Southern Cross Electrical Engineering Limited
ABN: 92 009 307 046
Established 1978
2018 Annual Report
CONTENTS
About SCEE
Chairman's report
Managing Directors’ review
Directors’ report (including remuneration report)
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Index to notes to the financial statements
Notes to the financial statements
Directors’ declaration
Independent audit report
Lead auditor’s independence declaration
ASX additional information
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2018 Annual Report
2018 highlighTs
Transformational growth and diversification
of revenue and profitability
RECORD REVENUE
$347.9m
Up 74%
UNDERlyiNg EBiTDA*
FUlly FRANkED DiViDEND OF
$19.0m
Up 179%
3.0 cents
pER ShARE
Strong balance sheet
cash of $58.1m and no debt
Order book over $450m
and opportunity pipeline over $2bn
growth strategy reaffirmed
to achieve further sector and geographic diversity
* - a reconciliation of statutory to underlying EBiTDA is provided in the Managing Directors Review on pages 16-19
2018 Annual Report
1
ABouT
SCEE
Southern Cross Electrical Engineering (SCEE) is an ASX
listed Australian based electrical, instrumentation,
communication and maintenance services company
recognised for our industry leading capabilities.
Since 1978, SCEE has grown to become one of Australia’s leading electrical,
instrumentation, communication and maintenance services companies.
SCEE has a deep understanding of electrical engineering and communications
technology solutions. We continuously look for new ways to bring value to
our clients – by understanding their needs, drawing on our knowledge and
expertise, and tailoring our commercial models to meet their requirements.
Heyday Group
ELECTRICAL | COMMUNICATIONS | SERVICE
The company’s growth has been built on the foundations of strong client
relationships and unwavering dedication to delivering on our commitments.
This corporate growth has been measured and strategic, including the
acquisition of major subsidiaries heyday and Datatel. SCEE now operates
in five key market sectors, Resources – Mining and oil & gas, Industrial,
utilities and Energy Infrastructure, Telecommunications and Data Centres,
Commercial Developments and Public Infrastructure and Defence, offering
the full range of capabilities including E&I Construction, E&I Services and
Maintenance, and Communications.
SCEE is headquartered in Perth with additional offices across Australia and
has talented and committed staff delivering projects and services throughout
Australia.
2
2018 Annual Report
SCEE
BuSiNESS moDEL
SCEE has a deep understanding
of electrical and communications
contracting. We are an adaptive
business that can tailor our services
to meet our clients' needs. We pride
ourselves on designing and delivering
intelligent, economic and pragmatic
solutions that work.
We support our clients through the life of their assets
– from design and construction through to production
and operations and eventual decommissioning.
SCEE can engage with clients under a variety of
commercial contracts. We adopt a flexible, best-for-
project approach to delivery, with the ability to both
subcontract and self-perform works.
With 40 years knowledge and experience in the
electrical and communications industry we aim to
bring thought, leadership and innovative solutions to
each stage of the asset life cycle.
We work alongside some of Australia’s leading
contractors in the construction and maintenance of
private and publicly funded infrastructure and assets.
We have a breadth of specialist capabilities which are
applied across three core disciplines: E&I Construction,
E&I Services & Maintenance and Communications.
OUR MARKETS
n
Public Infra s tr u
and D ef e
e
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Industrial, U
Telecommuni c a t i o n s
and Data Cen t r e s
OUR CAPABILITIES
2018 Annual Report
3
ouR
mArkETS
PUbliC inFRAStRUCtURE
And dEFEnCE
SCEE is well qualified and certified to undertake major and minor works in:
• Transport including road, rail, air and port facilities
• Defence facilities and installations
• Social infrastructure including hospitals, medical clinics, aged care and recreation
• Education including universities, technical colleges, schools and community learning centres
• We are members of various major works panels in these sectors.
We understand government procurement models and the changing funding arrangements now being
used to develop new infrastructure.
our flexibility, low-cost base and adaptive commercial approach enables us to competitively bid and
deliver these critical works.
4
2018 Annual Report
OUR mARkEtS (CoNTINuED)
COmmERCiAl dEvElOPmEntS
SCEE has the expertise required in designing, supplying, installing and
maintaining a wide range of building electrical and utility services.
our services cover a comprehensive range of electrical infrastructure, building controls,
energy management systems, security, communications networking and structured
cabling systems.
We work closely with leading property developers and construction companies on new
builds, and with interior design and fit-out specialists on refurbishments and upgrades.
our focus in the commercial property market is non-residential buildings including:
• offices
• Shopping centres
• Retail
• hotels
• Stadia
• Airport terminals
• Factories and Warehouses
We also provide expanded electrical and communication services to multi-storey residential
developments, student accommodation, aged care and mixed commercial / residential
developments.
We remain abreast of the latest technologies and industry standards and pride ourselves
on developing and installing smart and energy efficient solutions.
2018 Annual Report
5
ouR
mArkETS
RESOURCES
mining, Oil And gAS
SCEE provides electrical, instrumentation and communication services to
the construction of mining, LNG upstream and downstream projects and
petrochemical refineries.
In the mining sector, we have extensive experience in the delivery of electrical projects at some of Australia’s
largest mining and mineral processing sites.
our construction experience extends from establishing first power sources at greenfield sites, through to
constructing major ore handling, process and transport infrastructure.
We also specialise in designing and installing electrical and communications services to operational centres,
mine and camp utilities and administrative buildings, and telecommunication services that support the
control and management of mine and transport operations.
SCEE has broad exposure to projects for many commodities including iron-ore, coal, gold, uranium, zinc,
chemicals, alumina, coal, diamonds, ceramics, salt and grain.
In the oil and gas sector, we offer complete electrical, instrumentation and communication solutions for:
• onshore – CSg upstream facilities, including well heads, trunk lines, field compression stations and
compressor processing plants
• offshore – mobile offshore drilling units, jack up drilling rigs, semi submersibles, tender assist rigs, drill
ships, production platforms, FPSo’s and fuel tankers
• ISBL and oSBL facilities
• Petrochemical refineries
6
2018 Annual Report
OUR mARkEtS (CoNTINuED)
tElECOmmUniCAtiOnS
And dAtA CEntRES
SCEE is a key construction partner for Australia's Telecommunication
infrastructure industry. We currently provide surveys, civil works, fibre
optic, copper, power and integration activities for many of Australia’s
leading carriers.
SCEE has completed a large variety of Telecommunications infrastructure projects including:
• Passive optical Networks (PoN)
• Data Centres
• Mining Communications Backbone
• Rail Signalling
• Roadside communications
• Campus Distribution networks
• NBN Construction (FTTN, FTTC, hFC)
We are competent in the installation of technologically advanced products, such as electronic
communication equipment, data cabling and fibre optics. Furthermore, we have the knowledge and
skills to design and deliver energy conservation technologies.
2018 Annual Report
7
ouR
mArkETS
indUStRiAl, UtilitiES
And EnERgy
SCEE has established a strong position in the industrial, utility and energy
market space on the back of our technical know-how and many years of
experience in complex infrastructure projects.
our broad range of services extends to processing plants and manufacturing and fabrication facilities,
light / heavy industrial operations and transport hubs.
SCEE is a leading provider of electrical, instrumental and communication services to:
• Processing plants, manufacturing and fabrication facilities
• Light / heavy industrial operations and transport hubs
• Energy generation, storage and transmission
• Powerlines for utilities
• Water and wastewater treatment, transport and recycling
• Renewable energy – wind farms, solar generation and waste to energy plants
8
2018 Annual Report
ouR
APProACH
Building a High Performing and Collaborative Business
We continue to transform our business to find new ways to offer innovative solutions for our clients and
deliver greater value to our stakeholders.
SCEE continues to integrate its three businesses to provide a consistent and seamless service to our clients.
our integration plans focus on fostering a culture that brings together the high performing elements of each
business into a common best practice approach. We start with strong cultural foundations and a positive
attitude towards working together. our challenge is to build a collaborative and cohesive organisation that is
well respected by our clients, industry partners and our staff.
Our values
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.
2018 Annual Report
9
SCEE CELEBRATES
40 yEArS
2018 marks forty years since Southern Cross Electrical Engineering was founded
by Frank Tomasi. The new business quickly established a reputation for quality
work, bringing repeat business from many of the mining industry's key players, and
during the 1980’s growth was built on the back of the booming Western Australian
gold sector.
In 1987 the company secured its first overseas contract in ghana and over the years this was followed with work in a
variety of international locations in Africa, South America and Asia. growth remained strong throughout the 1990’s
and early 2000’s, both at home and abroad, and in 2007 the Company was listed on the Australian Stock Exchange.
With a wealth of experience in mining construction works SCEE was well placed to capitalise as global demand for
iron ore drove an unprecedented period of capital expenditure in Western Australia while also expanding its service
offering into other markets, including oil and gas, industrial and utilities.
Recent years have seen SCEE use acquisitions to further broaden the scope of its operations. The acquisition of
Datatel in 2016 brought with it access to the telecommunications sector and the following year the purchase of
heyday, a leading Sydney based electrical contractor, established a significant footprint in the commercial and public
infrastructure sectors on the east coast.
With a national presence across a broad range of markets SCEE is well placed to continue its growth story over the
years ahead.
10
2018 Annual Report
2018 Annual Report
11
hEyDAy CELEBRATES
40 yEArS
Heyday was established in New South Wales by Tony Borg in 1978. riding
the construction boom of the 1980’s expansion of the business was rapid.
During the 1990’s the Company continued to grow and a number of significant projects associated with
the Sydney 2000 olympics enhanced heyday’s reputation for successfully delivering large, complex
projects and established the Company as one of the east coast’s leading electrical contractors with a
portfolio of clients that includes some of the biggest construction and infrastructure contractors in
Australia.
In 2017 SCEE acquired heyday to broaden the group’s geographic footprint and to access the buoyant
public infrastructure and commercial markets. The acquisition has combined two well established,
culturally aligned electrical contractors operating in complementary sectors and geographies creating a
much broader platform for sustainable future growth.
12
2018 Annual Report
DATATEL CELEBRATES
20 yEArS
Founded by Paul Johnson and Wayne Hogan in 1998, Datatel began life as a
small electrical contractor servicing businesses and schools in Perth.
By remaining agile and resourceful the business was able to compete successfully against much bigger
operators establishing long-term relationships in the health, commercial, government and education
sectors through a commitment to completing work safely, efficiently and effectively. In recent years
the roll-out of the National Broadband Network saw the company grow significantly as it added
telecommunications providers to its existing client base.
