SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Annual Report 2020

Aug 30, 2020

Full Year Results 2020

About SCEE

Electrical

Southern Cross Electrical Engineering (SCEE) is an ASX listed electrical, instrumentation, communication and maintenance services company recognised for our industry leading capabilities

Contractor

Diversification Established in 1978 in WA, and primarily servicing the Resources sector, the combination in 2016 with Datatel Communications and in 2017 with East Coast-based Heyday created a national group

Markets

SCEE now operates across three broad sectors of Infrastructure, Commercial and Resources

People

900 employees, including over 130 electrical apprentices and telecommunications trainees

Safety

Original SCEE business 15.8 million man-hours and over 16 years Lost Time Injury free in Australia

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Full Year Results 2020

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Highlights

Financial

Operational

Outlook

Third year of record revenues with full Infrastructure remained as largest Targeting FY21 revenues of $400m year revenue of $415.1m up 8% on prior revenue contributor Order book of $440m includes over year Significant wins included Albemarle $330m of work secured for FY21 EBIT* of $16.4m down 16% and NPAT of Kemerton Lithium Plant ($65m), Pitt representing over 80% of FY21 revenue $10.9m down 14% on prior year Street Sydney Metro ($40m) and Ergon target Energy North Queensland renewal Profit negatively affected by: Current business development pipeline ($40m) • Coronavirus disruption impacts not showing material impact by • Lower average margins on now Continuing work at Wynyard Place coronavirus with over $900m of finished transport infrastructure submitted tenders Nearing completion at Parramatta projects Squares 3 and 4, and at Westmead Significant opportunities presenting in • Delay of some planned Kemerton Hospital resources Lithium Plant scope into FY21 Finished at RAAF Tindal, Northlink and Infrastructure stimulus expected and fast Partially offset by components of Group WestConnex M5 tunnels tracking of new projects commencing qualifying for JobKeeper payments of $4.1m Continuing to pursue commercial close Acquisition activity resumed following out of various finished resources and suspension in second half Balance sheet remains strong with total infrastructure projects for which claims cash of $55.3m and no debt at 30 June and variations have been recognised in 2020 contract assets Fully franked 3 cents per share dividend Decmil arbitration at pleadings stage declared

* EBITDA and EBIT are non-IFRS financial measures, for a reconciliation to statutory results see Appendix

Note - the financial information compares the unaudited preliminary results for the ended 30 June 2020 with the results for the year ended 30 June 2019

Full Year Results 2020

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Coronavirus impact

Operational

Construction designated an essential service and SCEE’s operations generally continued as planned but second half still significantly affected

Measures to protect employee, and subcontractor, supplier and customer staff health implemented requiring changes to working practices

Inter-state and intra-state travel restrictions impacted remote projects

Some projects delayed mobilisation although no projects actually cancelled

Circumstances still highly volatile and conditions may change

Financial

Negative financial impacts each individually not material but significant in combination:

• Substantial acquisition costs incurred in year for which activity had to be suspended

• Changes to working practices resulted in loss of productivity, particularly at early stages of pandemic

• Contribution from delayed projects deferred into FY21

• Levels of short-term “win and do” orders lower than normal from March onwards

Partially offset by JobKeeper payments to components of the Group of $4.1m

Full Year Results 2020

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Record revenues but tougher second half

Third year in row of record revenues, up 8% on prior year

Significant contributors included WestConnex M5 tunnels, Parramatta Squares 3 & 4 buildings and fit-outs, RAAF Tindal, Westmead Hospital and Wynyard Place

Gross margin percentage down 1.6% on prior year because of lower average margins on now finished transport infrastructure projects and Coronavirus disruption impacts

Delay of some planned Kemerton Lithium Plant scope into FY21 Overheads fell by 9% from impact of prior year efficiency initiatives and no Executive STI and LTI awards this year EBIT* of $16.4m down 16% and NPAT of $10.9m down 14% on prior year

Summary financials:

	FY20	FY19	Chg. %
	$m	$m
Revenue	415.1	386.0	7.5%
Gross Profit	44.5	47.5	(6.4)%
Gross Margin %	10.7%	12.3%	-
Overheads	23.4	25.7	(8.9)%
EBITDA	21.6	23.6	(8.5)%
EBITDA %	5.2%	6.1%	-
EBIT	16.4	19.4	(15.5)%
EBIT %	3.9%	5.0%	-
NPAT	10.9	12.7	(14.1)%
NPAT %	2.6%	3.3%	-

First year of new leasing standard AASB 16 Leases meant EBITDA increased by $2.2m, EBIT increased by $0.1m and no change to NPAT

* EBITDA and EBIT are non-IFRS financial measures, for a reconciliation to statutory results see Appendix

