Southern Cross Electrical Engineering Limited
ABN: 92 009 307 046
Established 1978
2019 annual rEPOrt
CONTENTS
About SCEE
Chairman's report
Managing Director's 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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8
10
14
28
29
30
31
32
33
74
75
80
81
2019 Annual Report
2019 hIGhLIGhtS
Growth IN rEvENuE AND profItABILIty
rEvEnuE
$386.0m
uP 11%
Ebitda
$23.6m
uP 13%
nPat
$12.7m
uP 51%
Fully franked dividend
3.0 cents per share
Strong balance sheet
cash of $53.3m and no debt
Order book $450m
and opportunity pipeline over $2.7bn
diversification strategy continues
public infrastructure & defence the largest sector in fy19
2019 Annual Report
1
ABout SCEE
Heyday Group
ELECTRICAL | COMMUNICATIONS | SERVICE
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.
2
2019 Annual Report
Southern Cross Electrical Engineering (SCEE)
is an ASX listed electrical, instrumentation,
communication and maintenance services
company recognised for our industry leading
capabilities.
Established in 1978 in wA, the combination in
2016 with Datatel Communications (established
1998) and in 2017 with East Coast-based heyday5
(business established 1978) has created
a national group.
SCEE now operates across five sectors:
OUR MARKETS
resources
Commercial
public infrastructure &
defence
telecommunications &
data centres
Industrial, energy &
utilities
SCEE is headquartered
in perth with additional
offices across Australia
and has talented and
committed staff delivering
projects and services
throughout the country.
n
Public Infra s tr u
and D ef e
e
r
u
t
e
c
c
e r v
E &I S
C
o
m
m
e
r
c
i
a
l
E
&
I
C
o
n
s
t
r
u
c
tio
n
Reso
urc
e
s
i c e s and Mainten
a
n
c
e
s
n
o
ati
m unic
m
C o
s
e
i
t
i
l
i
t
y
g
r
e
n
d E
an
Industrial, U
Telecommuni c a t i o n s
and Data Cen t r e s
OUR CAPABILITIES
2019 Annual Report
3
our mArkETS
COmmErCial
PubliC
inFraStruCturE
and dEFEnCE
4
2019 Annual Report
tElECOmmuniCatiOnS
and data CEntrES
.
rESOurCES
induStrial,
EnErgy and
utilitiES
2019 Annual Report
5
LEADING NAtIoNAL DIvErSIfIED
ELECtrICAL CoNtrACtor
WA
rio tinto - Cape Lambert, Dampier
EIr, tom price, paraburdoo,
Brockman 2, yandi
Bhp – Newman, port hedland, Mt
whaleback, South flank
Sino Iron
wheatstone LNG
Boddington Gold
Mineral resources wodgina
NorthLink Central Section
uwA, City of Belmont, Casuarina
prison maintenance
NBN construction
wireless networks construction
Carrier networks construction
Minor commercial works and services
woodman point waste water treatment
NT
wireless networks
construction
rAAf tindal
VIC & TAS
NBN construction
6
2019 Annual Report
COmmErCial
rESOurCES
PubliC inFraStruCturE
and dEFEnCE
tElECOmmuniCatiOnS
and data CEntrES
induStrialS, EnErgy
& utilitiES
QLD
rio tinto Amrun Bauxite project
Arrow MSA
NBN construction
Carrier networks construction
Ergon Energy Service Agreement
rAAf townsville
NSW & ACT
parramatta Square 3 & 4 and fit-outs
Australian technology park Building 1
Duo Central park
Insurance Australia Group
151 Clarence Street
ISKIA
Sovereign resort Expansion
Edmonson park
wynyard place
100 Mount Street
32 Smith Street
Bank of China
westmead hospital
westconnex M4 and M5
Metronode unanderra
ru Data Centre
COmmErCial
auStralia tECHnOlOgy
Park building 1
32 SmitH StrEEt
wynyard PlaCE
PubliC inFraStruCturE and dEFEnCE
wEStCOnnEx m5
wEStmEad HOSPital
tHE univErSity OF
wEStErn auStralia
rESOurCES
riO tintO
bHP
wHEatStOnE lng
tElECOmmuniCatiOnS and data CEntrES
induStrialS,
EnErgy & utilitiES
nbn COnStruCtiOn
ru data CEntrE
ErgOn EnErgy
2019 Annual Report
7
ChAIrMAN'S
rEPorT
DEAR SHAREHOLDERS,
I am pleased to report to you at
the end of a year that has seen
SCEE continue to grow revenues,
improve profitability and further
progress our diversification
strategy.