For SCEE, the acquisition of Datatel in 2016 provided a platform to enter the telecommunications
sector while also widening its service offering to its existing clients. Since the acquisition Datatel has
continued to diversify both geographically across Australia and into new lines of work including mobile
network construction.
2018 Annual Report
13
ChAIRMAN'S
rEPorT
DEAR SHAREHOLDERS,
2018 has been a milestone year
for SCEE as it marked not only
the fortieth anniversary of the
founding of Southern Cross
Electrical Engineering Limited
by Frank Tomasi, but also
forty years and twenty years,
respectively, since Heyday and
Datatel commenced operations
- a collective century of electrical
experience within the Group.
14
2018 Annual Report
Derek Parkin - Chairman
chairman's report (CONTINuED)
I am delighted to report that we have been able to commemorate the occasion by delivering a record revenue for the Group
of $347.9m, an increase of 74% on the prior year. We have also seen underlying EBITDA increase by 179% to $19.0m. A more
detailed discussion of the results for the year is contained in the Managing Director’s Review on the following pages.
Whilst the growth in 2018 has been driven in large part by the success of the prior year acquisition of Heyday, we have also
continued our organic expansion across sectors and geographies and have secured a number of significant awards of
health, utilities, transport and commercial projects as well as commencing work in defence and completing our first
renewables projects. We continue to expand our existing capabilities into new geographies and are currently working
in the majority of Australia’s states and territories.
We ended the financial year with an order book over $450m of which $300m is expected to be delivered in the
2019 financial year and underpins our expectations of further revenue growth to over $400m in the year ahead.
It was with this future growth in mind that the Board decided in November 2017 to raise over $30m, via a
share placement, in order to augment our balance sheet to ensure we have the flexibility to capitalise on
further growth opportunities.
With national exposure to our five core markets, including the buoyant east coast public infrastructure
and commercial sectors, tendering remains at a very high level and we continue to see addressable
opportunities of over $2bn. We enter 2019 in a position to further progress our strategy of growth
through sector and geographic diversification, both from continued organic expansion and
potential further acquisitions.
Having paused our dividend in 2017, I am pleased to announce that the Board has resolved to
pay a 2018 full year dividend of 3 cents per share.
We are extremely proud of SCEE’s achievements over our first forty years and are excited
about the next chapter in our history. We remain focussed on continuing to provide first
class service to our customers, whilst growing value for our shareholders.
On behalf of the Board I would like to take this opportunity to thank our
shareholders, clients and employees for their ongoing support.
Derek Parkin
Chairman
2018 Annual Report
15
MANAgINg DIRECToR'S
rEviEW
The 2018 financial year was the first full year
consolidating the results of Heyday, acquired
in march 2017, and has seen the Group
achieve transformational growth and
diversification of revenue and profitability
while maintaining the balance sheet
strength to allow us to continue to
deliver our growth strategy.
16
2018 Annual Report
graeme Dunn - Managing Director
managing director's review (continued)
Operating and Financial review
Revenue for the year was $347.9m, the highest in the Group’s forty year history, which represented a 74% increase on the prior year revenue
of $199.9m.
the growth in revenues was generated across a range of markets and geographies highlighting the increased breadth and diversity of the
Group. Significant revenue contributors in the year by market sector included:
• Public infrastructure and defence – in the health sector work continued throughout the year on the university of canberra Hospital in the
Act and commenced on the Westmead Hospital in nSW. in transport we commenced work on the northlink central Section project in WA
and on the Westconnex M5 road project in nSW and in defence we continue to work on RAAF tindal in the northern territory.
• commercial – work was predominantly in new South Wales on a range of large construction and fit-out projects including the duo central
Park tower development in chippendale, the insurance Australia Group office fit-out at darling Park, AtP Building 1 at eveleigh and
Stockland’s Greenhills Shopping centre.
• Resources – in LnG work continues on the Wheatstone LnG project. in mining we performed work under our framework agreements with
key iron ore clients in WA and in Queensland activity was at a high level on Rio tinto’s Amrun Bauxite project.
• telecommunications and data centres – nBn construction activity continued across Australia with an increase in east coast activity in the
second half of the year. the business commenced its first construction projects in the mobile sector in both WA and nt. the Airtrunk and
Global Switch data centre projects in Sydney were completed during the year.
• industrial, energy and utilities – Scee’s first solar power projects were completed in new South Wales and the three year ergon energy
Service Agreement commenced in northern Queensland.
i am pleased to report that the Group completed its 2018 operations without suffering a Lost time injury (Lti). this marked the fourteenth
consecutive year Lti free in Australia for the original Scee business.
Gross margins increased from 11.1% in the first half to 12.8% in the second half giving full year gross margins of 11.9% compared to 12.0% in
the prior year.
overheads in the year were $24.1m compared to underlying overheads of $17.8m 1 in the prior year with the increase from the inclusion of a
full year of the Heyday business partly offset by cost saving initiatives implemented in the prior year. overheads as a percentage of revenues
reduced from 8.9% in 2017 to 6.9% in the current year.
underlying eBitdA for the year, after adjusting for the $1.9m write back of deferred consideration relating to the acquisition of datatel, was
$19.0m representing a 179% increase on the underlying eBitdA of $6.8m 2 in the prior year.
depreciation expense decreased from $4.3m in the prior year to $3.8m as a result of lower capital expenditure in recent years.
the underlying net profit after tax for the year was $10.1m after adjusting for the write back of datatel deferred consideration, $2.9m of
amortisation of acquired Heyday customer contract intangibles and $0.7m of finance expenses arising from the unwinding of deferred
consideration interest discounts. the underlying nPAt in the prior year was $1.4m 3.
the directors have declared a fully franked dividend for the year ended 30 June 2018 of 3.0 cents per share.
the balance sheet is strong with net cash at 30 June 2018 of $58.1m compared to $40.3m at the start of the year.
during the year $9.25m of consideration was paid to the vendors of Heyday. in november the Group completed a share placement which
raised $31.9m after transaction costs to support Scee’s growth strategy by providing balance sheet strength to service the significant
pipeline of work and flexibility to capitalise on potential growth opportunities.
Working capital requirements were highest at the end of the year as certain projects reached peak levels of activity. this has resulted in an
increase in work in progress from $21.9m in the prior year to $39.8m at 30 June 2018.
capital expenditure in the year was $1.5m and is expected to remain low for the time being.
2018 Annual Report
17
mAnAging diRECtOR’S REviEw (CoNTINuED)
OuTLOOk
Order Book
The group continues to secure work across its core markets with significant awards including over $65m on Westmead hospital in Sydney,
over $55m on the Westconnex M5 road project in NSW and over $50m of contracts recently announced in the commercial sector in ACT
and NSW. We also continue to secure regular work under our framework agreements in the resources and telecommunications sectors in a
number of states and territories.
The order book at 30 June 18 was over $450m with over $300m of work in hand for the 2019 financial and over $150m already secured for
the 2020 financial year.
The business development pipeline remains strong with identified opportunities continuing to be over $2bn including nearly $900m of
submitted tenders with clients pending decision.
Markets
In the public infrastructure and defence sector we had approximately $150m work in hand at 30 June 2018 including the Westmead hosptial
and Westconnex M5 projects in NSW and the continuation of work on the Northlink Central Section road project in WA and at RAAF Tindal
in the Northern Territory. Investment in road, rail, education, health and aged care and defence remains strong with longevity to the pipeline,
particularly in NSW and VIC where government expenditure has been committed to address population growth and congestion.
The commercial sector represents the largest component of the order book at 30 June 2018 with over $200m of work in hand, primarily
in NSW where we expect the pipeline to remain strong as a result of office, multi-storey and retail investment and refurbishments of
existing facilities to meet high demand. We anticipate that the current high level of public infrastructure spend will lead to a further wave of
commercial developments once completed. Current works include the Duo Central Park tower development, the Insurance Australia group
fit-out, ATP Building 1 and multiple projects at Parramatta Square.
In resources we have ongoing work at Rio Tinto’s Amrun project in QLD, early works for BhP’s South Flank project and continue
commissioning works for Bechtel at Chevron’s Wheatstone LNg Project. In iron ore we are positioning for the upcoming large scale
replacement tonnage projects and are seeing increasing investment in sustaining capital and have framework agreements in place with Rio
Tinto, BhP and Sino Iron. We are actively pursuing opportunities in bauxite, gold, lithium and other metals. Spend in oil and gas is expected
to decline in the current year as large scale LNg construction projects complete.
In the telecommunications sector the NBN roll-out is peaking and the technology mix has stabilised while the mobile network providers are
upgrading capacity and coverage of their existing 4g networks and preparing for the commercial deployment of 5g which is expected from
Fy20 onwards. Datatel has multiple framework agreements with Telcos and Tier 1 contractors for both the NBN and wireless works. growth
in data demand is driving data centre construction and having successfully completed large scale projects including Air Trunk and global
Switch we are well placed to secure further work in this area.
Energy generation and distribution to meet demand remains a challenge for the east coast of Australia and investment in renewables
continues with a focus on solar where we completed our first projects in NSW during the year. We continue to perform work under our three
year Ergon Energy Service Agreement in QLD. The industrial sector remains stable providing a flow of opportunities.
18
2018 Annual Report
mAnAging diRECtOR’S REviEw (CoNTINuED)
Strategy
The Board has reaffirmed its strategy of growth from further sector and geographic diversity. SCEE’s expansion will be undertaken through a
combination of organic and acquisition activity. organic growth will primarily be achieved through:
• pursuing upcoming large scale infrastructure projects;
• leveraging the combined group’s customer relationships and skills into new states; and
• rising activity levels in certain sectors, particularly resources.
Conclusion
2018 saw SCEE deliver record revenues and increased profitability as we continued to progress our growth strategy.
The prior year acquisition of heyday has significantly strengthened the group and with a strong balance sheet, healthy order book and large
opportunity pipeline across our markets we are well placed to deliver further growth in the year ahead.
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 ongoing support.
graeme dunn
Managing Director
NOTES
1 underlying overheads in Fy17 excluded $1.7m of restructuring costs and $3.9m relating to
heyday acquisition costs and investments in expansion and diversification initiatives.
2 underlying EBITDA in Fy17 excluded the amounts noted in point 1 above and the $5.4m write
back of deferred consideration relating to the acquisition of Datatel.
3 underlying NPAT in Fy17 excluded the amounts noted in points 1 and 2 above, $2.0m of
amortisation of acquired heyday customer contract intangibles, $0.4m of finance expenses
arising from the unwinding of deferred consideration interest discounts and the tax benefit
from the items in point 1.
