2016 in summary
Revenue $207.6m
Underlying
trading NPAT $5.4m*
Net cash $41.8m
Fully franked
dividend 2.7 cents per share
Transitioning resources business
from construction to maintenance phase
Acquisition of Datatel
provides scalable telecommunications platform
Targeting further acquisitions
to deliver sector and geographical diversification
*Underlying trading NPAT excludes acquisition costs of $0.3m after tax
2016 Annual Report
1
About SCEE
SCEE is a leading contractor providing
specialised electrical, instrumentation
and communications services in Australia
and overseas.
Delivering life-of-project electrical infrastructure, construction
and support services to our blue-chip customers for more than
35 years.
We have a strong reputation for safety and excellence, which is
supported by our first class business systems.
Our expertise and capacity enables us to undertake complex
large-scale projects in harsh and remote environments.
Committed to our people with a strong focus on training and
development, our track-record and collaborative, flexible
approach has seen us continually expand our operations.
SCEE was established in 1978 and is listed on the Australian
Securities Exchange under the code SXE.
Expanded Capabilities
SCEE has expanded into the data, communications and
telecommunications sectors with the strategic acquisition of
electrical and communications specialist Datatel in June 2016.
This means we are able to offer a more diversified range of
electrical, communications and maintenance services for both
our long term and new clients, in the Australian private and
public sectors and overseas.
Our extended range of services
now includes:
E&I Construction
E&I Infrastructure
E&I Services
Communications
We deliver projects across a range
of industries including:
Oil & Gas and Mining
Industrial, Utilities and
Infrastructure
Telecommunications
and Data Centres
Commercial, Education
and Health
2
2016 Annual Report
Our Values
At SCEE, our values are integral to
the organisation and act as internal
drivers. They shape how we conduct
our business on a daily basis and
ultimately drive our success.
Safety
It’s in everything we do.
Quality
Exceeding customer expectations
through continuous improvement.
Reliability
We are dependable and consistently
deliver high quality services.
Trust
Entrust and empower our
team to take ownership.
Loyalty
We believe in harmonious
relationships and building
these through integrity and
mutual respect.
2016 Annual Report
3
Chairman’s Message
Dear Shareholders,
The 2016 financial year has seen SCEE achieve a number of significant milestones which progress the delivery
of the Board’s strategy of responding to changes in the resources sector and growing the business through
expansion into adjacent and complementary sectors.
In the resources sector we successfully completed projects at
CITIC Pacific Sino Iron, Roy Hill and TAN Burrup and we continue
to perform LNG construction works. We also have a number of
sustaining capital and maintenance framework agreements
in place with key clients which we expect to underpin the
transition to a sustainable resources business as the market
continues its move from the capital to the maintenance phase.
At the end of June we completed the acquisition of Datatel,
a leading telecommunications contractor. The acquisition
provides us with an immediate and scalable entry into the
sector as the National Broadband Network rollout gathers pace.
We have also been successful in securing work in the utilities,
industrial and transport infrastructure sectors.
Whilst exceptional client service remains our hallmark, we
pride ourselves on our unrelenting focus on safety, with 2016
marking SCEE’s twelfth consecutive LTI-free year in Australia.
Results
I am pleased to report that the Company has delivered an
underlying trading net profit after tax of $5.4m. Statutory
NPAT was $5.1m after absorbing Datatel acquisition costs
of $0.3m after tax.
The Company continues to maintain a strong balance sheet
and ended the financial year 2016 with cash on hand of
$41.8m and no debt. This provides us with ongoing financial
capacity to target future strategic growth opportunities.
Additional discussion of the current year result is provided in
the Managing Director’s Review on the following pages.
The Board has declared a fully franked final dividend of
1.35 cents per share which maintains the full year dividend
payment at the same absolute level as for the three prior
years of 2.7 cents per share.
Outlook
The completion of our large iron ore construction projects
during the second half of the year has resulted in lower activity
levels as we move into the new financial year. However, we
continue to win work and have recently secured a number
of strategically significant awards which, combined with our
existing framework agreements, will see activity increase
over the coming months.
The Board is committed to targeting further expansion and
diversification and, in this context, management continues to
evaluate potential acquisition opportunities.
We remain focused on ensuring that the Company’s overhead
base is at an appropriate level to deliver our work safely and
cost effectively, whilst retaining the capacity to accommodate
the anticipated future growth.
4
2016 Annual Report The Board of Directors
In January 2016 we welcomed Graeme Dunn as Managing
Director and Chief Executive Officer. Graeme’s extensive
experience across multiple sectors makes him ideally suited
to driving our strategic initiatives. I would also like to take this
opportunity to acknowledge the efforts of Chris Douglass,
SCEE’s Chief Financial Officer, during his time as Interim
Managing Director and CEO.
As we move through a period of transition for SCEE, the Board
of Directors will continue to work closely with Graeme and his
management team in implementing our growth strategy.
On behalf of the Board I would like to thank you our
shareholders, our clients and, in particular, our employees
for your ongoing support.
Derek Parkin
Chairman
5
2016 Annual Report Managing Director’s Review
Dear Shareholders,
I am pleased to report that SCEE delivered an underlying trading net profit after tax of $5.4m1 for the
2016 financial year, a 29% increase on the underlying trading NPAT in the prior year.
This has been achieved in the year in
which the last expansion projects for
the time being in the Australian iron ore
sector were completed. The resources
sector is continuing to move from the
capex phase to a sustaining capital and
maintenance phase and we have taken
actions that will help us better meet
clients’ changing needs in this market
which will allow us to maintain
a sustainable resources business.
We have also actioned a number of
strategic diversification initiatives,
including organic entry into new sectors
and the acquisition of Datatel, a leading
telecommunications contractor, which
provides immediate entry into a market
offering significant growth opportunities
across Australia.
We have continued to manage our
cost base through significant
efficiency initiatives to ensure that
it remains appropriately sized to
support our activity.
Operating and Financial Review
Revenue for the year was $207.6m,
down 13.7% on prior year underlying
trading revenue2. The Datatel acquisition
was completed on 29 June 2016 and
made no contribution to FY16
trading results.
Activity in the first half of the year was
high as a result of contributions from
construction projects at CITIC Pacific
Sino Iron, Samsung Roy Hill and
Tecnicas Reunidas TAN Burrup.
These projects were successfully
completed and closed out during the
second half of the year. Throughout the
year we continued to perform work on
BHP Billiton Iron Ore Sustaining Capital
projects, Rio Tinto Iron Ore Electrical
Infrastructure Replacement and Bechtel
Australia Pacific LNG at Curtis Island.
We also performed works for Western
Power under their Major Works Panel
as well as a number of jobs for
industrial clients.
I am pleased to report that we
completed our 2016 operations without
suffering a Lost Time Injury (LTI).
This marks our twelfth consecutive
year LTI free in Australia.
Gross margins for the year were 16.1%
compared to underlying trading gross
margins of 14.8%3 in FY15 and were
driven by our strong performance on the
larger lump sum construction contracts
that completed during the year.
Underlying trading overheads for the
year were $21.4m after adjusting for
$0.4m of costs relating to the Datatel
acquisition, down $0.9m against
underlying trading overheads4 in the
prior year. Cost control remains a priority
and a streamlining of the organisation
structure towards the end of the year
combined with various productivity
initiatives, such as growing assistance
from our new Philippines Support
Centre, is expected to result in further
efficiency gains in FY17.
6
2016 Annual Report Depreciation expense decreased by 30%
to $4.8m as a result of a combination of
the asset rationalisations in FY15
and lower capex spend in more
recent years.
Underlying trading NPAT for the year
was $5.4m after adjusting for the
Datatel acquisition costs noted
above. This represents a 29% increase
on FY15 underlying trading NPAT
of $4.2m5.
We maintained a strong balance sheet
throughout the year and at 30 June 2016
we had cash of $41.8m and no debt.
This has been achieved after absorbing
cash outflows of $6.6m to complete the
Datatel acquisition.
The acquisition has resulted in the
recognition of additional goodwill of
$12.3m and an $8.7m non-current
liability for the payment of deferred
consideration which represents our
assessment of the fair value of future
earn-out payments which will be paid
under the terms of the Share Purchase
Agreement. Approximately $2.5m of
net assets were acquired and these
have been included in the 30 June
balance sheet.
The Board has declared a fully franked
final dividend for the year of 1.35 cents
per share taking the full year dividend
to 2.7 cents per share. The franking
account balance at 30 June 2016
was $18.5m.
construction works, a Master Services
Agreement with Newmont Mining
Services for the provision of general
electrical services at the Boddington
Gold Mine and SCEE’s first transport
infrastructure award.
Outlook
Current Activity and Order Book
SCEE entered FY17 at relatively
low activity levels as a result of
successfully completing our large
scale iron ore construction projects
early in the second half of FY16 and
consequently the order book at 30 June
was $24m which as a headine number is
lower than in previous years.
However the Company has recently
secured a number of strategically
significant awards which are providing
greater visibility of activity which is
forecast to ramp-up over the coming
months.
These awards include a contract for KSJV
to deliver electrical and instrumentation
installation services on the Chevron-
operated Wheatstone Project, Datatel
being awarded a new Master Subcontract
for National Broadband Network (“NBN”)
The Company also continues to win work
under its existing framework agreements
with major iron ore clients as well as
securing a range of minor awards in the
resources, infrastructure and industrial
sectors on both the West Coast and
East Coast.
It should be noted that the market
move away from large scale lump-
sum contracts to smaller projects of
shorter duration and almost immediate
lead times awarded under framework
agreements generally has a moderating
effect on the headline order book
number.
Importantly this order book number
does not include any estimate of
future revenues to be derived from
reimbursable or recurring works which
are a significant part of forecast activity.
Tendering activity across the business
remains high with the Company’s
2016 Annual Report
7
diversification into new sectors resulting
in a broader pool of work being targeted.
Markets
Conditions in the resources sector are
expected to remain relatively stable in
the near term and we are starting to see
some larger capital projects return to our
medium term pipeline from expenditure
to maintain iron ore production levels and
new investment in certain commodities.
