SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Interim / Quarterly Report 2016

Feb 23, 2016

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Results for announcement to the market Appendix 4D Half year ended 31 December 2015

The current reporting period is the half year ended 31 December 2015. The previous corresponding period is the half year ended 31 December 2014.

Revenue and Net Profit	Half Year	Half Year		Change
	Ended	Ended
	31 Dec 2015	31 Dec 2014
	$’000	$’000	$’000	%
Revenue from ordinary activities	137,131	141,987	(4,856)	(3.4%)
Profit/(Loss) from ordinary activities after tax attributable to members	3,752	4,106	(354)	(8.6%)
Net profit/(loss) attributable to members	3,752	4,106	(354)	(8.6%)

Dividends	Amount per security	Franked amount per
		security
Interim dividend	1.35 cps	1.35 cps
Record date for determining entitlements to the		21 March 2016
dividend
Date the interim dividend is payable		14 April 2016
The Company does not operate a dividend re-investment plan

NTA Backing	Half Year Ended	Half Year Ended
	31 Dec 2015	31 Dec 2014
Net tangible asset backing per security (cents per share)	50.2 cps	53.8 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 period there was no change to controlled entities of Southern Cross Electrical Engineering Ltd (“the Group” or “SCEE”).

Details of associates and joint venture entities

The Company has a 50% interest in the following joint venture entities:

• KSJV

• KSJV Australia Pty Ltd

• Yonga Services Pty Ltd

Commentary on the Results for the Period

Commentary on the results for the period is contained in the attached Interim Financial Report.

2

Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

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Interim Financial Report for the half year ended 31 December 2015

Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

Contents

Contents
Directors’ report	3
Consolidated Statement of Comprehensive Income	5
Consolidated Statement of Financial Position	6
Consolidated Statement of Changes in Equity	7
Consolidated Statement of Cash Flows	8
Notes to the consolidated interim financial statements	9
Directors’ declaration	12
Review report	13
Lead auditor’s independence declaration	15

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

Directors’ report

The directors present their report together with the Consolidated Interim Financial Report for the six months ended 31 December 2015 and the Independent Review Report thereon.

Directors

The Directors of Southern Cross Electrical Engineering Limited (“SCEE” or “the Company”) during the interim period and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Non-executive Directors

Professor Derek Parkin (Chairman)

Mr Gianfranco Tomasi

Mr Simon Buchhorn Mr Karl Paganin

Executive Directors

Mr Graeme Dunn (Managing Director) Appointed 18 January 2016 Mr Chris Douglass Resigned 18 January 2016

Review of operations

Conditions in the Company’s core resources sector remain challenging. Low commodity prices continue to influence investment decisions and clients remain highly focussed on cost control. Despite these market conditions activity in the period was high as a result of strong performance on key projects.

For the six months ended 31 December 2015 the Company earned revenue of $137.1m. This represented a significant increase from the $98.6m of underlying trading revenue[1] in the preceding six month period to 30 June 2015. Revenues for the prior comparative period ended 31 December 2014 were $142.0m.

Revenue generated by each of SCEE’s operating divisions was as follows: SCEE construction $109.5m, SCEE Services $23.1m and SCEE Infrastructure $4.5m.

Key projects during the period included CITIC Pacific Sino Iron, Samsung Roy Hill, Technicas Reunidas TAN Burrup, BHP Billiton Iron Ore Sustaining Capital, Rio Tinto Iron Ore Electrical Infrastructure Replacement and Bechtel Australia Pacific LNG.

Gross margin for the period was 13.1% compared to underlying trading gross margin[2] of 13.6% in the second half of financial year 2015. Gross margins in the prior corresponding period were 15.7% with the reduction attributable to the increased competition to secure work in the sector.

Net profit after income tax for the period was $3.8m compared to $4.1m in the prior comparative period and underlying trading NPAT[3] of $0.1m in the second half of financial year 2015.

In response to market conditions, the Board undertook a restructuring exercise in the second half of financial year

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

2015 which resulted in a reduction in the Group’s overhead base. This has seen overheads decrease by over 16% against the prior corresponding period from $12.8m to $10.7m.

Depreciation in the period was $2.4m compared to $3.4m in the prior comparative period as a result of asset write downs and disposal which formed part of the restructure.