2018 Annual Report
19
diRECtORS’ REPORt
your directors submit their report for Southern Cross Electrical Engineering limited
(“SCEE” or “the Company”) for the year ended 30 June 2018.
David hammond, Karl Paganin, Simon Buchhorn, Derek Parkin, gianfranco Tomasi, graeme Dunn, Chris Douglass and Colin harper.
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.
name and independence status
Experience, qualifications, special responsibilities and other directorships
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 over
40 years and four continents, primarily in the public company environment.
Derek is a past national Board member of the Institute of Chartered Accountants Australia (“ICAA”) and has
served on a number of the ICAA’s national and state advisory committees. In 2011, he was a recipient of the
ICAA’s prestigious Meritorious Service Award.
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.
graeme dunn
managing director and Chief
Executive Officer
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 completed the Senior Executive Program from the London School of Business.
he is also a graduate of the Australian Institute of Company Directors.
20
2018 Annual Report
diRECtORS’ REPORt (continued)
name and independence status
Experience, qualifications, special responsibilities and other directorships
gianfranco tomasi Am
non-Executive director
Simon buchhorn
independent non-Executive
director
karl Paganin
independent non-Executive
director
david Hammond
Executive director
Executive Officers
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 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. he is also a graduate of the Australian Institute of Company Directors.
Simon is a member of the Audit and Risk Management Committee.
Karl has over 15 years of senior executive experience in Investment Banking, specialising in transaction
structuring, equity capital markets, mergers and acquisitions and providing strategic management advice
to listed public companies. Prior to that, Karl was Director of Major Projects and Senior Legal Counsel for
heytesbury Pty Ltd (the private company of the holmes a Court family) which was the proprietor of John
holland group Pty Ltd.
Karl is the Chairman of the Nomination and Remuneration Committee and a member of the Audit and Risk
Management Committee.
Karl is also a Non-Executive Director of ASX listed Veris Limited.
David was a vending shareholder of heyday5 Pty Ltd and was appointed to SCEE’s Board as an Executive
Director on completion of the acquisition of heyday by SCEE in March 2017.
David has more than 35 years’ electrical contracting experience and has been involved in the heyday business
for over 20 years. During his tenure, David has held various positions up to and including his current role of
Executive Director where his responsibilities include driving business development.
The names and details of the Company’s Executive officers during the financial year and until the date of this report are as follows.
Executive officers were in office for this entire period unless otherwise stated.
name
Experience and qualifications
Chris douglass
Chief Financial Officer and
Company Secretary
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
Company Secretary
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.
2018 Annual Report
21
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:
Derek Parkin
graeme Dunn 1
gianfranco Tomasi
Simon Buchhorn
Karl Paganin
David hammond 2
director
Ordinary shares
Rights over
ordinary shares
Options over
ordinary shares
100,000
177,287
65,227,131
800,000
822,668
6,870,040
-
2,255,360
-
-
-
-
-
-
-
-
-
-
1 Included in the Performance Rights held by graeme Dunn are 1,083,333 2016 Performance Rights which have been performance tested on finalising
the 2018 results and have vested in full and are now exercisable.
2 3,435,020 ordinary Shares are subject to voluntary escrow until 1 November 2018 and 3,435,020 ordinary Shares are subject to voluntary escrow until
1 November 2019.
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
David hammond
10
10
10
10
10
10
10
10
8
9
10
10
4
-
-
4
4
-
4
-
-
4
4
-
3
-
3
-
3
-
3
-
2
-
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 electrical, instrumentation, communication
and maintenance services to a diverse range of sectors across Australia.
Significant Changes in the State of Affairs
There have been no significant changes in the state of affairs of the company or consolidated group during this financial year.
22
2018 Annual Report
diRECtORS’ REPORt (continued)
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 16.
Operating results for the year were:
Contract revenue
Profit/(loss) after income tax from continuing operations
dividends
declared and paid during the period (fully franked at 30%)
Final franked dividend for 2017
declared after balance date and not recognised as a liability
(fully franked at 30%)
Final franked dividend for 2018
2018
$’000
347,874
8,406
2017
$’000
199,915
(369)
Cents per share
total amount
$’000
-
3.0
-
7,022 1
1 The amount payable is based on the shares on issue at the date of this report plus vested and exercisable performance rights that are anticipated to be
converted into shares prior to the payment date.
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 2018 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, 232,879 shares were issued from the exercise of options or performance rights previously granted as
remuneration.
Further details are contained in note 25 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)
b)
the liability arises out of conduct involving a wilful breach of duty; or
there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.
The total amount of insurance contract premiums paid was $86,910 (2017: $91,509).
2018 Annual Report
23
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
There were no non-audit services provided by the external auditors during the year.
Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page 83 and forms part of the Directors’ report for the financial year ended 30 June
2018.
Remuneration Report
The Remuneration Report is set out on pages 25 to 33 and forms part of this report.
Rounding off
The Company is of a kind referred to in ASIC Instrument 2016/191 dated 24 March 2016 and in accordance with that Class order, amounts in
the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.
Signed in accordance with a resolution of the directors.
derek Parkin
Chairman
28 August 2018
24
2018 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.
2018 Annual Report
25
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 2018, the financial KPIs accounted for 70% of the executive team’s STI and set specific profit and order book
targets.
The non-financial KPIs accounted for 30% of the executive team’s STI and 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.
26
2018 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
2018
$’000
8,406
-
23%
9%
2017
$’000
(369)
2,152
4%
0%
2016
$’000
5,051
6,408
87%
7%
2015
$’000
(9,801)
4,361
(38%)
(10%)
2014
$’000
7,723
4,361
(42%)
10%
2018 Annual Report
27
REmUnERAtiOn REPORt – AUditEd (continued)
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28
2018 Annual Report
REmUnERAtiOn REPORt – AUditEd (continued)
Notes in relation to the table of directors’ and executive officers’ remuneration
A.
B.
The STI bonus is for the achievement of personal goals and satisfaction of specified performance criteria in respect of the previous
financial year but which vested in the current financial year. The amount is finally determined after performance reviews are
completed and approved by the Nomination and Remuneration Committee.
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.
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Employment Contracts
The following executives have non-fixed term employment contracts. The company may terminate the employment
contract by providing the other party notice as follows:
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Executive
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graeme Dunn
Chris Douglass
6 months
6 months
-
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The following executives have fixed term employment contracts. The company may terminate the employment contract by
providing the other party notice as follows:
Executive
Fixed term end date
notice Period
David hammond
1 october 2019
3 months
The group retains the right to terminate a contract immediately by making a payment in lieu of the notice period or where
the executive is employed under a fixed term contract all remuneration that the executive would have earned during the
balance of the fixed term. 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 superan-
nuation benefits. There are no other termination payment entitlements.
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2
2018 Annual Report
29
REmUnERAtiOn REPORt – AUditEd (continued)
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
Held at 30
June 2017
granted as
remuneration
Exercised
Forfeited
Held at
30 June
2018
vested
during the
year
vested and
exercisable at
30 June 2018
graeme Dunn
Chris Douglass
1,685,185
1,673,318
570,175
337,719
-
-
2,255,360
-
110,348
(231,489)
1,889,896
110,348
4,268,707
907,894
110,348
(231,489)
4,145,256
110,348
-
-
-
Performance rights granted as remuneration in 2018
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:
Fair value per
performance right
at grant date ($)
Exercise price per
performance right ($)
Performance
testing date
Expiry
date
0.75
0.53
0.75
0.53
0.00
0.00
0.00
0.00
30/6/19
30/6/19
30/6/19
30/6/19
7/11/20
7/11/20
7/11/20
7/11/20
Executive
instrument
number
grant date
graeme Dunn1
graeme Dunn2
Chris Douglass1
Chris Douglass2
2018 Rights
285,088
2018 Rights
2018 Rights
2018 Rights
285,087
168,860
168,859
907,894
7/11/17
7/11/17
7/11/17
7/11/17
1 Performance rights granted with EPS growth as the vesting condition
2 Performance rights granted with Absolute TSR as the vesting condition
2018 Financial year Performance Rights
up to 100% of the allocated performance rights may vest, subject to the achievement of the performance conditions as set out below.
The key terms of the performance rights are:
• To be performance tested over a three year period from 1 July 2017 to 30 June 2020 (“Performance Period”);
• No performance rights will vest until 30 June 2020;
• 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
30
2018 Annual Report
REmUnERAtiOn REPORt – AUditEd (continued)
The TSR formula is:
((Share Price at Test Date – Share Price at Start Date) + (Dividends reinvested))/Share Price at Start Date
TSR will be assessed against targets for threshold performance of 8% per annum compounded over the Performance Period and for stretch
performance of 12% per annum compounded over the Performance Period. The vesting schedule is as follows for TSR performance over the
Performance Period:
Less than 8% per annum compounded
8% per annum compounded
0% vesting
50% vesting
Between 8% and 12% per annum compounded
Pro-rata vesting between 50% and 100%
At or above 12% per annum compounded
100% vesting
EPS will be assessed against targets for threshold performance of 5.7 cents per share in the 2020 financial year and for stretch performance
of 6.1 cents per share in the 2020 financial year. The vesting schedule is as follows for EPS performance in the 2020 financial year:
Less than 5.7 cents per share
5.7 cents per share
0% vesting
50% vesting
Between 5.7 and 6.1 cents per share
Pro-rata vesting between 50% and 100%
At or above 6.1 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.
2018 Annual Report
31
REmUnERAtiOn REPORt – AUditEd (continued)
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
% vested in
year
% forfeited in
year
Performance
testing date (A)
Expiry
date
2016 Rights
1,083,333
graeme Dunn
2017 Rights
601,852
Chris Douglass
2018 Rights
570,175
2015 Rights
341,837
2016 Rights
975,000
2017 Rights
356,481
2018 Rights
337,719
18/11/16
18/11/16
7/11/17
4/11/14
16/11/15
18/11/16
7/11/17
-
-
-
-
-
-
32%
68%
-
-
-
-
-
-
30/6/18
30/6/19
30/6/20
30/6/17
30/6/18
30/6/19
30/6/20
18/11/20
18/11/20
7/11/21
4/11/18
16/11/19
18/11/20
7/11/21
A. Performance rights are performance tested following completion of the performance period. Subsequent to 30 June 2018 the vesting conditions in
respect of the 2016 performance rights have been performance tested and it has been determined that all 2016 performance right held by Mr Dunn and
Mr Douglass have vested and are now exercisable.