In mining we continue to perform work in
the iron ore, gold and copper markets and
we have ongoing LNG construction work
which we expect to carry on through FY17.
We have the capability and capacity to
perform large scale international work
and will tender strategically appropriate
opportunities as they arise.
The NBN roll-out will continue to ramp
up significantly. In addition wireless
networks and data providers are also
investing heavily in their capacity
and technology driving forecast
construction spend across the Australian
telecommunications sector of over
$30bn by 2019. The acquisition of Datatel
gives SCEE immediate market entry into
the sector and a platform which can be
used to achieve national expansion.
Datatel also brings an opportunity to
leverage their presence in the education,
health and commercial sectors, where
they perform electrical services works,
and to increase SCEE’s service offering to
existing clients.
In the utilities sector SCEE continues to
perform works for Western Power under
their Major Works Panel and we have the
capability to expand our offering to other
utilities providers.
SCEE has a history of successfully
delivering large scale construction
projects in the resources sector and these
skills are transferable to other sectors
where we have identified a significant
pipeline of opportunity. In the transport
infrastructure sector there is over $100bn
forecast construction spend in Australia
by 2019 while social and commercial
infrastructure has forecast construction
spend of over $80bn in the same
period. Our first award in the transport
infrastructure sector allows us to start
this transfer.
Strategy
SCEE primarily sees itself as an electrical
contractor. The Board’s strategic objective
is to create shareholder value by:
•
•
Transitioning to a sustainable
resources business through
exposure to sustaining capital and
maintenance markets; and
Growing through expansion into
adjacent and complementary sectors
and new geographies.
As the resources sector shifts from the
capex phase to a sustaining capital and
maintenance phase it is essential that
we align with this change in order to
continue our long term relationships with
our major clients. We have a number of
key framework agreements in place and
expect activity to increase as the year
progresses. We have established regional
offices in key locations and continue to
evaluate opportunities to expand our
service offering to clients.
Our ongoing LNG construction work is
expected to significantly support our
performance while this transition occurs.
Having completed the acquisition of
Datatel at the end of the year we will
focus on driving profitable growth from
the business as it expands nationally.
Management is continuing to invest
significant effort into investigating
further acquisition opportunities
aligned with achieving sector and
geographical expansion in the
markets discussed above.
Conclusion
2016 has seen SCEE deliver a solid trading
result in competitive market conditions
and perform some important strategic
actions that will stand us in good stead
to grow in future years.
We have progressed the transition of our
resources business so that it remains
sustainable into the market change from
construction to the maintenance phase.
We are now active in a diverse range
of sectors, both organically and via the
acquisition of Datatel, and continue to
evaluate other acquisition opportunities
that would further broaden our
geographic and sector footprint.
We enter 2017 with a strong balance
sheet capable of supporting these
growth initiatives.
I would like to take this opportunity to
thank SCEE’s management and staff for
their commitment and hard work during
the year and our shareholders for their
continued support.
Graeme Dunn
Managing Director
Notes
1 Underlying trading NPAT for the year ended 30
June 2016 excludes costs relating to the acquisition
of Datatel during the year of $0.3m after tax.
2 Statutory revenue for the year ended
30 June 2015 of $238.3m included $2.3m of claims
write downs which have been excluded from
underlying trading revenue.
3 Statutory gross profit for the year ended
30 June 2015 of $33.0m 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.
4 Overheads for the year ended 30 June 2015
included $1.1m of organisational restructuring
costs which have been excluded from the
calculation of underlying trading overheads.
5 Statutory NPAT loss for the year ended 30 June
2015 of $9.8m included $2.3m of claims write
downs, $0.3m of inventory 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.
8
2016 Annual Report 2016 has seen SCEE deliver a solid trading
result in competitive market conditions
and perform some important strategic
actions that will stand us in good stead to
grow in future years.
2016 Annual Report
9
9
2016 Annual Report Directors’ report
Left to right: Graeme Dunn, Gianfranco Tomasi, Simon Buchhorn, Karl Paganin and Derek Parkin
Your Directors submit their
report for Southern Cross
Electrical Engineering Limited
(“SCEE” or “the Company”) for
the year ended 30 June 2016.
Directors
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’s non-executive directorships
to date have been in the non-listed
sphere, principally in the oil & gas and
manufacturing sectors. He has also chaired
a number of advisory committees in both
the government and not-for-profit sectors.
Derek is the Chairman of the Audit and
Risk Management Committee and
a member of the Nomination and
Remuneration Committee.
Derek was awarded the Medal of the
Order of Australia in the 2015 Australia Day
honours list. The award recognised Derek’s
service to accountancy through a range
of professional, academic, business and
advisory roles.
Derek Parkin OAM
Independent Chairman and
Non-Executive Director
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.
He is currently Professor of Accounting at
the University of Notre Dame Australia,
having previously been an assurance
partner with Arthur Andersen and Ernst
& Young. Derek’s accounting experience
has spanned some 40 years and four
continents, primarily in the public company
environment.
Derek is a past national Board member
of the 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.
10
2016 Annual Report Company Secretaries
Chris Douglass
Chris is the Company’s Chief Financial
Officer and Joint Company Secretary.
Chris served as Interim Managing Director
and Chief Executive Officer from March
2015 until January 2016.
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 Harper
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.
Graeme Dunn
Managing Director and
Chief Executive Officer
(appointed 18 January 2016)
Graeme was appointed as Chief
Executive Officer and Managing Director
on 18 January 2016.
Graeme has over 25 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 recently
completed the Senior Executive Program
from the London School of Business.
He is also a graduate of the Australian
Institute of Company Directors in
Australia.
Gianfranco Tomasi AM
Non-Executive Director
Frank is the founder of the Company.
He was the Chairman of SCEE from
1978 until he retired from that role in
March 2011.
Frank has over 40 years experience in the
electrical construction industry. Prior to
founding SCEE he worked at Transfield
from 1968 to 1978, serving as the National
Manager Electrical Department from
1971 to 1978.
Frank holds an Electrical Engineering
Certificate (NSW) and is a Fellow of the
Australian Institute of Company Directors.
Frank is a member of the Nomination and
Remuneration Committee.
Frank was awarded the Order of Australia
in the 2013 Australia Day Honours list.
The award recognised Frank’s service to
business through leadership roles in the
electrical contracting industry and his
contribution to the community.
Simon Buchhorn
Non-Executive Director
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
focussed Joint Venture KSJV.
Simon brings to the Board significant
experience in contract delivery
and operational performance both
domestically and internationally.
Simon is a member of the Audit and
Risk Management Committee.
Karl Paganin
Independent
Non-Executive Director
Karl has 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 o
f 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 a Non-Executive Director
of ASX listed OTOC Limited and Vice
Chairman of Autism West Support Inc.
a not for profit charity supporting
families affected by autism.
Chris Douglass
Interim Managing Director and
Chief Executive Officer
(resigned 18 January 2016).
Details provided in next column.
11
2016 Annual Report Directors’ report (continued)
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:
Director
Derek Parkin
Graeme Dunn
Gianfranco Tomasi
Simon Buchhorn
Karl Paganin
Ordinary shares
Rights over ordinary shares
Options over ordinary shares
70,000
-
65,227,131
765,108
330,168
-
-
-
-
-
-
-
-
-
-
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:
Director
Board Meetings
Audit and Risk Management
Committee Meetings
Nomination and Remuneration
Committee Meetings
Held
Attended
Held
Attended
Held
Attended
Derek Parkin
Graeme Dunn
Gianfranco Tomasi
Simon Buchhorn
Karl Paganin
Chris Douglass
14
8
14
14
14
6
14
8
12
12
14
6
5
-
-
5
5
-
5
-
-
4
5
-
3
-
3
-
3
-
3
-
3
-
3
-
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 large scale specialised
electrical, control and instrumentation installation and testing services for the resources, infrastructure and heavy industrial sectors.
Significant Changes in the State of Affairs
On 29 June 2016 the Company acquired 100% of the share capital of Datatel Communications Pty Ltd, an electrical and communications
contractor with a significant presence in the telecommunications sector. Further details are provided in note 24 to the accounts.
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 6.
Operating results for the year were:
Contract revenue
Profit/(Loss) after income tax from continuing operations
2016
$’000
207,623
5,051
2015
$’000
238,329
(9,801)
12
2016 Annual Report
Directors’ report (continued)
Dividends
Declared and paid during the period (fully franked at 30%)
Final franked dividend for 2015
Interim franked dividend for 2016
Declared after balance date and not recognised as a liability
(fully franked at 30%)
Final franked dividend for 2016
Cents per share
Total amount
$’000
2.70c
1.35c
1.35c
4,272
2,136
2,152
Significant Events after Balance Sheet Date
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 2016 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 26 to the accounts.
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:
a) the liability arises out of conduct involving a wilful breach of duty; or
b) there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.
The total amount of insurance contract premiums paid was $71,016 (2015: $72,492).
13
2016 Annual Report Directors’ report (continued)
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
The Board of Directors is satisfied that the provision of non-audit services during the year was compatible with the general
standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that such services will not
compromise the external auditor’s independence for the following reasons:
• all non-audit services are reviewed and approved by the Audit and Risk Management Committee prior to commencement to
ensure they do not adversely affect the integrity and objectivity of the auditor; and
• the nature of the services provided do not compromise the general principles relating to auditor independence in accordance
with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.
Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page xx and forms part of the Directors’ report for the financial year ended
30 June 2016.
Remuneration Report
The Remuneration Report is set out on pages 15 to 22 and forms part of this report.
Rounding off
The Company is of a kind referred to in ASIC Class Order 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
23 August 2016
14
2016 Annual Report 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
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. For the 2017 financial year the Board has accepted management’s recommendation that pay levels are
held at existing levels other than in exceptional circumstances.
15
2016 Annual Report Remuneration report - audited (continued)
Variable Remuneration – Short Term Incentive (STI)
The objective of the STI program is to link the achievement of the Group’s 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.
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 non-
financial measures of performance.
For the year ended 30 June 2016, the financial KPIs accounted for 70% of the executive team’s STI and set specific profit and order
book targets.
The non-financial KPIs comprised the achievement of strategic objectives. The 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.
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.