8
2019 Annual Report
Derek parkin - Chairman
CHairman'S rEPOrt (CoNtINuED)
In 2019 the group delivered revenues of $386.0m, an increase of 11% on the prior year, and EBItDA of $23.6m, up 13% on
2018. Net profit after tax increased 51% to $12.7m. we maintained a strong balance sheet throughout the year and ended
2019 with net cash of $53.3m and no debt. A more detailed discussion of the results for the year is contained in the
Managing Director’s review on the following pages.
for the past four years we have been progressing our strategy of growth through diversification of sectors and
geographies. the successful implementation of this strategy has seen the revenue profile of the group change
significantly. In 2019 our work in the public infrastructure and defence sector grew by nearly $100m to become our
largest sector, more than offsetting the reduction in resources revenues as key projects completed. historically
SCEE’s core sector, resources is now our third largest revenue generator with commercial works continuing to
deliver high volumes, particularly on the east coast.
we expect this strategy to continue to deliver growth and we are forecasting revenues in the 2020 financial
year of over $420m. we enter the year with $360m of this forecast already secured within our order book
of $450m.
we continue to see a strong pipeline of work nationally across our five sectors with visibility of over
$2.7bn of projects including in excess of $600m submitted tenders. whilst a significant part of this
pipeline is attributable to the high levels of infrastructure spend committed by government and
the strong east coast commercial sector, we are also experiencing an increased level of tendering
activity on resource projects across a number of commodities.
further acquisitions remain a core component of our growth strategy and we foresee
significant opportunities presenting in the near to medium term.
I am pleased to announce that the Board has resolved to pay a fully franked 2019 full
year dividend of 3 cents per share. the Board has also resolved to adopt a Dividend
reinvestment plan to provide shareholders with the opportunity to increase their
investment in SCEE in a cost effective manner.
over forty years after he founded SCEE, frank tomasi retired from the Board at
our Annual General Meeting in october, 2018. on behalf of everyone at SCEE
I would like to take this opportunity to, once more, acknowledge the huge
contribution frank made to the success of SCEE and wish him the very best
in his well-earned retirement.
I would also like to take this opportunity to thank our shareholders,
clients and employees for their ongoing support.
Derek Parkin
Chairman
2019 Annual Report
9
MANAGING DIrECtor'S
rEvIEW
The 2019 financial year saw SCEE deliver
improved results compared to the
prior year including an 11% increase in
revenue, 13% increase in EBITDA and
51% increase in net profit after tax.
10
2019 Annual Report
Graeme Dunn - Managing Director
managing dirECtOr'S rEviEw (CoNtINuED)
OPERATINg AND FINANCIAL REVIEW
revenue for the year was $386.0m which represented an 11% increase on the prior year revenue of $347.84m. revenues in the second half
of the year were $204.2m compared to $181.8m in the first half.
revenue was generated from a broad range of sectors and geographies as the Group’s diversification strategy continued to progress. Key
revenue contributors in the year by market sector included:
• public infrastructure and defence – revenues increased significantly from $44.1m in the prior year to $143.4m and became the group’s
largest sector in fy19. In transport infrastructure work was completed on the westconnex M4 in NSw with ongoing works on the
westconnex M5 project and the Northlink road project in wA. In the health sector activity ramped up on the westmead hospital project
in NSw and work was completed at the university of Canberra hospital in the ACt. In defence there is ongoing work at the rAAf tindal
project in the Northern territory and rAAf townsville in QLD. Minor works were completed at Campbell Barracks and hMAS Stirling in
wA.
• Commercial – revenue for the year was $114.5m compared to $111.9m in the prior year. the majority of work in the sector was performed in
the buoyant New South wales market on a range of large construction and fit-out projects including parramatta Square 3 and 4, the Atp
Building 1 in Eveleigh, the Duo Central park tower development in Chippendale, the wynyard place redevelopment in the Sydney CBD and
100 Mount Street in North Sydney.
• resources – revenues decreased from $125.3m in the prior year to $88.2m with work on the wheatstone LNG project completing early
in the second half of the year. In western Australia the business continued to win and perform sustaining capital works at multiple rio
tinto and Bhp Billiton facilities and through its framework agreements at the Sino Iron and Boddington gold mines. work at the rio tinto
Amrun Bauxite project in Queensland and the Mineral resources wodgina Lithium project in wA demobilised during the year.
• telecommunications and data centres – revenues were $27.0m compared to $49.2m in fy18 with no significant data centre contribution
in the current year. NBN and carrier network construction continued across Australia including the group’s first mobile tower builds in wA
and Nt. work commenced under recently secured equipment upgrade and minor works contracts direct to NBN.
• Industrial, energy and utilities – revenue was $12.9m compared to $17.4m in the prior year. work continued under the three year Ergon
Energy Service Agreement in northern Queensland and the woodman point wastewater treatment plant in wA.
full year revenue was slightly behind the forecast of over $400m due to the earlier than anticipated demobilisation of the westconnex M4
project.
Gross margins for the year were 12.3% compared to gross margins of 11.9% in the prior year. Second half gross margins were 12.5% compared
to 11.7% in the first half of the year.
overheads were $25.7m compared to $24.1m in the prior year, continuing to decrease as a percentage of revenue from 6.9% in 2018 to 6.7%
in 2019.
EBItDA for the year was $23.6m representing a 13% increase on the EBItDA of $20.9m in the prior year. EBItDA in the second half of the
year was $14.6m, a 62% increase on the first half EBItDA of $9.0m
Net profit after tax increased by 51% to $12.7m compared to the prior corresponding period with the increase due to the improved trading
performance and reducing amortisation of acquired customer contract intangibles.
the Directors have declared a fully franked dividend for the year ended 30 June 2019 of 3.0 cents per share, consistent with the prior year and
have established a dividend reinvestment plan.
the balance sheet remained strong throughout the period. Net cash at 30 June 2019 was $53.3m with no debt compared to $58.1m at the
start of the year. the payment of $7m of fy18 dividends and $6.5m of deferred heyday acquisition consideration during the period was
offset by an operating cash inflow of $10.7m. Significant cash inflows are anticipated as resources projects completed during the year are
closed out.