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
David hammond1
Executives
Chris Douglass2
Held at
30 June 2017
Purchases
net change other
Held at
30 June 2018
100,000
101,000
65,227,131
800,000
822,668
-
95,395
-
76,287
-
-
-
-
-
-
-
-
-
-
100,000
177,287
65,227,131
800,000
822,668
6,870,040
6,870,040
110,348
205,743
1 David hammond received 6,870,040 ordinary shares as part consideration for the acquisition of heyday5 Pty Limited following approval by shareholders at
the 2017 Annual general Meeting. 3,435,020 ordinary shares are subject to voluntary escrow until 1 November 2018 and 3,435,020 ordinary shares are subject
to voluntary escrow until 1 November 2019.
2 Chris Douglass received 110,348 share on the exercise of vested 2015 Performance Rights issued under the company’s senior management long term
incentive scheme
32
2018 Annual Report
REmUnERAtiOn REPORt – AUditEd (continued)
transactions with key management personnel
The group has entered into rental agreements over the following properties in which gianfranco Tomasi has an ownership interest:
• F & A Tomasi Superannuation Fund owns the properties at 41 and 44 Macedonia St, Naval Base WA.
• g & A Tomasi own the properties at 45, 47, 49 & 51 Macedonia Street, Naval Base WA.
• Frank Tomasi Nominees Pty Ltd owns the property at 43 hope Valley Road, Naval Base WA with the lease being surrendered on 30 June 2018.
The group had entered into a rental agreement for Level 1, 3 Apollo Place, Lane Cove West NSW in which David hammond had a partial
ownership interest prior to being disposed of during the financial year.
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 with no rent increases passed through during the 2018 year.
Total rent paid by SCEE in the 2018 financial year in respect of the above agreements was $711,000.
There are no loans between the company and Key Management Personnel.
2018 Annual Report
33
COnSOlidAtEd StAtEmEnt OF COmPREHEnSivE inCOmE
For the year ended 30 June 2018
Contract revenue
Contract expenses
gross profit
other income
Employee benefits expenses
occupancy expenses
Administration expenses
other expenses
Reduction in earn out payable
Depreciation expense
Amortisation
Profit from operations
Finance income
Finance expenses
net finance expense
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) from continuing operations
Other comprehensive income
Items that are or may be reclassified to the profit and loss:
Foreign currency translation gain for foreign operations
Other comprehensive 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)
note
4
5
6
5
8
8
7
7
9
10
10
2018
$’000
347,874
(306,319)
41,555
1,584
(14,982)
(2,405)
(5,580)
(1,149)
1,883
(3,779)
(2,907)
14,220
531
(1,948)
(1,417)
12,803
(4,397)
8,406
101
101
8,507
8,507
4.05
3.96
2017
$’000
199,915
(176,011)
23,904
300
(12,900)
(3,348)
(6,336)
(688)
5,411
(4,254)
(2,045)
44
463
(1,090)
(627)
(583)
214
(369)
305
305
(64)
(64)
(0.23)
(0.23)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
34
2018 Annual Report
COnSOlidAtEd StAtEmEnt OF COmPREHEnSivE inCOmE
For the year ended 30 June 2018
COnSOlidAtEd bAlAnCE SHEEt
For the year ended 30 June 2018
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Work in progress
Prepayments
Assets held for sale
Tax receivable
total current assets
non-current assets
Trade and other receivables
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
total assets
liabilities
Current liabilities
Trade and other payables
unearned revenue
Provisions
Loans and borrowings
Deferred acquisition consideration
Tax payable
total current liabilities
non-current liabilities
Deferred acquisition consideration
Provisions
Loans and borrowings
Deferred tax liability
total non-current liabilities
total liabilities
net assets
Equity
Share capital
Reserves
Retained earnings
total equity
note
2018
$’000
2017
$’000
11
12
13
14
12
15
9
16
17
18
19
20
20
19
9
21
21
58,076
37,209
2,170
39,793
588
-
1,188
40,553
33,316
2,328
21,890
898
155
-
139,024
99,140
-
16,274
-
74,591
90,865
229,889
43,392
16,519
10,664
-
6,452
-
77,027
7,626
958
-
3,168
11,752
88,779
141,110
102,873
1,749
36,488
141,110
1,358
19,416
734
77,433
98,941
198,081
49,697
12,899
8,882
59
9,180
723
81,440
15,321
1,377
187
-
16,885
98,325
99,756
56,656
15,018
28,082
99,756
The above balance sheet should be read in conjunction with the accompanying notes.
2018 Annual Report
35
COnSOlidAtEd StAtEmEnt OF CHAngES in EQUity
For the year ended 30 June 2018
Share
Capital
$’000
Retained
Earnings
$’000
note
deferred
Payments
Reserve
$’000
Share based
Payments
Reserve
$’000
translation
Reserve
$’000
total Equity
$’000
Balance as at 1 July 2016
56,656
30,603
total comprehensive loss for the period
Loss for the period
Foreign currency translation gain
total comprehensive loss
transactions with owners, recorded directly in equity
Dividends to equity holders
Deferred share consideration
Cost of share-based payments
Total transactions with owners
-
-
-
-
-
-
-
balance as at 30 June 2017
56,656
(369)
-
(369)
(2,152)
-
-
(2,152)
28,082
-
-
-
-
-
13,850
-
13,850
13,850
1,342
(920)
87,681
-
-
-
-
-
441
441
1,783
-
305
305
-
-
-
-
(615)
(369)
305
(64)
(2,152)
13,850
441
12,139
99,756
Share
Capital
$’000
Retained
Earnings
$’000
deferred
Payments
Reserve
$’000
Share based
Payments
Reserve
$’000
translation
Reserve
$’000
total Equity
$’000
Balance as at 1 July 2017
56,656
28,082
13,850
1,783
(615)
99,756
total comprehensive income for the period
Profit for the period
Foreign currency translation gain
total comprehensive income
transactions with owners, recorded directly in equity
-
-
-
8,406
-
8,406
Issue of ordinary shares net of transaction
costs and tax
Equity-settled deferred acquisition
consideration
Equity-settled share-based payment
Cost of share-based payments
Total transactions with owners
balance as at 30 June 2018
32,222
13,850
145
-
46,217
102,873
-
-
-
-
-
36,488
-
-
-
-
(13,850)
-
-
(13,850)
-
The above statement of changes in equity should be read in conjunction with the accompanying notes.
-
-
-
-
-
(145)
625
480
2,263
-
101
101
-
-
-
-
-
(514)
8,406
101
8,507
32,222
-
-
625
32,847
141,110
36
2018 Annual Report
COnSOlidAtEd StAtEmEnt OF CASH FlOwS
For the year ended 30 June 2018
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income taxes received/(paid)
net cash (used in)/from operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Payment of deferred acquisition consideration
Proceeds from the sale of assets
Acquisition of property, plant and equipment
Net cash from/(used in) investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from issue of shares
Dividends paid
net cash from/(used in) financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 30 June
The above cash flow statement should be read in conjunction with the accompanying notes.
note
2018
$’000
2017
$’000
372,423
(374,858)
531
(1,239)
(2,008)
(5,151)
-
(9,250)
1,816
(1,516)
(8,950)
(233)
31,857
-
31,624
17,523
40,553
-
58,076
26
20
15
21
11
216,243
(221,184)
463
(733)
2,238
(2,973)
5,537
-
80
(2,062)
3,555
(15)
-
(2,152)
(2,167)
(1,585)
41,833
305
40,553
2018 Annual Report
37
indEx tO nOtES tO tHE FinAnCiAl StAtEmEntS
23. Investments in subsidiaries
24. Interest in joint operations
25. Share-based payments
26. Reconciliation of cash flows from
operating activities
27. Commitments
28. Contingencies
29. Subsequent events
30. Auditor’s remuneration
31. Parent entity disclosures
32. Related parties
33. Significant accounting policies
34. Determination of fair values
57
58
58
63
64
64
64
64
65
65
67
76
1. Reporting entity
2. Basis of preparation
3. Segment reporting
4. Contract revenue
5. other income/(expense)
6. Employee benefits expenses
7. Finance income and expenses
8. Depreciation and amortisation expenses
9.
Income tax expense
10. Earnings per share
11. Cash and cash equivalents
12. Trade and other receivables
13. Inventories
14. Construction work in progress
15. Property, plant and equipment
16. Intangible assets – goodwill and
customer contracts
17. Trade and other payables
18. unearned revenue
19. Provisions
20. Capital and reserves
21. Financial instruments
22. Investments in subsidiaries
39
39
40
41
41
42
42
42
43
45
46
46
46
46
47
48
49
49
50
51
52
57
38
2018 Annual Report
nOtES tO tHE FinAnCiAl StAtEmEntS
1. Reporting entity
Southern Cross Electrical Engineering Limited (“the Company”, “the parent”) is a company incorporated and domiciled in Australia. The
company’s shares are publicly traded on the Australian Stock Exchange.
The consolidated financial statements for the year ended 30 June 2018 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 33(v).
These financial statements have been rounded to the nearest thousand dollars where permitted by ASIC Instrument 2016/191 dated 24
March 2016.
The consolidated financial statements were authorised for issue by the Board of Directors on 28 August 2018.
(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 34.
(c) Functional and presentation currency
(i) Functional and presentation currency
Both the functional and presentation currency of Southern Cross Electrical Engineering Limited and its Australian subsidiaries are
Australian dollars ($). The functional currency for the Peruvian subsidiary is Neuvos Soles. overseas functional currencies are translated
to the presentation currency (see below).
(ii) transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the
balance sheet date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the
date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates
at the date when the fair value was determined.
(iii) translation of group Entities functional currency to presentation currency
The results of the overseas subsidiaries are translated into Australian Dollars as at the date of each transaction. Assets and liabilities
are translated at exchange rates prevailing at balance sheet date.
Exchange variations resulting from the translation are recognised in other comprehensive income and presented in the foreign currency
translation reserve in equity.
2018 Annual Report
39
nOtES tO tHE FinAnCiAl StAtEmEntS
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 25 – measurement of share based payments;
• Note 16 – recoverable amount for testing goodwill; and
• Note 20 - measurement of deferred consideration.
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial
statements relate to contract revenue (note 33(m)(i) and 4) and contract work in progress (note 33(i)) and 14).
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 33 and 34.
3. Segment reporting
Revenue is principally derived by the group from the provision of electrical services to the following sectors: Commercial developments;
public infrastructure and defence; resources – mining, oil and gas; industrial, utilities and energy; telecommunications and data centres. The
group provides its services through the three key segments of SCEE, Datatel and heyday.