The effective income tax rate in the period was 24.8% as a result of a receipt of an R&D tax rebate.

The balance sheet remained strong throughout the period. Cash on hand at 31 December 2015 was $45.0m with no debt.

Capital expenditure was low at $1.0m and is expected to remain at similar levels in the near term.

We are pleased to report that we continued to carry out our operations in the period without incurring a Lost Time Injury.

Dividend

In light of the strong first half performance and cash balance, the directors have declared a fully franked interim dividend for the six months ended 31 December 2015 of 1.35 cents per share (31 December 2014: no dividend). The Board anticipates maintaining the total dividend for the 2016 financial year at 2.7 cents per share, being the same absolute level as in the past three years.

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 consolidated interim financial report and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

Lead auditor’s independence declaration

The lead auditor’s independence declaration is set out on page 15 and forms part of the directors’ report for the six months ended 31 December 2015.

Signed in accordance with a resolution of the directors:

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Derek Parkin

Chairman Perth 23 February 2016

1 – Statutory revenue for the six months ended 30 June 2015 of $96.3m included $2.3m of claims write downs which have been excluded from underlying trading revenue. 2 – Statutory gross profit for the six months ended 30 June 2015 of $10.8m included the $2.3m of claims write downs noted above and $0.3m of inventory write downs which have both been excluded from the calculation of underlying trading gross margin.

3 – Statutory NPAT loss for the six months ended 30 June 2015 of $13.9m included the write downs noted above, $2.3m of organisational restructuring costs, $1.3m of lease provisions, $1.4m of asset write-downs, $8.4m of goodwill impairment and $2.0m tax benefit relating from these items. All of these have been excluded from underlying trading NPAT.

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

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 from operating activities Finance income Finance expense Net finance income/(expense) Profit before income tax Income tax expense Profit after income tax for the period Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss: Foreign currency translation (gain)/loss for foreign operations Other comprehensive (income)/loss net of income tax Total comprehensive income for the period Attributable to Owners of the Company Earnings per share - Basic earnings per share (cents per share) - Diluted earnings per share (cents per share)	31 Dec 2015 $’000 31 Dec 2014 $’000
	137,131 141,987
	(119,181) (119,740)
	17,950 22,247
	97 257
	(7,385) (8,828)
	(873) (834)
	(1,948) (2,670)
	(548) (510)
	(2,337) (3,352)
	- (75)
	4,956 6,235
	319 451
	(287) (505)
	32 (54)
	4,988 6,181
	(1,236) (2,075)
	3,752 4,106
	(72) 40
	(72) 40
	3,680 4,146
	3,680 4,146
	2.37 2.54
	2.37 2.53

5

Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

Consolidated Statement of Financial Position

Note Assets Current Assets Cash and cash equivalents Trade and other receivables Inventories Construction work in progress Prepayments Assets held for sale Total current assets Non-current assets Property, plant and equipment Deferred tax asset Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Unearned revenue Employee entitlements Tax payable Total current liabilities Non-current liabilities Employee entitlements Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity	31 Dec 2015 $’000 30 Jun 2015 $’000
	45,024 44,550
	34,683 34,064
	2,786 2,947
	6,420 8,556
	971 987
	686 909
	90,570 92,013
	21,353 22,863
	760 -
	8,784 8,784
	30,897 31,647
	121,467 123,660
	21,992 21,961
	2,172 3,163
	6,487 6,005
	2,264 3,257
	32,915 34,386
	307 353
	- 223
	307 576
	33,222 34,962
	88,245 88,698
	56,036 56,036
	768 702
	31,441 31,960
	88,245 88,698

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

Consolidated Statement of Changes in Equity

Balance as at 1 July 2015 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 payments Dividends Total transactions with owners Balance as at 31 December 2015 Balance as at 1 July 2014 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 payments Dividends Total transactions with owners Balance as at 31 December 2014	Share Capital Retained Earnings Options Reserve Translation Reserve Total Equity
	56,036 31,960 1,180 (478) 88,698 - 3,752 - - 3,752 - - - (72) (72)
	- 3,752 - (72) 3,680
	- - 138 - 138 - (4,271) - - (4,271)
	- (4,271) 138 - (4,133)
	56,036 31,441 1,318 (550) 88,245
	Share Capital Retained Earnings Options Reserve Translation Reserve Total Equity
	57,578 46,122 1,328 (775) 104,253
	- 4,106 - - 4,106
	- - - 40 40
	- 4,106 - 40 4,146
	- - 30 - 30
	- (4,361) - - (4,361)
	- (4,361) 30 - (4,331)
	57,578 45,867 1,358 (735) 104,068