Note - the financial information compares the unaudited preliminary results for the ended 30 June 2020 with the results for the year ended 30 June 2019

Full Year Results 2020

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Infrastructure remains largest sector

Infrastructure still largest sector although now closely followed by commercial

As forecast, in FY20 resources declined to its lowest point since listing on ASX but now increasing again with significant project wins in second half and growing pipeline

FY19 FY20 $386m $415m

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$115m $46m
$88m
$173m
Commercial
Infrastructure
Resources
$196m
$183m
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Full Year Results 2020

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Strong balance sheet and debt free

Cash increased slightly in year to $55.3m at 30 June 2020 (30 June 2019: $53.3m)

Balance sheet summary:

No debt

New leasing standard AASB 16 adopted on 1 July 2019 Resulted in recognition of $5.6m of right of use assets and $5.6m of lease liabilities in respect of operating leases $57.9m of bank guarantees and surety bonds on issue out of a total group capacity of $100m leaving a headroom of $42.1m Franking account balance of $14.2m

Fully franked 3 cents per share dividend declared

	Jun 20	Jun 19
	$m	$m
Current assets 170.8 161.2
Non-current assets 90.9 88.6
TOTAL ASSETS 261.7 249.8
Current liabilities 90.2 93.4
Non-current liabilities 13.2 8.7
TOTAL LIABILITIES 103.4 102.1
EQUITY 158.4 147.7

Note - the financial information compares the unaudited preliminary results for the ended 30 June 2020 with the results for the year ended 30 June 2019

Full Year Results 2020

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Net cash inflow

Working capital outflow of $13.2m including $11.2m in second half primarily as WestConnex M5 demobilised and negotiating commercial close out

$6.5m paid to Heyday vendors for final earn out payment in September 2019 and FY19 final dividend paid with underwritten Dividend Reinvestment Plan

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• JobKeeper is paid in arrears - $4.1m recognised of which $2.7m cash received by 30 June 2020

Note - the financial information compares the unaudited preliminary results for the ended 30 June 2020 with the results for the year ended 30 June 2019

Full Year Results 2020

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Diversified order book

Order book of $440m at same level as half year

Includes over $330m of work already secured for FY21

Resources share of order book increased following recent project announcements

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Jun 19
Jun 20
$450m
$440m
$60m
$110m
Commercial
Infrastructure
Resources
$130m
$260m
$200m
$130m
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Full Year Results 2020

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Strategy and sector outlooks

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Leading national diversified electrical contractor

WA

Rio Tinto - Cape Lambert, Dampier EIR, Tom Price, Paraburdoo, Brockman 2, Yandi BHP – Newman, Port Hedland, Mt Whaleback, South Flank Sino Iron Boddington Gold Talison Greenbushes Lithium MARBL JV Kemerton Lithium NorthLink Central Section Forrestfield Airport Link Causarina Prison UWA, City of Belmont, Health Services maintenance Woodman Point Waste-Water Treatment Agnew Windfarm NBN and carrier construction and maintenance Minor social infrastructure works and services

QLD

NT

Commercial Rio Tinto Amrun Resources Arrow MSA Ergon Energy Agreement Infrastructure NBN and carrier construction and maintenance

Rio Tinto Gove ERA Ranger Mine MSA RAAF Tindal

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NSW & ACT

Parramatta Square 3 & 4 and fit-outs Wynyard Place Australian Technology Park Building 4 231 Elizabeth Street

Sovereign Resort Expansion Edmondson Park Ribbon Project 32 Smith Street Greenland Tower Republic Sandstone Precinct City 7 Development The Parade Locomotive Sheds Westmead Hospital Westconnex M5 Australian National University RU Data Centre Sydney Metro Pitt Street Station

VIC & TAS

NBN and carrier construction and maintenance

Full Year Results 2020

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Strategy

• SCEE primarily sees itself as an electrical contractor diversified across the resources, commercial and infrastructure sectors

• Our growth strategy continues to be to deepen our presence in those sectors and broaden our geographic diversity

• This includes particularly targeting maintenance and recurring earnings

• We are actively pursuing acquisition opportunities

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Full Year Results 2020

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Infrastructure stimulus

Infrastructure now also includes works that in previous years SCEE presented separately as “Telecommunications & Datacentres” and “Industrial, Energy & Utilities”

Infrastructure was SCEE’s largest revenue contributor in FY19 and remained so in FY20

Primarily driven by government expenditure although some sectors have varying levels of private investment

Significant investment sanctioned, with peak activity to come and electrical work generally later in cycle

Following Coronavirus outbreak Federal, NSW and WA governments all announced fast tracking of infrastructure projects

Following Pitt Street Metro award bidding further opportunities on Sydney Metro

Finished at RAAF Tindal in Northern Territory and bidding further works. Significant pipeline of defence base work