The directors believe that the aggregation of the operating segments is appropriate as to differing extents they:
• have similar economic characteristics;
• perform similar services using similar business processes;
• provide their services to a similar client base;
• have a centralised pool of shared assets and services; and
• operate in similar regulatory environments.
All segments have therefore been aggregated to form one operating segment.
40
2018 Annual Report
nOtES tO tHE FinAnCiAl StAtEmEntS
3. Segment reporting (continued)
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
2018
2017
Revenue
$’000
non-current
assets
$’000
347,874
90,865
-
-
347,874
90,865
Revenue
$’000
199,674
241
199,915
non-current
assets
$’000
98,941
-
98,941
Revenues from the two largest customers of the group’s Australian segment generated respectively $50 million and $48 million of the
group’s total revenue (2017: $94 million generated from the four largest customers).
4. Contract revenue
Contract revenue
5. income
Other income
Net gain on disposal of assets held for sale
gain on sale of sundry equipment
Rebates received
other
Reduction in earn out payable
Reduction in earn out payable
note
2018
$’000
2017
$’000
347,874
199,915
note
2018
$’000
687
352
331
214
1,584
2017
$’000
-
6
239
55
300
1,883
5,411
The reduction in earn out payable relates to the acquisition of Datatel Communications Pty Ltd and represents a reduced assessment of the
amount of deferred consideration that is expected to be payable on achievement of earnings targets in the 2018 and 2019 financial years.
2018 Annual Report
41
nOtES tO tHE FinAnCiAl StAtEmEntS
6. Employee benefits expenses
note
Remuneration, bonuses and on-costs
Superannuation contributions
Amounts provided for employee entitlements
Share-based payments expense
25
2018
$’000
(12,174)
(1,007)
(1,176)
(625)
2017
$’000
(10,641)
(1,007)
(811)
(441)
(14,982)
(12,900)
The above employee benefits expenses do not include employee benefits expenses recorded within contract expenses.
Employee benefits included in contract expenses were $104.9m (2017: $83.7m).
7. Finance income and expenses
Interest income on bank deposits
Finance income
Deferred consideration
Bank charges
Bank guarantee fees
other
Finance expenses
Net finance expense
8. Depreciation and amortisation expenses
Buildings
Leasehold improvements
Plant and equipment
Motor vehicles
office furniture and equipment
Amortisation of customer contract intangibles
other
note
2018
$’000
2017
$’000
531
531
(710)
(531)
(612)
(95)
(1,948)
(1,417)
463
463
(357)
(455)
(233)
(45)
(1,090)
(627)
note
2018
$’000
2017
$’000
(17)
(251)
(1,553)
(1,087)
(871)
(3,779)
(2,840)
(67)
(2,907)
(17)
(176)
(2,259)
(1,042)
(760)
(4,254)
(2,045)
-
(2,045)
42
2018 Annual Report
nOtES tO tHE FinAnCiAl StAtEmEntS
9. 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) Amounts charged or credited directly to equity
Expenses in relation to capital raising
Income tax expense reported in the income statement
notes
2018
$’000
2017
$’000
(83)
(93)
(176)
(4,221)
(4,397)
(319)
(319)
-
2
2
212
214
-
-
(c) Reconciliation between tax expense and pre-tax accounting profit
notes
2018
$’000
2017
$’000
Accounting profit/(loss) before income tax
12,803
(583)
Income tax (expense)/credit using the Company’s domestic tax
rate of 30% (2016: 30%)
Change in fair value of deferred consideration
Acquisition costs included in cost base
Non-deductible deferred consideration interest
Share based payments
Amortisation of intangibles
Tax losses of foreign operations not recognised
other
Income tax expense reported in the income statement
The applicable effective tax rates are:
(3,841)
565
-
(213)
(144)
(853)
-
89
(4,397)
34.4%
175
1,623
(489)
(107)
(132)
(614)
(83)
(159)
214
(36.9%)
2018 Annual Report
43
nOtES tO tHE FinAnCiAl StAtEmEntS
9. income tax expense (continued)
deferred tax assets and liabilities
balance Sheet
income Statement
Equity
Acquisition of
Subsidiary
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
deferred tax liabilities
Retentions receivable
Work in progress
Long term contracts adopting estimated
profits basis
(316)
(274)
(10,561)
(4,850)
(824)
-
Property, plant and equipment
(23)
(23)
42
5,711
824
-
170
2,081
-
(11,724)
(5,147)
6,577
2,251
-
-
-
-
-
-
-
-
-
-
-
-
-
(319)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61
152
993
-
-
-
1,206
1,206
103
-
2
(50)
(340)
14
(614)
-
28
(54)
(39)
(84)
(2)
-
36
(474)
40
148
-
39
95
113
340
183
103
39
97
63
-
197
3,879
3,265
19
64
19
355
3,533
8,556
(3,168)
2,034
(1,499)
(2,034)
-
5,881
(2,356)
(2,463)
734
4,221
(212)
(319)
(319)
deferred tax assets
Provision for onerous lease
Provision assets held for sale value
Provision for doubtful debt
Retentions payable
unearned revenue
Accruals
Employee benefits
Property, plant and equipment
other
Tax losses
Net deferred tax assets/(liabilities)
44
2018 Annual Report
nOtES tO tHE FinAnCiAl StAtEmEntS
10. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2018 was based on the profit attributable to ordinary shareholders of $8,406,000
(2017: $369,000 loss) and a weighted average number of ordinary shares outstanding of 207,472,086 (2017: 159,426,058), calculated as
follows:
Profit/(loss) attributable to ordinary shareholders
Profit/(loss) for the period
weighted average number of ordinary shares
note
2018
$’000
8,406
2017
$’000
(369)
note
2018
2017
Issued ordinary shares at 1 July
21
159,426,058
159,426,058
Effective new balance resulting from issue of shares in the year
48,046,028
-
Weighted average number of ordinary shares at 30 June
207,472,086
159,426,058
diluted earnings per share
The calculation of diluted earnings per share at 30 June 2018 was based on the profit attributable to ordinary shareholders of $8,406,000
(2017: $369,000 loss) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive
potential ordinary shares of 212,143,181 (2017: 159,426,058), calculated as follows:
Profit attributable to ordinary shareholders (diluted)
Profit/(loss) for the period
weighted average number of ordinary shares (diluted)
note
Consolidated
2018
$’000
8,406
2017
$’000
(369)
note
2018
2017
Weighted average number of ordinary shares for basic earnings per
share
207,472,086
159,426,058
Effect of dilution:
Share options and performance rights on issue
Weighted average number of ordinary shares at 30 June
4,671,095
212,143,181
-
159,426,058
2018 Annual Report
45
nOtES tO tHE FinAnCiAl StAtEmEntS
11. Cash and cash equivalents
Bank balances
Short term deposits
Cash and cash equivalents in the statement of cash flows
notes
2018
$’000
39,268
18,808
58,076
2017
$’000
39,791
762
40,553
The effective interest rate on cash and cash equivalents was 1.1% (2017: 1.4%); these deposits are either at call or on short term deposit.
12. Trade and other receivables
Current
Trade receivables
Provision for impairment of trade receivables
Retentions
Loans to vendors
non-current
Loans to vendors
notes
2018
$’000
35,115
(317)
1,053
1,358
37,209
-
2017
$’000
32,727
(324)
913
-
33,316
1,358
Trade receivables are non-interest bearing and are generally on 30 day terms. A provision for impairment of trade receivables relates to specific
invoices that the group considers are at risk of being recovered. The provision account in respect of trade receivables is used to record impairment
losses unless the group is satisfied that no recovery of the amount owing is possible. At that point the amount is considered irrecoverable and is
written off against the financial asset directly. The group will continue to strongly pursue all debts provided for.
Loans to vendors represents loans made in relation to the acquisition in Datatel Communications Pty Ltd, repayable from future earn out payment.
13. inventories
Raw materials and consumables – cost
14. work in progress
Costs incurred to date
Recognised profit
Progress billings
Construction work in progress
notes
2018
2,170
2017
2,328
notes
2018
2017
181,290
29,013
(170,510)
39,793
130,362
26,267
(134,739)
21,890
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.
46
2018 Annual Report
nOtES tO tHE FinAnCiAl StAtEmEntS
15. property, plant and equipment
land and
buildings
$’000
leasehold
improvements
$’000
Plant and
equipment
$’000
motor
vehicles
$’000
Office Furniture
and Equipment
$’000
total
$’000
Cost
Balance at 1 July 2016
916
Additions
Disposals
Acquisitions
Reclassification from assets held
for sale
Exchange differences
Balance at 30 June 2017
Balance at 1 July 2017
Additions
Disposals
Balance at 30 June 2018
depreciation and impairment losses
Balance at 1 July 2016
Depreciation for the year
Disposals
Acquisitions
Reclassification from assets held
for sale
Exchange differences
-
-
-
-
-
916
916
-
-
916
(133)
(17)
-
-
-
2,454
1,053
205
-
-
-
3,712
3,712
52
(980)
2,784
(1,068)
(188)
-
-
-
-
22,110
474
(1,222)
71
(350)
42
21,125
21,125
631
(1,329)
20,427
(13,423)
(2,019)
1,046
(56)
195
(10)
14,470
38
(90)
292
-
-
10,179
497
(1,030)
585
-
-
50,129
2,062
(2,342)
1,153
(350)
42
14,710
10,231
50,694
14,710
598
(1,704)
13,604
(8,311)
(1,198)
85
(70)
-
-
10,231
50,694
235
(84)
10,382
1,516
(4,097)
48,113
(6,011)
(28,946)
(832)
975
(243)
-
-
(4,254)
2,106
(369)
195
(10)
Balance at 30 June 2017
(150)
(1,256)
(14,267)
(9,494)
(6,111)
(31,278)
Balance at 1 July 2017
Depreciation for the year
Disposals
Balance at 30 June 2018
Carrying amounts
At 1 July 2016
At 30 June 2017
At 1 July 2017
At 30 June 2018
(150)
(17)
-
(167)
783
766
766
749
(1,256)
(14,267)
(251)
666
(841)
1,386
2,456
2,456
1,943
(1,553)
1,084
(14,736)
8,687
6,858
6,858
5,691
(9,494)
(1,087)
1,393
(9,188)
6,159
5,216
5,216
4,416
(6,111)
(871)
75
(31,278)
(3,779)
3,218
(6,907)
(31,839)
4,168
4,120
4,120
3,475
21,183
19,416
19,416
16,274
2018 Annual Report
47
nOtES tO tHE FinAnCiAl StAtEmEntS
16. intangible assets – goodwill and customer contracts
Reconciliation of carrying amount
note
goodwill
$’000
Customer
Contracts
$’000
Other
$’000
total
$’000
Cost
Balance as at 1 July 2016
Acquisitions through business combinations
Balance as at 30 June 2017
Balance as at 1 July 2017
Balance as at 30 June 2018
Amortisation and impairment losses
Balance as at 1 July 2016
Amortisation
Balance as at 30 June 2017
Balance as at 1 July 2017
Amortisation
Balance as at 30 June 2018
Carrying amounts
At 1 July 2016
At 30 June 2017
At 1 July 2017
At 30 June 2018
29,472
52,697
82,169
82,169
82,169
(8,390)
-
(8,390)
(8,390)
-
(8,390)
21,082
73,779
73,779
73,779
1,811
5,680
7,491
7,491
7,491
(1,811)
(2,045)
(3,856)
(3,856)
(2,840)
(6,696)
-
3,635
3,635
795
-
19
19
19
19
-
-
-
-
(2)
(2)
-
19
19
17
31,283
58,396
89,679
89,679
89,679
(10,201)
(2,045)
(12,246)
(12,246)
(2,842)
(15,088)
21,082
77,433
77,433
74,591
impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the group’s operating segments which represent the lowest level within the
group at which goodwill is monitored for internal management purposes.
