SOUTHERN CROSS ELECTRICAL ENGINEERING LTD - Annual Report 2021

Year ended 30 June 2021

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Appendix 4E and Annual Report

Results for Announcement to the Market

The current reporting period is the financial year ended 30 June 2021. The previous corresponding period is the financial year ended 30 June 2020.

Revenue and Net Profit	Year ended	Year ended	Change	Change
	30 June 2021	30 June 2020	$’000	%
	$’000	$’000
Revenue from ordinary activities	370,206	415,104	(44,898)	(11%)
Profit/(loss) from ordinary activities after tax attributable	13,761	10,870	2,891	27%
to members
Net profit/(loss) for the full year attributable to members	13,761	10,870	2,891	27%

Commentary on the results for the year can be found in the Managing Director’s Review in the accompanying Annual Report.

Dividends	Amount per security	Franked amount
		per security
Interim dividend for 2021	-	-
Final dividend for 2021	4.0 cents	4.0 cents
Record date for determining entitlements to the final dividend		27 October 2021
Date the final dividend is payable		9 November 2021

The Company’s Dividend Reinvestment Plan will apply to the 2021 final dividend. The last date for lodgement of election notices to participate in the Dividend Reinvestment Plan for the 2021 dividend is 5pm WST on Thursday 28 October 2021.

NTA Backing	Year ended	Year ended
	30 June 2021	30 June 2020
Net tangible asset backing per security (cents per share)	22.7 cps	34.2 cps

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

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

During the year the Company acquired 100% of Trivantage Holdings Pty Ltd and its wholly owned subsidiaries (“Trivantage”). Trivantage is a specialised electrical services group with over 50 years of operational experience providing complex electrical solutions across Australia. Further details can be found in note 25 to the audited financial statements in the Annual Report.

Details of associates and joint venture entities

The Company has a 50% interest in the following joint venture entities, both of which were dormant during the year:

KSJV
KSJV Australia Pty Ltd

Further information can be found in note 26 to the audited financial statements in the Annual Report.

Audit

The results are based on accounts which have been audited and the audit report contains no qualifications.

Annual General Meeting

The Company’s Annual General Meeting (AGM) will be held on 26 October 2021. Further details regarding the AGM will be made available in due course.

Authorised for release by Graeme Dunn – SCEE Managing Director

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

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Annual Report 2021

Southern Cross Electrical Engineering Limited ABN: 92 009 307 046 Established 1978

SCEE GROUP ANNUAL REPORT 2021

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|||
|---|---|
|2021 Highlights|2|
|About SCEE|3|
|Chairman’s Report|13|
|Managing Director’s Review|15|
|Directors’ Report (including remuneration report)|21|
|Consolidated Statement of Comprehensive Income|35|
|Consolidated Balance Sheet|36|
|Consolidated Statement of Changes in Equity|37|
|Consolidated Statement of Cash Flows|38|
|Index to Notes to the Financial Statements|39|
|Notes to the Financial Statements|40|
|Directors’ Declaration|83|
|Independent Auditor’s Report|84|
|Lead Auditor’s Independence Declaration|90|
|ASX Additional Information|91|

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SCEE GROUP ANNUAL REPORT 2021

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2021 HIGHLIGHTS

REVENUE $370.2m DOWN 11%

EBITDA $29.6m UP 37%

NPAT

$13.8m UP 27%

Fully franked dividend

4cps UP 33%

H2 revenue of $234.8m

a record half year for the Group

Strong balance sheet

cash of $51.0m and no debt

Order book

$430m with over $350m secured for FY22

Workforce doubled in year

to over 1,800

Trivantage outperforming expectations

Continuing to pursue acquisitions

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SCEE GROUP ANNUAL REPORT 2021

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ABOUT SCEE

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

Established in 1978 in WA, and primarily servicing the resources sector, the combination in 2016 with Datatel Communications and in 2017 with NSW & ACT-based Heyday created a national group. The acquisition of the Trivantage Group in 2020 brought further diversification into the retail sector, security services and switchboard design and manufacturing, with a significant geographic presence in Victoria and SA.

SCEE operates across three broad sectors:

Commercial
Resources
Infrastructure

SCEE is headquartered in Perth with additional offices across Australia and has talented and committed staff delivering projects and services throughout the country.

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Heyday Group
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OUR MARKETS
SCEE
HEYDAY
TRIVANTAGE
DATATEL
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OUR CAPABILITIES
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3 SCEE GROUP ANNUAL REPORT 2021

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TRIVANTAGE ACQUISTION

The Trivantage Group was acquired in December 2020.

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Trivantage is a leading specialised electrical services provider and operates under three divisions:

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S.J. Electric:

Electrical services to the commercial and retail sector

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SEME Solutions:

Electronic security services to resources, law enforcemnet, custodial, industrial, and health sectors

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Trivantage Manufacturing:

Leading manufacturer of premium quality switchboards to a range of end users

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SCEE GROUP ANNUAL REPORT 2021 4

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LEADING NATIONAL DIVERSIFIED ELECTRICAL CONTRACTOR

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NT
QLD
WA
SA
NSW &
ACT
VIC &
TAS
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COMMERCIAL RESOURCES INFRASTRUCTURE

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WA

NSW & ACT

MARBL JV Kemerton Lithium Plant

Rio Tinto Gudai-Darri

Rio Tinto - Cape Lambert, Tom Price, Paraburdoo

BHP – Newman, Port Hedland, Mt Whaleback, South Flank

Sino Iron

Boddington Gold

Security works Major supermarkets and retail

Forrestfield Airport Link

Causarina Prison

CBH Esperance grain terminal

Health, education and government panel works

NBN Department of Justice security works

NT

Rio Tinto Gove ERA Ranger Mine MSA

SA

Major supermarkets and retail

Parramatta Square 3, 4, 5 & 7

Wynyard Place Edmondson Park Ribbon Project 32 Smith Street Greenland Tower Republic Sandstone Precinct Locomotive Sheds 6 Hassall Street Aspen & Establishment apartments Major supermarkets and retail Westconnex M5 Sydney Metro Pitt Street Station Australian National University RUData SYD053 datacentre NextDC S3 datacentre University of Western Sydney campus

VIC & TAS

Major supermarkets and retail NBN Bryn Estyn Water Treatment Plant Westgate Tunnel Switchboards

QLD

Arrow MSA

Major supermarkets and retail Energy Queensland Services Agreement Water projects NBN

Goodna, Kalkie and Commbabah Treatment Plants

SCEE GROUP ANNUAL REPORT 2021 6

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COMMERCIAL

SCEE has the expertise in designing, supplying, installing and maintaining a wide range of commercial building electrical and utility services.

These include a comprehensive range of electrical infrastructure, building controls, energy management, security, communications, networking and structured cabling systems.

We work closely with leading property developers and builders on new builds and with interior design and other specialists on fit-outs, refurbishments and upgrades.

Our focus in the commercial property sector includes:

Offices
Shopping centres, supermarkets and retail
Multi-storey residential developments
Hotels
Sporting, recreation and leisure facilities
Warehouses

We recognise that commercial developments are often bespoke and require significant expertise in optimising design and construction. In addition, clients often require buildings and precincts remain operational during construction. We work closely with our clients and the public to ensure seamless operations continue while the project is delivered safely.

We remain abreast of the latest technologies and industry standards and pride ourselves on developing and installing smart and energy efficient solutions.

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Project name: Australian Technology Park – Building 1 Location: NSW Client name: Mirvac Construction Scope of work: Heyday delivered the Electrical, Communications and Security Services for the Building and Integrated Fitout for the Commonwealth Bank

SCEE GROUP ANNUAL REPORT 2021

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RESOURCES

SCEE provides electrical, instrumentation and communication services to the mining and oil and gas sectors.

In the mining sector, we have broad exposure to many commodities including iron ore, gold, lithium, zinc, alumina and coal.

We have extensive experience in the delivery of electrical projects at some of Australia’s largest mining and mineral processing sites and have operated extensively overseas.

Our capability covers the entire construction life-cycle from establishing first power sources at greenfield sites, through to constructing and commissioning major ore handling, processing and transport infrastructure and decommissioning of operations.

We also specialise in designing and installing electrical, communications and security services to operational centres, mine and camp utilities and administrative buildings, and telecommunication services that support the control and management of mine and transport operations.

Under various framework arrangements we have teams of electricians at clients’ facilities supporting and maintain their operations.

In the oil and gas sector we offer electrical, instrumentation and communication services for onshore and offshore facilities and for petrochemical refineries.

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Project name: Kemerton Lithium Plant Location: WA Client name: MARBL Lithium Joint Venture Scope of work: SCEE is delivering the full E&I scope for both the Hydromet and Pyromet sections of the plant

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INFRASTRUCTURE

SCEE recognises the important role that the Federal, State and Local governments play in developing and providing infrastructure to enhance and protect the lives of all Australians.

We work alongside some of Australia’s leading contractors in the construction and maintenance of publicly funded infrastructure and assets in:

Transport including road, rail, air and port facilities
Defence facilities and installations
Social infrastructure including hospitals, medical clinics, aged care and prisons
Education including universities, colleges and schools
Government facilities
Telecommunications and datacentres
Energy, renewables and utilities

We are also members of various works panels in these sectors.

Our flexibility and adaptive commercial approach enables us to competitively bid and deliver these critical works.

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Project name: Forrestfield-Airport Link Location: WA Client name: Leonardo Australia

Scope of work: Datatel are completing the Tunnel and Station SCADA Package

SCEE GROUP ANNUAL REPORT 2021

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CHAIRMAN’S REPORT

Dear Shareholders

I am delighted to be reporting to you at the end of a year which has seen the SCEE Group continue to grow in a number of key areas.

Whilst revenue for the full year of $370.2m fell short of our previous target, nevertheless the second half revenue of $234.8m represented a record half year for the Group, with a significant ramp-up in activity.

Our full year EBITDA was $29.6m and NPAT was $13.8m, up 37% and 27% respectively compared to the prior year. This significant increase in profitability has allowed the Board to increase returns to shareholders with a fully franked final dividend of 4 cents per share declared, an increase of 33% on the prior year.

The acquisition of the Trivantage Group in December 2020 has been another key strategic milestone. In addition to further expanding the Group’s capabilities and geographical footprint the acquisition has transformed our recurring, services and maintenance platform. I am pleased to report that all three of its businesses outperformed expectations in FY21 and we expect to realise further benefits as we continue to explore cross selling opportunities and synergies.

Growth through acquisition remains a core part of the Board’s strategy and we continue to evaluate opportunities. With a strong balance sheet and cash of over $50m at 30 June 2021 we are well placed in this regard.

record workforce of over 1,800 employees. On behalf of the Board I would like to take this opportunity to thank our CEO, Graeme Dunn, our executive team and our staff for their efforts during the year.

We are forecasting further growth in the 2022 financial year with revenues of approximately $500m and EBITDA in the range of $29-33m. We enter the year with a strong order book which underpins these forecasts and have good visibility of a growing opportunity pipeline across many of our sectors.

We continue to operate in uncertain times with the coronavirus pandemic ongoing. To date we have been successful in minimising disruption and at this stage do not foresee a material impact on our FY22 forecast, however circumstances are volatile and conditions may change.

I would like to close by thanking you, our shareholders, for your continuing support. Together with the Board and management, I look forward to delivering you further growth in the year ahead.

Derek Parkin Chairman

We would not be able to deliver the results that we have without the hard work and dedication of our

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Derek Parkin
Chairman
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SCEE GROUP ANNUAL REPORT 2021

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MANAGING DIRECTOR’S REVIEW

In 2021 SCEE has significantly increased profitability after delivering a record half-year revenue in the six months to 30 June 2021.

The strategic acquisition in December 2020 of Trivantage Group, a leading specialised electrical services provider to a range of sectors across Australia, brought a transformational change in the breadth and depth of the Group’s recurring, services and maintenance offerings while also increasing our geographical presence.

In a further indication of SCEE’s increasing scale our workforce doubled during the year to over 1,800 employees. This represents another record for the Group and was driven by the addition of Trivantage and the recruitment of net 400 employees in the second half to meet client requirements to ramp up on our large-scale mining projects.

I am pleased to report that Trivantage has exceeded our expectations to date with all three businesses outperforming forecasts and earn out targets for FY21. We see significant cross selling opportunities and synergies as we continue to integrate Trivantage into the Group.

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15 SCEE GROUP ANNUAL REPORT 2021

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Graeme Dunn
Managing Director
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SCEE GROUP ANNUAL REPORT 2021

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MANAGING DIRECTOR’S REVIEW (cont)

work continues at the Australian National University in Canberra 53 data centre in Sydney. Utilities work continued under the Ergon Energy Queensland Service Agreement throughout the year.

Financial Results

Revenue for the year was $370.2m. While this was below our target for the year and down 10.8% on prior year revenue of $415.1m, the second half revenue of $234.8m represented a 73.4% increase on the first half of the year when activity was impacted by later than anticipated award and execution of key resources projects which then ramped up in the second half.

SCEE’s operations generally continued as planned during the year with construction designated as an essential service in all states throughout FY21. However, coronavirus continued to have multiple impacts throughout the year including:

Key revenue contributors in the year by market sectors were as follows:

Inter-state travel restrictions;
Some projects delayed mobilisation;
Commercial – revenue remained steady at $165m compared to $173m in the prior year and was the Group’s largest segment. Most of the revenue in the sector continues to be generated in the New South Wales market on a range of large construction and fit-out projects including Multiplex Wynyard Place and Parramatta Square 3 & 4 where the works were completed during the year and ongoing works at Parramatta Square 5 & 7 and the Mirvac Locomotive Workshops. Electrical expenditure by the major supermarkets continued at high levels.
Unproductive time although this was largely recoverable under contract terms;
Additional recruitment requirements;
Changes to our work methodologies; and
Additional cleaning and PPE costs.

Gross profit for the year of $58.2m was up 30.8% on the prior year with gross margins improving to 15.7% from 10.7%. The increase in margins was primarily attributable to:

• Resources – revenue increased significantly to $130m from $46m in the prior year as major mining projects ramped up. The Albemarle Kemerton Lithium Plant and Rio Tinto Gudai-Darri iron ore projects in WA both fully mobilised in the second half and activity also increased at Rio Tinto’s Gove Operations in the Northern Territory. We continued to perform minor works and services for Rio Tinto, BHP, Sino Iron and at the Newmont Boddington gold mine throughout the year.

a more profitable project mix in the current year, including no repeat of lower margin FY20 transport infrastructure projects; and
current year contract expenses including $8.1m of Job Keeper, primarily in the first half, which offset the coronavirus impacts noted above and was an increase from the $2.9m in the prior year.

Overheads of $29.5m were up from $23.4m in the prior year but included Trivantage acquisition costs of $1.4m and six months of overhead contribution from the Trivantage businesses.

Infrastructure – revenue decreased to $76m from $196m with significant transport infrastructure projects being completed in the prior year. Work at the Multiplex Westmead Hospital project in New South Wales was successfully closed out in the first half. The CPB Sydney Metro Pitt Street Station project commenced during the year and

EBITDA for the year of $29.6m was up 37.0% from $21.6m in the prior year.

Depreciation expense for the year remained stable at $3.0m while amortisation charges increased from $2.2m to $4.4m due to the

17 SCEE GROUP ANNUAL REPORT 2021

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MANAGING DIRECTOR’S REVIEW (cont)

amortisation of intangibles recognised from the Trivantage acquisition in the second half of the year.

Outlook

Order Book and Pipeline

The Group finished the year with an order book of $430m which included $350m of work secured for FY22 and continues to secure work across its sectors and geographies.

EBIT for the year of $22.3m was up 36.0% and NPAT of $13.8m was up 26.6% against the prior year.

Subsequent to the year end the Board has declared a fully franked 2021 dividend of 4 cents per share representing a 33% increase on the prior year’s dividend.