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 Non-
Executive 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 and Committee 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.
16
2016 Annual Report Remuneration report - audited (continued)
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:
Profit/(loss) attributable to owners of the company
Dividends declared and paid during the year
Change in share price
Return on capital employed
2016
$’000
5,051
6,408
87%
8%
2015
$’000
(9,801)
4,361
(38%)
(10%)
2014
$’000
7,723
4,361
(42%)
10%
2013
$’000
17,341
3,633
(31%)
24%
2012
$’000
13,708
-
43%
21%
17
2016 Annual Report Remuneration report - audited (continued)
s
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
-
t
s
o
P
t
n
e
m
y
o
l
p
m
e
l
a
t
o
T
$
d
n
a
s
n
o
i
t
p
O
)
B
(
s
t
h
g
i
r
$
s
t
fi
e
n
e
b
$
s
t
fi
e
n
e
b
$
n
o
i
t
a
n
m
r
e
T
i
n
o
i
t
a
u
n
n
a
r
e
p
u
S
l
a
t
o
T
$
m
r
e
t
-
t
r
o
h
S
-
n
o
N
y
r
a
t
e
n
o
m
s
t
fi
e
n
e
b
$
h
s
a
c
I
T
S
)
A
(
s
u
n
o
b
$
s
e
e
f
&
y
r
a
l
a
S
$
e
t
o
N
0
0
5
,
0
2
1
3
3
3
,
1
0
1
0
0
6
7,
8
7
0
0
,
5
9
0
0
6
7,
8
8
1
1
,
1
1
0
7
5
,
6
0
0
6
7,
8
-
8
8
2
,
4
2
1
-
-
5
1
2
,
3
9
0
1
9
9
8
,
9
9
9
4
7
2
,
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0
0
5
,
0
1
1
9
7
,
8
0
0
6
7,
3
4
2
,
8
0
0
6
7,
-
-
0
7
5
0
0
6
7,
3
8
7
,
0
1
-
7
8
0
8
,
-
0
0
8
7,
0
0
0
0
1
1
,
2
4
5
,
2
9
0
0
0
0
8
,
4
6
7
,
6
8
0
0
0
0
8
,
8
1
1
,
1
1
0
0
0
6
,
0
0
0
0
8
,
-
5
0
5
,
3
1
1
-
8
2
1
,
5
8
-
0
1
1
,
2
8
-
-
-
-
2
9
6
,
2
1
7
0
3
,
2
6
2
,
2
7
8
8
4
2
,
1
,
)
0
6
4
0
0
2
(
,
1
0
4
9
2
7
0
0
0
,
5
3
,
1
3
9
4
8
6
9
8
1
,
9
3
6
9
6
5
,
0
3
4
5
5
3
,
0
1
5
4
6
7
7,
0
4
0
2
9
,
5
3
1
4
6
3
7,
3
2
3
9
0
6
,
6
5
0
9
2
,
3
4
8
,
7
0
8
,
1
2
5
8
,
6
9
1
-
-
-
-
-
6
4
6
,
8
0
6
,
2
)
0
4
0
4
3
1
(
,
1
0
4
,
9
2
7
0
0
0
0
3
,
1
5
5
,
4
2
0
0
0
,
5
3
7
8
9
0
3
,
2
9
9
,
0
1
1
2
1
8
,
4
3
1
9
6
2
,
3
7
4
4
5
6
8
6
3
,
3
2
4
4
1
4
,
1
2
7
7,
4
3
9
9
9
,
9
9
4
,
1
3
7
4
,
8
7
8
,
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0
0
0
0
1
1
,
2
4
5
,
2
9
0
0
0
0
8
,
4
6
7
,
6
8
0
0
0
0
8
,
8
1
1
,
1
1
0
0
0
6
,
0
0
0
0
8
,
-
5
0
5
,
3
1
1
-
8
2
1
,
5
8
-
0
1
1
,
2
8
7
0
3
,
2
6
2
-
-
,
1
3
9
4
8
6
9
6
2
,
3
7
4
4
5
6
8
6
3
,
3
2
4
4
1
4
,
1
2
7
7,
4
3
9
9
9
,
9
9
4
,
1
3
7
4
,
8
7
8
,
1
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
6
1
0
2
5
1
0
2
1
2
3
4
4
4
5
6
7
7
8
:
e
r
a
l
e
n
n
o
s
r
e
p
t
n
e
m
e
g
a
n
a
m
s
r
o
t
c
e
r
i
D
e
v
i
t
u
c
e
x
E
-
n
o
N
n
a
m
r
i
a
h
C
,
n
i
k
r
a
P
k
e
r
e
D
i
s
a
m
o
T
o
c
n
a
r
f
n
a
G
i
n
r
o
h
h
c
u
B
n
o
m
S
i
i
n
n
a
g
a
P
l
r
a
K
r
e
p
o
o
C
n
h
o
J
s
e
b
r
o
F
r
e
t
e
P
n
o
t
l
i
m
a
H
k
c
a
J
s
r
o
t
c
e
r
i
D
e
v
i
t
u
c
e
x
E
n
n
u
D
e
m
e
a
r
G
i
h
g
H
n
o
m
S
i
s
e
v
i
t
u
c
e
x
E
r
e
c
ffi
O
l
i
a
i
c
n
a
n
F
f
e
i
h
C
–
s
s
a
g
u
o
D
s
i
r
h
C
l
r
e
c
ffi
O
g
n
i
t
a
r
e
p
O
f
e
i
h
C
–
s
n
i
l
o
z
O
y
d
n
A
6
1
0
2
l
a
t
o
T
5
1
0
2
l
a
t
o
T
i
r
o
t
c
e
r
i
D
g
n
g
a
n
a
M
d
n
a
O
E
C
m
i
r
e
t
n
i
s
a
d
e
v
r
e
S
.
6
1
0
2
y
r
a
u
n
a
J
8
1
o
t
5
1
0
2
h
c
r
a
M
0
3
m
o
r
f
.
4
1
0
2
t
s
u
g
u
A
2
1
d
e
t
n
o
p
p
A
i
7.
.
8
.
6
1
0
2
y
r
a
u
n
a
J
8
1
d
e
t
n
o
p
p
A
i
.
5
1
0
2
h
c
r
a
M
7
2
d
e
n
g
i
s
e
R
.
5
1
0
2
y
a
M
5
d
e
n
g
i
s
e
R
.
4
.
5
.
6
.
5
1
0
2
y
a
M
6
n
a
m
r
i
a
h
C
d
e
t
n
o
p
p
A
i
.
5
1
0
2
y
a
M
6
d
e
t
n
o
p
p
A
i
.
5
1
0
2
e
n
u
J
4
d
e
t
n
o
p
p
A
i
.
1
.
2
.
3
y
e
k
e
r
a
o
h
w
s
e
v
i
t
u
c
e
x
e
y
n
a
p
m
o
C
d
e
m
a
n
e
h
t
f
o
h
c
a
e
d
n
a
y
n
a
p
m
o
C
e
h
t
f
o
r
o
t
c
e
r
i
d
h
c
a
e
f
o
n
o
i
t
a
r
e
n
u
m
e
r
f
o
t
n
e
m
e
e
r
o
a
m
h
c
a
e
f
o
t
n
u
o
m
a
d
n
a
e
r
u
t
a
n
e
h
t
f
o
s
l
i
l
j
a
t
e
D
l
e
n
n
o
s
r
e
P
t
n
e
m
e
g
a
n
a
M
y
e
K
f
o
n
o
i
t
a
r
e
n
u
m
e
R
1
e
b
a
T
l
18
2016 Annual Report
Remuneration report - audited (continued)
Notes in relation to the table of directors’ and executive officers’ remuneration
A. The STI bonus is for the amount that vested in the financial year based on achievement of personal goals and satisfaction
of specified performance criteria which was set out for the previous financial year. The amount is finally determined after
performance reviews are completed and approved by the Nomination and Remuneration Committee.
B. The fair value of the options and 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 options and 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 options and performance
rights recognised in this reporting period.
Employment Contracts
All executives have non-fixed term employment contracts. The company may terminate the employment contract by providing the
other party notice as follows:
Executive
Graeme Dunn
Chris Douglass
Andy Ozolins
Notice Period
6 months
6 months
6 months
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
Executive
Graeme Dunn
Chris Douglass
Andy Ozolins
Held at
1 July 2015
-
647,239
260,204
907,443
Granted as
remuneration
-
975,000
425,000
1,400,000
Held at
30 June
2016
-
1,501,515
685,204
Vested and
exercisable
at
30 June
2016
Vested
during the
year
-
-
-
-
-
-
-
-
Exercised
Forfeited
-
(120,724)
-
-
-
-
-
(120,724)
2,186,719
Subsequent to 30 June 2016 it was determined that the vesting conditions in respect of the 2014 performance rights held by Mr
Douglass have not been met and 184,678 performance rights have been forfeited.
