SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Interim / Quarterly Report 2013

Feb 25, 2013

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Results for announcement to the market Appendix 4D Half year ended 31 December 2012

	Half Year Ended Half Year Ended Change 31 Dec 2012 $’000 31 Dec 2011 $’000 $’000 %
Revenue and Net Profit Revenue from ordinary activities Profit/(Loss) from ordinary activities after tax attributable to members Net profit/(loss) attributable to members	120,594 84,180 36,414 43% 4,274 5,122 (848) (17%) 4,274 5,122 (848) (17%)

Amount per security Franked amount per security	Amount per security Franked amount per security
Dividends Interim dividend 0.0 cps 0.0 cps Record date for determining entitlements to the dividend NA Date the interim dividend is payable NA The Company does not operate a dividend re-investment plan
NTA Backing	Half Year Ended 31 Dec 2012 Half Year Ended 31 Dec 2011
Net tangible asset backing per security (cents per share)	43.6 cps 37.6 cps

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

During the period there was no change to controlled entities of Southern Cross Electrical Engineering Ltd (“the Group” or “SCEE”).

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Results for announcement to the market Half year ended 31 December 2012

Details of associates and joint venture entities

On 18 December 2012 the Company entered into a Joint Venture Agreement with the Kentech group of

companies to form KSJV, a 50:50 unincorporated joint venture. There were no transactions in the joint venture in the half year ended 31 December 2012.

Previous Corresponding Reporting Period

The previous corresponding reporting period is the half year ended 31 December 2011.

Commentary on the Results for the Period

The six months ended 31 December 2012 saw SCEE continue to build on the record results reported for the 2012 financial year, with revenues of $120.6m representing a 43% increase over the corresponding prior period.

During the period SCEE was awarded the following significant contracts:

• Rio Tinto Cape Lambert Port B Phase A – The first contract won under the framework agreement and, at a value of approximately $100m, the largest contract in the Company’s history;

• Anglogold Ashanti / Independence Group Tropicana Gold Project – Contract value in excess of $40m; and

• Rio Tinto Yandi Expansion Project – Awarded the second portion of the powerline installation at a value in excess of $29m.

While work on all of these projects commenced during the period, activity on Cape Lambert Phase A and Tropicana was still in the ramp-up phase at period end.

In addition to the contracts above the most significant revenue contributors during the period were:

• MCC Sino Iron Project – SCEE continued to progress the project throughout the period with our work on the Train 2 concentrator now nearing completion. A decision from the project owners, Citic Pacific, and EPC contractor, MCC Mining, on proceeding with the next phase of the project (Trains 3 to 6) is pending.

• Rio Tinto Coastal Waters – SCEE Infrastructure is performing the powerline installation. The project is now well advanced and we expect to complete our work during the second half of the financial year.

• Rio Tinto Sustaining Works Projects – during the period we completed work on a number of projects related to the Cape Lambert Port B early works.

On the East Coast, physical work on the QCLNG Early Works and Lake Vermont Coal projects was successfully completed during the period. Contract close-out discussions are currently on-going.

Gross margin for the period was 19.9% compared to a full year gross margin of 19.7% in the 2012 financial year.

The overhead base was increased during the period to the level required to support the expected increase in activity. The later than anticipated award of significant contracts at Cape Lambert Phase A and Tropicana saw the Company carrying excess overheads for part of the period and resulted in overheads of 12.3% of revenue compared to 9.9% for financial year 2012. Work on both projects had commenced by the end of the period and we expect overheads to have reduced by year end to levels equal to or lower than financial year 2012 on a percentage of revenue basis.

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Results for announcement to the market Half year ended 31 December 2012

SCEE entered the second half of the year in a strong financial position with cash on hand of $46.9m and an order book of $186m at 31 December 2012. Tendering activity remains high and we continue to identify new opportunities in the market.

In December SCEE announced that it had entered into a Joint Venture Agreement with the highly regarded international E&I contractor the Kentech group of companies to form KSJV, a 50:50 unincorporated joint venture. KSJV aims to capitalise on the unprecedented levels of demand in Australia for Electrical and Instrumentation construction works on large-scale LNG projects. With up to $7 billion of E&I work to be performed in Australia over the next five years, SCEE views the LNG sector as a key component of its future growth.