Commercial remained the largest sector by revenue in FY21 and now includes a contribution from Trivantage’s supermarket services business where electrical spend is expected to remain at high levels. The Sydney CBD office construction market is quieter than in recent times but there are still significant targets there being tendered by Heyday. Commercial developments around transport infrastructure hubs are commencing and anticipated to be a growing revenue stream.

The Group’s balance sheet remained strong throughout the year. Good working capital collection meant that the closing cash balance of $51.0m was down only $4.3m on the prior period despite funding the $22.2m net outlay for the Trivantage acquisition and the FY20 dividend of $7.2m. The Group remains debt free.

Resources activity more than doubled on prior year as major mining projects ramped up and these projects remain at high levels of activity moving into FY22. The resources pipeline continues to grow with significant new opportunities presenting across multiple commodities. In the near-term tendering on safety lighting upgrade projects at BHP mine sites is a key prospect. Decarbonisation of the resources sector is commencing with renewable power projects under development and SCEE is well positioned to address these opportunities.

The acquisition of Trivantage in the period resulted in the addition of $3.4m of net tangible assets, $13.5m of intangible assets (mainly customer contracts and relationships amortised over five years) and $29.3m of goodwill onto the Group’s balance sheet. A liability for deferred acquisition consideration of $20.1m has been recognised at 30 June 2021 with $10.0m to be paid in September 2021 and the balance subject to achievement of earn-out targets in FY22 and FY23. A further $5.5m of deferred consideration will be settled by the issue of SCEE shares in September 2021 and has been recognised in reserves at 30 June 2021.

Infrastructure activity declined in FY21 as projects completed however Sydney Metro and Western Sydney Airport are presenting as significant opportunities with multiple packages being tendered now which will flow on into commercial opportunities going forward. There is a strong pipeline of prospects across social infrastructure sectors with the NSW hospitals programme, government buildings and datacentres all being actively bid. Record levels of transport investment has been sanctioned with peak activity still to come representing a mediumterm opportunity for SCEE.

The Decmil arbitration proceedings are in the discovery phase with a hearing of the matter scheduled for early 2022 unless the proceedings settle earlier. In accordance with its accounting policies, the Group has previously recognised revenue in relation to this contract, applying constraint, and the Group has reviewed the balance at 30 June 2021. The amount is included within contract assets.

Capital expenditure for the year was $1.8m and is expected to remain at these low levels.

SCEE GROUP ANNUAL REPORT 2021 18

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MANAGING DIRECTOR’S REVIEW (cont)

Earnings

Strategy

With a strong order book and visibility of an emerging opportunity pipeline we are targeting FY22 revenue of circa $500m and EBITDA in the range of $29m-$33m.

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. The acquisition of Trivantage substantially increases SCEE’s exposure to this service and maintenance style work.

These forecasts assume no repeat of Job Keeper in FY22 and are subject to there being no material impact from coronavirus developments as discussed below.

Coronavirus

Post year end the lockdowns on the East Coast resulted in a Sydney construction shutdown for part of July. Costs during this period were minimised as the workforce was stood down and works were delayed rather than lost. The industry has now reopened but still has some disruption as part of the workforce remain locked down. However, accelerated catch-up of many delayed works is anticipated as restrictions loosen.

Trivantage further offers considerable crossselling opportunities including the provision of manufactured switchboards across the Group, providing security and access control systems to commercial projects and widened scopes of work being delivered in the supermarket and retail sectors.

During the coming year there will be a focus on realising integration synergies across the Group.

On the West Coast where significant new growth opportunities are presenting in the resources sector interstate labour travel restrictions may constrain the ability to maximise them in near term.

We continue to pursue further acquisition opportunities.

Conclusion

The Group’s July results were in line with budget as the Sydney shortfall was made up for by extra activity in WA and at the time of writing a material impact on the Group’s FY22 results is not being forecast. However, the extent of any future impact of the pandemic on the Group’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, regulations imposed by governments with respect to the outbreak response and impacts on customers, employees and vendors—all of which are uncertain and cannot be predicted at this time.

I am delighted to be able to announce that SCEE has delivered significantly improved profitability in 2021 and I would like to acknowledge the response of our organisation to the scale of our second half ramp-up that saw us deliver record half year revenues for the Group and end the year with a record number of employees.

The performance of the Trivantage Group since acquisition is particularly pleasing and while all three businesses have exceeded our expectations to date, I note that we have barely begun to realise the synergies and opportunities they offer across the Group.

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MANAGING DIRECTOR’S REVIEW (cont)

Importantly we maintain our strong balance sheet, ending the year with $51.0m of cash, despite having incurred a net cash outflow of $22.2m in the first half to complete the Trivantage acquisition.

As we move into FY22 I am looking forward to working with the Board, management and employees throughout the Group to capitalise on the opportunities that exist in the current market and deliver increased returns to our shareholders.

Graeme Dunn Managing Director

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DIRECTORS’ REPORT

Your Directors submit their report for Southern Cross Electrical Engineering Limited (“SCEE” or “the Company”) for the year ended 30 June 2021.

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.

Derek is a Fellow of the Institute of Chartered Accountants Australia and New Zealand (CAANZ) and a Fellow of the Australian Institute of Company Directors.

Derek’s accounting experience has spanned over 40 years and four continents, primarily in the public company environment. He was most recently Professor of Accounting at the University of Notre Dame Australia, having previously been an assurance partner with Arthur Andersen and Ernst & Young. Derek’s non-executive directorships to date have been in the non-listed sphere and he has also chaired a number of advisory committees in both the government and not-for-profit sectors.

Derek is a past national Board member of the Institute of Chartered Accountants Australia (“ICAA”) and has served on a number of the ICAA’s national and state advisory committees. In 2011, he was a recipient of the ICAA’s prestigious Meritorious Service Award and in 2015 was awarded the Medal of the Order of Australia for services to accountancy .

Derek Parkin OAM Independent Chairman and Non-Executive Director

Derek is the Chairman of the Audit and Risk Management Committee and a member of the Nomination and Remuneration Committee.

Graeme has over 30 years international experience in heavy civil infrastructure, mining, oil & gas and building projects. Graeme’s strong technical knowledge, coupled with his extensive executive management experience, has seen him hold senior management positions throughout Australasia and the Middle East.

Graeme has a Bachelor of Civil Engineering from the University of Sydney, an MBA from the University of Southern Queensland and has completed the Senior Executive Program from the London School of Business. He is also a graduate of the Australian Institute of Company Directors.

Graeme Dunn Managing Director and Chief Executive Officer

David was a vending shareholder of Heyday5 Pty Ltd and was appointed to SCEE’s Board as an Executive Director on completion of the acquisition of Heyday by SCEE in March 2017.

David has more than 35 years’ electrical contracting experience and has been involved in the Heyday business for over 20 years. During his tenure, David has held various positions up to and including his current role of Executive Director where his responsibilities include driving business development.

David Hammond Executive Director

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DIRECTORS’ REPORT (cont)

Simon has a comprehensive understanding of SCEE’s operations having been employed by the Company for over 30 years prior to retiring in 2014.

During this time he worked in a number of key positions across the business including over 6 years as Chief Operating Officer and a period as interim Chief Executive Officer. He was also the General Manager of SCEE’s LNG focused Joint Venture KSJV.

Simon brings to the Board significant experience in contract delivery and operational performance both domestically and internationally. He is also a graduate of the Australian Institute of Company Directors.

Simon is a member of the Audit and Risk Management Committee and the Nomination and Remuneration Committee.

Simon Buchhorn Independent Non-Executive Director

Karl has over 15 years of senior executive experience in Investment Banking, specialising in transaction structuring, equity capital markets, mergers and acquisitions and providing strategic management advice to listed public companies. Prior to that, Karl was Director of Major Projects and Senior Legal Counsel for Heytesbury Pty Ltd (the private company of the Holmes a Court family) which was the proprietor of John Holland Group Pty Ltd.

Karl is the Chairman of the Nomination and Remuneration Committee and a member of the Audit and Risk Management Committee.

Karl is also the Non-Executive Chairman of ASX listed Veris Limited.

Karl Paganin Independent Non-Executive Director

Paul Chisholm was a significant shareholder and Chairman of Trivantage Holdings Pty Ltd prior to the acquisition by SCEE in December 2020.

Paul has over 40 years of experience in the electrical industry including 10 of which as a director of Trivantage. He was the founder of SCADA Group Pty Ltd which was a global company servicing the energy, mining, utility and defence sectors with automation and control products and services solutions. Paul has also been the Chairman of a number of private companies and is an advisor for private equity funds.

Paul Chisholm Non-Executive Director (appointed 16 December 2020)

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DIRECTORS’ REPORT (cont)

Executive Officers

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

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Chris Douglass
Chief Financial Officer and
Company Secretary
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Prior to joining SCEE in 2011 Chris was the Chief Financial Officer at Pacific Energy Ltd and has previously held a number of senior finance roles with Clough Ltd.

Chris, a Chartered Accountant and member of the Governance Institute of Australia, commenced his finance career with Deloitte. Prior to his time with Deloitte, Chris qualified and practiced as a solicitor in London.

Colin is a Chartered Accountant with over 15 years experience in public company finance. Colin is also a member of the Governance Institute of Australia.

Prior to joining SCEE in 2012 Colin was the Chief Financial Officer and Company Secretary of FAR Limited and previously worked for Ernst & Young in both Australia and the UK.

Colin Harper Company Secretary

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DIRECTORS’ REPORT (cont)

Directors’ interests

As at the date of this report, the relevant interests of the directors in the shares and rights or options over shares issued by the Company are as follows:

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Director Ordinary shares Rights over ordinary shares Options over ordinary shares
Derek Parkin 112,320 - -
Graeme Dunn [1] 1,561,546 1,971,706 -
Simon Buchhorn 800,000 - -
Karl Paganin 1,524,022 - -
David Hammond 3,629,544
Paul Chisholm [2] - - -
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1 Included in the Performance Rights held by Graeme Dunn are 464,286 2019 Performance Rights which have been performance tested on finalising the 2021 results and it has been determined that 50% of these 2019 Performance Rights have vested and 50% did not vest and will be forfeited.

2 Paul Chisholm and related entities have an entitlement, subject to shareholder approval, to 2,759,101 Ordinary Shares as part consideration for the acquisition of Trivantage Holdings Pty Ltd.

Directors’ meetings

The number of Directors’ meetings and meetings of committees of Directors held and attended by each of the Directors of the Company during the financial year are:

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Director Board Meetings Audit and Risk Management Nomination and Remuneration
Committee Meetings Committee Meetings
Held Attended Held Attended Held Attended
Derek Parkin 12 12 4 4 2 2
Graeme Dunn 12 12 - - - -
Simon Buchhorn 12 12 4 4 2 2
Karl Paganin 12 12 4 4 2 2
David Hammond 12 12 - - - -
Paul Chisholm 4 3 - - - -
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The number of meetings held represents the time the director held office or was a member of the committee during the year.

Principal Activities

The principal activities during the year of the entities within the consolidated group were the provision of electrical, instrumentation, communication and maintenance services to a diverse range of sectors across Australia.

Significant Changes in the State of Affairs

There have been no significant changes in the state of affairs of the company or consolidated group during this financial year.

Operating and Financial Review

A review of operations of the consolidated group during the financial year, the results of those operations and the likely developments in the operations are set out in the Managing Director’s Review on page 15.

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Operating results for the year were: 2021 2020
$’000 $’000
Contract revenue 370,206 415,104
Profit/(loss) after income tax from continuing operations 13,761 10,870
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SCEE GROUP ANNUAL REPORT 2021

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DIRECTORS’ REPORT (cont)

Dividends

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Cents per share Total amount
$’000
Declared and paid during the period (fully franked at 30%)
Final franked dividend for 2020 3.0 7,428
Declared after balance date and not recognised as a liability (fully
franked at 30%)
Final franked dividend for 2021 4.0 10,387
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Significant Events after Balance Sheet Date

Since 30 June 2021, the Group has experienced disruption to its operations in some States as a result of lockdowns and restrictions resulting from the Coronavirus pandemic. The costs of disruptions have been minimised as workforces were stood down and works have been delayed rather than lost. Some significant restrictions have already been lifted and when restrictions loosen further accelerated catch-up of many delayed works is anticipated and so at the time of writing a material impact on the Group’s FY22 results is not being forecast. However the extent of any future impact of the pandemic on the Group’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, regulations imposed by governments with respect to the outbreak response and impacts on customers, employees and vendors—all of which are uncertain and cannot be predicted at this time.

Otherwise 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

The operations of the Group are subject to the environmental regulations that apply to our clients. During 2021 the Group complied with the regulations.

Share Options and Performance Rights

At the date of this report there are no unissued ordinary shares of the Company under options.

During the reporting period, no shares were issued from the exercise of options or performance rights previously granted as remuneration.

Further details are contained in note 27 to the financial statements.

25 SCEE GROUP ANNUAL REPORT 2021

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DIRECTORS’ REPORT (cont)

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 the Company against a liability incurred in their role as directors of the Company, except where:

the liability arises out of conduct involving a wilful breach of duty; or

there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.

The total amount of insurance contract premiums paid was $353,725 (2020: $248,552).

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

There were no non-audit services provided by the external auditors during the year.

Auditor’s Independence Declaration

The lead auditor’s independence declaration is set out on page 90 and forms part of the Directors’ report for the financial year ended 30 June 2021.

Remuneration Report

The Remuneration Report is set out on pages 27 to 33 and forms part of this report.

Rounding off

The Company is of a kind referred to in ASIC Instrument 2016/191 dated 24 March 2016 and in accordance with that Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

Signed in accordance with a resolution of the directors.

Derek Parkin Chairman 24 August 2021

SCEE GROUP ANNUAL REPORT 2021 26

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Remuneration report – audited

This Remuneration Report outlines the Director and executive remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. 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.

Nomination and Remuneration Committee

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

The Nomination and 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 Structure

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

Executive Remuneration

Objective

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:

attract, motivate and retain highly skilled executives;
reward executives for Group, business 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

The Company has entered into contracts of employment with the Managing Director and the executives. These contracts contain some or all of the following key elements:

Fixed remuneration;
Variable remuneration - Short term incentive (“STI”); and
Variable remuneration - Long term incentive (“LTI”).

The nature, amount and proportion of remuneration that is performance related for each executive is set out in Table 1.

Fixed Remuneration

Executives are given the opportunity to receive their fixed 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.

Fixed remuneration is reviewed annually by the Nomination and Remuneration Committee. There are no guaranteed base pay increases for any executive.

Variable Remuneration – Short Term Incentive (STI)

The objective of the Group STI program is to link the achievement of the Group’s short term 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. Executives can earn up to a maximum of 50% of their fixed remuneration under the STI program. Graeme Dunn and Chris Douglass are the only KMPs who participate in the Group STI program.

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 nonfinancial measures of performance.

For the year ended 30 June 2021, the financial KPIs accounted for 70% of the executive team’s STI and is achievable on outperforming specific targets for profit, excluding any Job Keeper receipts, and order book.

The non-financial KPIs accounted for 30% of the executive team’s STI and comprised the achievement of strategic objectives. The

27 SCEE GROUP ANNUAL REPORT 2021

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Remuneration report – audited (cont)

strategic objectives were chosen to align with the key drivers for the short term success of the business and provide a framework for delivering long term value.

The assessment of performance against KPIs is based on the audited financial results for the Company. For each component of the STI against a KPI no award is made where performance falls below the minimum threshold for that KPI. The Nomination and Remuneration Committee recommends the STI to be paid to the individuals for approval by the Board. For the 2021 financial year STI 81% of the available bonus is expected to vest and 19% is expected to be forfeited. The cash bonus will be paid in the 2022 financial year and has been accrued for in the 2021 financial year. The vesting of the 2020 financial year STI was assessed during the current financial year and it was determined that 50% of the available bonus had vested and 50% was forfeited. The vesting determination was deferred from the normal timeframe so that the Board could satisfy themselves that there had been no material adverse impact on the group as a result of the coronavirus pandemic and that it was appropriate to award executive bonuses. As such no amount had been accrued at 30 June 2020. This amount was therefore paid and recognised as an expense in the current year.