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

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 operating activities 7 Cash flows from investing activities Acquisition of property, plant and equipment Disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Repayment of borrowings Dividends paid Net cash used in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 31 December	31 Dec 2015 $’000 31 Dec 2014 $’000
	146,617 143,903
	(137,879) (138,389)
	319 451
	(287) (505)
	(3,212) (2,951)
	5,558 2,509
	(960) (1,225)
	219 122
	(741) (1,103)
	- (935)
	(4,271) (4,361)
	(4,271) (5,296)
	546 (3,890)
	44,550 37,869
	(72) 40
	45,024 34,019

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

Notes to the consolidated interim financial statements

1. Reporting entity

Southern Cross Electrical Engineering Limited (the “Company”) is a company domiciled in Australia. The consolidated interim financial report of the Company as at and for the six months ended 31 December 2015 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 2015 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 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 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 2015.

The consolidated interim financial report was approved by the Board of Directors on 23 February 2016.

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 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 2015.

4. Significant accounting policies

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 30 June 2015.

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

The Group did not adopt any new and or revised standards, amendments or interpretations from 1 July 2015 which had any effect on the financial position or performance of the Group.

5. Financial risk management

During the six months ended 31 December 2015 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 2015.

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

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 2015 the Group derived revenues of $109.5 million from SCEE Construction, $4.5 million from SCEE Infrastructure and $23.1 million from SCEE services. The divisions are exposed to 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. Reconciliation of cash flows from operating activities

Cash flows from operating activities Profit after income tax for the period Adjustments for: Depreciation and amortisation Loss on sale of assets Equity-settled share-based payment transactions (Increase)/decrease in assets: Change in trade and other receivables Change in work in progress Change in inventories Change in prepayments Increase/(decrease) in liabilities: Change in trade and other payables Change in unearned revenue Change in provisions and employee benefits Change in income tax payable Change in deferred income tax Net cash from operating activities	31 Dec 2015 $’000 31 Dec 2014 $’000
	3,752 4,106
	2,337 3,427
	137 -
	138 30
	(619) (485)
	2,136 1,054
	161 (369)
	16 (1,022)
	31 (4,728)
	(991) 1,089
	436 283
	(993) (351)
	(983) (525)
	5,558 2,509

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Southern Cross Electrical Engineering Limited

ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

8. Share based payments

During the six months ended 31 December 2015 the Company issued 1,594,978 Performance Rights in respect of the 2016 financial year. The Performance Rights issued under the Company’s Senior Management Long Term Incentive Plan, vest over the period to 30 June 2018 and have a fair value at grant date of $0.15 (TSR Component) and $0.30 (EPS Component). The fair value of the TSR Performance Rights has been measured using the MonteCarlo simulation. The EPS Performance Rights has been measured using the Binomial tree methodology.

The movement in the share based payments reserve reflects the amounts expensed in regard to the FY 2015 grant of $138,174.

9. Related parties – Key management personnel

The share based payments disclosed in note 8 included the following issues to key management personnel during the six months ended 31 December 2015. Chris Douglass was issued 975,000 Performance Rights and Andy Ozolins was issued 425,000 Performance Rights.

The Performance Rights issued to Chris Douglass were approved by shareholders at the Company’s Annual General Meeting on 26 October 2015.

Other arrangements with related parties continue to be in place on the same basis as at 30 June 2015. For full disclosure on these transactions refer to the 30 June 2015 annual financial report.

10. 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.

	31 Dec 2015	30 Jun 2015
	$’000	$’000
Bank Guarantees	20,998	20,143
Surety Bonds	3,871	8,493

11. Events after the balance sheet date

On the 28[th] January 2016, an announcement was made on the ASX, proposing an interim dividend of 1.35 cents per share.

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

Interim Financial Report for the half year ended 31 December 2015

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 5 to 11, 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 2015 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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Derek Parkin

Chairman Perth 23 February 2016

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Southern Cross Electrical Engineering Limited ABN 92 009 307 046

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