During the period we continued to progress our systems development program which incorporates the implementation of the SCEEtrak suite of project management systems, selection and implementation of a new Enterprise Resource Planning (ERP) system and an upgrade of the IT infrastructure.

Effective 1 July 2012, we rebranded K J Johnson as SCEE Infrastructure and merged the Hindles and West Coast maintenance and support operations under the SCEE Services brand. This formed part of an overall rebranding of the Company which aligns with our strategic aim of becoming a recognised Tier 1 Electrical and Instrumentation contractor. Subsequent to the period end we have launched our new logo and visual identity.

Performing our work safely remains SCEE’s highest priority and we are pleased to report that we carried out our operations in the period without incurring a Lost Time Injury.

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Contents

Directors’ report	3
Condensed Consolidated Statement of Comprehensive Income	6
Condensed Consolidated Statement of Financial Position	7
Condensed Consolidated Statement of Changes in Equity	8
Condensed Consolidated Statement of Cash Flows	9
Notes to the condensed consolidated interim financial statements	10
Directors’ declaration	13
Review report	14
Lead auditor’s independence declaration	16

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Directors’ report

The directors present their report together with the condensed consolidated interim financial report for the six months ended 31 December 2012 and the independent review report thereon.

Directors

The directors of the Southern Cross Electrical Engineering Limited (“SCEE” or “the Company”) at any time during or since the end of the interim period are:

Name Period of directorship Non‐executive Mr John Cooper (Chairman) Director since 2007 Mr Gianfranco Tomasi Director since 1978 Prof Derek Parkin Director since 31 March 2011 Mr Peter Forbes Director since 1 October 2011 Dr Jack Hamilton Director since 1 October 2011 Executive Mr Simon High (Managing Director) Director since 2 August 2010

Review of operations

The six months ended 31 December 2012 saw SCEE continue to build on the record results reported for the 2012 financial year, with revenues of $120.6m representing a 43% increase over the corresponding prior period.

During the period SCEE was awarded the following significant contracts:

• Rio Tinto Cape Lambert Port B Phase A – The first contract won under the framework agreement and, at a value of approximately $100m, the largest contract in the Company’s history;

• Anglogold Ashanti / Independence Group Tropicana Gold Project – Contract value in excess of $40m; and

• Rio Tinto Yandi Expansion Project – Awarded the second portion of the powerline installation at a value in excess of $29m.

While work on all of these projects commenced during the period, activity on Cape Lambert Phase A and Tropicana was still in the ramp‐up phase at period end.

In addition to the contracts above the most significant revenue contributors during the period were:

• MCC Sino Iron Project – SCEE continued to progress the project throughout the period with our work on the Train 2 concentrator now nearing completion. A decision from the project owners, Citic Pacific, and EPC contractor, MCC Mining, on proceeding with the next phase of the project (Trains 3 to 6) is pending.

• Rio Tinto Coastal Waters – SCEE Infrastructure is performing the powerline installation. The project is now well advanced and we expect to complete our work during the second half of the financial year.

3

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

• Rio Tinto Sustaining Works Projects – during the period we completed work on a number of projects related to the Cape Lambert Port B early works.

On the East Coast, physical work on the QCLNG Early Works and Lake Vermont Coal projects was successfully completed during the period. Contract close‐out discussions are currently on‐going.

Gross margin for the period was 19.9% compared to a full year gross margin of 19.7% in the 2012 financial year.

The overhead base was increased during the period to the level required to support the expected increase in activity. The later than anticipated award of significant contracts at Cape Lambert Phase A and Tropicana saw the Company carrying excess overheads for part of the period and resulted in overheads of 12.3% of revenue compared to 9.9% for financial year 2012. Work on both projects had commenced by the end of the period and we expect overheads to have reduced by year end to levels equal to or lower than financial year 2012 on a percentage of revenue basis.