Capital expenditure for the year was $2.1m and is expected to remain at similarly low levels.
2019 Annual Report
11
managing dirECtOr’S rEviEw (CoNtINuED)
OuTLOOk
Order Book
the Group continues to secure work across its core markets and had an order book at 30 June 2019 of $450m, a similar level to the prior year,
with over $360m of work secured for the fy20 year. this represents more than 80% of the forecast fy20 revenue of over $420m.
the business development pipeline remains strong with identified opportunities exceeding $2.7bn including over $600m of submitted
tenders with clients pending decision.
Markets
the commercial sector remains the largest component of the order book with over $250m of work in hand at 30 June 2019, primarily in NSw
including works ongoing at parramatta Square 3 and 4, wynyard place and 32 Smith Street. the pipeline is expected to remain strong as a
result of office, multi-storey and retail investment and refurbishments of existing facilities to meet high demand. the current high level of
public infrastructure spend is expected to lead to a further wave of commercial developments once completed.
In the public infrastructure and defence sector we had nearly $100m of work in hand at 30 June 2019 including the westmead hospital 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. SCEE recently secured its first project on the Metronet program in wA with work on the forrestfield Airport Link and
there are multiple opportunities presenting on the Sydney Metro project. the federal budget in March 2019 committed over $100 billion to
land transport projects over the next 10 years and there is significant other federal, state and private infrastructure investment planned in
defence, airports, ports, education, health and aged care.
In resources there is ongoing work for rio tinto, Bhp Billiton, Sino Iron and at Boddington Gold mine. there is over $20bn of committed
capital expenditure on wA resources projects in the period to 2021 and SCEE is actively pursuing opportunities in iron ore, zinc, bauxite and
lithium construction. there is no foreseeable LNG construction work in the near term but there is ongoing coal seam gas work in QLD that
provides opportunities and visibility of LNG developments in the medium term.
In the telecommunications sector the NBN construction roll-out is completing and will transition to the maintenance phase. Contracts are
in place with the NBN that can facilitate this work nationally. opportunities with other network carriers continue to be actively pursued. the
commercial deployment of 5G is commencing but the delivery model and scale remains uncertain. the first two stages of the ruData SyD53
Data Centre project in NSw was recently secured and a range of new data centres is currently being tendered.
the industrial, energy and utilities sector remains stable and provides a steady flow of opportunities. Current tenders include fuel terminal,
power station and brickworks projects. the renewable energy project pipeline is subdued compared to prior periods but there is still a
pipeline of opportunities for SCEE for the electrical construction portion of renewables projects. work is ongoing on the Ergon Energy Service
Agreement in northern QLD and SCEE was recently awarded Agnew wind farm electrical works in wA.
Strategy
SCEE primarily sees itself as an electrical contractor. historically focussed in resources, over the last four years we implemented a strategy to
diversify organically and acquisitively into commercial, infrastructure, defence, telecommunications, industrial, energy and utilities work.
• this successful diversification has meant the resources sector is now the third largest revenue generator after infrastructure and
commercial and over 70% of revenues originate from the East Coast.
• our growth strategy continues so as to realise further sector and geographic diversity through a combination of organic and acquisition
activities.
• organic growth will be achieved through our strong commercial and infrastructure pipelines and resources activity is increasing across
multiple commodities
• we foresee significant acquisition opportunities presenting in the short to medium term which offer both sector and geographic diversity.
12
2019 Annual Report
managing dirECtOr’S rEviEw (CoNtINuED)
Conclusion
2019 saw SCEE continue to improve its financial performance with record revenues and increased profitability.
we continue to see the benefits of our diversification strategy with significant projects being performed across Australia in our five sectors.
we expect a continuation of this strategy to lead to further growth in fy20. our healthy balance sheet and order book of $450m including
over $360m of work to be performed in fy20 puts us in a strong position to achieve this.
I would like to take this opportunity to thank SCEE’s management and staff for their hard work during the year and our shareholders for
their ongoing support.
graeme dunn
Managing Director
2019 Annual Report
13
dirECtOrS’ rEPOrt
your directors submit their report for Southern Cross Electrical Engineering limited
(“SCEE” or “the Company”) for the year ended 30 June 2019.
Graeme Dunn, Chris Douglass, David hammond, Simon Buchhorn, Derek parkin, Karl paganin 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.
14
2019 Annual Report
dirECtOrS’ rEPOrt (continued)
name and independence status
Experience, qualifications, special responsibilities and other directorships
Simon buchhorn
independent non-Executive
director
karl Paganin
independent non-Executive
director
david Hammond
Executive director
gianfranco tomasi am
non-Executive director
(retired 30th October 2018)
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 and the Nomination and remuneration
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 and poseidon Nickel 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.
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 retired from his role as non-executive director on 30 october 2018.
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 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.
frank was a member of the Nomination and remuneration Committee until his retirement from the Board.
Executive Officers
the names and details of the Company’s Executive officers during the financial year and until the date of this report are as follows.
Executive officers were in office for this entire period unless otherwise stated.
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.