David Hammond, who does not participate in the Group STI scheme, is the only other KMP who may receive a cash bonus, paid at the discretion of the Nomination and Remuneration Committee, based on the performance of the Heyday business of which he is an executive.

Variable Remuneration – Long Term Incentive (LTI)

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.

LTI grants to executives are delivered at the discretion of the Nomination and Remuneration Committee in the form of performance rights or share options under the Senior Management Long Term Incentive Plan.

The Key Performance Indicators (“KPIs”) used to measure performance for these incentives are earnings per share growth and absolute total shareholder return. These KPIs are measured over a three year performance period and were chosen because they are aligned to shareholder wealth creation.

Executives can be issued with performance rights under the LTI plan up to a maximum of 50% of their fixed remuneration converted at the 5 day volume weighted average price of the Company’s ordinary shares at the start of the three year performance period. Graeme Dunn and Chris Douglass are the only KMPs who participate in the LTI plan.

Non-Executive Director Remuneration

Objective

The Board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract and retain NonExecutive 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 approved by shareholders at the annual general meeting held on 26 November 2008 is $600,000 per year.

The Non-Executive Director fee structure is reviewed annually. The Board considers external market surveys as well as the fees paid to Non-Executive Directors of comparable companies in our sector when undertaking the annual review process.

The annual fee paid to the Chairman of the Board is $110,000. The fee paid to other Non-Executive Directors is $80,000 per annum. No additional fees are paid to Directors who sit on Board Committees.

Directors also receive superannuation at the statutory rate in addition to their Director fees.

The Non-Executive Directors do not receive retirement benefits, nor do they participate in any incentive programs.

The remuneration paid to Non-Executive Directors is detailed in Table 1 of this report.

Consequences of performance on shareholder wealth

In considering the impact of the Group’s performance on shareholder wealth and the related rewards earned by executives, the Nomination and Remuneration Committee had regard to the following measures over the years below:

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2021 2020 2019 2018 2017
$’000 $’000 $’000 $’000 $’000
Profit/(loss) attributable to owners of the company 13,761 10,870 12,713 8,406 (369)
Dividends declared and paid during the year 7,428 7,042 7,022 - 2,152
Change in share price 23% (19%) (24%) 23% 4%
Return on capital employed 11% 10% 12% 9% 0%
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SCEE GROUP ANNUAL REPORT 2021 28

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Remuneration report – audited (cont)

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- - - - - - - - 54% (6%) 52% - 54% (4%) 54% (4%)
% of
that is related
remuneration performance
$ 120,450 120,450 87,600 87,600 87,600 87,600 47,450 - 1,457,513 635,257 540,000 296,686 859,335 380,001 3,199,948 1,607,594
Total
$ - - - - - - - - 356,067 (46,834) - - 207,444 (15,799) 563,511 (62,633)
payments rights (C)
Share-based Options and
10,450 10,450 7,600 7,600 7,600 7,600 4,117 - 25,000 25,000 25,000 19,950 25,000 25,000 104,767 95,600
$
benefits
Post-employment Superannuation
$ 110,000 110,000 80,000 80,000 80,000 80,000 43,333 - 1,076,446 657,091 515,000 276,736 626,891 370,800 2,531,670 1,574,627
Total
- - - - - - - - - - - - - - -
$
Non-
monetary benefits
- - - - - - - - - - - -
Short-term
(B) $ 432,696 280,000 256,091 968,787
bonus
STI cash
Salary & fees $ 110,000 110,000 80,000 80,000 80,000 80,000 43,333 - 643,750 657,091 235,000 276,736 370,800 370,800 1,562,883 1,574,627
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
A
Note
personnel are: Non-Executive Directors Derek Parkin, Chairman Simon Buchhorn Karl Paganin Paul Chisholm Executive Directors Graeme Dunn David Hammond Executives Chris Douglass – Chief Financial Officer Total 2021 Total 2020
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29 SCEE GROUP ANNUAL REPORT 2021

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Remuneration report – audited (cont)

A. Appointed 16 December 2020.
B. The STI cash bonus payable in respect of a financial year is determined after the results for the year have been audited and performance reviews are completed and approved by the Nomination and Remuneration Committee and Board. The value disclosed for the 2021 financial year represents the cash payment made during the year in respect of the 2020 financial year plus an accrual for the bonuses currently expected to be paid in respect of the 2021 financial year.
C. The fair value of the performance rights with market related vesting conditions were valued using a Monte Carlo simulation model. The use of a Monte Carlo Simulation model simulates multiple future price projections for both SCEE shares and the shares of the peer group against
which they are tested. The performance rights with non-market related vesting conditions were valued using the Black-Scholes option model. The values derived from these models are allocated to each reporting period evenly over the period from grant date to vesting date. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. The value disclosed is the fair value of the performance rights recognised in this reporting period. The credit recognised in the 2020 financial year was the result of a reversal of expenses recognised in previous financial years for performance rights which were no longer expected to meet the non-market performance conditions. In the 2021 financial year the vesting expectations for some of these performance rights changed and the previously reversed expense was again expectations for some of these performance rights changed and the previously reversed expense was again recognised in the current year. No shares were issued to KMPs on the vesting of performance rights during the year.

Employment Contracts

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

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Executive Notice Period
Graeme Dunn 6 months
Chris Douglass 6 months
David Hammond 3 months
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The Group retains the right to terminate a contract immediately by making a payment in lieu of the notice period. An executive may be terminated immediately for a breach of their employment conditions. Upon termination the executive is entitled to receive their accrued annual leave and long service leave together with any superannuation benefits. There are no other termination payment entitlements.

Options and rights over equity instruments

The movement during the reporting period in the number of options and rights 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:

Performance Rights over equity instruments

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Executive Held at Granted as Vested and Forfeited Held at Vested and
30 June remuneration exercised 30 June exercisable at
2020 2021 30 June 2021
Graeme Dunn 1,737,267 804,614 - (570,175) 1,971,706 -
Chris Douglass 1,016,597 462,383 - (337,719) 1,141,261 -
2,763,864 1,266,997 - (907,894) 3,112,967 -
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SCEE GROUP ANNUAL REPORT 2021 30

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Remuneration report – audited (cont)

Performance rights granted as remuneration in 2021

During the period performance rights over ordinary shares in the company were granted as remuneration to KMP. These performance rights will vest subject to the meeting of performance set out below. Details on performance rights that were granted during the period are as follows:

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Executive Instrument Number Grant date Fair value per Exercise Performance Expiry Date
performance price per testing date
right at grant performance
date ($) right ($)
Graeme Dunn [1] 2021 Rights 402,307 4/12/20 0.48 0.00 30/6/23 4/12/24
Graeme Dunn [2] 2021 Rights 402,307 4/12/20 0.31 0.00 30/6/23 4/12/24
Chris Douglass [1] 2021 Rights 231,192 4/12/20 0.48 0.00 30/6/23 4/12/24
Chris Douglass [2] 2021 Rights 231,191 4/12/20 0.31 0.00 30/6/23 4/12/24
1,266,997
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Performance rights granted with EPS growth as the vesting condition
Performance rights granted with Absolute TSR as the vesting condition

2021 Financial Year Performance Rights

Up to 100% of the allocated performance rights may vest, subject to the achievement of the performance conditions as set out below. The key terms of the performance rights are:

To be performance tested over a three year period from 1 July 2020 to 30 June 2023 (“Performance Period”);
No performance rights will vest until 30 June 2023;
Performance testing criteria are 50% against Absolute Total Shareholder Return (“TSR”) performance, and 50% against Earnings Per Share (“EPS”) performance; and
Expiry on the 4th anniversary of the grant date unless an earlier lapsing date applies

The TSR formula is:

((Share Price at Test Date – Share Price at Start Date) + (Dividends Reinvested))/Share Price at Start Date

TSR will be assessed against targets for threshold performance of 8% per annum compounded over the Performance Period and for stretch performance of 12% per annum compounded over the Performance Period. The vesting schedule is as follows for TSR performance over the Performance Period:

Less than 8% per annum compounded 0% vesting 8% per annum compounded 50% vesting Between 8% and 12% per annum compounded Pro-rata vesting between 50% and 100% At or above 12% per annum compounded 100% vesting

EPS performance will be measured in the 2023 financial year. For the purposes of performance testing the Performance Rights, EPS in the 2023 financial year will be the Basic EPS for the year, as prescribed by the accounting standards and set out in the Company’s Financial Reports, adjusted to remove the following non-cash items from the calculation of profit or loss attributable to ordinary shareholders in the year, in order to reflect the companies underlying profitability:

(a) amortisation of acquired intangibles;
(b) unwinding of interest on deferred acquisition consideration payments;
(c) adjustments to the assessment of deferred consideration payable; and
(d) acquisition costs.

31 SCEE GROUP ANNUAL REPORT 2021

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Remuneration report – audited (cont)

EPS, as described above, will be assessed against targets for threshold performance of 5.62 cents per share in the 2023 financial year and for stretch performance of 6.27 cents per share in the 2023 financial year. The vesting schedule is as follows for EPS performance in the 2023 financial year:

Less than 5.62 cents per share	0% vesting
5.62 cents per share	50% vesting
Between 5.62 and 6.27 cents per share	Pro-rata vesting between 50% and 100%
At or above 6.27 cents per share	100% vesting

Once the performance measurement calculation has been finalised the company will allot and issue the equivalent number of shares at nil consideration on the basis of one ordinary share per vested performance right for all performance rights exercised.

Where a participant ceases employment prior to the vesting of their share options or performance rights, the share options or performance rights are forfeited unless in the event of retirement, permanent disablement or death the Board, at their absolute discretion, waive the exercise and vesting conditions associated with the performance rights or allow the performance rights to continue to be assessed over the original performance assessment period. In the event of a change of control of the Company, all options and performance rights that have not lapsed may be exercised.

Details of equity incentives affecting current and future remuneration

Details of the vesting profiles of the rights and options held by each key management person are as follows:

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Executive Instrument Number Grant Date % vested % Performance Expiry Date
in year forfeited testing date
in year
Graeme Dunn 2018 Rights 570,175 7/11/17 - 100% 30/6/20 7/11/21
- -
2019 Rights (A) 464,286 9/11/18 30/6/21 9/11/22
- -
2020 Rights (B) 702,806 8/11/19 30/6/22 8/11/23
- -
2021 Rights (C) 804,614 4/12/20 30/6/23 4/12/24
Chris Douglass 2018 Rights 337,719 7/11/17 - 100% 30/6/20 7/11/21
- -
2019 Rights (A) 275,000 9/11/18 30/6/21 9/11/22
- -
2020 Rights (B) 403,878 8/11/19 30/6/22 8/11/23
- -
2021 Rights (C) 462,383 4/12/20 30/6/23 4/12/24
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A. 50% of the 2019 performance rights have TSR as the vesting condition with a threshold target of 8% per annum compounded and a stretch target of 12% per annum compounded. These performance rights have a fair value of $0.29 each. 50% of the 2019 performance rights have EPS growth as the vesting condition with a threshold target of 6.1 cents per share and a stretch target of 6.8 cents per share. These performance rights have a fair value of $0.59 each. Subsequent to 30 June 2021, the vesting conditions in respect of the 2019 performance rights have been performance tested and it has been determined that 50% of the performance rights held by Mr Dunn and Mr Douglass have vested and 50% of the performance rights will be forfeited.

B. 50% of the 2020 performance rights have TSR as the vesting condition with a threshold target of 8% per annum compounded and a stretch target of 12% per annum compounded. These performance rights have a fair value of $0.29 each. 50% of the 2019 performance rights have EPS growth as the vesting condition with a threshold target of 6.8 cents per share and a stretch target of 7.6 cents per share. These performance rights have a fair value of $0.49 each.

C. The vesting conditions and fair values of the 2021 performance rights are set out above.

SCEE GROUP ANNUAL REPORT 2021 32

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Remuneration report – audited (cont)

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

Ordinary shares

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Held at Purchases Sales Dividend Held at
30 June 2020 Reinvestment 30 June 2021
Plan
Directors
Derek Parkin 105,492 - - 6,828 112,320
Graeme Dunn 1,561,546 - - - 1,561,546
Simon Buchhorn 800,000 - - - 800,000
Karl Paganin 1,467,852 - - 56,170 1,524,022
David Hammond 3,729,544 - (100,000) - 3,629,544
Paul Chisholm [1] - - - - -
Executives
Chris Douglass 1,433,623 - - 78,743 1,512,366
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Paul Chisholm and related entities have an entitlement, subject to shareholder approval, to 2,759,101 Ordinary Shares as part consideration for the acquisition of Trivantage Holdings Pty Ltd.

Transactions with key management personnel

There were no transactions between the company and Key Management Personnel during the year. There are no loans between the company and Key Management Personnel.

33 SCEE GROUP ANNUAL REPORT 2021

Financial statements

SCEE GROUP ANNUAL REPORT 2021 34

Consolidated Statement of Comprehensive Income For the year ended 30 June 2021

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Note 2021 2020
$’000 $’000
Contract revenue 4 370,206 415,104
Contract expenses (311,994) (370,579)
Gross profit 58,212 44,525
Other income 5 892 492
Employee benefits expenses 6 (17,006) (13,155)
Occupancy expenses (1,851) (1,235)
Administration expenses (8,340) (7,489)
Depreciation expense 7 (2,949) (3,001)
Amortisation expense 7 (2,742) (2,153)
Amortisation of customer contracts and relationships 7 (1,636) -
Other expenses from ordinary activities (2,293) (1,566)
Profit from operations 22,287 16,418
Finance income 8 271 310
Finance expenses 8 (1,740) (1,259)
Net finance expense (1,469) (949)
Profit before tax 20,818 15,469
Income tax expense 9 (7,057) (4,599)
Profit from continuing operations 13,761 10,870
Other comprehensive income
- -
Items that are or may be reclassified to the profit and loss
- -
Other comprehensive income net of income tax
Total comprehensive income 13,761 10,870
Total comprehensive income attributable to:
Owners of the Company 13,761 10,870
Earnings per share:
Basic earnings per share (cents) 10 5.55 4.46
Diluted earnings per share (cents) 10 5.27 4.46
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The above statement of comprehensive income should be read in conjunction with the accompanying notes.

35 SCEE GROUP ANNUAL REPORT 2021

Consolidated Balance Sheet

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For the year ended 30 June 2021

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Note 2021 2020
$’000 $’000
Assets
Current assets
Cash and cash equivalents 11 51,006 55,272
Trade and other receivables 12 147,703 113,073
Inventories 13 1,796 1,588
Prepayments 1,089 901
Total current assets 201,594 170,834
Non-current assets
Property, plant and equipment 15 12,664 11,148
Right-of-use assets 16 7,992 5,967
Intangible assets 17 114,986 73,792
Total non-current assets 135,642 90,907
Total assets 337,236 261,741
Liabilities
Current liabilities
Trade and other payables 18 102,094 75,278
Provisions 20 17,878 9,114
Lease liability 19 2,585 1,749
Deferred acquisition consideration 21 9,954 -
Tax payable 5,704 4,031
Total current liabilities 138,215 90,172
Non-current liabilities
Lease liability 19 5,687 4,218
Provisions 20 405 197
Deferred acquisition consideration 21 10,206 -
Deferred tax liability 9 11,550 8,781
Total non-current liabilities 27,848 13,196
Total liabilities 166,063 103,368
Net assets 171,173 158,373
Equity
Share capital 22 109,967 109,767
Reserves 6,046 108
Retained earnings 55,160 48,498
Total equity 171,173 158,373
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The above statement of comprehensive income should be read in conjunction with the accompanying notes.