19
2016 Annual Report
Remuneration report - audited (continued)
Performance rights granted as remuneration in 2016
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:
Executive
Chris Douglass1
Chris Douglass2
Andy Ozolins1
Andy Ozolins2
Number
487,500
487,500
212,500
212,500
1,400,000
Fair value per
performance
right at grant
date ($)
Exercise
price per
performance
right ($)
0.30
0.15
0.30
0.15
0.00
0.00
0.00
0.00
Grant date
16/11/15
16/11/15
16/11/15
16/11/15
Vesting Date
Expiry Date
30 June 2018
30 June 2019
30 June 2018
30 June 2019
30 June 2018
30 June 2019
30 June 2018
30 June 2019
1. Performance rights granted with EPS growth as the vesting condition
2. Performance rights granted with Absolute TSR as the vesting condition
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 2015 to 30 June 2018 (“Performance Period”);
• No performance rights will vest until 30 June 2018;
• 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 18.5% per annum compounded over the Performance Period and
for stretch performance of 26.5% per annum compounded over the Performance Period. The vesting schedule is as follows for TSR
performance over the Performance Period:
Less than 18.5% per annum compounded
18.5% per annum compounded
0% vesting
50% vesting
Between 18.5% and 26.5% per annum compounded
Pro-rata vesting between 50% and 100%
At or above 26.5% per annum compounded
100% vesting
20
2016 Annual Report
Remuneration report - audited (continued)
EPS will be assessed against targets for threshold performance of 2.8 cents per share in the 2018 financial year and for stretch
performance of 3.6 cents per share in the 2018 financial year. The vesting schedule is as follows for EPS performance in the 2018
financial year:
Less than 2.8 cents per share
2.8 cents per share
0% vesting
50% vesting
Between 2.8 and 3.6 cents per share
Pro-rata vesting between 50% and 100%
At or above 3.6 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 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:
Executive
Instrument
Number
Grant date
Chris Douglass
2013 Rights
120,724
25 September 2012
2014 Rights
184,678
8 October 2013
2015 Rights
341,837
4 November 2014
2016 Rights
975,000
16 November 2015
Andy Ozolins
2015 Rights
260,204
4 November 2014
2016 Rights
425,000
16 November 2015
% vested in
year
% forfeited in
year
Vesting Date
Expiry Date
(A)
-
-
-
-
-
-
100%
30 June 2015
30 June 2016
-
-
-
-
-
30 June 2016
30 June 2017
30 June 2017
30 June 2018
30 June 2018
30 June 2019
30 June 2017
30 June 2018
30 June 2018
30 June 2019
A. Performance rights are performance tested following completion of the performance period, which ends on the vesting date. Subsequent to 30 June
2016 it has been determined that the vesting conditions in respect of the 2014 performance rights have not been met and all 2014 performance rights
have been forfeited.
21
2016 Annual Report Remuneration report - audited (continued)
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
Directors
Derek Parkin
Graeme Dunn
Gianfranco Tomasi
Simon Buchhorn
Karl Paganin
Executives
Chris Douglass
Andy Ozolins
Held at 30
June 2015
Purchases
Net change
other
Held at
30 June 2016
70,000
-
65,227,131
765,108
22,668
-
-
-
-
307,500
-
-
-
-
-
-
-
-
-
-
-
70,000
-
65,227,131
765,108
330,168
-
-
Transactions with key management personnel
The Group has entered into rental agreements over the following properties:
• F & A Tomasi Superannuation Fund owns the properties at 41 and 44 Macedonia St, Naval Base WA, which are leased to
Southern Cross Electrical Engineering Limited.
• G & A Tomasi own the properties at 45, 47, 49 & 51 Macedonia Street, Naval Base WA which are leased to Southern Cross
Electrical Engineering Limited.
• Frank Tomasi Nominees Pty Ltd owns the property at 43 Hope Valley Road, Naval Base WA, which was leased to Southern Cross
Electrical Engineering Limited.
Gianfranco Tomasi and spouse are sole directors of Frank Tomasi Nominees Pty Ltd and are the sole shareholders. Frank Tomasi
Nominees Pty Ltd as trustee for the Frank Tomasi Family Trust is a major shareholder of Southern Cross Electrical Engineering Ltd.
Under the terms of each of the above property leases, the rent payable is subject to an annual review. This review adjusts the
annual rent by the movement in the consumer price index. At the completion of every third year the annual rent is subject to a
market review.
The rental payments made above are all at normal market rates and were reviewed by an independent valuer in July 2014 except for
41 Macedonia Street which is due to be reviewed in October 2016.
Total rent paid by SCEE in the 2016 financial year in respect of the above agreements was $828,000.
22
2016 Annual Report Consolidated Statement of Comprehensive Income
For the year ending 30 June 2016
Contract revenue
Contract expenses
Gross profit
Other income/(expense)
Employee benefits expenses
Occupancy expenses
Administration expenses
Other expenses
Depreciation expense
Amortisation of customer contract intangibles
Restructuring and impairment expenses
Profit/(loss) from operations
Finance income
Finance expenses
Net finance income/(expense)
2016
$’000
2015
$’000
207,623
238,329
(174,208)
(205,319)
33,415
146
33,010
(1,025)
(14,466)
(15,886)
(1,826)
(4,504)
(980)
(4,798)
-
-
6,987
791
(582)
209
(1,817)
(4,651)
(982)
(6,817)
(75)
(10,984)
(9,227)
846
(988)
(142)
Note
4
5
6
9
9
7
8
8
8
Profit/(loss) before tax
7,196
(9,369)
Income tax expense
10
(2,145)
(432)
Profit/(loss) from continuing operations attributable
to owners of the company
5,051
(9,801)
Total comprehensive income
Items that are or may be reclassified to the profit and loss:
Foreign currency translation (loss)/gain for foreign operations
Other comprehensive (loss)/income net of income tax
Total comprehensive income/(loss)
Total comprehensive income/(loss) attributable to:
Owners of the Company
Earnings per share:
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
(442)
(442)
297
297
4,609
(9,504)
4,609
(9,504)
11
11
3.19
3.15
(6.12)
(6.12)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
23
2016 Annual Report Consolidated Balance Sheet
For the year ending 30 June 2016
As at 30 June 2015
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Construction work in progress
Prepayments
Assets held for sale
Tax receivable
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Unearned revenue
Provisions
Tax payable
Total current liabilities
Non-current liabilities
Deferred acquisition consideration
Provisions
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Note
2016
$’000
2015
$’000
12
13
14
15
13
16
17
18
19
20
24
20
10
41,833
21,550
2,379
9,229
667
-
3,267
78,925
478
21,183
21,082
42,743
44,550
34,064
2,947
8,556
987
909
-
92,013
-
22,863
8,784
31,647
121,668
123,660
18,089
1,387
4,844
-
21,961
3,163
6,005
3,257
24,320
34,386
8,659
324
684
9,667
33,987
87,681
-
353
223
576
34,962
88,698
21
56,656
56,036
422
30,603
87,681
702
31,960
88,698
The above balance sheet should be read in conjunction with the accompanying notes.
24
2016 Annual Report Consolidated Statement of Changes of Equity
For the year ending 30 June 2016
Balance as at 1 July 2014
Total comprehensive income for the period
Loss for the period
Foreign currency translation gain
Total comprehensive income
Transactions with owners, recorded directly in equity
Dividends to equity holders
Buyback of shares
Cost of share-based payments
Total transactions with owners
Balance as at 30 June 2015
Balance as at 1 July 2015
Total comprehensive income for the period
Profit for the period
Foreign currency translation loss
Total comprehensive income
Transactions with owners, recorded directly in equity
Dividends to equity holders
Issue of ordinary shares
Cost of share-based payments
Total transactions with owners
Balance as at 30 June 2016
Share
Capital
$’000
57,578
Retained
Earnings
$’000
46,122
-
-
-
-
(1,542)
-
(9,801)
-
(9,801)
(4,361)
-
-
(1,542)
(4,361)
56,036
31,960
Share
Based
Payments
Reserve
$’000
1,328
Translation
Reserve
Total Equity
$’000
$’000
(775)
104,253
-
-
-
-
-
(148)
(148)
1,180
-
297
297
-
-
-
-
(9,801)
297
(9,504)
(4,361)
(1,542)
(148)
(6,051)
(478)
88,698
Share
Capital
$’000
56,036
Retained
Earnings
$’000
31,960
Share
Based
Payments
Reserve
$’000
1,180
Translation
Reserve
Total Equity
$’000
(478)
$’000
88,698
-
-
-
-
620
-
620
5,051
-
5,051
(6,408)
-
-
(6,408)
-
-
-
-
-
162
162
-
(442)
(442)
-
-
-
-
56,656
30,603
1,342
(920)
5,051
(442)
4,609
(6,408)
620
162
(5,626)
87,681
The above statement of changes in equity should be read in conjunction with the accompanying notes.
25
2016 Annual Report Consolidated Statement of Cash Flows
For the year ending 30 June 2016
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Loans to related parties
Proceeds from the sale of assets
Acquisition of property, plant and equipment
Net cash (used in) investing activities
Cash flows from financing activities
Repayment of borrowings
Dividends paid
Share buy back
Net cash (used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations on cash held
Note
2016
$’000
2015
$’000
238,872
254,855
(218,244)
(232,039)
27
24
16
21
21
791
(582)
(8,538)
12,299
(5,577)
(981)
518
(2,125)
(8,165)
-
(6,408)
-
(6,408)
(2,274)
44,550
(443)
846
(988)
(5,681)
16,993
-
-
273
(2,284)
(2,011)
(2,695)
(4,361)
(1,542)
(8,598)
6,384
37,869
297
Cash and cash equivalents at 30 June
12
41,833
44,550
The above cash flow statement should be read in conjunction with the accompanying notes.
26
2016 Annual Report
Index to Notes to the Financial Statements
24. Business Combinations
25. Interest in joint operations
26. Share-based payments
27. Reconciliation of cash flows from
operating activities
28. Commitments
29. Contingencies
30. Subsequent events
31. Auditor’s remuneration
32. Parent entity disclosures
33. Related parties
34. Significant accounting policies
35. Determination of fair values
43
45
46
49
50
50
50
50
51
51
53
63
1. Reporting entity
2. Basis of preparation
3. Segment reporting
4. Contract revenue
5. Other income/(expense)
6. Employee benefits expenses
7. Restructuring and impairment expenses
8. Finance income and expenses
9. Depreciation and amortisation expenses
10. Income tax expense
11. Earnings per share
12. Cash and cash equivalents
13. Trade and other receivables
14. Inventories
15. Construction work in progress
16. Property, plant and equipment
17.
Intangible assets – goodwill and
customer contracts
18. Trade and other payables
19. Unearned revenue
20. Provisions
21. Capital and reserves
22. Financial instruments
23. Investments in subsidiaries
28
28
30
30
31
31
31
31
32
32
33
34
35
35
35
36
37
38
38
38
39
40
43
27
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
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 Stock Exchange.
The consolidated financial statements for the year ended 30 June 2016 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(v).
These financial statements have been rounded to the nearest thousand dollars where permitted by ASIC Class Order 2016/191
dated 24 March 2016.
The consolidated financial statements were authorised for issue by the Board of Directors on 23 August 2016.
(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
Functional and presentation currency
i.
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.
28
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
2. Basis of Preparation (continued)
(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.