2019 Annual Report
15
dirECtOrS’ rEPOrt (continued)
directors’ interests
As at the date of this report, the relevant interests of the directors in the shares and rights or options over shares issued by the Company are
as follows:
director
Ordinary shares
rights over
ordinary shares
Options over
ordinary shares
Derek parkin
Graeme Dunn1
Simon Buchhorn
Karl paganin
David hammond2
100,000
1,260,620
800,000
822,668
6,870,040
-
1,636,313
-
-
-
-
-
-
-
-
1.
Included in the performance rights held by Graeme Dunn are 300,926 2017 performance rights which have been performance tested
on finalising the 2019 results and have vested in full and are now exercisable and 300,926 2017 performance rights which did not vest.
2.
3,435,020 ordinary Shares are subject to voluntary escrow until 5 September 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
Simon Buchhorn
Karl paganin
David hammond
Gianfranco tomasi
13
13
13
13
13
3
12
13
13
13
13
3
4
-
4
4
-
-
4
-
4
4
-
-
2
-
1
2
-
1
2
-
1
2
-
-
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.
16
2019 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 10.
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 2018
declared after balance date and not recognised as a liability (fully franked at 30%)
final franked dividend for 2019
Significant Events after balance Sheet date
2019
$’000
386,031
12,713
2018
$’000
347,874
8,406
Cents per share
total amount
$’000
3.0
3.0
7,022
7,042
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 2019 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, 2,678,311 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) the liability arises out of conduct involving a wilful breach of duty; or
b) there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.
the total amount of insurance contract premiums paid was $174,963 (2018: $86,910).
2019 Annual Report
17
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 80 and forms part of the Directors’ report for the financial year ended 30 June
2019.
remuneration report
the remuneration report is set out on pages 19 to 27 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
27 August 2019
18
2019 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 some or
all of the following key elements:
• fixed remuneration;
• variable remuneration - Short term incentive (“StI”); and
• variable remuneration - Long term incentive (“LtI”).
• the nature, amount and proportion of remuneration that is performance related for each executive is set out in table 1.
Fixed remuneration
Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and fringe benefits such as
motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without undue cost for the Group.
fixed remuneration is reviewed annually by the Nomination and remuneration Committee. there are no guaranteed base pay increases for
any executive.
2019 Annual Report
19
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 2019, 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 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.
20
2019 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
2019
$’000
12,713
7,022
(24%)
12%
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%)
2019 Annual Report
21
rEmunEratiOn rEPOrt – auditEd (continued)
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rEmunEratiOn rEPOrt – auditEd (continued)
Notes in relation to the table of directors’ and executive officers’ remuneration
A. 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.
B. the fair value of the options and performance rights with market related vesting conditions were valued using a Monte Carlo
simulation model. the use of a Monte Carlo Simulation model simulates multiple future price projections for both SCEE shares and
the shares of the peer group against which they are tested. the options and performance rights with non-market related vesting
conditions were valued using the Black-Scholes option model. the values derived from these models are allocated to each reporting
period evenly over the period from grant date to vesting date. the amount recognised as an expense is adjusted to reflect the number
of awards for which the related service and non-market performance conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance
conditions at the vesting date. the value disclosed is the fair value of the options and performance rights recognised in this reporting
period.
Employment Contracts
the following executives have non-fixed term employment contracts. the company may terminate the employment contract by providing
the other party notice as follows:
Executive
notice Period
Graeme Dunn
Chris Douglass
6 months
6 months
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 re-
ceive their accrued annual leave and long service leave together with any superannuation benefits. there are no other termination payment
entitlements.
2019 Annual Report
23
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 2018
granted as
remuneration
Exercised
Forfeited
Held at
30 June
2019
vested
during the
year
vested and
exercisable at
30 June 2019
Graeme Dunn
2,255,360
464,286
1,083,333
Chris Douglass
1,669,200
275,000
975,000
3,924,560
739,286
2,058,333
-
-
-
1,636,313
1,083,333
969,200
975,000
2,605,513
2,058,333
-
-
-
Performance rights granted as remuneration in 2019
During the period performance rights over ordinary shares in the company were granted as remuneration to KMp. these performance rights
will vest subject to the meeting of performance set out below. Details on performance rights that were granted during the period are as
follows:
Executive
instrument
number
grant date
Fair value per
performance
right at grant
date ($)
Exercise
price per
performance
right ($)
Performance
testing date
Expiry date
Graeme Dunn1
2019 rights
232,143
Graeme Dunn2
2019 rights
232,143
Chris Douglass1
2019 rights
137,500
Chris Douglass2
2019 rights
137,500
9/11/18
9/11/18
9/11/18
9/11/18
0.59
0.29
0.59
0.29
0.00
0.00
0.00
0.00
30/6/21
30/6/21
30/6/21
30/6/21
9/11/22
9/11/22
9/11/22
9/11/22
739,286
1 Performance rights granted with EPS growth as the vesting condition
2 Performance rights granted with Absolute TSR as the vesting condition
2019 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 2018 to 30 June 2021 (“performance period”);
• No performance rights will vest until 30 June 2021;
• 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
24
2019 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 6.1 cents per share in the 2021 financial year and for stretch performance
of 6.8 cents per share in the 2021 financial year. the vesting schedule is as follows for EpS performance in the 2021 financial year:
Less than 6.1 cents per share
6.1 cents per share
0% vesting
50% vesting
Between 6.1 and 6.8 cents per share
pro-rata vesting between 50% and 100%
At or above 6.8 cents per share
100% vesting
once the performance measurement calculation has been finalised the company will allot and issue the equivalent number of shares at nil
consideration on the basis of one ordinary share per vested performance right for all performance rights exercised.