SCEE GROUP ANNUAL REPORT 2021 36

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Consolidated Statement of Changes in Equity

For the year ended 30 June 2021

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Share Retained Share Deferred Translation Total
Capital Earnings Based acquisition Reserve Equity
$’000 $’000 Payments payment $’000 $’000
Reserve Reserve
$’000 $’000
-
Balance as at 1 July 2019 102,873 44,284 1,065 (514) 147,708
Total comprehensive income for the year
Profit for the year - 10,870 - - - 10,870
Total comprehensive income - 10,870 - - - 10,870
Transactions with owners, recorded directly in equity
Dividends - (7,042) - - - (7,042)
Dividend re-investment and share placements, net 6,894 - - - - 6,894
Performance rights (net of tax) - 386 (1,013) - - (627)
Equity-settled share-based payment - - 570 - - 570
Total transactions with owners 6,894 (6,656) (443) - - (205)
Balance as at 30 June 2020 109,767 48,498 622 - (514) 158,373
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Share Retained Share Deferred Translation Total
Capital Earnings Based acquisition Reserve Equity
$’000 $’000 Payments payment $’000 $’000
Reserve Reserve
$’000 $’000
Balance as at 1 July 2020 109,767 48,498 622 - (514) 158,373
Total comprehensive income for the year
Profit for the year - 13,761 - - - 13,761
Total comprehensive income - 13,761 - - - 13,761
Transactions with owners, recorded directly in equity
Dividends - (7,428) - - - (7,428)
Dividend re-investment and share placements, net 200 - - - - 200
Deferred acquisition payment - - - 5,500 - 5,500
Performance rights (net of tax) - 329 (329) - - -
Equity-settled share-based payment - - 767 - - 767
Total transactions with owners 200 (7,099) 438 5,500 - (961)
Balance as at 30 June 2021 109,967 55,160 1,060 5,500 (514) 171,173
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The above statement of comprehensive income should be read in conjunction with the accompanying notes.

37 SCEE GROUP ANNUAL REPORT 2021

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Consolidated Statement of Cash Flows

For the year ended 30 June 2021

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Note 2021 2020
$’000 $’000
Cash flows from operating activities
Cash receipts from customers 364,195 424,081
Cash paid to suppliers and employees (337,175) (415,673)
Government grants (Job Keeper) received 9,795 2,655
Interest received 271 310
Interest paid (1,460) (1,259)
Income taxes received/(paid) (6,342) (5)
Net cash from operating activities 28 29,284 10,109
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired 25 (22,247) -
Payment of deferred acquisition consideration 21 - (6,500)
Proceeds from the sale of assets 492 1,362
Acquisition of property, plant and equipment 15 (1,789) (594)
Acquisition of intangible asset 17 (88) -
Net cash used in investing activities (23,632) (5,732)
Cash flows from financing activities
Proceeds from issue of shares 200 6,831
Dividends paid 22 (7,428) (7,042)
Payment of lease liabilities principal (2,690) (2,151)
Net cash used in financing activities (9,918) (2,362)
Increase/(decrease) in cash and cash equivalents (4,266) 2,015
Cash and cash equivalents at beginning of period 55,272 53,257
- -
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 30 June 11 51,006 55,272
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The above statement of comprehensive income should be read in conjunction with the accompanying notes.

SCEE GROUP ANNUAL REPORT 2021 38

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Notes to the financial statements

1.	Reporting entity	40	22. Capital and reserves	54
2.	Basis of preparation	40	23. Financial instruments	56
3.	Segment reporting	41	24. Investments in subsidiaries	61
4.	Contract revenue	42	25. Business combination	62
5.	Other income	43	26. Interest in joint operations	64
6.	Employee benefts expenses	43	27. Share-based payments	64
7.	Depreciation and amortisation expenses	43	28. Reconciliation of cash fows from operating activities	68
8.	Finance income and expenses	44	29. Contingencies	68
9.	Income tax expense	44	30. Subsequent events	69
10.	Earnings per share	46	31. Auditor’s remuneration	69
11.	Cash and cash equivalents	47	32. Parent entity disclosures	69
12.	Trade and other receivables	47	33. Related parties	70
13.	Inventories	48	34. Signifcant accounting policies	70
14.	Contract assets	48	35. Determination of fair values	82
15.	Property, plant and equipment	49
16.	Right-of-use assets	50
17.	Intangible assets – goodwill and customer contracts51
18.	Trade and other payables	52
19.	Lease liability	53
20.	Provisions	53
21.	Deferred acquisition consideration	54

39 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

1. Reporting entity

Southern Cross Electrical Engineering Limited (“the Company”, “the parent”) is a company incorporated and domiciled in Australia. The company’s shares are publicly traded on the Australian Securities Exchange.

The consolidated financial statements for the year ended 30 June 2021 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Group is a for-profit entity and the nature of the operations and principal activities of the Group are described in the Directors’ Report.

2. Basis of preparation

(a) Statement of compliance

The consolidated financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (“AASBs”) (including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the Group complies with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). A listing of new standards and interpretations not yet adopted is included in note 34(w).

These financial statements have been rounded to the nearest thousand dollars where permitted by ASIC Instrument 2016/191 dated 24 March 2016.

The consolidated financial statements were authorised for issue by the Board of Directors on 24 August 2021.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except as set out below:

Share-based payment arrangements are measured at fair value.
Assets and liabilities acquired in a business combination are initially recognised at fair value.

The methods used to measure fair values are discussed further in note 35.

(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 are Australian dollars ($). The functional currency for the Peruvian subsidiary is Neuvos Soles. Overseas functional currencies are translated to the 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 Entities functional currency to presentation currency
The results of the overseas subsidiaries are translated into Australian Dollars as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at balance sheet date.
Exchange variations resulting from the translation are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity.

(d) Use of estimates and judgements

The preparation of financial statements in conformity with AASBs 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.

SCEE GROUP ANNUAL REPORT 2021 40

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Notes to the financial statements

(d) Use of estimates and judgements

The significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2020.

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. Information about these accounting estimates is included in the following notes:

Note 4, 14 and 34 (n) – estimation of total contract cost and measurement of variable consideration;
Note 25 – fair value of net assets and acquired through business combination including intangibles;
Note 15, 17 and 34 (k) – recoverable amount for testing property, plant and equipment and goodwill;
Note 16, 19, and 34 (g) – initial and subsequent measurement of Right-of-use (ROU) assets and Lease liability;
Note 21 and 34 (u) – measurement of deferred consideration; and
Note 27 – measurement of share-based payments;

Critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements relate to contract revenue (note 34(n) and 4), contract assets (note 34(i) and 14) and business combination (note 25).

Estimates and judgements are made by management with due consideration for the historical and potential impacts of Coronavirus on the Group’s operations and forecast cash flows based on best estimates and reasonably possible scenarios, and taking into account the evolving nature of Coronavirus which makes it inherently difficult to forecast outcomes with more certainty. The impacts of Coronavirus are included in the specific notes such as but not limited to impairment testing and impairment of financial instruments (note 23) and non-financial assets (note 17).

Details of the Group’s accounting policies are included in notes 34 and 35.

3. Segment reporting

Revenue is principally derived by the Group from the provision of electrical services through construction and services contracts to customers in the following sectors: Commercial; Resources; and Infrastructure.

The Group identified its operating segments based on the internal reports that are reviewed and used by the Group Managing Director in assessing performance and in determining the allocation of resources, and on the nature of the services provided. Financial information about each of these operating segments is reported to the Group Managing Director on a recurring basis.

The Group provides its services through three key segments of SCEE, Heyday, and Trivantage. During the year, the composition of the reporting segments was realigned to reflect the change in the Group’s activities and internal reporting. As a result, the SCEE and Datatel segments were consolidated.

The directors believe that the aggregation of the operating segments is appropriate as to differing extents they:

have similar economic characteristics;
perform similar services using similar business processes;
provide their services to a similar client base;
have a centralised pool of shared assets and services; and
operate in similar regulatory environments.

All segments have therefore been aggregated to form one operating segment.

In presenting information on the basis of geographical location, segment revenue, based on the geographical location of customers and segment assets, based on the geographical location of the assets are all located in Australia.

Revenues from the two largest customers of the Group’s Australian segment generated $102 million of the Group’s total revenue (2020: $169 million generated from the three largest customers).

41 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

4. Contract revenue

Disaggregated revenue information

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

Note 2021 2020
$’000 $’000
Operating sectors
Commercial 164,671 172,755
Resources 129,510 46,209
Infrastructure 76,025 196,140
Total Revenue 370,206 415,104
Revenue type
Construction revenue 217,281 341,856
Services revenue 152,925 73,248
Total revenue 370,206 415,104
Timing of revenue recognition
Products and services transferred over time 370,206 415,104
Revenue from contracts with customers 370,206 415,104
Contract balances
Trade receivables 12 68,250 24,324
Contract assets 14 79,049 86,374
147,299 110,698
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Trade receivables are non-interest bearing and are generally on 30 to 45 days term. In 2021, no additional amount (2020: $32,000) was recognised as provision for expected credit losses on trade receivables.

Contract assets and revenue includes contract modifications recognised in accordance with the Group’s accounting policy (note 34(n)(iii)) for which amounts are not yet finalised with the customer.

The following amounts are included in revenue from contracts for the year ended 30 June 2021:

Revenue recognised as a contract liability in prior period 33,205 13,052

Unsatisfied Performance Obligations

Transaction price expected to be recognised in future years for unsatisfied performance obligations at 30 June 2021:

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

Construction revenue 303,901 296,540
Services revenue 83,060 59,472
386,961 356,012
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In line with the Group’s accounting policy described in Note 34 (n), the transaction price expected to be recognised in future years excludes variable consideration that is constrained.

The average duration of contracts is given below. However, some contracts will vary from these typical lengths. Revenue is typically earned over these varying timeframes:

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

Construction revenue 1 to 2 years
Services revenue 1 to 5 years
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SCEE GROUP ANNUAL REPORT 2021 42

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Notes to the financial statements

5. Other income

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

Note 2021 2020
$’000 $’000
Other income
Apprenticeship incentive 226 -
Net gain on disposals 179 90
Other 487 402
892 492
6. Employee benefits expenses
Remuneration, bonuses and on-costs (14,657) (12,035)
Superannuation contributions (1,380) (903)
Amounts provided for employee entitlements (1,123) (1,016)
Share-based payments expense 27 (767) 56
Government grant (Job Keeper) applied 921 743
(17,006) (13,155)
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6. Employee benefits expenses

The above employee benefits expenses do not include employee benefits expenses recorded within contract expenses. Employee benefits included in contract expenses were $86.9m (2020: $76.3m), inclusive of Government grant (Job Keeper) applied amounting to $8.1m (2020: $2.9m). The total employee benefits expense is therefore $103.9m (2020: $89.5m).

7. Depreciation and amortisation expenses

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

Buildings (17) (17)
Leasehold improvements (242) (196)
Plant and equipment (926) (1,115)
Motor vehicles (788) (768)
Office furniture and equipment (976) (905)
Total depreciation expense for the year 15 (2,949) (3,001)
Amortisation of ROU asset 16 (2,544) (2,151)
Amortisation of customer contract intangibles 17 (1,636) -
Amortisation of intellectual properties 17 (55) (2)
Other (143) -
Total amortisation expense for the year (4,378) (2,153)
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43 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

8. Finance income and expenses

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

Note 2021 2020
$’000 $’000
Interest income on bank deposits 271 310
Finance income 271 310
Interest expense
Bank charges (645) (604)
Bank guarantee fees (484) (406)
Deferred consideration 21 (281) -
Lease liability interest (288) (146)
Other (42) (103)
Finance expenses (1,740) (1,259)
Net finance expense (1,469) (949)
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9. Income tax expense

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

(a) Income Statement
Current tax expense
Current period (5,979) (4,037)
- -
Under provision from prior year
(5,979) (4,037)
Deferred tax expense
Origination and reversal of temporary differences (1,076) (562)
-
Under provision from prior year (2)
Income tax expense reported in the income statement (7,057) (4,599)
(b) Amounts charged or credited directly to equity
Expenses in relation to capital raising (1) (63)
Income tax expense reported in the income statement (1) (63)
(c) Reconciliation between tax expense and pre-tax accounting
profit
Accounting profit before income tax 20,818 15,469
Income tax expense using the Company’s domestic tax rate of 30% (6,245) (4,641)
-
Acquisition costs included in cost base (428)
Share based payments (230) 126
Non-deductible deferred consideration interest (84) -
Other (70) (84)
Income tax expense reported in the income statement (7,057) (4,599)
The applicable effective tax rates are: 33.9% 29.7%
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SCEE GROUP ANNUAL REPORT 2021 44

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Notes to the financial statements

Deferred tax assets and liabilities

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

Balance Sheet Income Statement Equity Acquisition of
Subsidiary
2021 2020 2021 2020 2021 2020 2021 2020
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Deferred tax liabilities
Retentions receivable (60) (339) (279) (149) - - - -
Contract assets (17,360) (12,847) 4,513 (3,040) - - - -
- - -
Right-of-use assets (2,398) (1,790) (677) 1,790 (1,285)
Sundry debtors - (432) (432) 432 - - - -
- - - -
Intangible assets (3,603) (457) (4,060)
- - - -
Property, plant and equipment (243) (23) (86) (306)
(23,664) (15,431) 2,582 (967) - - (5,651) -
Deferred tax assets
Provisions 73 73 13 (10) - - 13 -
Employee entitlements 6,329 3,203 (894) 267 - - 2,232 -
Property, plant and equipment 19 19 - - - - - -
Unearned revenue 2,300 550 (1,750) (425) - - - -
Lease liability 2,513 1,790 6,33 (1,790) - - 1,356 -
Tax losses - - - 3,747 - - - -
Other 880 1,015 (492) (260) (1) (63) 356 -
-
12,114 6,650 (1,506) 1,529 (1) (63) 3,957
Net deferred tax liabilities (11,550) (8,781) 1,076 562 (1) (63) 1,694 -
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45 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

10. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 30 June 2021 was based on the profit attributable to ordinary shareholders of $13,761,000 (2020: $10,870,000) and a weighted average number of ordinary shares outstanding of 247,914,045 (2020: 243,919,677), calculated as follows:

Profit attributable to ordinary shareholders

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

Note 2021 2020
$’000 $’000
Profit for the period 13,761 10,870
Weighted average number of ordinary shares
2021 2020
Issued ordinary shares at 1 July 22 247,614,481 234,067,408
Effective new balance resulting from issue of shares in the year 299,564 9,852,269
Weighted average number of ordinary shares at 30 June 247,914,045 243,919,677
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Diluted earnings per share

The calculation of diluted earnings per share at 30 June 2021 was based on the profit attributable to ordinary shareholders of $13,270,000 (2020: $10,870,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 260,991,548 (2020: 243,919,677) as follows:

Profit attributable to ordinary shareholders (diluted)

		2021 $’000	2020 $’000

Proft for the period		13,761	10,870

Weighted average number of ordinary shares (diluted)

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

2021 2020
Weighted average number of ordinary shares for basic earnings per share 247,914,045 243,919,677
Effect of dilution:
Contingently issuable shares – acquisition 11,120,923 -
Share options and performance rights on issue 1,956,580 -
Weighted average number of ordinary shares at 30 June 260,991,548 243,919,677
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SCEE GROUP ANNUAL REPORT 2021 46

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Notes to the financial statements

11. Cash and cash equivalents

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

Note 2021 2020
$’000 $’000
Bank balances 34,538 10,544
Short term deposits 16,468 44,728
Cash and cash equivalents in the statement of cash flows 51,006 55,272
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The effective interest rate on cash and cash equivalents was 0.5% (2020: 0.7%); these deposits are either at call or on short term deposit.

12. Trade and other receivables

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

Trade receivables 68,250 24,324
Sundry debtors 315 1,358
Provision for impairment of trade receivables (112) (112)
Contract assets 14 79,049 86,374
Retentions 201 1,129
147,703 113,073
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Trade receivables are non-interest bearing and are generally on 30 to 45 day terms. The provision for impairment of trade receivables relates to expected credit losses and is used to record impairment losses. When the Group is reasonably certain that no recovery of the amount owing is possible, the amount is considered irrecoverable and is written off against the financial asset directly. The Group will continue to strongly pursue all debts provided for. The movement in the allowance for impairment in respect of Trade receivables during the year was as follows:

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

Balance at start of year 112 80
Impairment losses recognised 6 502
Write-offs (6) (470)
Balance at 30 June 112 112
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The ageing of trade receivables and the related provision for expected credit losses are detailed in note 23. All write-offs of bad debts are made when there is no reasonable expectation of recovering the contractual cash flows.