The aggregate carrying amounts of goodwill allocated to each segment are as follows:
SCEE
Datatel
heyday
2018
$’000
8,784
12,298
52,697
73,779
2017
$’000
8,784
12,298
52,697
73,779
The recoverable amount of the above segments were based on their value in use with the group performing its annual impairment test in
June 2018. The carrying amount of the operating segments were determined to be lower than their recoverable amounts and therefore no
impairment charge has been recognised.
48
2018 Annual Report
nOtES tO tHE FinAnCiAl StAtEmEntS
16. 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 segment. 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%
(2017: 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
segments operate.
• EBITDA for 2019 is based on the board approved budget with EBITDA for 2020 – 2023 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 2018.
• A pre-tax discount rate between 11.7% and 14.3% (2017: 16.83%) was applied. This discount rate was estimated based on past experience
and industry average weighted cost of capital.
Sensitivity to changes in assumptions
The value in use assessment for SCEE estimates a recoverable amount $22.5 million in excess of its carrying amount. This estimate is
sensitive to the realisation of the budgeted and forecast overall net cash flows to 2023. These forecasts reflect Board and management’s
expectations for future growth. In the event that the overall net cash flows are 31% less, year on year, than those which have been assumed
in calculating the value in use, then the value in use would be less than the carrying value.
The value in use assessment for Datatel estimates a recoverable amount $7.5 million in excess of its carrying amount.
This estimate is sensitive to the realisation of the budgeted and forecast overall net cash flows to 2023. These forecasts reflect the Board
and management’s expectations for future growth. In the event that the overall net cash flows are 36% less, year on year, than those which
have been assumed in calculating the value in use, then the value in use would be less than the carrying value.
17. Trade and other payables
Current
Trade payables
Retentions payable
Accrued expenses
goods and services tax payable
2018
$’000
26,092
378
15,451
1,471
43,392
2017
$’000
30,868
210
16,154
2,465
49,697
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.
18. unearned revenue
Current
unearned revenue
2018
$’000
2017
$’000
16,519
12,899
unearned revenue arises when the group has invoiced the client in advance of performing the contracted services.
2018 Annual Report
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19. provisions
Current
Annual leave
Long service leave
other employee leave
Bonus
onerous Lease
non-current
Long service leave
Bonus
2018
$’000
6,868
892
2,404
500
-
2017
$’000
6,996
672
871
-
343
10,664
8,882
458
500
958
377
1,000
1,377
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 33(k) to this report.
A provision for bonus has been recognised following the acquisition of heyday5 Pty Ltd for the 2018 and 2019 financial years.
20. Deferred acquisition consideration
Current
Non-current
deferred acquisition consideration movements
Balance at 1 July
Additional deferred consideration from acquisitions
Finance costs
Change in fair value of deferred consideration
Payments
Balance at 30 June
2018
$’000
6,452
7,626
14,078
24,501
-
710
(1,883)
(9,250)
14,078
2017
$’000
9,180
15,321
24,501
8,659
20,896
357
(5,411)
-
24,501
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21. Capital and reserves
Share capital
Ordinary shares
Issued and fully paid
movements in shares on issue
2018
2017
note
number
$’000
number
$’000
159,426,058
56,656
159,426,058
56,656
Balance at the beginning of the financial year
159,426,058
56,656
159,426,058
56,656
Exercise of Employee performance rights
Shares issued for Acquisition of heyday5 Pty Ltd
Issue of ordinary shares net of transaction costs
232,879
27,480,160
44,250,000
145
13,850
32,222
-
-
-
-
-
-
Balance at the end of the financial year
231,389,097
102,873
159,426,058
56,656
The Company does not have authorised capital or par value in respect of its issued shares. All shares have voting rights and rights to
dividends.
translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
operations.
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:
2018
Final 2017 ordinary
Total amount
2017
Final 2016 ordinary
Total amount
Cents per
share
total amount
$’000
Franked
date of
payment
-
1.35
-
-
2,152
2,152
-
-
Franked
13 october
2016
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
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21. Capital and reserves (continued)
declared after end of year
Subsequent to 30 June 2018 a dividend of 3.00 cents per share in the amount of $7.022 million, including dividends paid to shares anticipated
to be issued in respect of vested and exercisable performance rights, was proposed by the directors. The dividend has not been provided in
the financial statements.
Franking account balance
Company
2018
$’000
21,472
2017
$’000
20,815
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a)
(b)
franking credits that will arise from the payment of the current tax liabilities; and
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.
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.
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22. Financial instruments (continued)
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 (net of provision for impairment)
Loans to vendors
Carrying amount
2018
$’000
58,076
35,851
1,358
95,285
2017
$’000
40,553
33,316
1,358
75,227
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 57 percent (2017: 59 percent) of the group’s trade receivables are attributable to transactions with seven major customers.
geographically, the concentration of credit risk is within Australia and, by industry, the concentration is within the commercial, infrastructure
and resources industries.
When entering into new customer contracts for service, the group only enters into contracts with reputable companies. Management
monitors the group’s exposure on a monthly basis. In monitoring customer credit risk, customers are grouped according to their credit
characteristics, including whether they are an individual or legal entity, aging profile, maturity and existence of previous financial difficulties.
The group does not require collateral in respect of trade and other receivables.
The group has established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other
receivables.
The group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
2018 Annual Report
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22. Financial instruments (continued)
Australia
South America and Caribbean
impairment losses
Carrying amount
2018
$’000
35,851
-
35,851
2017
$’000
33,280
36
33,316
The ageing of the group’s trade receivables at the reporting date was:
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
2018
$’000
29,271
3,608
1,975
370
944
36,168
impairment
2018
$’000
-
-
-
(4)
(313)
(317)
gross
2017
$’000
27,539
3,654
743
319
1,385
33,640
impairment
2017
$’000
-
-
-
(11)
(313)
(324)
The movement in the allowance for impairment in respect of Trade receivables during the year was as follows:
Balance at start of year
Impairment losses recognised
Amounts recovered
Balance at 30 June
2018
$’000
324
-
(7)
317
2017
$’000
-
324
-
324
The impairment loss at 30 June 2018 relates to specific invoices that the group considers are at risk of being recovered. The allowance
account in respect of trade receivables is used to record impairment losses unless the group is satisfied that no recovery of the amount
owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly.
The impairment provision related to debts that are more than one year relates primarily to one customer. The group will continue to strongly
pursue all debts provided for.
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22. Financial instruments (continued)
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
$’000
Contractual
cash flows
$’000
6 mths or less
$’000
6-12 mths
$’000
1-2 years
$’000
2-5 years
$’000
more than 5
years
$’000
30 June 2018
non-derivative financial liabilities
Trade and other payables
43,392
Loans and borrowings
Deferred consideration
-
14,078
57,470
30 June 2017
non-derivative financial liabilities
Trade and other payables
Loans and borrowings
Deferred consideration
49,697
246
24,501
74,444
43,392
-
14,078
57,470
49,697
246
24,501
74,444
43,002
390
-
6,452
49,454
49,697
32
9,180
58,909
-
-
390
-
32
-
32
-
-
7,626
7,626
-
64
7,536
7,600
-
-
-
-
-
118
7,785
7,903
-
-
-
-
-
-
-
-
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 2018 or 30 June 2017.
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.
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22. Financial instruments (continued)
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
2018
$’000
2017
$’000
59,434
41,911
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 2018.
Profit or loss
Equity
100bp increase
100bp decrease
100bp increase
100bp decrease
$’000
944
944
641
641
$’000
(944)
(944)
(641)
(641)
$’000
$’000
-
-
-
-
-
-
-
-
30 June 2018
Variable rate instruments
Cash flow sensitivity (net)
30 June 2017
Variable rate instruments
Cash flow sensitivity (net)
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.
56
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22. Financial instruments (continued)
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.
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
heyday5 Pty Ltd
Electrical Data Projects Pty Ltd
Country of incorporation
2018
2017
Equity interest
(%)
Peru
Australia
Tanzania
ghana
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2018 Annual Report
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24. 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 Australian 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 2018 and 2017 and revenues and expenses of the joint operations for
the year 30 June 2018 and 2017, 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
2018
$’000
10,716
(4,676)
(2)
6,038
47,067
(43,957)
(404)
2,706
(972)
1,734
The joint operations have no contingent liabilities or capital commitments as at 30 June 2018 and 30 June 2017.
25. Share-based payments
(a) Expense recognised in profit or loss
Share based payments expenses for the year comprises:
2018 Performance Rights
2017 Performance Rights
2016 Performance Rights
2015 Performance Rights
(i)
(ii)
(iii)
2018
$’000
265
114
246
-
625
2017
$’000
12,643
(6,683)
(2)
5,958
42,346
(37,534)
(593)
4,219
(1,124)
3,095
2017
$’000
-
139
372
(70)
441
58
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25. Share-based payments (continued)
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.