SCEE entered the second half of the year in a strong financial position with cash on hand of $46.9m and an order book of $186m at 31 December 2012. Tendering activity remains high and we continue to identify new opportunities in the market.

In December SCEE announced that it had entered into a Joint Venture Agreement with the highly regarded international E&I contractor the Kentech group of companies to form KSJV, a 50:50 unincorporated joint venture. KSJV aims to capitalise on the unprecedented levels of demand in Australia for Electrical and Instrumentation construction works on large‐scale LNG projects. With up to $7 billion of E&I work to be performed in Australia over the next five years, SCEE views the LNG sector as a key component of its future growth.

During the period we continued to progress our systems development program which incorporates the implementation of the SCEEtrak suite of project management systems, selection and implementation of a new Enterprise Resource Planning (ERP) system and an upgrade of the IT infrastructure.

Effective 1 July 2012, we rebranded K J Johnson as SCEE Infrastructure and merged the Hindles and West Coast maintenance and support operations under the SCEE Services brand. This formed part of an overall rebranding of the Company which aligns with our strategic aim of becoming a recognised Tier 1 Electrical and Instrumentation contractor. Subsequent to the period end we have launched our new logo and visual identity.

Performing our work safely remains SCEE’s highest priority and we are pleased to report that we carried out our operations in the period without incurring a Lost Time Injury.

Dividend

The directors have not declared an interim dividend for the six months ended 31 December 2012 (31 December 2011: no dividend). At this time the Company is reserving cash resources in order to fund the continued growth of its operations.

Rounding off

The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the condensed consolidated interim financial report and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Lead auditor’s independence declaration

The lead auditor’s independence declaration is set out on page 16 and forms part of the directors’ report for the six months ended 31 December 2012.

Signed in accordance with a resolution of the directors:

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John Cooper

Chairman Perth 25 February 2013

5

Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report

for the half year ended 31 December 2012

Condensed Consolidated Statement of Comprehensive Income

Contract revenue Contract expenses Gross profit Other income Employee benefits expenses Occupancy expenses Administration expenses Other expenses Depreciation expense Amortisation of customer contract intangibles Profit/(Loss) from operating activities Finance income Finance expense Net finance income/(expense) Profit/(Loss) before income tax Income tax (expense)/benefit Profit/(Loss) after income tax for the period Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss: Foreign currency translation losses for foreign operations Income tax on other comprehensive income Other comprehensive income/(loss) net of income tax Total comprehensive income/(loss) for the period Attributable to Owners of the Company Earnings/(loss) per share ‐ Basic earnings/(loss) per share (cents per share) ‐ Diluted earnings/(loss) per share (cents per share)	31 Dec 2012 $’000 31 Dec 2011 $’000
	120,594 84,180
	(96,569) (66,406)
	24,025 17,774
	230 221
	(10,119) (6,469)
	(1,130) (620)
	(2,693) (1,890)
	(843) (720)
	(2,195) (912)
	(75) (75)
	7,200 7,309
	303 673
	(408) (352)
	(105) 321
	7,095 7,630
	(2,821) (2,508)
	4,274 5,122
	(3) (13)
	‐ ‐
	(3) (13)
	4,271 5,109
	4,271 5,109
	2.7 3.2
	2.7 3.2

6

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report

for the half year ended 31 December 2012

Condensed Consolidated Statement of Financial Position

Note Assets Current Assets Cash and cash equivalents Trade and other receivables Tax receivables Inventories Construction work in progress Prepayments Total current assets Non‐current assets Property, plant and equipment 7 Intangible assets Total non‐current assets Total assets Liabilities Current liabilities Trade and other payables Unearned revenue Loans and borrowings Employee entitlements Tax payable Total current liabilities Non‐current liabilities Loans and borrowings Employee entitlements Deferred tax liability Total non‐current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity	31 Dec 2012 $’000 30 Jun 2012 $’000
	46,905 31,545
	33,754 21,665
	1,424 1,558
	2,333 1,166
	24,212 35,751
	1,637 262
	110,265 91,947
	30,292 17,147
	17,475 17,551
	47,767 34,698
	158,032 126,645
	31,285 26,988
	21,428 4
	1,817 388
	4,592 4,806
	2,100 1,192
	61,222 33,378
	3,636 1,176
	378 383
	4,878 4,841
	8,892 6,400
	70,114 39,778
	87,918 86,867
	57,554 57,554
	671 261
	29,693 29,052
	87,918 86,867