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 accounting estimates is included in the
following notes:
• Note 17 – revoverable amount for testing goodwill
• Note 24 – business combinations
• Note 26 – 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 (notes 34(n)(i) and 4) and contract work in progress (notes 34(i)) and 15).
Revenue from construction contracts is recognised using the percentage of completion method. Judgement is exercised in
determining the stage of completion of the contract and in reliably estimating the total contract revenue and contract costs
to completion. The stage of contract completion is generally measured by reference to physical completion. An assessment of
total labour hours and other costs incurred to date as a percentage of estimated total costs for each contract is used if it is an
appropriate proxy for physical completion. Task lists and milestones are also used to calculate or confirm the percentage of
completion if appropriate.
The key judgement in determining revenue from construction contracts is estimating the unapproved variations and claims to be
included in project forecast revenue. The Company uses its best estimate and its expertise to determine the value included supported
by qualified external experts where necessary. The outcome of the events which are the subject of these judgements are by nature
uncertain such that final positions resolved with clients can differ materially from original estimates.
Details of the Group’s accounting policies are included in notes 34 and 35.
29
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
3. Segment reporting
Revenue is principally derived by the Group from the provision of electrical and instrumentation services to the resources, energy
and infrastructure sectors.
The Group has branded itself into the following three operating divisions: SCEE Construction, SCEE Infrastructure and SCEE
Services. For the year ended 30 June 2016, the Construction division contributed revenue of $127.6 million (2015: $123.9 million), the
Infrastructure division contributed revenue of $21.7 million (2015: $45.7 million) and the Services division contributed revenue of
$58.3 million (2015: $68.7 million). Excluded from these amounts is $2.8 million (2015: $5.8 million) of inter-entity revenue, which
is eliminated on consolidation. 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.
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of
customers. Segment assets are based on the geographical location of the assets.
Australia
South America and Caribbean
2016
2015
Revenue
$’000
207,509
114
207,623
Non-current
assets
$’000
42,450
293
42,743
Revenue
$’000
237,964
365
238,329
Non-current
assets
$’000
31,299
348
31,647
Revenues from the three largest customers of the Group’s Australian segment generated respectively $73 million, $26 million
and $21 million of the Group’s total revenue (2015: $176 million generated from the three largest customers).
4. Contract Revenue
Contract revenue
2016
$’000
2015
$’000
207,623
238,329
30
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
5. Other income/(expense)
Net loss on sale/write-off of non-current assets
Foreign exchange gain
Other
6. Employee benefits expenses
Remuneration, bonuses and on-costs
Superannuation contributions
Amounts provided for employee entitlements
Share-based payments expense
2016
$’000
(77)
33
190
146
2016
$’000
(13,016)
(879)
(409)
(162)
2015
$’000
(1,219)
16
178
(1,025)
2015
$’000
(14,405)
(1,232)
(397)
148
(14,466)
(15,886)
Note
26
The above employee benefits expenses do not include employee benefits expenses recorded within contract expenses.
Employee benefits included in contract expenses were $143.0m (2014: $111.7m).
7. Restructuring and impairment expenses
Impairment of goodwill and intangible assets
Onerous Lease Provision
Asset write-downs
Other restructuring expenses
8. Finance income and expenses
Interest income on bank deposits
Finance income
Interest expense on bank borrowings
Finance charges payable under finance lease
Bank charges
Bank guarantee fees
Finance expenses
Net finance income/(expenses)
Note
17
2016
$’000
-
-
-
-
-
2016
$’000
791
791
25
-
(400)
(207)
(582)
209
2015
$’000
(8,390)
(498)
(944)
(1,152)
(10,984)
2015
$’000
846
846
(29)
(142)
(548)
(269)
(988)
(142)
31
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
9. Depreciation and amortisation expenses
Buildings
Leasehold improvements
Plant and equipment
Motor vehicles
Office furniture and equipment
2016
$’000
(17)
(178)
(2,288)
(1,250)
(1,065)
(4,798)
2015
$’000
(14)
(247)
(2,557)
(1,523)
(2,476)
(6,817)
Amortisation of customer contract intangibles
-
(75)
10. Income tax expense
(a) Income Statement
Current tax expense
Current period
(Under)/over provision from prior year
Deferred tax expense
Origination and reversal of temporary differences
Income tax expense reported in the income statement
(b) Reconciliation between tax expense and pre-tax accounting profit
Accounting profit/(loss) before income tax
Income tax (expense)/credit using the Company’s domestic tax rate of
30% (2015: 30%)
Goodwill impairment
Tax losses of foreign operations not recognised
Research and development
Share based payments
Amortisation of Intangibles
Other
Income tax expense reported in the income statement
The applicable effective tax rates are:
2016
$’000
2015
$’000
(2,098)
331
(1,767)
(378)
(2,145)
(6,774)
(47)
(6,821)
6,389
(432)
7,196
(9,369)
(2,159)
2,811
-
(164)
193
(49)
-
34
(2,145)
29.8%
(2,517)
(165)
(526)
45
(23)
(57)
(432)
(4.6%)
32
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
10. Income tax expense (continued)
Deferred tax assets and liabilities
Balance Sheet
2016
$’000
(104)
(2,769)
(23)
(2,896)
49
-
13
81
1,798
59
212
-
2,212
(684)
2015
$’000
-
(2,640)
(23)
(2,663)
149
134
-
59
1,934
19
144
1
2,440
(223)
Movement recognised in
Income Statement
2016
$’000
2015
$’000
Movement recognised in
Equity
2016
$’000
2015
$’000
2
(18)
-
(16)
101
134
(1)
(23)
290
(40)
(68)
1
394
378
(164)
(6,033)
-
(102)
(147)
-
(6,197)
(249)
(149)
(134)
-
(12)
89
9
-
5
(192)
(6,389)
-
-
12
-
154
-
-
-
166
(83)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Deferred tax liabilities
Retentions
Work in progress
Property, plant and equipment
Deferred tax assets
Provision for onerous lease
Provision assets held for sale value
Provision for doubtful debt
Accruals
Employee benefits
Property, plant and equipment
Other
Borrowing costs
Net deferred tax assets/(liabilities)
Unrecognised deferred tax assets
At 30 June 2016, there was a deferred tax benefit of $3.6 million (2015: $3.6 million) for tax loss incurred in the Cruz Del Sur
Ingenieria Electra (Peru) S.A. subsidiary which was not recognised because it is not probable that future taxable profit will be
available against which the Group can use the benefits therefrom. These tax losses do not have a an expiry date.
11. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2016 was based on the profit attributable to ordinary shareholders of
$5,051,000 (2015: loss; ($9,801,000)) and a weighted average number of ordinary shares outstanding of 158,213,701 (2015:
160,080,407), calculated as follows:
Profit/(loss) attributable to ordinary shareholders
Profit/(loss) for the period
Weighted average number of ordinary shares
Issued ordinary shares at 1 July
Effective new balance resulting from share issue/buy back in the year
Weighted average number of ordinary shares at 30 June
2016
$’000
5,051
2015
$’000
(9,801)
Note
21
2016
2015
158,210,370
161,523,130
3,331
(1,442,723)
158,213,701
160,080,407
33
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
11. Earnings per share (continued)
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2016 was based on the profit attributable to ordinary shareholders of
$5,051,000 (2015: loss; ($9,801,000)) and a weighted average number of ordinary shares outstanding after adjustment for the
effects of all dilutive potential ordinary shares of 158,213,701 (2015: 160,080,407), calculated as follows:
Profit attributable to ordinary shareholders (diluted)
Profit for the period
Weighted average number of ordinary shares (diluted)
Note
2016
$’000
5,051
2015
$’000
(9,801)
Note
2016
2015
Weighted average number of ordinary shares for basic earnings per share
158,213,701
160,080,407
Effect of dilution:
Contingently issuable shares - Datatel acquisition
Share options and performance rights on issue
Weighted average number of ordinary shares at 30 June
12. Cash and cash equivalents
Bank balances
Short term deposits
Cash and cash equivalents in the statement of cash flows
14,039
2,174,804
-
160,402,544
160,080,407
Note
2016
$’000
3,998
37,835
41,833
2015
$’000
2,873
41,677
44,550
The effective interest rate on cash and cash equivalents was 1.8% (2015: 2.5%); these deposits are either at call or on short
term deposit.
34
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
13. Trade and other receivables
Current
Trade receivables
Retentions
Non-current
Loans to vendors
Note
2016
$’000
21,203
347
21,550
2015
$’000
34,064
-
34,064
478
-
Trade receivables are non-interest bearing and are generally on 30 day terms. A provision for impairment loss has not
been recognised due to the collection record of the counterparties with whom the Group transacts.
Non-current receivables represent loans made in relation to the acquisition in Datatel Communications Pty Ltd, future earn
out payments.
14. Inventories
Raw materials and consumables
15. Construction work in progress
Costs incurred to date
Recognised profit
Progress billings
Construction work in progress
Note
Note
2016
$’000
2,379
2016
$’000
156,262
34,655
2015
$’000
2,947
2015
$’000
114,840
19,649
(181,688)
(125,933)
9,229
8,556
Work in progress represents the gross 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.