Almost complete at Westmead Hospital in Sydney and other hospital opportunities presenting in NSW and ACT

Infrastructure revenue:

	FY20	FY19
	$m	$m
Revenue	196.0	183.3

Value of Major Projects currently under procurement:

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Source: Infrastructure Partnerships Australia analysis

Full Year Results 2020

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Commercial pipeline remains steady

Commercial remains largest component of SCEE order book

Multiple base-builds and fit-outs in Sydney and Canberra with twelve projects contributing at least $5m of revenue each in FY20

SCEE commercial activity forecast to remain at high level in FY21 including Wynyard Place, Ribbon Project and Locomotive Sheds

Current pipeline not showing material impact from Coronavirus

Will be significant commercial developments around infrastructure hubs including Western Sydney Airport and new Sydney Metro stations

Bidding major commercial works in Brisbane

Commercial revenue:

	FY20	FY19
	$m	$m
Revenue	172.8	114.5

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Full Year Results 2020

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Resources rebounding

As forecast resources activity at low level in FY20

However significant resources wins at Kemerton Lithium Plant and Rio Tinto Gove mean order book almost doubled from a year ago

Bidding significant iron ore and other opportunities

Ongoing sustaining capital and maintenance projects at multiple Rio Tinto and BHP facilities and mine sites and continuing MSA work at Boddington Gold and Sino Iron

Mining commodity prices held up well through Coronavirus outbreak Resources business development pipeline increasingly strengthening

Resources revenue:

	HY20	HY19
	$m	$m
Revenue	46.2	88.2

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Full Year Results 2020

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Conclusion and outlook

• Third year of record revenues with full year revenue of $415.1m up 8% on prior year

• EBIT* of $16.4m down 16% and NPAT of $10.9m down 14% on prior year

• Balance sheet remains strong with total cash of $55.3m and no debt

• Fully franked 3 cents per share dividend declared

• FY20 wins included Albemarle Kemerton Lithium Plant, Pitt Street Sydney Metro and Ergon Energy renewal

• Targeting FY21 revenues of $400m

• Order book of $440m includes over 80% of FY21 revenue target secured

• Over $900m of submitted tenders

• Continuing to pursue commercial close out of claims and variations

• Acquisition activity resumed following suspension in second half

• EBITDA and EBIT are non-IFRS financial measures, for a reconciliation to statutory results see Appendix

Note - the financial information compares the unaudited preliminary results for the ended 30 June 2020 with the results for the year ended 30 June 2019

Full Year Results 2020

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Corporate summary

Capital Structure					Shareholders at 13 August 2020
ASX Code			SXE		ThorneyInvestments			17.9%
Share Price(28 August 2020)			43.5c		First Sentier Investors			8.5%
No. of ordinaryshares			247.6m		Perennial Value Management			7.0%
Market Capitalisation(28 August 2020)			$107.7m		Other Institutions in Top 30 Shareholders			18.4%
Number ofperformance rights			3.8m		Frank Tomasi			18.9%
Total Cash(30 June 2020)			$55.3m		Others(Retail,Private,Employees,Directors)			29.3%
Debt(30 June 2020)			Nil		Total			100.0%
Enterprise Value(28 August 2020)			$52.4m

Full Year Results 2020

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Appendix – IFRS reconciliation

SCEE’s results are reported under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The Company discloses certain non-IFRS measures that are not prepared in accordance with IFRS and therefore considered non-IFRS financial measures. The non-IFRS measure should only be considered in addition to, and not as a substitute for, other measures of financial performance prepared in accordance with IFRS.

EBIT and EBITDA are a non-IFRS earnings measure which do not have any standard meaning prescribed by IFRS and therefore may not be comparable to EBIT and EBITDA presented by other companies. EBIT represents earnings before interest and income tax. EBITDA represents earnings before interest, income tax, depreciation and amortisation. A reconciliation of profit before tax to EBIT and EBITDA is presented in the table on this slide.

	FY20	FY19
	$m	$m
Contract revenue	415.1	386.0
Contract expenses	(370.6)	(338.5)
Gross Profit	44.5	47.5
Other income	0.5	0.4
Overheads	(23.4)	(25.7)
EBITDA	21.6	23.6
Depreciation and amortisation	(5.2)	4.2
EBIT	16.4	19.4
Net finance expense	(0.9)	(1.2)
Profit before tax	15.5	18.2
Income tax expense	(4.6)	(5.5)
Profit from continuing operations	10.9	12.7

Note - the financial information compares the unaudited preliminary results for the ended 30 June 2020 with the results for the year ended 30 June 2019

Full Year Results 2020

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Disclaimer

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

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

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

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

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

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

Full Year Results 2020

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