where a participant ceases employment prior to the vesting of their share options or performance rights, the share options or performance
rights are forfeited unless in the event of retirement, permanent disablement or death the Board, at their absolute discretion, waive the
exercise and vesting conditions associated with the performance rights or allow the performance rights to continue to be assessed over the
original performance assessment period. In the event of a change of control of the Company, all options and performance rights that have
not lapsed may be exercised.
2019 Annual Report
25
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
Graeme Dunn
Chris Douglass
2016 rights
1,083,333
18/11/16
100%
2017 rights
601,852
18/11/16
2018 rights
570,175
7/11/17
2019 rights
464,286
9/11/18
-
-
-
2016 rights
975,000
16/11/15
100%
2017 rights
356,481
18/11/16
2018 rights
337,719
7/11/17
2019 rights
275,000
9/11/18
-
-
-
-
-
-
-
-
-
-
-
30/6/18
18/11/20
30/6/19
18/11/20
30/6/20
30/6/21
7/11/21
9/11/22
30/6/18
16/11/19
30/6/19
18/11/20
30/6/20
30/6/21
7/11/21
9/11/22
A. performance rights are performance tested following completion of the performance period. Subsequent to 30 June 2019 the vesting conditions in
respect of the 2017 performance rights have been performance tested and it has been determined that 300,926 performance rights held by Mr Dunn
and 178,240 performance rights held by Mr Douglass have vested and are now exercisable and 300,926 performance rights held by Mr Dunn and 178,241
performance rights held by Mr Douglass have not vested.
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 Dunn1
Simon Buchhorn
Karl paganin
David hammond2
Gianfranco tomasi3
Executives
Chris Douglass1
Held at
30 June 2018
Purchases
Sales
Exercise of
Performance
rights
-
1,083,333
-
-
-
-
director
retirement
Held at
30 June 2019
-
-
-
-
-
100,000
1,260,620
800,000
822,668
6,870,040
(46,813,482)
-
-
-
-
-
-
(18,413,649)
-
975,000
1,180,743
100,000
177,287
800,000
822,668
6,870,040
65,227,131
205,743
-
-
-
-
-
-
-
1 Shares were received during the year on the exercise of vested 2016 performance rights issued under the company’s senior management long term
incentive scheme as discussed above.
2 3,435,020 ordinary shares are subject to voluntary escrow until 5 September 2019.
3 retired as a Director on 30 october 2018.
26
2019 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, who retired as a Director on 30
october 2018, 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.
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 2019 year.
total rent paid by SCEE in the 2019 financial year in respect of the above agreements was $265,000.
there are no loans between the company and Key Management personnel.
2019 Annual Report
27
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 before tax
Income tax expense
Profit 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
total comprehensive income attributable to:
Owners of the Company
Earnings per share:
Basic earnings per share (cents)
Diluted earnings per share (cents)
note
2019
$’000
2018
$’000
4
5
6
5
8
8
7
7
9
386,031
347,874
(338,485)
(306,319)
47,546
353
(15,239)
(2,308)
(6,212)
(1,983)
1,489
(3,496)
(797)
19,353
530
(1,703)
(1,173)
18,180
(5,467)
12,713
-
-
12,713
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
12,713
8,507
10
10
5.44
5.40
4.05
3.96
the above statement of comprehensive income should be read in conjunction with the accompanying notes.
28
2019 Annual Report
COnSOlidatEd StatEmEnt OF COmPrEHEnSivE inCOmE
for the year ended 30 June 2018
COnSOlidatEd balanCE SHEEt
for the year ended 30 June 2019
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 before tax
Income tax expense
Profit 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
total comprehensive income attributable to:
Owners of the Company
Earnings per share:
Basic earnings per share (cents)
Diluted earnings per share (cents)
the above statement of comprehensive income should be read in conjunction with the accompanying notes.
note
2019
$’000
2018
$’000
386,031
347,874
(338,485)
(306,319)
4
5
6
5
8
8
7
7
9
47,546
353
(15,239)
(2,308)
(6,212)
(1,983)
1,489
(3,496)
(797)
19,353
530
(1,703)
(1,173)
18,180
(5,467)
12,713
-
-
12,713
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
4.05
3.96
12,713
8,507
10
10
5.44
5.40
assets
Current assets
Cash and cash equivalents
trade and other receivables
Inventories
prepayments
tax receivable
total current assets
non-current assets
property, plant and equipment
Intangible assets
total non-current assets
total assets
liabilities
Current liabilities
trade and other payables
provisions
Deferred acquisition consideration
total current liabilities
non-current liabilities
Deferred acquisition consideration
provisions
Deferred tax liability
total non-current liabilities
total liabilities
net assets
Equity
Share capital
reserves
retained earnings
total equity
note
2019
$’000
2018
$’000
11
12
13
15
16
17
19
20
20
19
9
21
21
53,257
103,950
2,335
1,693
-
58,076
77,002
2,170
588
1,188
161,235
139,024
14,827
73,794
88,621
249,856
77,188
9,762
6,500
93,450
-
416
8,282
8,698
102,148
147,708
102,873
551
44,284
147,708
16,274
74,591
90,865
229,889
59,911
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
the above balance sheet should be read in conjunction with the accompanying notes.