35
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
16. Property, plant and equipment
Land and
Buildings
Leasehold
Improvements
Plant and
equipment
Motor
Vehicles
Office
Furniture
and
Equipment
Total
$’000
$’000
$’000
$’000
$’000
$’000
916
-
-
(671)
-
245
3,341
17
(898)
-
-
23,153
14,824
993
(292)
(1,516)
72
26
(1,130)
(479)
-
11,396
1,248
(2,395)
-
4
53,630
2,284
(4,715)
(2,666)
76
2,460
22,410
13,241
10,253
48,609
Cost
Balance at 1 July 2014
Additions
Disposals/write-downs
Reclassification to assets held for sale
Exchange differences
Balance at 30 June 2015
Balance at 1 July 2015
245
2,460
Additions
Disposals
Acquisitions
Reclassification from assets held for sale
Exchange differences
Balance at 30 June 2016
Depreciation and impairment losses
Balance at 1 July 2014
Depreciation for the year
Disposals/write-downs
Reclassification to assets held for sale
Exchange differences
Balance at 30 June 2015
Balance at 1 July 2015
Depreciation for the year
Disposals
Acquisitions
Reclassification from assets held for sale
Exchange differences
Balance at 30 June 2016
Carrying amounts
At 1 July 2014
At 30 June 2015
At 1 July 2015
At 30 June 2016
36
-
-
-
671
-
916
(14)
-
115
-
(1)
(1)
(17)
-
(115)
-
(133)
814
244
244
783
(102)
(1,048)
-
(6)
-
-
-
(247)
403
-
-
22,410
720
(1,243)
307
(5)
(79)
13,241
10,253
48,609
715
(419)
933
-
-
690
(930)
166
-
-
2,125
(2,598)
1,406
666
(79)
2,454
22,110
14,470
10,179
50,129
(10,646)
(2,557)
257
801
(74)
(6,737)
(1,523)
1,004
393
-
(4,356)
(22,889)
(2,476)
1,061
-
-
(6,817)
2,725
1,309
(74)
(892)
(12,219)
(6,863)
(5,771)
(25,746)
(892)
(178)
2
-
-
-
(12,219)
(2,288)
1,228
(113)
(54)
23
(6,863)
(1,250)
310
(508)
-
-
(5,771)
(1,065)
930
(105)
-
-
(25,746)
(4,798)
2,470
(726)
(169)
23
(1,068)
(13,423)
(8,311)
(6,011)
(28,946)
2,293
1,568
1,568
1,386
12,507
10,191
10,191
8,687
8,087
6,378
6,378
6,159
7,040
4,482
4,482
4,168
30,741
22,863
22,863
21,183
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
17. Intangible assets – goodwill and customer contracts
Reconciliation of carrying amount
Note
Goodwill
$’000
Customer
Contracts
$’000
Balance as at 1 July 2014
Acquisitions through business combinations
Balance as at 30 June 2015
Balance as at 1 July 2015
Acquisitions through business combinations
24
Balance as at 30 June 2016
Amortisation and impairment losses
Balance as at 1 July 2014
Impairment loss
Amortisation
Balance as at 30 June 2015
Balance as at 1 July 2015
Amortisation
Balance as at 30 June 2016
Carrying amounts
At 1 July 2014
At 30 June 2015
At 1 July 2015
At 30 June 2016
17,174
-
17,174
17,174
12,298
29,472
1,811
-
1,811
1,811
-
1,811
-
(1,736)
(8,390)
-
(8,390)
(8,390)
-
-
(75)
(1,811)
(1,811)
-
Total
$’000
18,985
-
18,985
18,985
12,298
31,283
(1,736)
(8,390)
(75)
(10,201)
(10,201)
-
(8,390)
(1,811)
(10,201)
17,174
8,784
8,784
21,082
75
-
-
-
17,249
8,784
8,784
21,082
Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the lowest
level within the Group at which goodwill is monitored for internal management purposes.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Infrastructure
Services
Datatel
2016
$’000
3,306
5,478
12,298
21,082
2015
$’000
3,306
5,478
-
8,784
The recoverable amount of the above cash generating units (“CGUs”) was based on their value in use with the exception of Datatel
in which the Group has applied the fair value less costs to sell method given the acquisition’s close proximity to the reporting date.
The group performed its annual impairment test in June 2016. The carrying amount of the CGUs was determined to be lower than
their recoverable amounts and therefore no impairment charge has been recognised.
37
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
17. Intangible assets – goodwill and customer contracts (continued)
Value in use was determined by discounting the future cash flows generated from the continuing operations of the CGU. Five years of cash
flows were included in the discounted cash flow models together with a terminal value reflecting a long term growth rate of 2.5% (2015:
2.5%). 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
CGUs operate.
• EBITDA for 2017 is based on the board approved budget with EBITDA for 2018 – 2021 based on management forecasts. The anticipated
annual revenue growth included in the cash flow projections has been based on growth rates that have been estimated by management.
The margins included in the projected cash flow are the same rate that has been achieved by projects commencing in 2016.
• A post-tax discount rate of 11.02% (2015: 12.15%) was applied. This discount rate was estimated based on past experience and industry
average weighted cost of capital.
18. Trade and other payables
Current
Trade payables
Accrued expenses
Goods and services tax payable
2016
$’000
5,896
10,913
1,280
18,089
2015
$’000
6,541
12,965
2,455
21,961
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 22.
19. Unearned revenue
Current
Unearned revenue
2016
$’000
1,387
1,387
2015
$’000
3,163
3,163
Unearned revenue arises when the Group has invoiced the client in advance of performing the contracted services.
20. Provisions
Current
Annual leave
Long service leave
Onerous Lease
Non-current
Long service leave
2016
$’000
4,053
629
162
4,844
2015
$’000
4,760
747
498
6,005
324
353
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(k) to this report.
38
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
21. Capital and reserves
Share capital
Ordinary shares
Issued and fully paid
Movements in shares on issue
2016
2015
Number
$’000
Number
$’000
159,426,058
56,656
158,210,370
56,036
Balance at the beginning of the financial year
158,210,370
56,036
161,523,130
Share issue/buy back
1,215,688
620
(3,312,760)
57,578
(1,542)
Balance at the end of the financial year
159,426,058
56,656
158,210,370
56,036
The Company does not have authorised capital or par value in respect of its issued shares. All shares have voting right 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.
Share based payments reserve
The share based payments reserve records the fair value of share based payments provided to employees.
Dividends
Dividends recognised in the current year by the Group are:
2016
Final 2015 ordinary
Interim 2016 ordinary
Total amount
2015
Final 2014 ordinary
Total amount
Cents per
share
Total
amount
$’000
Franked
Date of
payment
2.70
1.35
2.70
4,272
2,136
6,408
4,361
4,361
Franked
Franked
13th October 2015
12th April 2016
Franked
14th October 2014
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
Declared after end of year
After the balance sheet date a dividend of 1.35 cents per share in the amount of $2,152 million was proposed by the directors.
The dividend has not been provided in the financial statements.
Franking account balance
Company
2016
$’000
18,469
2015
$’000
12,013
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.
39
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
22. 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.
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:
Cash and cash equivalents
Trade and other receivables
Loans to vendors
Carrying amount
2016
$’000
41,833
21,550
478
63,861
2015
$’000
44,550
34,064
-
78,614
Cash
The Group’s cash and cash equivalents are held with major banks and financial institutions.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each 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. Approximately 59 percent (2015: 50 percent) of the Group’s trade receivables are attributable to transactions with three major
customers. Geographically, the concentration of credit risk is within Australia and, by industry, the concentration is within the mining, and
oil and gas industry.
When entering into new customer contracts for service, the Group only enters into contracts with reputable companies. Management
monitors the Group’s exposure on a monthly basis.
In the last five years no provision for impairment loss has been recognised against the customers with whom the Group transacts.
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 and other receivables.
The Group has not established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other
receivables as it not considered necessary based on the payment history of its client base.
40
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
22. Financial instruments (continued)
The Group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Australia
South America and Caribbean
Impairment losses
The ageing of the Group’s trade receivables at the reporting date was:
Carrying amount
2016
$’000
21,370
180
21,550
2015
$’000
34,009
55
34,064
Not past due
Past due 0-30 days
Past due 30-60 days
Past due 60 days and less than 1 year
More than 1 year
Gross
2016
$’000
17,130
2,879
547
933
61
21,550
Impairment
2016
$’000
-
-
-
-
-
-
Gross
2015
$’000
26,458
6,909
120
577
-
34,064
Impairment
2015
$’000
-
-
-
-
-
-
Based on historic default rates, the Group believes no impairment allowance is necessary in respect of trade receivables as the
customers have a good credit history with the Group.
Credit terms with two major customers were renegotiated to 45 and 60 days respectively.
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. Management
monitors cash flow using rolling forecasts and annual budgets that are monitored at a Board level on a monthly basis.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact
of netting agreements:
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
$’000
$’000
$’000
$’000
$’000
$’000
More
than 5
years
$’000
30 June 2016
Non-derivative financial liabilities
Trade and other payables
Deferred consideration
30 June 2015
Non-derivative financial liabilities
Trade and other payables
18,089
8,659
26,748
18,089
8,659
26,748
18,089
-
18,089
21,961
21,961
21,961
21,961
21,961
21,961
-
-
-
-
-
-
2,374
2,374
-
3,212
3,212
-
3,073
3,073
-
-
-
-
-
-
41
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
22. Financial instruments (continued)
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 2016 or 30 June 2015.
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:
Variable rate instruments
Financial assets
Carrying amount
2016
$’000
2015
$’000
42,311
44,550
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 for 2016.
30 June 2016
Variable rate instruments
Cash flow sensitivity (net)
30 June 2015
Variable rate instruments
Cash flow sensitivity (net)
Profit or loss
Equity
100bp increase
$’000
100bp decrease
$’000
100bp increase
$’000
100bp decrease
$’000
708
708
671
671
(708)
(708)
(671)
(671)
-
-
-
-
-
-
-
-
42
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
22. Financial instruments (continued)
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 Board of Directors has not implemented a formal capital management policy however
they have implemented a dividend policy.
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.
23. 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 (%)
2016
2015
Cruz Del Sur Ingeniería Electra (Peru) S.A
Southern Cross Electrical Engineering (WA) Pty Ltd
Southern Cross Electrical Engineering Tanzania Pty Ltd
Southern Cross Electrical Engineering Ghana Pty Ltd
K.J. Johnson & Co. Pty Ltd
FMC Corporation Pty Ltd
Southern Cross Electrical Engineering (Australia) Pty Ltd
Hazquip Industries Pty Ltd
Datatel Communications Pty Ltd
Peru
Australia
Tanzania
Ghana
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
24. Business combinations
On 29 June 2016 Southern Cross Electrical Engineering Ltd acquired 100% of Datatel Communications Pty Ltd. Datatel is an award
winning electrical and communications contractor with a significant presence in the telecommunications and infrastructure sectors
in Western Australia. The acquisition forms part of SCEE’s strategy of growth through expansion into adjacent and complementary
sectors and new geographies and provides SCEE with a scalable platform to enter the telecommunications sector.