47 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

13. Inventories

13. Inventories
		2021 $’000	2020 $’000
Raw materials and consumables – cost		1,796	1,588

14. Contract assets

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

Costs incurred to date 166,529 237,968
Recognised profit 74,132 70,701
Progress billings (161,612) (222,295)
79,049 86,374
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Contract assets represents the unbilled amount expected to be collected from customers for contract work performed to date. Cost includes all expenditure related directly to specific projects. Recognised profit is based on the percentage completion method and is determined using the costs incurred to date and the total forecast contract costs.

The timing of cash inflows for contract assets is dependent on the status of processes underway to gain acceptance from customers as to the enforceability of recognised modifications resulting from contractual claims and variations. The Group pursues various options with customers to accelerate the inflow of cash including, but not limited to, negotiations, security of payment adjudications and arbitration involving the support of legal counsel and external consultants. Accordingly, there remains a risk that settlement of contract assets takes longer than 12 months.

The period in which revenue has been earned and for which cash is yet to be received included in contract assets at 30 June 2021 is as follows:

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

2021 31,353 -
2020 28,443 62,131
2019 19,253 20,253
2018 - 3,990
Total 79,049 86,374
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On 11 June 2020, the Group announced that it was pursuing Decmil Australia Pty Ltd in relation to amounts it considers entitled pursuant to a contract for electrical services in which the Group had demobilised from site by the end of November 2018. At the time of writing the arbitration proceedings are in the discovery phase with a hearing of the matter scheduled for early 2022 unless the proceedings settle earlier. In accordance with its accounting policies, the Group has previously recognised revenue in relation to this contract, applying constraint, and the Group has reviewed the balance at 30 June 2021. The amount is included within contract assets.

SCEE GROUP ANNUAL REPORT 2021 48

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Notes to the financial statements

15. Property, plant and equipment

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

Note Land and Leasehold Plant and Motor Office Total
Buildings Improvements equipment Vehicles Furniture and $’000
$’000 $’000 $’000 $’000 Equipment
$’000
Cost
Balance at 1 July 2019 916 2,813 20,924 14,200 11,149 50,002
Additions - 12 66 149 367 594
- -
Disposals (2,704) (2,480) (166) (5,350)
Balance at 30 June 2020 916 2,825 18,286 11,869 11,350 45,246
Balance at 1 July 2020 916 2,825 18,286 11,869 11,350 45,246
Acquisitions through 25 - 385 1,060 1,181 325 2,951
business combination
Additions 7 - 73 467 891 358 1,789
- - -
Disposals (308) (1,861) (2,169)
Balance at 30 June 2021 916 3,283 19,505 12,080 12,033 47,817
Depreciation and
impairment losses
Balance at 1 July 2019 (184) (1,036) (15,964) (10,173) (7,818) (35,175)
Depreciation for the year (17) (196) (1,115) (768) (905) (3,001)
Disposals - - 2,028 1,884 166 4,078
Balance at 30 June 2020 (201) (1,232) (15,051) (9,057) (8,557) (34,098)
Balance at 1 July 2020 (201) (1,232) (15,051) (9,057) (8,557) (34,098)
Depreciation for the year 7 (17) (242) (926) (788) (976) (2,949)
Disposals - - 245 1,649 - 1,894
Balance at 30 June 2021 (218) (1,474) (15,732) (8,196) (9,533) (35,153)
Carrying amounts
At 30 June 2020 715 1,593 3,235 2,812 2,793 11,148
At 30 June 2021 698 1,809 3,773 3,884 2,500 12,664
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49 SCEE GROUP ANNUAL REPORT 2021

Notes to the financial statements

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16. Right-of-use assets

The Group leases assets including property, motor vehicles and office furniture and equipment. Information about leased assets for which the Group is a lessee is presented below:

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

Note Land and Motor Vehicles Office Total
Buildings $’000 Furniture and $’000
$’000 Equipment
$’000
Recognised on application of AASB 16 4,213 1,181 215 5,609
Additions 262 332 - 594
Remeasurement 1,671 244 - 1,915
Amortisation charged for the year 7 (1,238) (836) (77) (2,151)
Closing carrying amount at 30 June 2020 4,908 921 138 5,967
Opening carrying amount at 1 July 2020 4,908 921 138 5,967
Additions 295 - - 295
Acquired through acquisition 4,281 - - 4,281
Remeasurement 123 - - 123
Amortisation charged for the year 7 (1,945) (522) (77) (2,544)
-
Derecognition during the year (net) (29) (101) (130)
Closing carrying amount at 30 June 2021 7,633 298 61 7,992
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SCEE GROUP ANNUAL REPORT 2021 50

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Notes to the financial statements

17. Intangible assets – goodwill, customer contracts and relationships, and other

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

Cost Note Goodwill Customer Other Total
$’000 Contracts and $’000 $’000
Relationships
$’000
Balance as at 1 July 2019 82,169 7,491 19 89,679
Acquisitions - - - -
Balance as at 30 June 2020 82,169 7,491 19 89,679
Balance as at 1 July 2020 82,169 7,491 19 89,679
Acquisitions through business combina- 25 29,263 12,258 1,276 42,797
tions
Additions - - 88 88
Balance as at 30 June 2021 111,432 19,749 1,383 132,564
Amortisation and impairment losses
Balance as at 1 July 2019 (8,390) (7,491) (4) (15,885)
Amortisation 7 - - (2) (2)
Balance as at 30 June 2020 (8,390) (7,491) (6) (15,887)
Balance as at 1 July 2020 (8,390) (7,491) (6) (15,887)
Amortisation 7 - (1,636) (55) (1,691)
Balance as at 30 June 2021 (8,390) (9,127) (61) (17,578)
Carrying amounts
At 30 June 2020 73,779 - 13 73,792
At 30 June 2021 103,042 10,622 1,322 114,986
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Impairment testing for cash-generating units containing goodwill

For the purpose of impairment testing, goodwill is allocated to the Group’s operating segments which represent the lowest level within the Group at which goodwill is monitored for internal management purposes. During the year, the composition of the reporting segments was realigned to reflect changes in the Group’s activities. As a result, Datatel segment’s goodwill (2020: $12.3 million) is being assessed at the SCEE segment.

The aggregate carrying amounts of goodwill allocated to each segment are as follows:

	2021 $’000	2020 $’000
SCEE	21,082	21,082
Heyday	52,697	52,697
Trivantage	29,263	-
	103,042	73,779

The recoverable amounts of the above segments were based on their value in use with the group performing its annual impairment test in June 2021. The carrying amount of the operating segments were determined to be lower than their recoverable amounts and therefore no impairment charge has been recognised.

The Group has paid particular attention to those indicators impacted by the Coronavirus pandemic. We have considered the effect of the pandemic on our clients’ activities which may include resources commodity prices, commercial construction activity, awards of new contracts, deferrals of existing contracts, disruptions to supply chain and disruptions to existing operations. The Group’s operations were classified as essential services and whilst experiencing some disruption due to state border closures, the Group subsequently continued to operate materially unaffected. The management team continues to monitor and manage the impacts and risks arising from the global pandemic.

51 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

Value in use was determined by preparing five year discounted cash flow forecasts, and extrapolating the cash flows beyond the terminal year using a terminal growth-rate. The calculation of value in use was based on the following key assumptions:

Cash flows were projected based on past experience, actual operating results and independent research on the markets in which the segments operate.
The five year cash flow estimates used in assessments for all CGU’s were based on Board approved budgets for the year ending 30 June 2022. Growth assumptions thereafter are SCEE -2.9% (2020: 0.0%), Heyday -2.6% (2020: -0.1%),
and Trivantage -0.6% per annum for each future year, each being reductions in revenues. The terminal value assumes perpetual growth of 2.5% (2020: 2.5%).
The margins included in the projected cash flow are the same rate that has been achieved by projects commencing in 2021.
A pre-tax discount rate between 14.2% and 14.6% (2020: between 12.0% and 13.4%) was applied. This discount rate was estimated based on past experience and industry average weighted cost of capital.

Sensitivity to changes in assumptions

The value in use assessment for SCEE estimates a recoverable amount $6.3 million in excess of its carrying amount. This estimate is sensitive to the realisation of the budgeted and forecast overall net cash flows to 2026. These forecasts reflect Board and management’s expectations for future growth. In the event that the overall net cash flows are 10.1% less, year on year, than those which have been assumed in calculating the value in use, then the value in use would be less than the carrying value.

Management believes that any reasonable change in the key assumptions for the Heyday and Trivantage segments would not cause the carrying value to exceed its recoverable amount.

18. Trade and other payables

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2021 2020
$’000 $’000
Trade payables 31,066 27,990
Contract liabilities 36,114 34,158
Accrued expenses 29,410 11,417
Goods and services tax payable 4,672 665
Retentions payable 832 1,048
102,094 75,278
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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 23.

Contract liabilities

Current
Unearned revenue	36,114	34,158

Unearned revenue arises when the Group has invoiced the client in advance of performing the contracted services. Contract liabilities fluctuate based on progress of completion of contracts.

SCEE GROUP ANNUAL REPORT 2021 52

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Notes to the financial statements

19. Lease liability

	2021	2020
Current portion	2,585	1,749
Non-current portion	5,687	4,218
	8,272	5,967

Expense relating to short-term and low value leases was $0.1 million. The weighted average discount rate used for the leases is 5.2%. The average remaining lease term for the leased assets per underlying asset class as at 30 June 2021 are as follows:

	2021 (in years)	2020 (in years)
Land and building	1.98	2.43
Motor vehicles	1.06	1.37
Ofce equipment	0.95	2.04

20. Provisions

20. Provisions
	2021 $’000	2020 $’000
Current
Annual leave	12,355	6,635
Long service leave	3,314	1,434
Other employee leave	2,104	1,045
Other	105	-
	17,878	9,114
Non-current
Long service leave	405	197
	405	197

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 accounting policy relating to employee benefits have been included in note 34(l) to this report.

53 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

21. Deferred acquisition consideration

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2021 2020
$’000 $’000
Current portion 9,954 -
Non-current portion 10,206 -
Balance at 30 June 20,160 -
Deferred acquisition consideration movements
Balance at 1 July - 6,500
From acquisition of Trivantage – note 25 19,879 -
Finance costs 281 -
-
Payments (6,500)
Balance at 30 June 20,160 -
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22. Capital and reserves

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2021 2020
Number $’000 Number $’000
Ordinary shares
Issued and fully paid 248,050,102 109,967 247,614,481 109,767
Movements in shares on issue
Balance at the beginning of the financial year 247,614,481 109,767 234,067,408 102,873
Exercise of Employee performance rights - - 655,034 -
Issue of ordinary shares under dividend reinvest- 435,621 200 12,892,039 6,894
ment plan, net of transaction costs
Balance at the end of the financial year 248,050,102 109,967 247,614,481 109,767
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The Company does not have authorised capital or par value in respect of its issued shares. All shares have voting rights and rights to dividends.

Translation reserve

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

Deferred consideration payment reserve

The Group has agreed to pay the selling shareholders additional consideration $5.5 million in the Company’s shares subject to Trivantage Group’s future earnings before interest and tax (EBIT) achieving the predetermined targets (note 25).

Share based payments reserve

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

SCEE GROUP ANNUAL REPORT 2021 54

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Notes to the financial statements

Dividends

Dividends recognised in the current year by the Group are:

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Cents per share Total amount Franked Date of
$’000 payment
2021
Final 2020 ordinary 3.00 7,428 Franked 22 October 2020
Total amount 7,428
2020
Final 2019 ordinary 3.00 7,042 Franked 10 October 2019
Total amount 7,042
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Franked dividends declared or paid during the year were franked at the tax rate of 30%.

Declared after end of year

Subsequent to 30 June 2021, a dividend of 4.00 cents per share in the amount of $10.4 million, including dividends paid to shares anticipated to be issued in respect of vested and exercisable performance rights and contingent acquisition shares, was proposed by the directors. The dividend has not been provided in the financial statements.

	Company	Company
	2021 $’000	2020 $’000
Franking account balance	23,824	14,184

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.

55 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

23. Financial instruments

Overview

The Group has exposure to the following risks from their use of financial instruments:

Credit risk
Liquidity risk
Market risk

This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risks, and the management of capital. Further quantitative disclosures are included throughout this financial report.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established an Audit and Risk Management Committee, which is responsible for overseeing how management monitors risk and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The committee reports regularly to the Board of Directors on its activities.

Risk management policies are established to identify and analyse the risks faced by the 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 Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations in relation to the management and mitigation of these risks.

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 including contract assets.

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:

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Carrying amount
2021 2020
$’000 $’000
Cash and cash equivalents 51,006 55,272
Trade receivables (net of provision for impairment) 68,654 26,699
Contract assets 79,049 86,374
198,709 168,345
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SCEE GROUP ANNUAL REPORT 2021 56

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Notes to the financial statements

Cash

The Group’s cash and cash equivalents are held with major banks and financial institutions.

Trade receivables and contract assets

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and contract with 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. Geographically, the concentration of credit risk is within Australia and, by industry, the concentration is within the commercial, infrastructure and resources industries.

When entering into new customer contracts for service, the Group only enters into contracts with credit-worthy companies. Management monitors the Group’s exposure on a monthly basis. 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 receivables and contract assets.

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

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Carrying amount
2021 2020
$’000 $’000
Australia 147,703 113,073
147,703 113,073
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Impairment losses

The ageing of the Group’s trade receivables and contract assets at the reporting date was:

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Note Gross Allowance for Gross Allowance for
2021 Impairment 2020 Impairment
$’000 2021 $’000 2020
$’000 $’000
Contract assets – not past due 14 79,049 - 86,374 -
Trade Receivables:
-
Not past due 58,219 19,138 (2)
-
Past due 0-30 days 6,730 3,394 (3)
Past due 30-60 days 1,788 - 602 (0)
-
Past due 60 days and less than 1 year 1,524 1,531 (1)
More than 1 year 505 (112) 2,146 (106)
68,766 (112) 26,811 (112)
147,815 (112) 113,185 (112)
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The provision of $112,000 relates to expected credit losses. Impairment provision related to specific debts that are more than one year overdue pertains to a small number of customers. The Group continues to strongly pursue all debts provided for.

57 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

The Group has established an allowance for impairment that represents their expected credit losses in respect of trade receivables and contract assets.

The Group recognises a provision for impairment related to expected credit losses (“ECLs”) for trade receivables, contract assets and other debt financial assets not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.

For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group uses a provision matrix to calculate the ECLs. The provision matrix is established based on Group’s historically observed default rates. The Group calibrates the matrix to adjust historical credit loss experience with forward looking factors specific to debtors and the economic environment where appropriate. At every reporting date, historical default rates are updated and changes in the forward-looking estimates are analysed. To date, the Group has not observed or expects to see material decline in its customers’ abilities to pay as a result of the Coronavirus pandemic due in part to the nature of those customers, which mainly includes large private sector corporations and government organisations, meaning the risk of default of receivables is low. Accordingly, no additional expected credit loss allowance pertaining to the Coronavirus pandemic have been included.

The assessment of the correlation between historical observed default rates, forecast of economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecasts in economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future.

The Group considers a financial asset’s potential for default when contractual payments are more than 120 days past due, factoring in other qualitative indicators where appropriate. Exception shall apply to financial assets that relate to entities under common controls or covered by letter of credit or credit insurance. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

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. Cash flow is monitored by management using rolling forecasts and annual budgets that are reviewed monthly at the Board level.