7

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report

for the half year ended 31 December 2012

Condensed Consolidated Statement of Changes in Equity

Balance as at 1 July 2012 Total comprehensive income for the period Profit for the period Foreign currency translation Total comprehensive Income Transactions with owners, recorded directly in equity Cost of share based payment Issue of new shares Dividends Total transactions with owners Balance as at 31 December 2012 Balance as at 1 July 2011 Total comprehensive income for the period Profit for the period Foreign currency translation Total comprehensive Income Transactions with owners, recorded directly in equity Cost of share based payment Issue of new shares Dividends Total transactions with owners Balance as at 31 December 2011	Share Capital Retained Earnings Options Reserve	Translation Reserve Total Equity
	57,554 29,052 1,012	(751) 86,867
	‐ 4,274 ‐	‐ 4,274
	‐ ‐ ‐	(3) (3)
	‐ 4,274 ‐	(3) 4,271
	‐ ‐ 413	‐ 413
	‐ ‐ ‐	‐ ‐
	‐ (3,633) ‐	‐ (3,633)
	‐ (3,633) 413	‐ (3,220)
	57,554 29,693 1,425	(754) 87,918
	Share Capital Retained Earnings Options Reserve	Translation Reserve Total Equity
	56,984 15,344 432	(92) 72,668
	‐ 5,122 ‐	‐ 5,122
	‐ ‐ ‐	(13) (13)
	‐ 5,122 ‐	(13) 5,109
	‐ ‐ (61)	‐ (61)
	570 ‐ ‐	‐ 570
	‐ ‐ ‐	‐ ‐
	570 ‐ (61)	‐ 509
	57,554 20,466 371	(105) 78,286

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Condensed Consolidated Statement of Cash Flows

Note Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Interest received Interest paid Income taxes received/(paid) Net cash from/(used in) operating activities8 Cash flows from investing activities Acquisition of property, plant and equipment Disposal of property, plant and equipment Net cash from/(used in) investing activities Cash flows from financing activities Repayment of borrowings Payment for term deposit Dividends paid Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 31 December	31 Dec 2012 $’000 31 Dec 2011 $’000
	141,702 68,119
	(109,409) (70,297)
	303 673
	(408) (352)
	(1,739) (443)
	30,449 (2,300)
	(11,087) (4,312)
	‐ 3,610
	(11,087) (702)
	(364) (3,160)
	‐ (3,000)
	(3,633) ‐
	(3,997) (6,160)
	15,365 (9,162)
	31,545 26,280
	(5) (12)
	46,905 17,106

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Notes to the condensed consolidated interim financial statements

1. Reporting entity

Southern Cross Electrical Engineering Limited (the “Company”) is a company domiciled in Australia. The condensed consolidated interim financial report of the Company as at and for the six months ended 31 December 2012 comprises the Company and its subsidiaries (together referred to as the “Group”).

The consolidated annual financial report of the Group as at and for the year ended 30 June 2012 is available upon request from the Company’s registered office at 41 Macedonia Street, Naval Base, Western Australia 6165 or at www.scee.com.au.

2. Statement of compliance

The condensed consolidated interim financial report is a general purpose financial report which has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001.

The condensed consolidated interim financial report does not include all of the information required for a full annual financial report, and should be read in conjunction with the consolidated annual financial report of the Group as at and for the year ended 30 June 2012.

The condensed consolidated interim financial report was approved by the Board of Directors on 25 February 2013.

3. Estimates

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

In preparing this condensed consolidated interim financial report, 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 report as at and for the year ended 30 June 2012.

4. Significant accounting policies

The accounting policies applied by the Group in this condensed consolidated interim 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 2012.

5. Financial risk management

During the six months ended 31 December 2012 the Group’s financial risk management objectives and policies were consistent with that disclosed in the consolidated financial report as at and for the year ended 30 June 2012.