2018 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 7
November 2017
Performance rights issued to key management on 7
November 2017
Total /performance rights
number of
instruments
120,066
1,121,052
1,241,118
vesting conditions
Contractual life
Employed on 30 June 2020 and exceed
performance hurdle
Employed on 30 June 2020 and exceed
performance hurdle
31 months
31 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 2017 to 30 June 2020 (“Performance Period”);
• No performance rights will vest until 30 June 2020;
• Performance testing criteria are 50% against Absolute Total Shareholder Return (“TSR”) performance, and 50% against Earnings Per
Share (“EPS”) performance; and
• Expiry on the 4th anniversary of the grant date unless an earlier lapsing date applies
the tSR formula is:
((Share Price at Test Date – Share Price at Start Date) + (Dividends Reinvested))/Share Price at Start Date
TSR will be assessed against targets for threshold performance of 8% per annum compounded over the Performance Period and for stretch
performance of 12% per annum compounded over the Performance Period. The vesting schedule is as follows for TSR performance over the
Performance Period:
Less than 8% per annum compounded
8% per annum compounded
0% vesting
50% vesting
Between 8% and 12% per annum compounded
Pro-rata vesting between 50% and 100%
At or above 12% per annum compounded
100% vesting
2018 Annual Report
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25. Share-based payments (continued)
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 6.1 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 6.1 cents per share
Pro-rata vesting between 50% and 100%
At or above 6.1 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 2018 performance rights were forfeited.
2017 Performance Rights
There were 1,310,069 2017 Performance Rights on issue at 1 July 2017. No 2017 Performance Rights were granted, none vested and none were
forfeited during the year.
The 2017 Performance Rights will be performance tested over a three-year period from 1 July 2016 to 30 June 2019. 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
0% vesting
8% per annum compounded
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 4 cents per share at the end of the Performance Period and for stretch
performance of 4.9 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 4 cents per share
4 cents per share
0% vesting
50% vesting
Between 4 and 4.9 cents per share
Pro-rata vesting between 50% and 100%
At or above 4.9 cents per share
100% vesting
60
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25. Share-based payments (continued)
2016 Performance Rights
There were 1,594,978 2016 Performance Rights on issue at 1 July 2016. There were 1,083,333 2016 Performance Rights granted, none vested
and none were forfeited during the year.
The 2016 Performance Rights were performance tested over a three-year period from 1 July 2015 to 30 June 2018. 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 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
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
2018 Annual Report
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25. Share-based payments (continued)
(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
2018
2017
7 November 2017
18 November 2016
30 June 2020
30 June 2019
$0.80
2.6 years
47%
1.87%
2.5%
$0.53
$0.75
$0.46
2.6 years
50%
1.82%
5.1%
$0.19
$0.40
(c) Reconciliation of outstanding performance rights
The number and weighted average exercise prices of performance rights under the programmes were as follows:
outstanding at 1 July
granted during the year
Exercised during the year
Forfeited or withdrawn during the year
outstanding at 30 June
Vested and exercisable at 30 June
2018
number of rights
2017
number of rights
4,818,116
1,241,118
(232,879)
(596,857)
5,229,498
-
2,635,612
2,501,723
-
(319,219)
4,818,116
-
Subsequent to 30 June 2018 the vesting conditions in respect of the 2016 performance rights have been performance tested and it has been
determined that 2,678,311 performance rights have vested and are now exercisable and that nil have been forfeited.
62
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26. Reconciliation of cash flows from operating activities
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
(Profit) on sale of assets held for sale
(Profit)/Loss on sale of property, plant and equipment
Expense recognised in respect of capital raising
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
Loans and borrowings
Provisions and employee benefits
Deferred acquisition consideration
Income tax payable
Deferred income tax
Net cash (used in)/from operating activities
2018
$’000
8,406
6,686
(687)
(106)
399
625
(2,535)
(1,188)
(17,903)
158
310
(6,305)
3,620
1,363
(1,173)
(723)
3,902
(5,151)
2017
$’000
(369)
6,298
-
156
-
441
(7,357)
3,267
(12,661)
51
127
8,711
3,146
1,514
(5,054)
(993)
(250)
(2,973)
2018 Annual Report
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27. Commitments
leasing commitments
Operating lease commitments – as lessee
The group has entered into commercial property, motor vehicle and office equipment leases. These leases have an average life of 3-4 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 2018 are:
Within one year
After one but no more than five years
After more than five years
Total minimum lease payments
2018
$’000
2,336
3,805
2,431
8,572
2017
$’000
2,588
5,022
2,339
9,949
under the terms of the property leases, the rent payable is subject to annual review. This review adjusts the annual rent by either the
movement in the consumer price index or at specified dates the annual rent is subject to a market review.
28. 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
2018
$’000
35,928
11,715
2017
$’000
39,089
3,107
Total bank guarantee facilities at 30 June 2018 were $46 million and the unused portion was $10.1 million. These facilities are subject to
annual review. Total surety bonds facilities at 30 June 2018 were $26.8 million and the unused portion was $15.0 million. These facilities are
subject to annual review. All facilities are set to mature during the 2018/19 year. It is management’s intention to review these facilities at
maturing to a level appropriate to support the ongoing business of the group.
29. 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.
30. Auditor’s remuneration
Remuneration of KPMg Australia as the auditor of the parent entity for:
- Auditing or reviewing the financial report
- All other services
2018
$’000
2017
$’000
298,000
298,000
-
-
298,000
298,000
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31. parent entity disclosures
As at, and throughout, the financial year ending 30 June 2018 the parent company of the Consolidated entity was Southern Cross Electrical
Engineering Limited.
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
Company
2018
$’000
(4,138)
(4,138)
72,444
182,594
(45,774)
(64,719)
102,873
1,841
13,161
117,875
2017
$’000
(4,317)
(4,317)
31,820
148,112
38,994
58,947
56,656
15,210
17,299
89,165
parent entity contingencies:
The parent entity has commitments and contingent liabilities which are included in note 27 and 28. At 30 June 2018 there were in existence
guarantees of performance of a subsidiary.
32. 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
Share-based payments
2018
$’000
1,784
83
487
2,354
2017
$’000
2,047
129
415
2,591
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 25 (i)).
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32. Related parties (Continued)
key management personnel transactions
Directors of the Company control 32% 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:
Other related parties
gianfranco Tomasi
David hammond
Rental expense
Rental expense
transactions value year
ended 30 June
2018
$’000
689
22
2017
$’000
868
106
The group has entered into rental agreements over the following properties in which gianfranco Tomasi has an ownership interest:
• F & A Tomasi Superannuation Fund owns the properties at 41 Macedonia St, Naval Base WA.
• g & A Tomasi own the properties at 45, 47, 49 & 51 Macedonia Street, Naval Base WA.
• Frank Tomasi Nominees Pty Ltd owns the property at 43 hope Valley Road, Naval Base WA with the lease being surrendered on 30
June 2018.
The group has entered into a rental agreement in Level 1, 3 Apollo Place, Lane Cove West NSW in which David hammond had a partial
ownership interest prior to being disposed of during the financial year.
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 or at specified dates the annual rent is subject to a market review.
The rental payments made above are all at normal market rates with no rent increases passed through during the 2018 year.
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33. 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 2017.
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 2017.
AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for unrealised Losses
AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107
AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2016-2016 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.
(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 fores eeable 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.
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33. Significant accounting policies (continued)
(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 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:
• Cash and cash equivalents.
•
Loans and receivables
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 12).
(ii) non-derivative financial liabilities
Financial liabilities are recognised initially on the trade date at which the group becomes party to the contractual provisions
of the instrument. The group derecognises a financial liability when its contractual obligations are discharged or cancelled or
expire. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the
group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the
liability simultaneously.
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.
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33. Significant accounting policies (continued)
(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.
(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.
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33. Significant accounting policies (continued)
(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
1 – 5 years
2018
2017
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
(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 33(m)(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, 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.
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33. Significant accounting policies (continued)
(j)
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.
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.
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33. Significant accounting policies (continued)
(k)
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.
(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.
(l) 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.
(m) 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.
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33. Significant accounting policies (continued)
(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).
(n)
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.
(o)
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.
(p)
income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that
it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on
the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for
the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not
recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax
rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend is recognised.
(q)
goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (gST), except where the amount of
gST incurred is not recoverable from the taxation authority. In these circumstances, the gST is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of gST included. The net amount of gST recoverable from, or payable to, the
ATo is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The gST components of cash flows arising from investing
and financing activities which are recoverable from, or payable to, the ATo are classified as operating cash flows.
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33. Significant accounting policies (continued)
(r)
Earnings per share
The group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding
during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise performance
rights and share options granted to employees.
(s)
Segment reporting
An operating segment is a component of the group that engages in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate to transactions with any of the group’s components. All operating
segments’ operating results are reviewed regularly by the group’s Managing Director to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible
assets other than goodwill.
(t)
Financial guarantees
Financial guarantee contracts are initially measured at their fair values and subsequently measured at the higher of:
the 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.
(u)
business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination
is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the group,
liabilities incurred by the group to the former owners of the acquiree and the equity instruments issued by the group in exchange for
control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured
in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively;
•
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the group entered into to replace share-based payment arrangements of the acquiree are measured in
accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and
• assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets held for Sale and
Discontinued operations’ are measured in accordance with that Standard.
goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the 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.
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nOtES tO tHE FinAnCiAl StAtEmEntS
33. Significant accounting policies (continued)
(u)
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.
(v)
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 2018, 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 2019 consolidated financial statements and could change
the classification and measurement of financial assets. The group does not plan to adopt this standard early and the extent of the
impact has not been determined.
AASB 15 Revenue from Contracts with Customers will become mandatory for the group’s 2019 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. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those
goods or services. An entity recognises revenue in accordance with the core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identity the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The group has determined that the likely impact will not be material.
2018 Annual Report
75
nOtES tO tHE FinAnCiAl StAtEmEntS
33. Significant accounting policies (continued)
AASB 16 Leases, will become mandatory for the group’s 2020 consolidated financial statements and will require entities to
recognise all leases except those that are short term (<12 Months) or ‘low-value’ (e.g., personal computers) on the balance sheet.
At commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognise the
interest expense on the lease liability and depreciation expense on the right-of-use asset. The group does not plan to adopt this
standard early and the extent of the impact has not been determined.
AASB 2016-5 amends AASB 2 Share-based Payment, clarifying how to account for certain types of transactions. The group does not
plan to adopt this standard early and the extent of the impact has not been determined.
34. 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.
76
2018 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.
ii.
giving a true and fair view of the group’s financial position as at 30 June 2018 and of its performance for the
financial year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a),
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
b.
c.
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 2018.