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

SCEE GROUP ANNUAL REPORT 2021 58

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Notes to the financial statements

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Carrying Contractual 6 mths or More than More than More than 2 More than
amount cash flows less 6 mths up 1 year up to years up to 5 years
$’000 $’000 $’000 to 1 year 2 years 5 years $’000
$’000 $’000 $’000
30 June 2021
Non-derivative financial
liabilities
Trade and other payables 65,980 65,980 65,090 890 - - -
Deferred consideration 20,160 20,674 10,000 - 5,666 5,008 -
Lease liability 8,272 9,376 1,487 1,362 2,054 4,168 305
94,412 96,030 76,577 2,252 7,720 9,176 305
30 June 2020
Non-derivative financial
liabilities
Trade and other payables 41,120 41,120 40,905 145 70 - -
Lease liability 5,967 6,765 1,039 856 1,407 2,436 1,027
47,087 47,885 41,944 1,001 1,477 2,436 1,027
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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.

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 no material currency risk exposures at 30 June 2021 or 30 June 2020.

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.

Interest rate risk

Profile

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

	Carrying amount	Carrying amount
	2021 $’000	2020 $’000
Variable rate instruments
Financial assets	51,006	55,272

59 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

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. Therefore, a change in interest rates at the reporting date would not affect profit or loss.

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 as 2020.

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Profit or loss Equity
100bp increase 100bp decrease 100bp increase 100bp decrease
30 June 2021 $’000 $’000 $’000 $’000
Variable rate instruments 1,189 (1,189) - -
Cash flow sensitivity (net) 1,189 (1,189) - -
30 June 2020
Variable rate instruments 1,093 (1,093) - -
Cash flow sensitivity (net) 1,093 (1,093) - -
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Fair values

Fair values versus carrying amounts

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

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 Group intends to make an annual distribution to shareholders in the form of fully franked dividends, subject to the Group’s financial results in a given year, 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.

The Group is not subject to externally imposed capital requirements.

SCEE GROUP ANNUAL REPORT 2021 60

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Notes to the financial statements

24. 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.

	Country of Incorporation	Equity Interest (%)	Equity Interest (%)
		2021	2020
Cruz Del Sur Ingeniería Electra (Peru) S.A	Peru	100	100
Southern Cross Electrical Engineering (WA) Pty Ltd (i)	Australia	100	100
Southern Cross Electrical Engineering Tanzania Pty Ltd	Tanzania	100	100
Southern Cross Electrical Engineering Ghana Pty Ltd	Ghana	100	100
S&DH Enterprises Pty Ltd (i)	Australia	100	100
FMC Corporation Pty Ltd (i)	Australia	100	100
Southern Cross Electrical Engineering (Australia) Pty Ltd (i)	Australia	100	100
Hazquip Industries Pty Ltd (i)	Australia	100	100
Datatel Communications Pty Ltd (i)	Australia	100	100
Heyday5 Pty Ltd (i)	Australia	100	100
Electrical Data Projects Pty Ltd (i)	Australia	100	100
Trivantage Holdings Pty Ltd (i) & (ii)	Australia	100	-
Trivantage Group Pty Ltd (i) & (ii)	Australia	100	-
Trivantage Pty Ltd (i) & (ii)	Australia	100	-
S.J. Electric Group Pty Ltd(i) & (ii)	Australia	100	-
S.J. Electric Group (NSW) Pty Ltd (i) & (ii)	Australia	100	-
S.J. Electric Group (QLD) Pty Ltd (i) & (ii)	Australia	100	-
S.J. Electric (SA) Pty Ltd (i) & (ii)	Australia	100	-
S.J. Electric (VIC) Pty Ltd (i) & (ii)	Australia	100	-
S.J. Electric (WA) Pty Ltd (i) & (ii)	Australia	100	-
Seme Solutions Pty Ltd (i) & (ii)	Australia	100	-
Group CCTV Pty Ltd (i) & (ii)	Australia	100	-
Central Control Sheetmetal Pty Ltd (i) & (ii)	Australia	100	-
Positive Systems Pty Ltd (i) & (ii)	Australia	100	-
Ladd Electric Pty Ltd (i) & (ii)	Australia	100	-

(i) These wholly-owned subsidiaries have entered into a deed of cross guarantee with Southern Cross Electrical Engineering

Limited pursuant to ASIC Corporations (wholly-owned companies) Instrument 2016/785 (Instrument) and are relieved of the requirement to prepare and lodge an audited financial and Directors’ report.

(ii) During the year, the Group acquired Trivantage Holdings Pty Ltd and all its subsidiaries which are all 100% owned (note 25).

(a) Deed of cross guarantee

The parties to a deed of cross guarantee for the Group as listed in note 24 represent a ‘majority group’ for the purposes of the Instrument, as the parties not subject to the Instrument are non-trading entities. A separate consolidated statement of comprehensive income and consolidated balance sheet of the parties to the deed of cross guarantee have not been disclosed separately as it is not materially different to those of the Group.

61 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

25. Business combinations

On 16 December 2020, the Company acquired 100% of Trivantage Holdings Pty Ltd (“Trivantage”) and its subsidiaries (together referred to as “Trivantage Group”).

Trivantage Group is a specialised electrical services group with over 50 years of operational experience providing complex electrical solutions across Australia. It is primarily a services-oriented business characterised by a strong degree of recurring and maintenance work. It operates via three specialty divisions. S.J. Electrical (electrical services to commercial and retail markets), SEME Solutions (electronic security services) and Trivantage Manufacturing (switchboard design and manufacture). Trivantage Group is headquartered in Melbourne and has around 400 employees and sub-contractors throughout Australia—with offices in Victoria, Western Australia, Queensland, New South Wales, South Australia and Tasmania. The acquisition forms part of SCEE’s strategy of growth through expansion into adjacent and complementary sectors and new geographies.

Fair values measured on a provisional basis

The initial accounting for the acquisition of Trivantage Group has been provisionally determined at the end of the reporting period. Should this assessment change, including in respect of the identification of any additional intangible assets which may by their nature be amortised over their useful life, then the goodwill arising on acquisition will be adjusted accordingly.

		$’000
Initial cash payment (net of Net Financial Debt) (i)		20,817
Contingent deferred shares (ii)		5,500
Contingent consideration arrangement (ii)		19,879
		46,196

(i) Initial cash payment comprised the purchase price on completion of $25.0 million less the aggregate of items defined as Net Financial Debt in the Share Purchase Agreement which included the financial indebtedness, other debt-like items and cash of the Trivantage Group. $19.8m of this initial cash payment was paid on completion on 16 December 2020 with the net financial debt adjustment of $1.0m being paid in February 2021.

(ii) The Group has agreed to pay the selling shareholders additional consideration of up to $28.5 million subject to Trivantage Group’s future earnings before interest and tax (EBIT) achieving the following targets:

Results confirmation payment for financial year ending 30 June 2021 (“FY21”):

Following the confirmation that Trivantage Group FY21 EBIT is equal to or greater than $10.1 million:

a) $10 million in cash; and

b) $5.5 million in the Company’s shares.

If FY21 EBIT is less than $10.1 million, elements (a) and (b) above are each reduced on a pro-rata basis to nil at EBIT of $4.0 million. If the EBIT in FY21 is greater than $10.1 million, the incremental EBIT above $10.1 million will be added to EBIT of financial year ending 30 June 2022 (“FY22”) for the purpose of calculating FY22 earn-out consideration as set out below.

Earn-out payments for financial years ending 30 June 2022 (“FY22”) and 30 June 2023 (“FY23”):
a) Deferred consideration of $4.0 million in cash for each year that Trivantage Group EBIT result is equal to or greater than $10.1 million in FY22 and FY23. To the extent that EBIT is below $10.1 million in either FY22 or FY23, the deferred consideration amount payable for the respective year would be calculated based on the following formula reducing the payment to zero: $4.0 million less 5 x ($10.1 million less actual EBIT).

b) Outperformance consideration of $1.7 million in cash for FY22 if EBIT results for FY22 is equal to or greater than $11.4 million, and $3.3 million in cash for FY23 if EBIT results for FY23 is equal to or greater than $14.4 million. For each year, the amount is reduced on a pro-rata basis down to nil at EBIT of $10.1 million.

The Directors’ assessment of the expected achievement of these earn out targets were estimated to result to a contingent consideration of $26.2 million so the fair value recognised at acquisition date is the discounted value of these expected future payments of $25.4 million.

Acquisition-related costs amounting to $1.6 million have been excluded from the consideration transferred and have been recognised as an expense in the period, within ‘Administration expenses’ and ‘Finance expense’ line items for $1.4 million and $0.2 million, respectively, in the statement of comprehensive income.

SCEE GROUP ANNUAL REPORT 2021 62

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Notes to the financial statements

Assets acquired and liabilities assumed at the date of acquisition

The provisional fair values of the identifiable assets and liabilities of Trivantage Group as at the date of acquisition were:

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$’000
Cash and cash equivalents 11,137
Trade receivables 21,220
Sundry debtors 144
Contract assets 5,349
Inventories 1,380
Prepayments and other 288
Property, plant and equipment 2,951
Right of use assets 4,281
Deferred tax liabilities 1,631
Intangible assets acquired (intellectual properties) 1,276
Intangible assets acquired (customer contracts and relationships) 12,258
Trade and other payables (15,958)
Lease liabilities (4,521)
Loans and borrowings (12,260)
Provisions (6,948)
Tax payable (2,033)
Net identifiable assets / liabilities acquired 16,933
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Goodwill and intangibles arising on acquisition

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

Consideration 46,196
Less: fair value of identifiable net assets / liabilities acquired 16,933
Goodwill arising on acquisition 29,263
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Goodwill arising on acquisitions in the year comprises the value of expected in-sourced specialist capabilities and new sector opportunities.

Net cash outflow on acquisition of subsidiary

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

Consideration paid in cash (20,817)
Add back: Cash and cash equivalents balances acquired 11,137
Less: Settlement of debt and other costs on completion (12,567)
Net cash flow on acquisition (22,247)
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Impact of acquisition on the result of the Group

Had the business combination been effected at 1 July 2020, management estimates the revenue of the Group would have been $436.6 million and the net profit after tax for the year from continuing operations would have been $18.5 million.

63 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

26. Interest in joint operations

The Group has a 50% interest in KSJV Unincorporated and KSJV Australia Pty Ltd, both of which have been dormant for the period. These joint arrangements are accounted for as joint operations.

The Group’s share of the underlying assets and liabilities as at 30 June 2021 and 2020 and revenues and expenses of the joint operations for the year ended 30 June 2021 and 2020, which are proportionally consolidated in the consolidated financial statements, is as follows:

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2021 2020
$’000 $’000
Share of the joint operations’ statement of financial position:
Current assets 9 592
Current liabilities - (5)
Equity 9 587
Share of the joint operations’ revenue and profit:
Revenue - -
Contract expenses - -
Other expenses (1) (9)
Profit/(loss) before tax (1) (9)
Income tax expense - -
Profit/(loss) for the year from continuing operations (1) (9)
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The joint operations have no contingent liabilities or capital commitments as at 30 June 2021 and 30 June 2020.

27. Share-based payments

(a) Expense recognised in profit or loss

Share based payments expenses for the year comprises:

		2021 $’000	2020 $’000
2021 Performance Rights	(i)	(224)	-
2020 Performance Rights	(ii)	(195)	195
2019 Performance Rights	(iii)	(348)	(50)
2018 Performance Rights		-	(201)
		(767)	(56)

The amount recognised is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

SCEE GROUP ANNUAL REPORT 2021 64

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Notes to the financial statements

(i) 2021 Performance Rights

During the year Performance Rights were offered to key management personnel and senior management under the terms of the Senior Management Long Term Incentive Plan. The terms and conditions of the Performance Rights are as follows. All Performance Rights are to be settled by the physical delivery of shares.

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Grant date / employees entitled Number of Vesting conditions Contractual life
instruments
Performance rights issued to senior man- 452,957 Employed on 30 June 2023 and exceed 30 months
agement on 4 December 2020 performance hurdle
Performance rights issued to key manage- 1,266,997 Employed on 30 June 2023 and exceed 30 months
ment on 4 December 2020 performance hurdle
Total /performance rights 1,719,954
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Up to 100% of the allocated performance rights may vest, subject to the achievement of the performance conditions. The key terms of the performance rights are as set out below:

Performance testing over a three-year period from 1 July 2020 to 30 June 2023 (“Performance Period”);
No performance rights will vest until 30 June 2023;
Performance testing criteria are 50% against Absolute Total Shareholder Return (“TSR”) performance, and 50% against Earnings Per Share (“EPS”) performance; and
Expiry on the 4th anniversary of the grant date unless an earlier lapsing date applies

The TSR formula is:

((Share Price at Test Date – Share Price at Start Date) + (Dividends Reinvested))/Share Price at Start Date

performance over the Performance Period:
Less than 8% per annum compounded	0% vesting
8% per annum compounded	50% vesting
Between 8% and 12% per annum compounded	Pro-rata vesting between 50% and 100%
At or above 12% per annum compounded	100% vesting

(a) amortisation of acquired intangibles;
(b) unwinding of interest on deferred acquisition consideration payments;
(c) adjustments to the assessment of deferred consideration payable; and
(d) acquisition costs.

65 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

Less than 5.62 cents per share 0% vesting 5.62 cents per share 50% vesting Between 5.62 and 6.27 cents per share Pro-rata vesting between 50% and 100% At or above 6.27 cents per share 100% vesting

(ii) 2020 Performance Rights

There were 1,502,329 financial year 2020 Performance Rights on issue at 1 July 2020. No 2020 Performance Rights were granted, none vested and none were forfeited during the year.

The 2020 Performance Rights will be performance tested over a three-year period from 1 July 2019 to 30 June 2022. The hurdles used to determine performance are Absolute Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.

(iii) 2019 Performance Rights

There were 1,010,625 financial year 2019 Performance Rights on issue at 1 July 2019. No 2019 Performance Rights were granted, none vested and none were forfeited during the year.

The 2019 Performance Rights will be performance tested over a three-year period from 1 July 2018 to 30 June 2021. The hurdles used to determine performance are Absolute Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.

SCEE GROUP ANNUAL REPORT 2021 66

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Notes to the financial statements

(b) Measurement of fair values

The fair value of the TSR Performance Rights has been measured using the Monte-Carlo simulation. The EPS Performance Rights has been measured using the Binomial tree methodology.

The inputs used in the measurement of the fair values at grant date were as follows:

The performance rights issued were granted in one tranche as follows:

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2021 2020
Grant date 4 December 2020 8 November 2019
Vesting date 30 June 2023 30 June 2022
Share price at grant date $0.55 $0.56
Expected life 2.6 years 2.6 years
Volatility 36% 37%
Risk free interest rate 0.11% 0.88%
Dividend yield 5.5% 4.9%
Fair value of TSR component $0.31 $0.29
Fair value of EPS component $0.48 $0.49
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(c) Reconciliation of outstanding performance rights

The number of performance rights under the programmes were as follows:

	2021 Number of rights	2020 Number of rights
Outstanding at 1 July	3,754,072	3,561,812
Granted during the year	1,719,954	1,502,329
Exercised during the year	-	(655,034)
Forfeited or withdrawn during the year	(1,241,118)	(655,035)
Outstanding at 30 June	4,232,908	3,754,072
Vested and exercisable at 30 June	-	-

The performance rights forfeited during the year were the 2018 financial year performance rights which were performance tested on finalisation of the 2020 financial year results and did not vest.

Subsequent to 30 June 2021, the vesting conditions in respect of the 2019 performance rights have been performance tested and it has been determined that 505,313 of the 2019 performance rights have vested and 505,312 of the 2019 performance rights will be forfeited.

67 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

28. Reconciliation of cash flows from operating activities

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2021 2020
$’000 $’000
Profit for the year 13,761 10,870
Adjustments for:
Depreciation and amortisation 7,327 5,154
Profit on sale of property, plant and equipment and other (179) (90)
Expense recognised in respect of capital raising - 63
Equity-settled share-based payment transactions 767 (56)
(Increase)/decrease in assets:
Trade and other receivables (7,916) (9,123)
Inventories 1,172 746
Prepayments 100 792
Increase/(decrease) in liabilities:
Trade and other payables 12,535 (1,910)
Provisions and employee benefits 2,024 (867)
Deferred acquisition consideration 281 -
Income tax payable (793) 4,463
Deferred income tax 205 67
Net cash from operating activities 29,284 10,109
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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.