2019 Annual Report
29
COnSOlidatEd StatEmEnt OF CHangES in EQuity
for the year ended 30 June 2019
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 year
foreign currency translation gain
total comprehensive income
transactions with owners, recorded directly in equity
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
-
-
-
32,222
13,850
145
-
46,217
8,406
-
8,406
-
-
-
-
-
-
-
-
-
(13,850)
-
-
(13,850)
-
-
-
-
-
(145)
625
480
101
101
-
-
-
-
-
-
balance as at 30 June 2018
102,873
36,488
-
2,263
(514)
8,406
101
8,507
32,222
-
-
625
32,847
141,110
Balance as at 1 July 2018
total comprehensive income for the year
profit for the year
total comprehensive income
transactions with owners, recorded directly in equity
Dividends
performance rights (net of tax)
Equity-settled share-based payment
total transactions with owners
Share
Capital
$’000
retained
Earnings
$’000
102,873
36,488
-
-
-
-
-
-
12,713
12,713
(7,022)
2,105
-
(4,917)
balance as at 30 June 2019
102,873
44,284
deferred
Payments
reserve
$’000
Share based
Payments
reserve
$’000
translation
reserve
$’000
total Equity
$’000
-
-
-
-
-
-
-
-
2,263
(514)
141,110
-
-
-
(1,744)
546
(1,198)
1,065
-
-
-
-
-
-
12,713
12,713
(7,022)
361
546
(6,115)
(514)
147,708
the above statement of changes in equity should be read in conjunction with the accompanying notes.
30
2019 Annual Report
COnSOlidatEd StatEmEnt OF CaSH FlOwS
for the year ended 30 June 2019
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income taxes received/(paid)
net cash from/(used in) operating activities
Cash flows from investing activities
payment of deferred acquisition consideration
proceeds from the sale of assets
Acquisition of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
repayment of borrowings
proceeds from issue of shares
Dividends paid
net cash (used in)/from financing activities
(Decrease)/Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations on cash held
note
2019
$’000
2018
$’000
366,904
372,423
(356,608)
(374,858)
26
20
15
21
530
(1,291)
1,195
10,730
(6,500)
49
(2,076)
(8,527)
-
-
(7,022)
(7,022)
(4,819)
58,076
-
531
(1,239)
(2,008)
(5,151)
(9,250)
1,816
(1,516)
(8,950)
(233)
31,857
-
31,624
17,523
40,553
-
Cash and cash equivalents at 30 June
11
53,257
58,076
the above cash flow statement should be read in conjunction with the accompanying notes.
2019 Annual Report
31
indEx tO nOtES tO tHE FinanCial StatEmEntS
1. reporting entity ��������������������������������������������������������� 33
2. Basis of preparation ������������������������������������������������������ 33
3. Segment reporting ������������������������������������������������������� 34
4. Contract revenue ��������������������������������������������������������� 35
5. other income/(expense) �������������������������������������������������� 36
6. Employee benefits expenses ���������������������������������������������� 36
7. finance income and expenses ��������������������������������������������� 36
8. Depreciation and amortisation expenses ����������������������������������� 37
9.
Income tax expense ������������������������������������������������������ 37
10. Earnings per share ������������������������������������������������������� 39
11. Cash and cash equivalents ������������������������������������������������40
12. trade and other receivables �����������������������������������������������40
13. Inventories ��������������������������������������������������������������40
14. Contract assets ����������������������������������������������������������40
15. property, plant and equipment �������������������������������������������� 41
16. Intangible assets – goodwill and customer contracts ������������������������ 42
17. trade and other payables ������������������������������������������������� 43
18. unearned revenue ��������������������������������������������������������43
19. provisions ���������������������������������������������������������������44
20. Capital and reserves ������������������������������������������������������44
21. financial instruments ����������������������������������������������������45
22. Investments in subsidiaries �����������������������������������������������46
23. Business Combinations ����������������������������������������������������51
24. Interest in joint operations ������������������������������������������������ 52
25. Share-based payments ��������������������������������������������������� 52
26. reconciliation of cash flows from operating activities ����������������������� 57
27. Commitments �����������������������������������������������������������58
28. Contingencies ������������������������������������������������������������ 58
29. Subsequent events ������������������������������������������������������� 58
30. Auditor’s remuneration �������������������������������������������������� 58
31. parent entity disclosures �������������������������������������������������� 59
32. related parties ���������������������������������������������������������� 59
33. Significant accounting policies �������������������������������������������� 61
34. Determination of fair values ����������������������������������������������� 73
32
2019 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 2019 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(x).
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 27 August 2019.
(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.
2019 Annual Report
33
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 4 – measurement of variable consideration;
• Note 16 – recoverable amount for testing goodwill;
• Note 20 – measurement of deferred consideration;
• Note 22 – expected credit losses (“ECLs”) on trade receivables; and
• Note 25 – measurement of share-based payments.
