prepayments Increase/(decrease) in liabilities Change in trade and other payables Change in unearned revenue Change in provisions and employee benefits Change in income tax payable Change in deferred income tax Net cash from operating activities

Consolidated 2011 2010 (1,651,824) 8,675,437 1,755,730 2,671,129 (7,273) 865 110,180 111,794 (6,916,065) 1,284,196 9,749,922 (15,351,548) (32,592) (2,890) (131,826) (13,810) (2,198,358) 1,417,885 600,000 ‐ (207,278) 1,029,947 1,873,105 (4,003,420) (2,731,667) 4,338,950

212,054 158,535

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Southern Cross Electrical Engineering Limited

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9. Events after the balance sheet date

On 11 July 2011, offers for the land and buildings classified as assets held for sale in current assets had been received and accepted by the Company. Settlement of these sales is expected to occur during September 2011.

With the exception of the above, there are no matters or circumstances that have arisen since 30 June 2011 which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent reporting periods.

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