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Bank Guarantees 33,813 20,559
Surety Bonds 33,089 37,355
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Bank Guarantees and Surety Bonds are provided to customers for satisfactory contract performance. Total bank guarantee facilities at 30 June 2021 were $51.6 million (2020: $51.0 million) and the unused portion was $17.8 million (2020: $30.4 million). These facilities are subject to annual review. Total surety bonds facilities at 30 June 2021 were $67.2 million (2020: $85.0 million) and the unused portion was $34.1 million (2020: $47.6 million). These facilities are subject to annual review. All facilities are set to mature during the 2021/22 year. It is management’s intention to review these facilities at maturity to a level appropriate to support the ongoing business of the Group.

Other contingent liabilities

The Group is currently managing a number of claims, security of payment adjudications and an arbitration process in relation to construction contracts. The Directors are of the opinion that disclosure of any further information relating to these claims, adjudication and arbitration processes would be prejudicial to the interests of the Group.

SCEE GROUP ANNUAL REPORT 2021 68

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Notes to the financial statements

30. Subsequent events

31. Auditor’s remuneration

31. Auditor’s remuneration
Remuneration of KPMG Australia as the auditor of the parent entity for:	2021 $’000	2020 $’000


- Auditing or reviewing the fnancial report	397	358
	397	358

Remuneration of PwC Australia as the component auditor of Trivantage for:
- Auditing or reviewing the fnancial report of component	102	-
	102	-

32. Parent entity disclosures

As at, and throughout, the financial year ending 30 June 2021 the parent company of the Consolidated entity was Southern Cross Electrical Engineering Limited.

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Result of the parent entity
Loss for the period (8,131) (9,764)
Total comprehensive loss for the period (8,131) (9,764)
Financial position of parent entity at year end
Current assets 79,220 76,690
Total assets 224,925 177,492
Current liabilities (105,181) (61,256)
Total liabilities (130,059) (73,534)
Total equity of the parent entity comprising:
Share capital 109,967 109,767
Reserves 6,227 288
Retained earnings (21,328) (6,097)
Total Equity 94,866 103,958
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Parent entity contingencies:

The parent entity has contingent liabilities which are included in note 29. At 30 June 2021, there were in existence guarantees of performance of a subsidiary.

69 SCEE GROUP ANNUAL REPORT 2021

Notes to the financial statements

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33. Related parties

Transactions with key management personnel

(i) Key management personnel compensation

Key management personnel compensation comprised the following:

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2021 2020
$’000 $’000
Short-term employee benefits 2,532 1,575
Post-employment benefits 105 96
Share-based payments 564 (63)
3,200 1,608
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Compensation of the Group’s key management personnel includes salaries and non-cash benefits made up of a short-term incentive and long-term incentive scheme (see note 27 (a)(i)).

(ii) Key management personnel transactions

Directors of the Company control 3% of the voting shares of the Company.

34. Significant accounting policies

The accounting policies applied by the Group in this financial report are the same as those applied by the Group in its consolidated financial report as at and for the year ended 30 June 2020.

The Group did not early adopt any standard, interpretation or amendment that has been issued but is not yet effective.

The Group did not adopt any new standard and amendments or interpretation to standards from 1 July 2020 which had a material effect on the financial position or performance of the Group.

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements

from the date that control commences until the date control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

(ii) Interest in a joint arrangement

The Group has interests in joint arrangements which are classified as joint operations, which are jointly controlled entities, whereby the ventures have a contractual arrangement that establishes joint control over the economic activity of the entities. The Group recognises its right to the underlying assets and obligations for liabilities and are accounted for by recognising the share of those assets and liabilities. The Group combines its proportionate share of each of the assets, liabilities, income and expenses which are accounted for by separately recognising the Group’s share of underlying assets and liabilities of the joint arrangement with similar items, line by line, in its consolidated financial statements.

(iii) Transactions eliminated on consolidation

Intra-group balances and any unrealised income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investments to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

SCEE GROUP ANNUAL REPORT 2021 70

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Notes to the financial statements

(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.

(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. Income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve 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 in other comprehensive income and presented in the foreign currency translation reserve in equity.

(c) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in fair value.

For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(d) Financial instruments

(i) Non-derivative financial assets

The Group initially recognises non-derivative financial assets on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction which substantially all the rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.

71 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

The Group has the following non-derivative financial assets:

Financial assets at amortised cost
Cash and cash equivalents

Financial assets at amortised cost

Financial assets at amortised cost are receivables with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial assets are measured at amortised cost using the effective interest method, less any impairment losses.
Financial assets at amortised cost comprise trade and other receivables (see note 12).
(ii) Non-derivative financial liabilities

Financial liabilities are recognised initially on the trade date at which the Group becomes party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group’s non-derivative financial liabilities comprise Lease liability, Deferred acquisition consideration and Trade and other payables.

(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.

(e) Property, plant and equipment

(i) Recognition and measurement

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

(i) Recognition and measurement (continued)

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. 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 as part of the asset.

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

(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-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

SCEE GROUP ANNUAL REPORT 2021 72

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Notes to the financial statements

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a diminishing value basis over the estimated useful life of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Leasehold 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:

Buildings	40 years
Leasehold improvements	1 – 40 years
Plant and equipment	2 – 20 years
Motor vehicles	2 – 10 years
Ofce furniture and fttings	2 – 20 years

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

(f) Intangible assets

(i) Goodwill

Goodwill is measured at cost less accumulated impairment losses. The Group measures goodwill at the acquisition date as:

the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
(ii) Other intangible assets

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.

73 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure including expenditure on internally generated goodwill and brands is recognised in profit or loss as incurred.

(iv) Amortisation

Amortisation is calculated over the cost of the asset, or another amount substituted for cost, less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current period are as follows:

2021 2020 • Customer contracts 1 – 5 years 1 – 5 years

Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(g) Leases

The Group recognises lease assets and lease liabilities in accordance to AASB 16 - Leases in for accounting its leases previously classified as operating leases other than those leases with short-term, i.e. twelve (12) months or less, and/or of low-value, i.e. less than $7,000.

Leased assets

The right-of-use asset recognised by the Group comprise the initial measurement of the related lease liability, any lease payments made at or before the commencement of the contract, less any lease incentives received and any direct costs. Costs incurred by the Group to dismantle the asset, restore the site or restore the asset are included in the cost of the right-of-use asset.

Subsequently, right-of-use asset is measured at cost less any accumulated amortisation and impairment losses and adjusted for certain remeasurements of the lease liability. The Group amortises the right-of-use assets on a straight-line basis from the lease commencement date to the end of the useful life of the underlying asset or the end of the lease term, whichever is earlier.

If the recoverable amount of a right-of-use asset is less than its carrying value, an impairment charge is recognised in the profit or loss and the carrying value of the asset is written down to its recoverable amount.

Short-term or low-value operating leases subject to recognition exemption under AASB 16 are not recognised in the Balance Sheet. The costs incurred during the period related to these leases are recognised in the profit or loss.

Lease liabilities

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

The lease liability is separately disclosed on the statement of financial position. The liabilities which will be repaid within twelve months are recognised as current and the liabilities which will be repaid in excess of twelve months are recognised as non-current. The lease liability is subsequently measured by reducing the balance to reflect the principal lease repayments made and increasing the carrying amount by the interest on the lease liability.

The Group remeasures the lease liability and make an adjustment to the right-of-use asset in the following instances:

The term of the lease has been modified or there has been a change in the Group’s assessment of the purchase option
being exercised, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; and

SCEE GROUP ANNUAL REPORT 2021 74

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Notes to the financial statements

The lease payments are adjusted due to changes in the index or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate.

However, if a change in lease payments is due to a change in a floating interest rate, a revised discount rate is used.

Lease and non-lease components of a contract are accounted for separately. Non-lease components of the lease payments are expensed as incurred and are not included in determining the present value.

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extended the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has the option, under some of its leases to lease the assets for additional periods. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew and considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew.

(h) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out 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 work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

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

(i) Contract assets

Contract assets represents construction work equal to gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date (note 34(n)) less progress billings and recognised losses. Cost includes all expenditure related directly to projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

If payments received from customers exceed the income recognised, then the difference is presented as contract liabilities under Trade and other payables in the balance sheet.

Payments from customers are received based on a billing schedule or milestone basis, as established in our contracts.

(j) Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets which continue to be measured in accordance with the Group’s other accounting policies. Impairment losses on initial classification as held-for-sale and subsequent gains and losses on re-measurement are recognised in profit or loss.

Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted.

75 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

(k) Impairment

(i) Financial assets

A financial asset not carried at fair value through the profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of the asset that can be estimated reliably.

(i) Financial assets (continued)

Objective evidence that a financial asset (including equity securities) is impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables at both a specific asset level and collective level (see note 23). All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current forward-looking economic and credit conditions are such that actual losses are likely to be greater or less than suggested by historical trends (see note 23).

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. Losses are recognised in profit or loss and reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised based on cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

SCEE GROUP ANNUAL REPORT 2021 76

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Notes to the financial statements

(l) Employee benefits

(i) Long-term 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. The discount rate is the yield at the reporting date on high quality corporate bonds or government bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed using the Projected Unit Credit method.

(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.

(iii) Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

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 fair value of performance rights and share options granted to employees is recognised at grant date as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the performance rights and share options. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

(m) 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. The unwinding of the discount is recognised as finance cost.

(n) Revenue

Revenue recognition accounting policy

The Group applies two approaches to recognising revenue to contracts with customers: either at a point in time or over time, depending on the manner the customer obtains control of the goods or services. Revenue is recognised over time if one of the following is met:

The customer simultaneously receives and consumes the benefits as the Group performs;
The customer controls the asset as the Group creates or enhances it; or
The Group’s performance does not create an asset for which the Group has an alternative use and there is a right to payment for the performance to date.

Revenue from contracts is recognised in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the group expects to be entitled in exchange for the goods or services. The following are the steps in determining revenue from contracts as prescribed by Five (5) Step Revenue Recognition Model introduced by AASB 15:

77 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

1) Identify the contract(s) with a customer
2) Identify the performance obligations in the contract
3) Determine the transaction price
4) Allocate the transaction price to the performance obligations in the contract
5) Recognise revenue when (or as) the entity satisfies a performance obligation

Judgement is required in determining the timing of the transfer of control, at a point in time or over time, as well as in each of the five enumerated steps in the revenue recognition model above.

(i) Construction revenue

The benefits being provided by the Group’s construction work transfer to the customer as the work is performed and as such revenue is recognised over the duration of the project based on percentage complete. Percentage complete is generally measured according to the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs (input method). If this would not be representative of the stage of completion then it is measured by reference to surveys of work performed (output method).

When it is probable that total contract costs will exceed total contract revenue, the unavoidable loss is recognised as an expense immediately.

(ii) Services revenue

The Group performs maintenance and other services for a variety of different sectors. Typically, under the performance obligations of a service contract, the customer consumes and receive the benefit of the service as it is provided. As such, service revenue is recognised over time as the services are provided.

(iii) Contract modifications

Revenue in relation to modifications, such as a change in the scope or price (or both) of the contract, are to be included in the contract price when it is approved by the parties to the contract and the modification is enforceable. Approval of a contract modification can be in writing, by oral agreement or implied by customary business practices.

Revenue estimated and recognised in relation to claims and variations is only included in the contract price to the extent that it is highly probable that a significant reversal in the amount recognised will not occur.

In making this assessment the Group considers a number of factors, including the nature of the claim, formal or informal acceptance by the customer of the validity of the claim, the stage of negotiations, assessments by independent experts and the historical outcome of similar claims to determine whether the enforceable and “highly probable” thresholds have been met.

(iv) Performance obligations

Revenue is allocated to each performance obligation and recognised as the performance obligation is satisfied which may be at a point in time or over time.

AASB 15 requires a detailed and technical approach to identify the different revenue streams (i.e. performance obligations) in a contract. This is done by identifying the different activities that are being undertaken and then aggregating only those where the different activities are significantly integrated or highly interdependent. Revenue is to be continuously recognised, on certain contracts over time, as a single performance obligation when the services are part of a series of distinct goods and services that are substantially integrated with the same pattern of transfer.

The term over which revenue may be recognised is limited to the period for which the parties have enforceable rights and obligations. When the customer can terminate a contract for convenience (without a substantive penalty), the contract term and related revenue is limited to the termination period.

The Group has elected to apply the practical expedient to not adjust the total consideration over the contract term for the effect of a financing component if the period between the transfer of services to the customer and the customer’s payment for these services is expected to be one year or less.

SCEE GROUP ANNUAL REPORT 2021 78

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Notes to the financial statements

(i) Variable consideration

Variable consideration includes performance or other incentive fees or penalties associated with contracts. If the consideration in the contract includes a variable amount, the Group estimates the amount of the consideration to which it is entitled in exchange for transferring the goods and services to the customer. The variable consideration is estimated at contract inception and constrained to the extent that it is highly probable that a significant reversal in the amount recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

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

(o) Finance income and expenses

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance expenses comprise interest expense on borrowings, bank charges and lease payments. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest rate method.

Foreign currency gains and losses are reported on a net basis.

(p) 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.

(q) 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.

79 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

(r) 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 performance rights and share options granted to employees.

(s) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s components. All operating segments’ operating results are reviewed regularly by the Group’s Managing Director to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

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

(t) Financial guarantees

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

the loss allowance determined in accordance with AASB 9 Financial Instruments; and
the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with AASB 15 Revenue from Contracts with Customer.

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.

(u) Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisitiondate amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

SCEE GROUP ANNUAL REPORT 2021 80

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Notes to the financial statements

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-bytransaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard.

Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 9 ‘Financial Instruments’, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

(v) Government grants

Government grants are recognised only when there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

(w) New standards and interpretations issued but not yet effective

The new standards and amendments to standards and interpretations effective for annual reporting periods beginning after 30 June 2021, such as those disclosed below, have not been applied in preparing these consolidated financial statements. The Group intends to adopt these new standards and amendment to standards and interpretations, if applicable, when they become effective:

Amendments to Australian Accounting Standards:

AASB 2020-1 – Classification of Liabilities as Current or Non-current

AASB 2020-3 – Annual Improvements 2018-2020 and other Amendments

AASB 2020-6 – Classification of Liabilities as Current or Non-current – Deferral of Effective Date

AASB 2020-7 – Covid-19-Related Rent Concessions: Tier 2 Disclosures

AASB 2020-9 – Tier 2 Disclosures: Interest Rate Benchmark Reform (Phase 2) and Other Amendments

AASB 2021-2 – Disclosure of Accounting Policies and Definition of Accounting Estimates

AASB 2021-4 – Modified Retrospective Transition Approach for Service Concession Grantors

The Group has yet to determine the likely impact of these new standards.

81 SCEE GROUP ANNUAL REPORT 2021

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Notes to the financial statements

35. Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and nonfinancial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(i) Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is the estimated amount for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s length

transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The fair value of items of plant, equipment, fixtures and fittings are determined using market comparison technique and cost technique – the valuation model considers quoted market prices for similar items when available and depreciated replacement cost when appropriate.

(ii) Inventories

The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

(iii) Trade and other receivables

The fair value of trade and other receivables acquired in a business combination, including contract asset as well as service concession receivables, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

(iv) Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

(v) Share-based payment transactions

The fair value of employee performance rights and share options is measured using an appropriate pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

(vi) Customer contracts and relationships

The fair value of customer contracts and relationships acquired in a business combination is estimated as the present value of future cash flows, discounted at the market rate of interest at the acquisition date.