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial
statements relate to contract revenue (note 33(n) and 4) and contract assets (note 33(i) and 14).
revenue from construction contracts is recognised in a manner that depicts the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the group expects to be entitled in exchange for the goods or services. Judgement
is exercised in each of the following steps in determining revenue from construction contracts as prescribed by five (5) Step revenue
recognition Model introduced by AASB 15 revenue from Contracts with Customers:
i.
Identify the contract(s) with a customer
ii.
Identify the performance obligations in the contract
iii. Determine the transaction price
iv. Allocate the transaction price to the performance obligations in the contract
v. recognise revenue when (or as) the entity satisfies a performance obligation
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.
34
2019 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
2019
2018
non-current
assets
$’000
revenue
$’000
non-current
assets
$’000
88,621
88,621
347,874
347,874
90,865
90,865
revenue
$’000
386,031
386,031
revenues from the two largest customers of the Group’s Australian segment generated $64 million of the Group’s total revenue (2018: $98
million generated from the two largest customers).
4. Contract revenue
disaggregated revenue information
Commercial
resources
public infrastructure and defence
telecommunications and data centres
Industrials, energy and utilities
timing of revenue recognition
products and services transferred over time
revenue from contracts with customers
Contract balances
trade receivables
Contract assets
12
14
note
2019
$’000
2018
$’000
114,469
88,207
143,428
27,047
12,880
111,903
125,271
44,131
49,197
17,372
386,031
347,874
386,031
386,031
36,995
64,273
101,268
347,874
347,874
34,865
39,793
74,658
Contract assets and revenue includes contract modifications recognised in accordance with the Group’s accounting policy (note 33(n)(iii))
for which amounts are not yet finalised with the customer. At 30 June 2019, the amount recognised for contract assets where contract
modifications are material totals $44.1 million.
trade receivables are non-interest bearing and are generally on 30 to 45 days term. In 2019, $ nil (2018: $ nil) was recognised as provision for
expected credit losses on trade receivables.
Contract assets have increased as a result of the increase in ongoing construction activity as at the current report date. No provision for
expected credit losses was recognised in 2019 (2018: $ nil).
2019 Annual Report
35
nOtES tO tHE FinanCial StatEmEntS
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
2019
$’000
23
-
36
294
353
2018
$’000
687
352
331
214
1,584
20
1,489
1,883
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 2019 financial year.
6. Employee benefits expenses
note
remuneration, bonuses and on-costs
Superannuation contributions
Amounts provided for employee entitlements
Share-based payments expense
25
2019
$’000
(12,573)
(978)
(1,142)
(546)
2018
$’000
(12,174)
(1,007)
(1,176)
(625)
(15,239)
(14,982)
the above employee benefits expenses do not include employee benefits expenses recorded within contract expenses. Employee benefits
included in contract expenses were $115.8m (2018: $104.9m).
7. Finance income and expenses
note
2019
$’000
2018
$’000
20
530
530
(411)
(573)
(573)
(146)
(1,703)
(1,173)
531
531
(710)
(531)
(612)
(95)
(1,948)
(1,417)
Interest income on bank deposits
finance income
Deferred consideration
Bank charges
Bank guarantee fees
other
finance expenses
Net finance expense
36
2019 Annual Report
nOtES tO tHE FinanCial StatEmEntS
8. Depreciation and amortisation expenses
Buildings
Leasehold improvements
plant and equipment
Motor vehicles
office furniture and equipment
Amortisation of customer contract intangibles
other
9. Income tax expense
(a) Income Statement
Current tax expense
Current period
(under) provision from prior year
Deferred tax expense
origination and reversal of temporary differences
under provision from prior year
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
note
15
16
2019
$’000
(17)
(195)
(1,358)
(1,015)
(911)
(3,496)
(795)
(2)
(797)
-
(2)
(2)
(5,114)
(351)
5,467
-
-
2018
$’000
(17)
(251)
(1,553)
(1,087)
(871)
(3,779)
(2,840)
(67)
(2,907)
(83)
(93)
(176)
(4,221)
-
(4,397)
(319)
(319)
(c) Reconciliation between tax expense and pre-tax accounting profit
Accounting profit before income tax
18,180
12,803
Income tax expense using the Company’s domestic tax rate of 30%
(5,454)
(3,841)
Change in fair value of deferred consideration
Share based payments
Amortisation of intangibles
Non-deductible deferred consideration interest
other
Income tax expense reported in the income statement
the applicable effective tax rates are:
447
419
(239)
(124)
(516)
5,467
30.1%
565
(144)
(853)
(213)
89
(4,397)
34.4%
2019 Annual Report
37
nOtES tO tHE FinanCial StatEmEntS
9. Income tax expense (continued)
deferred tax assets and liabilities
balance Sheet
income Statement
Equity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
deferred tax liabilities
retentions receivable
Contract assets
(488)
(316)
172
(15,887)
(10,561)
5,326
Long term contracts adopting estimated profits basis
-
(824)
(824)
property, plant and equipment
(23)
(23)
-
42
5,711
824
-
deferred tax assets
provisions
Employee entitlements
property, plant and equipment
unearned revenue
tax losses
other
(16,398)
(11,724)
4,674
6,577
63
134
71
105
3,470