43
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
24. Business combinations (continued)
Consideration transferred
Cash
Issued shares (i)
Contingent consideration arrangement (ii)
$’000
5,580
620
8,659
14,859
(i) Issue of 1,215,688 shares were made at the market value of the shares at the time of issue
(ii) The Group has agreed to pay the selling shareholders additional consideration of up to $10,966,000 subject to Datatel’s future
earnings before interest, tax, depreciation and amortisation (EBITDA) exceeding the following targets:
• $1,400,000 payable on achieving at least $3,100,000 EBITDA in the financial year ended 30 June 2017;
• $1,033,000 payable on achieving at least $3,100,000 EBITDA in the financial year ended 30 June 2018;
• $1,033,000 payable on achieving at least $3,100,000 EBITDA in the financial year ended 30 June 2019; and
• 33% of EBITDA above $3,100,000 in each of the financial years ended 30 June 2017, 30 June 2018 and 30 June 2019 capped at
$2,500,000 in any individual financial year.
The contingent consideration of $8,659,000 recognised at acquisition date represents the fair value of expected future payments
based on the Directors’ assessment of the expected achievement of these earn out targets.
Acquisition-related costs amounting to $399,385 (2015: Nil) have been excluded from the consideration transferred and have been
recognised as an expense in the year, within ‘administration expenses’ line item in the statement of comprehensive income.
Assets acquired and liabilities assumed at the date of acquisition
The fair values of the identifiable assets and liabilities of Datatel Communications Pty Ltd as at the date of acquisition were:
Cash and cash equivalents
Trade and other receivables
Work in progress
Prepayments
Property, plant and equipment
Trade and other payables
Provisions
Tax payable
Deferred tax liability
Less: Excess working capital acquired
Net identifiable assets / liabilities acquired
Goodwill arising on acquisition
Consideration
Less: fair value of identifiable net assets / liabilities acquired
Goodwill arising on acquisition
44
Fair value
recognised
$’000
3
5,400
488
239
680
(2,975)
(441)
(247)
(83)
3,064
(503)
2,561
Fair value
recognised
$’000
14,859
(2,561)
12,298
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
24. Business combinations (continued)
Fair values measured on a provisional basis
The initial accounting for the acquisition of Datatel has only been provisionally determined at the end of the reporting period.
Net cash outflow on acquisition of subsidiary
Consideration paid in cash
Less: cash and cash equivalents balances acquired
Net cash flow on acquisition
Impact of acquisition on the result of the Group
There is a nil contribution in the year to the profit before tax.
$’000
5,580
(3)
(5,577)
Had the business combination been effected at 1 July 2015, the revenue of the Group from continuing operations would have been
$231 million and the net profit before tax for the year from continuing operations would have been $6.6 million.
25. Interest in joint operations
The Group has a 50% interest in KSJV Unincorporated and KSJV Australia Pty Ltd, of which the principal activity is to deliver
electrical, instrumentation and telecommunication works to onshore processing elements of the region’s LNG projects. These joint
arrangements are accounted for as joint operations.
The Group’s share of the underlying assets and liabilities as at 30 June 2016 and 2015 and revenues and expenses of the joint
operations for the year 30 June 2016 and 2015, which are proportionally consolidated in the consolidated financial statements, is as
follows:
Share of the joint operations’ statement of financial position:
Current assets
Current liabilities
Non-current liabilities
Equity
Share of the joint operations’ revenue and profit:
Revenue
Contract expenses
Other expenses
Profit before tax
Income tax expense
Profit for the year from continuing operations
2016
$’000
2,669
(631)
(875)
1,163
17,749
(16,103)
(785)
861
(258)
603
2015
$’000
4,400
(1,540)
(1,158)
1,702
37,558
(32,852)
(714)
3,992
(1,198)
2,794
The joint operations have no contingent liabilities or capital commitments as at 30 June 2016 and 30 June 2015.
45
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
26. Share-based payments
(a) Expense recognised in profit or loss
Share based payments expenses for the year comprises:
2016 Performance Rights
2015 Performance Rights
2014 Performance Rights
2013 Performance Rights
(i)
(ii)
(iii)
2016
$’000
120
51
(9)
-
162
2015
$’000
-
110
(203)
(55)
(148)
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.
(i) 2016 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.
Grant date / employees entitled
Performance rights issued to senior
management on 16 November 2015
Performance rights issued to key
management on 16 November 2015
Total /performance rights
Number of
instruments
194,978
1,400,000
1,594,978
Vesting conditions
Contractual life
Employed on 30 June 2018 and
exceed performance hurdles
Employed on 30 June 2018 and
exceed performance hurdles
32 months
32 months
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 2015 to 30 June 2018 (“Performance Period”);
• No performance rights will vest until 30 June 2018;
• 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 18.5% per annum compounded over the Performance Period and
for stretch performance of 26.5% per annum compounded over the Performance Period. The vesting schedule is as follows for TSR
performance over the Performance Period:
Less than 18.5% per annum compounded
18.5% per annum compounded
0% vesting
50% vesting
Between 18.5% and 26.5% per annum compounded
Pro-rata vesting between 50% and 100%
At or above 26.5% per annum compounded
100% vesting
46
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
26. Share-based payments
(i) 2016 Performance Rights (continued)
EPS will be assessed against targets for threshold performance of 2.8 cents per share at the end of the Performance Period and
for stretch performance of 3.6 cents per share at the end of the Performance Period. The vesting schedule is as follows for EPS
performance at the end of the Performance Period:
Less than 2.8 cents per share
2.8 cents per share
0% vesting
50% vesting
Between 2.8 and 3.6 cents per share
Pro-rata vesting between 50% and 100%
At or above 3.6 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.
During the year nil 2016 performance rights were forfeited.
(ii) 2015 Performance Rights
There were 985,701 2015 Performance Rights on issue at 1 July 2015. No 2015 Performance Rights were granted, none vested and
264,286 were forfeited during the year.
The 2015 Performance Rights will be performance tested over a three-year period from 1 July 2014 to 30 June 2017. The hurdles used
to determine performance are Relative Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.
TSR will be assessed against targets for threshold performance of 8% per annum compounded over the Performance Period and
for stretch performance of 15% 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
8% per annum compounded
0% vesting
50% vesting
Between 8% and 15% per annum compounded
Pro-rata vesting between 50% and 100%
At or above 15% per annum compounded
100% vesting
EPS will be assessed against targets for threshold performance of 5.7 cents per share at the end of the Performance Period and
for stretch performance of 7.3 cents per share at the end of the Performance Period. The vesting schedule is as follows for EPS
performance at the end of the Performance Period:
Less than 5.7 cents per share
5.7 cents per share
0% vesting
50% vesting
Between 5.7 and 7.3 cents per share
Pro-rata vesting between 50% and 100%
At or above 7.3 cents per share
100% vesting
47
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
26. Share-based payments
(iii) 2014 Performance Rights
There were 387,812 2014 Performance Rights on issue at 1 July 2015. No 2014 Performance Rights were granted, none vested and
68,593 were forfeited during the year
The 2014 Performance Rights were performance tested over a three-year period from 1 July 2013 to 30 June 2016. The hurdles used
to determine performance are Relative Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.
TSR will be assessed against targets for threshold performance of 12% per annum compounded over the Performance Period and
for stretch performance of 15% per annum compounded over the Performance Period. The vesting schedule is as follows for TSR
performance over the Performance Period:
Less than 12% per annum compounded
12% per annum compounded
0% vesting
50% vesting
Between 12% and 15% per annum compounded
Pro-rata vesting between 50% and 100%
At or above 15% per annum compounded
100% vesting
EPS will be assessed against targets for threshold performance of 17 cents per share at the end of the Performance Period and
for stretch performance of 22 cents per share at the end of the Performance Period. The vesting schedule is as follows for EPS
performance at the end of the Performance Period:
Less than 17 cents per share
17 cents per share
0% vesting
50% vesting
Between 17 and 22 cents per share
Pro-rata vesting between 50% and 100%
At or above 22 cents per share
100% vesting
(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:
Grant date
Vesting date
Share price at grant date
Expected life
Volatility
Risk free interest rate
Dividend yield
Fair value of TSR component
Fair value of EPS component
2016
2015
16 November 2015
4 November 2014
30 June 2018
$0.35
2.6 years
45%
2.04%
5.7%
$0.15
$0.30
30 June 2017
$0.49
2.6 years
2.45%
2.54%
5.40%
$0.25
$0.42
48
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
26. Share-based payments (continued)
(c) Reconciliation of outstanding performance rights
The number and weighted average exercise prices of performance rights under the programmes were as follows:
2016
2015
Number of rights
Number of rights
Outstanding at 1 July
Granted during the year
Forfeited during the year
Outstanding at 30 June
Vested and exercisable at 30 June
1,629,552
1,594,978
(588,918)
2,635,612
-
2,914,382
2,120,941
(3,405,771)
1,629,552
-
Subsequent to 30 June 2016 it has been determined that the vesting conditions in respect of the 2014 Performance rights
have not been met and 319,219 performance rights included as outstanding above will be forfeited.
27. Reconciliation of cash flows from operating activities
Cash flows from operating activities
(Loss)/profit for the year
Adjustments for:
Depreciation and amortisation
(Profit)/Loss on sale of property, plant and equipment
Impairment expense
Equity-settled share-based payment transactions
(Increase)/decrease in assets:
Trade and other receivables
Income tax receivable
Work in progress
Inventories
Prepayments
Increase/(decrease) in liabilities:
Trade and other payables
Unearned revenue
Provisions and employee benefits
Income tax payable
Deferred income tax
Net cash from operating activities
2016
$’000
5,051
4,798
77
-
162
18,154
(3,267)
(185)
568
320
(6,846)
(1,776)
(1,631)
(3,504)
378
12,299
2015
$’000
(9,801)
6,892
1,715
8,390
(148)
(5,603)
-
20,354
(298)
(301)
(2,008)
2,030
1,020
1,140
(6,389)
16,993
49
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
28. Commitments
Leasing commitments
Operating lease commitments – as lessee
The Group has entered into commercial property and motor vehicle leases. These leases have an average life of 2 years remaining
with the property leases containing options to renew at the end of the initial term. Future minimum rentals payable under non-
cancellable operating leases as at 30 June 2016 are:
Within one year
After one but no more than five years
After more than five years
Total minimum lease payments
2016
$’000
1,535
2,778
1
4,314
2015
$’000
1,038
2,199
458
3,695
Under the terms of the property leases, the rent payable is subject to annual review. This review adjusts the annual rent by the
movement in the consumer price index. At the end of every third year annual rent is subject to a market review.