6. Segment reporting

Revenue is derived by the Group from the provision of electrical and instrumentation services to the resources, energy and infrastructure sectors.

The Group has branded itself into the following three operating divisions: SCEE Construction, SCEE Infrastructure and SCEE Services. In the half‐year ended 31 December 2012 the Group derived revenues of $69.4m from SCEE Construction, $35.9m from SCEE Infrastructure and $15.3m from SCEE services. The divisions are exposed to

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

similar operational risks and rewards and are only divisions for the purposes of addressing target market opportunities and facilitating appropriate project management structures.

The directors believe that the aggregation of the operating divisions for segment reporting purposes is appropriate as 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 divisions have therefore been aggregated to form one operating segment.

7. Property, plant and equipment

In the six months ended 31 December 2012 the Group made the following additions to property, plant and equipment: leasehold improvements $124,000; plant and equipment $8,217,000; motor vehicles $5,220,000; and office furniture and equipment $2,048,000.

8. Reconciliation of cash flows from operating activities

Cash flows from operating activities Profit after income tax for the period Adjustments for: Depreciation and amortisation (Gain)/Loss on sale of property, plant and equipment Equity‐settled share‐based payment transactions (Increase)/decrease in assets: Change in trade and other receivables Change in work in progress Change in inventories Change in prepayments Increase/(decrease) in liabilities: Change in trade and other payables Change in unearned revenue Change in provisions and employee benefits Change in income tax payable Change in deferred income tax Net cash from/(used in) operating activities	31 Dec 2012 $’000 31 Dec 2011 $’000
	4,274 5,122
	2,270 986
	‐ (2)
	413 509
	(12,089) (6,724)
	11,539 (9,143)
	(1,167) (8)
	(1,375) (601)
	4,297 5,069
	21,424 (414)
	(219) 840
	1,045 (12)
	37 2,078
	30,449 (2,300)

11

Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

9. Joint venture arrangements

On 18 December 2012 the Company entered into a Joint Venture Agreement with the Kentech group of companies to form KSJV, a 50:50 unincorporated joint venture. There were no transactions in the joint venture in the current period.

10. Share based payments

During the six months ended 31 December 2012 the Company issued 419,664 Performance Rights in respect of the 2012 financial year and 961,050 Performance Rights in respect of the 2013 financial year. The Performance Rights were issued under the Company’s Senior Management Long Term Incentive Plan.

11. Related parties

The share based payments disclosed in note 10 included the following issues to key management personnel during the six months ended 31 December 2012:

uring the six months ended 31 December 2012:
	2012	2013
	Performance	Performance
	Rights	Rights
Simon High – Managing Director	419,664	323,396
Simon Buchhorn – Chief Operating Officer	‐	137,625
Chris Douglass – Chief Financial Officer	‐	120,724

The Performance Rights issued to Simon High were approved by shareholders at the Company’s Annual General Meeting on 29 October 2012.

During the six months ended 31 December 2012, 15,108 ordinary shares were issued to Simon Buchhorn at nil consideration on the exercise of Performance Rights in respect of the 2011 financial year. The Performance Rights had vested at 30 June 2012 and further details can be found in the 30 June 2012 financial report.

Other arrangements with related parties continue to be in place on the same basis as at 30 June 2012. For full disclosure on these transactions refer to the 30 June 2012 annual financial report.

12. Events after the balance sheet date

There are no matters or circumstances that have arisen since 31 December 2012 which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent reporting periods.

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Directors’ declaration

In the opinion of the directors of Southern Cross Electrical Engineering Limited (“the Company”):

1. the financial statements and notes set out on pages 6 to 12, are in accordance with the Corporations Act 2001 including:

2. a. giving a true and fair view of the Group’s financial position as at 31 December 2012 and of its performance for the six month period ended on that date; and

3. b. complying with Australian Accounting Standard AASB134 Interim Financial Reporting and the Corporations Regulations 2001; and

4. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors

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John Cooper

Chairman Perth 25 February 2013

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Review report

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

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15

Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2012

Lead auditor’s independence declaration

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046