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
28 August 2018
2018 Annual Report
77
indEPEndEnt AUdit REPORt
Independent Auditor’s Report
To the shareholders of Southern Cross Electrical Engineering Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Southern Cross Electrical Engineering Limited
(the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance with the
Corporations Act 2001, including:
• giving a true and fair view of the Group’s
financial position as at 30 June 2018 and of
its financial performance for the year ended
on that date; and
•
complying with Australian Accounting
Standards and the Corporations Regulations
2001.
The Financial Report comprises:
• Consolidated balance sheet as at 30 June
2018
• Consolidated statement of comprehensive
income, consolidated statement of changes
in equity, and consolidated statement of cash
flows for the year then ended
• Notes including a summary of significant
accounting policies
• Directors’ Declaration
The Group consists of the Company and the
entities it controlled at the year-end or from time
to time during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified are:
• Recognition of Revenue under the
percentage of completion method
• Valuation of Goodwill
Key Audit Matters are those matters that, in our
professional judgment, were of most
significance in our audit of the Financial Report of
the current period.
These matters were addressed in the context of
our audit of the Financial Report as a whole, and
in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
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2018 Annual Report
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Recognition of revenue under the percentage of completion method
(contained with contract revenue of $347.9 million)
Refer to Note 4 to the Financial Report
The key audit matter
How the matter was addressed in our audit
We focused on the Group’s contract revenue
recognised under the percentage of completion
method as a key audit matter due to the degree
of judgment involved in its estimation. The
Group’s policy for certain contracts is to record
revenue over the course of an individual contract,
using the percentage of completion method,
which is estimated based on costs incurred
compared to total expected costs for the
individual contract.
Auditing this revenue is challenging due to the
estimation uncertainty inherent in the Group’s
revenue policy for large-scale, complex projects
or those subject to variability in scope. We focus
on the availability of persuasive audit evidence to
independently challenge the Group’s key
assumptions.
The estimation uncertainty arises due to:
•
•
the forward looking nature of the remaining
costs to complete each contract and
associated activities, consistent with planned
timelines; and
the accuracy of unapproved contract
variations and claims.
Our procedures included:
• evaluation of the Group’s contract revenue
accounting process. We tested a sample of
the controls in this process including the
monthly management review and approval of
contract status and costs to complete as
well as the approval of progress claim
submissions; and
•
for a sample of contracts:
− we read the contracts and other
underlying formal documentation
relating to inputs to the percentage of
completion calculation.
− we assessed the cost to complete
estimates by (1) understanding the
activities required to complete the
project from project teams, (2) analysing
the costs of those activities compared
to recent project cost trends and prices,
(3) test a sample of committed
expenditure to supporting
documentation, and (4) using our
knowledge of the contract
characteristics to challenge the
completeness of costs and activities.
− we challenged the status and progress
of contracts and the percentage
completion through discussion with
project management. We compared the
outcome of our discussions with the
underlying records.
− we tested a sample of unapproved
contract variations and claims
recognised by comparing to subsequent
customer approvals or customer
correspondence.
− we assessed the Group’s ability to
deliver contracts within budgeted costs,
margins and timelines by evaluating the
historical accuracy of these forecasting
elements. We challenged
management’s current process based
on any prior inaccuracy and using the
knowledge from our procedures in
testing the costs to complete estimates.
2018 Annual Report
79
indEPEndEnt AUdit REPORt
Valuation of Goodwill
$73.8 million
Refer to Note 16 to the financial report
The key audit matter
How the matter was addressed in our audit
We focused on the Group’s annual testing of
goodwill for impairment as a key audit matter due
to the size of the balance, being 32% of total
assets. We focused on the significant forward-
looking assumptions the Group applied in their
value in use models for the Heyday, SCEE and
Datatel segments, including:
•
•
forecast cash flows and terminal values for
Datatel, which has experienced lower than
forecast profitability due to challenging
conditions in certain market sectors. These
conditions increase the possibility of goodwill
being impaired;
forecast growth rates and terminal values.
The Group’s models are highly sensitive to
small changes in these assumptions,
reducing available headroom. This drives
additional audit effort specific to their
feasibility within the Group’s strategy; and
• discount rate - these are complicated in
nature and vary according to the conditions
and environment the specific segments are
subject to from time to time. The Group’s
modelling is highly sensitive to changes in
the discount rate. We involve our valuations
specialists with the assessment.
Our procedures included:
• challenging the Group’s growth assumptions
within the forecast cash flows in light of
varying competitive conditions in the
markets in which the Group operates. We
compared forecast growth rates to published
studies of industry trends and expectations,
and considered differences for the Group’s
segments, including Datatel. We used our
knowledge of the Group, their past
performance, business and customers, and
our industry experience. We also compared
the forecast cash flows contained in the
value in use models to Board approved
forecasts;
• considering the sensitivity of the models by
varying key assumptions, such as forecast
growth rates, terminal values and discount
rates, within a reasonably possible range, to
identify where the highest risk of impairment
resides within the value in use models and to
focus our further procedures; and
• working with our valuation specialists we
independently developed a discount rate
range considered comparable using publicly
available market data for comparable entities,
adjusted by risk factors specific to the Group
and the industry it operates in.
We also considered the Group’s determination
of the level at which goodwill is tested based on
our understanding of the operations of the
Group’s business.
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Other Information
Other Information is financial and non-financial information in Southern Cross Electrical Engineering
Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's
Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
and will not express an audit opinion or any form of assurance conclusion thereon, with the exception
of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other
Information. In doing so, we consider whether the Other Information is materially inconsistent with
the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We are required to report if we conclude that there is a material misstatement of this Other
Information, and based on the work we have performed on the Other Information that we obtained
prior to the date of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001;
•
implementing necessary internal control to enable the preparation of a Financial Report that gives
a true and fair view and is free from material misstatement, whether due to fraud or error; and
• assessing the Group’s ability to continue as a going concern. This includes disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting
unless they either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from
material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of this Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s
Report.
2018 Annual Report
81
indEPEndEnt AUdit REPORt
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Southern Cross Electrical Engineering Limited for
the year ended 30 June 2018 complies with
Section 300A of the Corporations Act 2001.
The Directors of the Company are responsible
for the preparation and presentation of the
Remuneration Report in accordance with Section
300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report
included in the Directors’ Report for the year
ended 30 June 2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit
conducted in accordance with Australian Auditing
Standards.
KPMG
Trevor Hart
Partner
Perth
28 August 2018
82
2018 Annual Report
lEAd AUditOR’S indEPEndEnCE dEClARAtiOn
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Southern Cross Electrical Engineering Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Southern Cross Electrical
Engineering Limited for the financial year ended 30 June 2018 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Trevor Hart
Partner
Perth
28 August 2018
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
2018 Annual Report
83
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 20 August 2018.
Distribution of equity security holders
Category
Ordinary shares Options/Performance rights
number of equity security holders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
173
345
250
509
84
1,361
-
-
-
-
4
4
The number of shareholders holding less than a marketable parcel of ordinary shares is 133.
Twenty largest shareholders
name
number of ordinary
shares held
Percentage of
capital held
FRANK ToMASI NoMINEES PTy LTD
CITICoRP NoMINEES PTy LIMITED
uBS NoMINEES PTy LTD
hSBC CuSToDy NoMINEES (AuSTRALIA) LIMITED
ZERo NoMINEES PTy LTD
J P MoRgAN NoMINEES AuSTRALIA LIMITED
PERShINg AuSTRALIA NoMINEES PTy LTD
DhhD5 PTy LTD
RLhD5 PTy LTD
TBhD5 PTy LTD
SANDhuRST TRuSTEES LTD
JWhD5 PTy LTD
NATIoNAL NoMINEES LIMITED
DPhD5 PTy LTD
ghISA PTy LTD
ChEMCo SuPERANNuATIoN FuND PTy LTD
CARMAN SuPER PTy LTD
oFFShoRE ELECTRICAL SERVICES PTy LTD
MR ANDREW MCKENZIE + MRS CAThERINE MCKENZIE
BNP PARIBAS NoMS PTy LTD
61,664,027
23,589,280
17,016,223
15,924,374
13,830,000
11,950,436
7,095,000
6,870,040
6,870,040
6,870,040
4,684,417
4,122,024
3,141,227
2,748,016
2,063,104
2,030,000
2,000,000
1,500,000
1,300,000
1,082,542
196,350,790
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
number
number
gianfranco Tomasi
TIgA Trading Pty Ltd
Colonial First State
Westoz Funds Management Pty Ltd
65,227,131
21,016,223
18,607,582
12,384,040
28.2%
9.1%
8.0%
5.4%
26.65
10.19
7.35
6.88
5.98
5.16
3.07
2.97
2.97
2.97
2.02
1.78
1.36
1.19
0.89
0.88
0.86
0.65
0.56
0.47
84.86
84
2018 Annual Report
CORPORAtE diRECtORy
directors
Derek parkin
Chairman
Independent Non-Executive Director
Solicitors
k & L gates
Level 32, 44 St georges Terrace
Perth WA 6000
Share Registry
Computershare investor Services pty Limited
Level 11, 172 St georges Terrace
Perth WA 6000
T: 1300 787 272
F: +618 9323 2033
Registered Office
Southern Cross Electrical Engineering Limited
41 Macedonia Street
Naval Base WA 6165
T: +618 9236 8300
F: +618 9410 2504
ASx code: SxE
graeme Dunn
CEo and Managing Director
gianfranco Tomasi
Non-Executive Director
Simon Buchhorn
Independent Non-Executive Director
karl paganin
Independent Non-Executive Director
David Hammond
Executive Director
Company Secretaries
Chris Douglass
Colin Harper
Auditors
kpMg
235 St georges Terrace
Perth WA 6000
scee.com.au
2018 Annual Report
85
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SCEE Perth Office (Head Office)
41 Macedonia Street, Naval Base
Western Australia, 6165
E scee@scee.com.au
T +61 (0)8 9236 8300
F +61 (0)8 9410 2504
PERtH | bRiSbAnE | dARwin | AdElAidE
kARRAtHA | nEwmAn | tOwnSvillE
CAnbERRA | SydnEy
scee.com.au
SCEE
WA EC 001681
QLD 12707
NSW 17066C
NT C 0977
SA PGE 262507
TAS 930255
Heyday
NSW 249908C
ACT 2012817
datatel
WA EC6606
ABN: 92 009 307 046
Established 1978
ABN: 85 158 865 091
Established 1978
ABN: 24 082 372 834
Established 1998
2018 Annual Report