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.
Bank Guarantees
Surety Bonds
2016
$’000
11,919
7,544
2015
$’000
20,143
8,493
Total bank guarantee facilities at 30 June 2016 were $40 million and the unused portion was $28.1 million. This facility is subject to
annual review. Total surety bonds facilities at 30 June 2016 were $20 million and the unused portion was $12.5 million. This facility is
subject to annual review. Both facilities are set to mature on 31 August 2017. It is management’s intention to renew these facilities
at a level appropriate to support the ongoing business of the Group.
30. Subsequent events
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.
31. Auditor’s remuneration
Remuneration of KPMG Australia as the auditor of the parent
entity for:
- Auditing or reviewing the financial report
- All other services
2016
$’000
201,800
-
201,800
2015
$’000
200,000
105,984
305,984
50
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
32. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2016 the parent company of the Consolidated entity was
Southern Cross Electrical Engineering Limited.
Company
Result of the parent entity
Profit/(loss) for the period
Total comprehensive income/(loss) for the period
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising:
Share capital
Reserves
Retained earnings
Total Equity
Parent entity contingencies:
2016
$’000
4,669
4,669
65,200
119,697
26,729
38,354
56,656
919
23,768
81,343
2015
$’000
(12,390)
(12,390)
81,512
123,605
34,125
41,305
56,036
757
25,507
82,300
The parent entity has commitments and contingent liabilities which are included in note 28 and 29. At 30 June 2016 there were in
existence guarantees of performance of a subsidiary.
33. Related parties
Transactions with key management personnel
(i) Key management personnel compensation
Key management personnel compensation comprised the following:
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
2016
$’000
1,500
102
-
197
1,799
2015
$’000
1,878
135
729
(134)
2,608
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 26 (i)).
51
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
33. Related parties (continued)
(ii) Key management personnel transactions
Directors of the Company control 40.9% of the voting shares of the Company.
The aggregate value of transactions and outstanding balances related to key management personnel and entities over which they
have control or significant influence were as follows:
Transactions value year
ended 30 June
2016
$’000
2015
$’000
Other related parties
Gianfranco Tomasi
Rental expense
828
834
The Group has entered into rental agreements over the following properties:
• F & A Tomasi Superannuation Fund owns the properties at 41 and 44 Macedonia St, Naval Base WA, which are leased to
Southern Cross Electrical Engineering Limited.
• G & A Tomasi own the properties at 45, 47, 49 & 51 Macedonia Street, Naval Base WA which are leased to Southern Cross
Electrical Engineering Limited.
• Frank Tomasi Nominees Pty Ltd owns the property at 43 Hope Valley Road, Naval Base WA, which was leased to Southern Cross
Electrical Engineering Limited.
Gianfranco Tomasi and spouse are sole directors of Frank Tomasi Nominees Pty Ltd and are the sole shareholders. Frank Tomasi
Nominees Pty Ltd as trustee for the Frank Tomasi Family Trust is a major shareholder of Southern Cross Electrical Engineering Ltd.
Under the terms of each of the above property leases, the rent payable is subject to an annual review. This review adjusts the
annual rent by the movement in the consumer price index. At the completion of every third year the annual rent is subject to a
market review.
The rental payments made above are all at normal market rates. Hope Valley Road was reviewed by independent valuation in July
2014 and 41 and 45-51 Macedonia Street are due to be reviewed in October 2016.
52
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies
Except as described below 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 2015.
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to
other standards, with a date of initial application 1 July 2015.
AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments
AASB 2014-1 Part A – Annual improvements 2010-2012 Cycle
AASB 2014-1 Part A – Annual improvements 2011-2013 Cycle
The application of these amendments does not have any material impact on the disclosures or the amounts recognised in the
Group’s consolidated financial statements.
(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 venture
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 interest in the joint operations using the proportionate consolidation method.
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 venture 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.
(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.
53
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34.
Significant accounting policies (continued)
(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 loans and receivables and deposits 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 in which substantially all
the risks and 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.
The Group has the following non-derivative financial assets:
• Loans and receivables.
• Cash and cash equivalents.
• Loans and receivables
• Loans and receivables are non-derivative financial assets 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 loans and receivables are measured at amortised cost using the effective interest
method, less any impairment losses.
• Loans and receivables comprise trade and other receivables (see note 13).
54
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(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.
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.
The Group’s non-derivative financial liabilities comprise Loans and borrowings 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.
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.
55
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(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.
Leased 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
Leasehold improvements
Plant and equipment
Motor vehicles
Office furniture and fittings
40 years
6 – 38 years
2 – 20 years
2 – 10 years
2 – 10 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.
(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:
• Customer contracts
1 – 5 years
1 – 5 years
2016
2015
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted
if appropriate.
56
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(g) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the net
present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with
the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised in the Group’s Balance Sheet.
(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) Construction work in progress
Construction work in progress represents the 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 (see note 34(n)(i)) less progress billings and recognised
losses. Cost includes all expenditure related directly to specific 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 deferred income in
the balance sheet.
(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 and 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.
(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.
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. 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.
57
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
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 economic and credit conditions are such
that actual losses are likely to be greater or less than suggested by historical trends.
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 in respect of 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.
(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, and the fair value of any related assets is deducted. 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.
58
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(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 is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the
economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognised:
(i) Construction contracts
Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and
incentive payments to the extent that it is probable that they will result in revenue and can be measured reliably. As soon
as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profit or loss in
proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an
asset related to future contract activity.
The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction
contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are
likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.
(ii) Services
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction
at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
All revenue is stated net of the amount of goods and services tax (GST).
59
2016 Annual Report
Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(o) Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate
of interest on the remaining balance of the liability.
(p) Finance income and expenses
Finance income comprises interest income on funds invested and dividend income. Interest income is recognised as it accrues in
profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group’s right
to receive payment is established, which in the case of quoted securities is the ex-dividend date.
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.
(q) 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.
(r) 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.
60
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(s) 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.
(t) 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.
(u) Financial guarantees
Financial guarantee contracts are initially measured at their fair values and subsequently measured at the higher of:
- the amount of obligation under the contract, as determined in accordance with AASB 137 Provisions, Contingent Liabilities and
Contingent Assets; and
- the amount recognised initially less cumulative amortisation recognised in accordance with AASB 118 Revenue.
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.
(v) 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 acquisition-date
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.
61
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
34. Significant accounting policies (continued)
(w) Business combinations (continued)
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-by-transaction 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 139 ‘Financial
Instruments: Recognition and Measurement’, 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.
(x) New standards and interpretations issued but not yet effective
A number of new standards, amendments to standards and interpretations are effective for annual reporting periods beginning
after 1 July 2016, and have not been applied in preparing these consolidated financial statements. There are a number which are
expected to have a significant effect on the consolidated financial statements of the Group.
AASB 9 Financial Instruments will become mandatory for the Group’s 2018 consolidated financial statements and could change the
classification and measurement of financial assets.
AASB 15 Revenue from Contracts with Customers will become mandatory for the Group’s 2018 consolidated financial statements
and introduces a single revenue recognition model based on the transfer of good and services and the consideration expected to be
received for that transfer.
AASB 16 Leases, will become mandatory for the Group’s 2019 consolidated financial statements and will require entities to
recognise all leases except those that are short term (<12 Months).
The Group does not plan to adopt any of these standards early and the extent of the impact has not been determined.
62
2016 Annual Report Notes to the Financial Statements
For the year ending 30 June 2016
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 non-
financial 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 is based on the quoted market prices for similar items.
(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, excluding construction work in progress, but
including 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.
63
2016 Annual Report
Directors’ declaration
1. 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 2016 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.
2. 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 2016.
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
23 August 2016
64
2016 Annual Report Independent audit report to the members of
Southern Cross Electrical Engineering Limited
65
2016 Annual Report Independent audit report to the members of
Southern Cross Electrical Engineering Limited
66
2016 Annual Report Lead auditor’s independence declaration under
Section 307C of the Corporations Act 2001
67
2016 Annual Report 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 16 August 2016.
Distribution of equity security holders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of equity security holders
Options/
Performance rights
-
-
-
-
3
3
Ordinary shares
172
369
222
416
62
1,241
The number of shareholders holding less than a marketable parcel of ordinary shares is 134.
Twenty largest shareholders
Name
FRANK TOMASI NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED
ZERO NOMINEES PTY LTD
UBS NOMINEES PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
GHISA PTY LTD
CARMAN SUPER PTY LTD
OFFSHORE ELECTRICAL SERVICES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
MR ANDREW MCKENZIE + MRS CATHERINE MCKENZIE
CHEMCO SUPERANNUATION FUND PTY LTD
MR RAYMOND JOHN WISE
CHEMCO SUPERANNUATION FUND PTY LTD
BOND STREET CUSTODIANS LIMITED
BUCHHORN PTY LTD
MR WAYNE JOHN HOGAN + MS ANGELA PATRICE HOGAN
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
Gianfranco Tomasi
Commonwealth Bank of Australia
Wilson Asset Management Group
Number
65,227,131
17,088,922
12,748,327
% of issued capital
40.9%
10.7%
8.0%
Number of
ordinary shares
% of issued
capital
61,664,027
18,134,951
14,259,814
8,000,000
7,600,000
3,763,833
2,941,375
2,404,797
2,063,104
2,000,000
1,500,000
1,448,952
1,318,612
1,216,616
1,200,000
1,076,846
830,000
800,000
765,108
607,844
38.68
11.38
8.94
5.02
4.77
2.36
1.84
1.51
1.29
1.25
0.94
0.91
0.83
0.76
0.75
0.68
0.52
0.50
0.48
0.38
133,595,879
83.80
68
2016 Annual Report