SCEE GROUP ANNUAL REPORT 2021 82

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Directors’ declaration

In the opinion of the directors of Southern Cross Electrical Engineering Limited (the “Company”):
a. The consolidated financial statements and notes, and the Remuneration report in the Directors’ Report, are in accordance with the Corporations Act 2001, including:
- i. giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and
- ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001;
b. the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a),
c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the managing director and chief financial officer for the financial year ended 30 June 2021.
At the date of this declaration, there are reasonable grounds to believe that the Company and the group entities identified in Note 24 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785.

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

Signed in accordance with a resolution of the directors:

Derek Parkin Chairman

24 August 2021

83 SCEE GROUP ANNUAL REPORT 2021

Independent Auditor’s Report

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Independent Auditor’s Report

To the shareholders of Southern Cross Electrical Engineering Limited

Report on the audit of the Financial Report

Opinion

We have audited the Financial Report of Southern Cross Electrical Engineering Limited (the Company).

In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001 , including:

giving a true and fair view of the Group ’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001 .

The Financial Report comprises:

Consolidated balance sheet as at 30 June 2021
Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended;
Notes including a summary of significant accounting policies; and,
Directors’ Declaration.

The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report.

We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

Key Audit Matters

The Key Audit Matters we identified are:

Recognition of Contract Revenue;
Value of Goodwill; and
Acquisition accounting.

Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period.

These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated

with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and

logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.

SCEE GROUP ANNUAL REPORT 2021 84

Independent Auditor’s Report

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Recognition of Contract Revenue ($370 million)

Refer to Note 4 to the Financial Report – Contract Revenue
The key audit matter	How the matter was addressed in our audit
Recognition of Contract revenue is a key audit matter due to the: • Significance of revenue to the financial statements; and • Large number of customer contracts with numerous estimation events that may occur over the course of the contract's life. This results in complex and judgemental revenue recognition from rendering of services and construction contracts. Therefore, significant audit effort is required to gather sufficient appropriate audit evidence for revenue recognition. We focused on the Group's assessment of the following elements of revenue recognition for rendering of services and construction contracts, as applicable: • The Group's determination of contractual entitlement and assessment of the probability of customer approval of changes in scope and/or price. The Group's consideration of the enforceability or approval of the modification of the terms of a contract may include evidence that is written, oral, or implied by customary business practice and may include involvement from the Group’s legal, time and cost experts. The Group's determination of modifications requires a degree of judgement and can drive different accounting treatments, increasing the risk of inappropriately recognising revenue; • Estimating total expected costs at initiation of the customer contract, which have a high level of estimation uncertainty; and • Revisions to total expected costs for certain events or conditions that occur during the performance of the contract, or are expected to occur to complete the customer contract, which is difficult to estimate.	Our procedures included: • Understanding the Group’s contract revenue accounting process. We tested a sample of the key controls in this process including customer approval of progress claim submissions; and • For a sample of customer contracts: − we read the contracts and other underlying documentation such as customer correspondence to evaluate the inputs to the Group’s calculation of revenue; − we assessed the total expected cost estimates by (1) obtaining an understanding of the activities required to complete the customer contract from the Group’s contract teams, (2) analysing the costs of those activities compared to recent project cost trends and prices, (3) testing a sample of committed expenditure to underlying documentation such as purchase orders, and (4) using our knowledge of the contract characteristics to challenge the completeness of costs and activities; − we evaluated the Group's assessment of when a modification to the contract scope and/or price for variations and claims is approved and enforceable. This included assessing underlying records, legal documents, and customer correspondence; − we assessed the Group's estimation of variations and claims by comparing underlying evidence such as customer correspondence and reports from the Group’s time and cost experts (where applicable) for consistency with contract terms. We recalculated the amount of revenue including the modifications to the contract. We compared the recalculated amounts against the amounts recorded by the Group; − we evaluated the Group's legal, time and cost experts' reports received on contentious matters to assess the recognition of variations and claims under the revenue accounting standard. We checked the consistency of this to the inclusion or not of an amount in the Group’s estimates used for revenue recognition; and − we assessed the scope, competency, and objectivity of the legal, time and cost experts engaged by the Group. − we evaluated the Group’s ability to recover outstanding variation and claim amounts not yet settled with customers by assessing the status of contract negotiations, historical recoveries and expert reports obtained by the Group • Assessing the appropriateness of the disclosures in Notes 4, 14 and 34(n).

85 SCEE GROUP ANNUAL REPORT 2021

Independent Auditor’s Report

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Value of Goodwill ($103 million)

Refer to Note 17 to the Financial Report – Intangible assets - goodwill and customer contracts

The key audit matter How the matter was addressed in our audit We focused on the Group’s annual Our procedures included: testing of Goodwill for impairment as a key audit matter due to the size of the • considering the Group’s determination of the level at which balance, being 30% of total assets. We goodwill is tested based on our understanding of the operations focused on the significant forwardof the Group’s business and how independent cash inflows looking assumptions the Group applied in were generated, against the requirements of the accounting their value in use models for the SCEE, standards; Heyday, Trivantage segments, including: • considering the appropriateness of the value in use method
• The valuation models are sensitive to applied by the Group to perform the annual test of goodwill for changes in forecast revenues and impairment against the requirements of the accounting
margins which could reduce or standards. We, along with our modelling specialists, assessed remove available headroom, and the integrity of the value in use models used, including the
increasing the possibility of goodwill accuracy of the underlying calculation formulas;
being impaired. This drives additional audit effort specific to their feasibility • challenging the feasibility of the Group’s revenue and margin within the Group’s strategy; and assumptions within the forecast cash flows in light of varying
• discount rates - these are competitive conditions in the markets in which the Group complicated in nature and vary operates. We compared growth rates and terminal growth according to the conditions and rates to published studies of industry trends and expectations environment the specific segments for the SCEE segment. We further assessed forecast cash are subject to from time to time. The flows against the secured value of work for those respective Group’s modelling is sensitive to years and the level of secured work at similar times in previous changes in the discount rate. We years. We used our knowledge of the Group, their past involve our valuation specialists with performance, business and customers, and our industry the assessment. experience; • comparing the forecast cash flows contained in the value in use models to Board approved forecasts;

•	comparing the forecast cash flows contained in the value in use models to Board approved forecasts;
•	assessing the accuracy of previous Group forecasting to inform
	our evaluation of forecasts included in the value in use models.
	We applied increased scepticism to current period forecasts in
	areas where previous forecasts were not achieved and/or
	where future uncertainty is greater or volatility is expected;
•	considering the sensitivity of the models by varying key
	assumptions, such as forecast revenue, margins, growth rates,
	terminal growth rates and discount rates, within a reasonably
	possible range. We did this to identify those segments with a
	higher risk of impairment and to focus our further procedures;
•	working with our valuation specialists, we independently
	developed a discount rate range considered comparable using
	publicly available market data for comparable entities, adjusted
	by risk factors specific to the Group and the industry it operates
	in; and
•	we assessed the Group's disclosures of the quantitative and
	qualitative considerations in relation to the valuation of
	goodwill, by comparing these disclosures to our understanding
	obtained from our testing and the requirements of the
	accounting standards.

SCEE GROUP ANNUAL REPORT 2021 86

Independent Auditor’s Report

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Acquisition Accounting – Trivantage Group

Refer to Note 25 to the Financial Report - Business combinations

The key audit matter How the matter was addressed in our audit We focused on the Group’s acquisition of Our procedures included: Trivantage Holdings Pty Ltd and its subsidiaries • Challenging the forecast revenue and margin
(“Trivantage”) as a key audit matter due to the assumptions used in the measurement of
level of judgment required in evaluating the customer contract intangibles. We compared
purchase price allocation (“PPA”) against the criteria in the accounting standards. We these forecasts to approved revenue specifically focused on the Group’s forecasts, historical Trivantage results, as well identification and measurement of intangible as results during the remainder of the financial assets which form part of the PPA, including: year. • the forecast revenues and margin • Working with our valuation specialists we assumptions of Trivantage underlying the independently developed a discount rate range cash flows used for measurement of the considered comparable using publicly available customer contract intangibles. market data for comparable entities, adjusted
• the discount rate assumptions with the by risk factors specific to Trivantage and the industry it operates in.
the forecast revenues and margin • Working with our valuation specialists we assumptions of Trivantage underlying the independently developed a discount rate range cash flows used for measurement of the considered comparable using publicly available customer contract intangibles. market data for comparable entities, adjusted
• the discount rate assumptions with the by risk factors specific to Trivantage and the measurement of customer contracts which industry it operates in. are complicated in nature and vary We also considered publically available information
according to the conditions and on recent transactions in the industry of
environment of Trivantage. We involved our comparable entities to challenge the Group’s
valuations specialists with the assessment. determination that no other intangible assets be
We also considered the PPA for the inclusion of recognised in the PPA. other intangible assets such as brand names and customer relationships, considering the nature of the Trivantage operations and industry.

Other Information

Other Information is financial and non-financial information in Southern Cross Electrical Engineering Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.

In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.

87 SCEE GROUP ANNUAL REPORT 2021

Independent Auditor’s Report

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Responsibilities of the Directors for the Financial Report

The Directors are responsible for:

preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the Financial Report

Our objective is:

to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.

A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report.

SCEE GROUP ANNUAL REPORT 2021 88

Independent Auditor’s Report

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Report on the Remuneration Report

Opinion

In our opinion, the Remuneration Report of Southern Cross Electrical Engineering Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001 .

Directors’ responsibilities

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 responsibilities

We have audited the Remuneration Report included in Directors’ report for the year ended 30 June 2021.

Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards .

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KPMG

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R Gambitta Partner

Perth

24 August 2021

89 SCEE GROUP ANNUAL REPORT 2021

Lead Auditor’s Independence Declaration

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Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Southern Cross Electrical Engineering Limited

I declare that, to the best of my knowledge and belief, in relation to the audit of Southern Cross Electrical Engineering Limited for the financial year ended 30 June 2021 there have been:

i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit.

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KPMG

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R Gambitta Partner

Perth

24 August 2021

KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.

SCEE GROUP ANNUAL REPORT 2021

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ASX additional information

Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. The information is current at 5 August 2021.

Distribution of equity security holders

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Number of equity security holders
Category Ordinary shares Options/
Performance rights
1 - 1,000 279 -
1,001 - 5,000 828 -
5,001 - 10,000 494 -
10,001 - 100,000 1,193 -
100,001 and over 163 4
2,957 4
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The number of shareholders holding less than a marketable parcel of ordinary shares is 215.

Twenty largest shareholders

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Name Number of ordinary Percentage of
shares held capital held
Frank Tomasi Nominees Pty Ltd 46,862,764 18.89
UBS Nominees Pty Ltd 43,063,527 17.36
Citicorp Nominees Pty Limited 28,965,288 11.68
National Nominees Limited 20,925,416 8.44
J P Morgan Nominees Australia Pty Limited 11,508,018 4.64
DHHD5 Pty Ltd 3,629,544 1.46
Chemco Superannuation Fund Pty Ltd No 2 a/c>
Asgard Capital Management Ltd<1109440 Kaleidoscope a/c> 1,561,546 0.63
HSBC Custody Nominees (Australia) Limited 1,517,879 0.61
Westor Asset Management Pty Ltd 1,506,345 0.61
Alfiedoug Pty Ltd 1,295,324 0.52
CS Fourth Nominees Pty Ltd 1,287,696 0.52
Mr Raymond John Wise 1,076,846 0.43
Neweconomy Com Au Nominees Pty Limited <900 account> 1,030,041 0.42
DPHD5 Pty Ltd 1,000,008 0.40
Carman Super Pty Ltd 1,000,000 0.40
Mr Roger Edward Koch 900,000 0.36
Icon Holdings Pty Ltd 898,564 0.36
Buchhorn Pty Ltd 800,000 0.32
BNP Paribas Noms Pty Ltd 694,784 0.28
171,553,590 69.16
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91 SCEE GROUP ANNUAL REPORT 2021

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ASX additional information

Substantial shareholders

The number of shares held by substantial shareholders and their associates as disclosed in substantial holding notices are:

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Shareholder Number
Frank Tomasi Nominees Pty Ltd 46,862,764
TIGA Trading Pty Ltd 45,880,371
Mitsubishi UFJ Financial Group Inc 23,528,704
Perennial Value Management Limited 15,970,982
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Corporate Governance Statement

The Corporate Governance Statement can be found at https://www.scee.com.au/investors/corporate-governance

SCEE GROUP ANNUAL REPORT 2021 92

CORPORATE DIRECTORY

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Directors

Derek Parkin Chairman Independent Non-Executive Director

Graeme Dunn CEO and Managing Director

Simon Buchhorn Independent Non-Executive Director

Karl Paganin Independent Non-Executive Director

David Hammond Executive Director

Paul Chisholm Non-Executive Director

Company Secretaries

Solicitors

K & L Gates Level 32, 44 St Georges Terrace Perth WA 6000

Share Registry

Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth WA 6000 T: 1300 787 272 F: +618 9323 2033

Registered Office

Southern Cross Electrical Engineering Limited 41 Macedonia Street Naval Base WA 6165 T: +618 9236 8300 F: +618 9410 2504

ASX code: SXE

Chris Douglass

Colin Harper

Auditors

KPMG 235 St Georges Terrace Perth WA 6000

93 SCEE GROUP ANNUAL REPORT 2021

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SCEE GROUP ANNUAL REPORT 2021 94
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scee.com.au

95 SCEE GROUP ANNUAL REPORT 2021

AI assistant

SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Annual Report 2021

65884_rns_2021-08-24_7e424a52-cac4-4a3f-b0ea-4e3ef2e7437b.pdf

Appendix 4E and Annual Report

Results for Announcement to the Market

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

Details of associates and joint venture entities

Audit

Annual General Meeting

Authorised for release by Graeme Dunn – SCEE Managing Director

CONTENTS

2021 HIGHLIGHTS

Order book

ABOUT SCEE

TRIVANTAGE ACQUISTION

The Trivantage Group was acquired in December 2020.

S.J. Electric:

SEME Solutions:

Trivantage Manufacturing:

LEADING NATIONAL DIVERSIFIED ELECTRICAL CONTRACTOR

WA

NSW & ACT

NT

SA

VIC & TAS

QLD

COMMERCIAL

SCEE has the expertise in designing, supplying, installing and maintaining a wide range of commercial building electrical and utility services.

RESOURCES

SCEE provides electrical, instrumentation and communication services to the mining and oil and gas sectors.

INFRASTRUCTURE

CHAIRMAN’S REPORT

Dear Shareholders

MANAGING DIRECTOR’S REVIEW

MANAGING DIRECTOR’S REVIEW (cont)

Financial Results

MANAGING DIRECTOR’S REVIEW (cont)

Outlook

Order Book and Pipeline

MANAGING DIRECTOR’S REVIEW (cont)

Earnings

Strategy

Coronavirus

Conclusion

MANAGING DIRECTOR’S REVIEW (cont)

DIRECTORS’ REPORT

Your Directors submit their report for Southern Cross Electrical Engineering Limited (“SCEE” or “the Company”) for the year ended 30 June 2021.

DIRECTORS’ REPORT (cont)

DIRECTORS’ REPORT (cont)

Executive Officers

DIRECTORS’ REPORT (cont)

Directors’ interests

Directors’ meetings

Principal Activities

Significant Changes in the State of Affairs

Operating and Financial Review

DIRECTORS’ REPORT (cont)

Dividends

Significant Events after Balance Sheet Date

Likely Developments and Expected Results

Environmental Regulation

Share Options and Performance Rights

DIRECTORS’ REPORT (cont)

Indemnification and Insurance of Directors and Officers

Proceedings on Behalf of Company

Non-audit Services

Auditor’s Independence Declaration

Remuneration Report

Rounding off

Remuneration report – audited

Nomination and Remuneration Committee

Remuneration Structure

Executive Remuneration

Objective

Structure

Fixed Remuneration

Variable Remuneration – Short Term Incentive (STI)

Remuneration report – audited (cont)

Variable Remuneration – Long Term Incentive (LTI)

Non-Executive Director Remuneration

SOUTHERN CROSS ELECTRICAL ENGINEERING LTD Annual Report 2021