3,879
409
(614)
19
125
3,747
692
8,116
19
340
-
215
-
(340)
3,533
(214)
(1,499)
651
(41)
(8)
8,556
440
(2,356)
Net deferred tax assets/(liabilities)
(8,282)
(3,168)
5,114
4,221
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(319)
(319)
38
2019 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 2019 was based on the profit attributable to ordinary shareholders of $12,713,000
(2018: $8,406,000) and a weighted average number of ordinary shares outstanding of 233,583,111 (2018: 207,472,086), calculated as follows:
Profit attributable to ordinary shareholders
profit for the period
weighted average number of ordinary shares
note
2019
$’000
12,713
2018
$’000
8,406
2019
2018
Issued ordinary shares at 1 July
21
231,389,097
159,426,058
Effective new balance resulting from issue of shares in the year
weighted average number of ordinary shares at 30 June
2,194,014
48,046,028
233,583,111
207,472,086
diluted earnings per share
the calculation of diluted earnings per share at 30 June 2019 was based on the profit attributable to ordinary shareholders of $12,713,000
(2018: $8,406,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential
ordinary shares of 235,364,018 (2018: 212,143,181), calculated as follows:
Profit attributable to ordinary shareholders (diluted)
Consolidated
note
2019
$’000
2018
$’000
profit for the period
12,713
8,406
weighted average number of ordinary shares (diluted)
note
2019
2018
weighted average number of ordinary shares for basic earnings per share
233,583,111
207,472,086
Effect of dilution:
Share options and performance rights on issue
weighted average number of ordinary shares at 30 June
1,780,907
4,671,095
235,364,018
212,143,181
2019 Annual Report
39
11. Cash and cash equivalents
11. Cash and cash equivalents
nOtES tO tHE FinanCial StatEmEntS
notes
Bank balances
Short term deposits
Cash and cash equivalents in the statement of cash flows
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
notes
2018
2018
$’000
39,268
18,808
58,076
$’000
35,115
(317)
1,053
1,358
37,209
2017
$’000
39,791
762
40,553
2017
$’000
32,727
(324)
913
-
33,316
-
1,358
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
provision for impairment of trade receivables
Current
trade receivables
retentions
Loans to vendors
non-current
Loans to vendors
13. Inventories
raw materials and consumables – cost
14. Work in progress
Costs incurred to date
recognised profit
progress billings
Construction work in progress
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.
Bank balances
Short term deposits
Cash and cash equivalents in the statement of cash flows
notes
2019
$’000
24,157
29,100
53,257
2018
$’000
39,268
18,808
58,076
the effective interest rate on cash and cash equivalents was 1.2% (2018: 1.1%); these deposits are either at call or on short term deposit.
12. Trade and other receivables
trade receivables
Sundry debtors
provision for impairment of trade receivables
Contract assets
retentions
Loans to vendors
36,995
237
(80)
14
64,273
1,628
897
103,950
34,865
250
(317)
39,793
1,053
1,358
77,002
trade receivables are non-interest bearing and are generally on 30 to 45 day terms. the provision for impairment of trade receivables relates
to expected credit losses and is used to record impairment losses. when the Group is reasonably certain that no recovery of the amount
owing is possible, the amount is considered irrecoverable and is written off against the financial asset directly. the Group will continue to
strongly pursue all debts provided for.
the movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at start of year
Amounts recovered
Balance at 30 June
317
(237)
80
324
(7)
317
the ageing of trade receivables and the related expected credit losses are detailed in note 22.
13. Inventories
raw materials and consumables – cost
2,335
2,170
14. Contract assets
Costs incurred to date
recognised profit
progress billings
Construction work in progress
notes
2019
$’000
220,421
50,178
(206,326)
64,273
2018
$’000
181,290
29,013
(170,510)
39,793
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.
Construction work in progress represents the unbilled amount expected to be collected from customers for contract work performed to date.
Cost includes all expenditure related directly to specific projects. recognised profit is based on the percentage completion method and is
determined using the costs incurred to date and the total forecast contract costs.
40
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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 2017
Additions
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Additions
Disposals
Balance at 30 June 2019
depreciation and impairment losses
Balance at 1 July 2017
Depreciation for the year
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Depreciation for the year
Disposals
916
-
-
916
916
-
-
916
(150)
(17)
-
(167)
(167)
(17)
-
3,712
52
(980)
2,784
21,125
631
(1,329)
20,427
14,710
598
(1,704)
13,604
235
(84)
10,382
10,231
50,694
2,784
20,427
13,604
10,382
29
-
627
(130)
666
(70)
767
-
2,813
20,924
14,200
11,149
50,002
1,516
(4,097)
48,113
48,113
2,089
(200)
(1,256)
(14,267)
(251)
666
(841)
(841)
(195)
-
(1,553)
1,084
(14,736)
(14,736)
(1,358)
(9,494)
(1,087)
1,393
(9,188)
(9,188)
(1,015)
(6,111)
(871)
75
(31,278)
(3,779)
3,218
(6,907)
(31,839)
(6,907)
(31,839)
(911)
(3,496)
130
30
-
160
Balance at 30 June 2019
(184)
(1,036)
(15,964)
(10,173)
(7,818)
(35,175)
Carrying amounts
At 1 July 2017
At 30 June 2018
At 1 July 2018
At 30 June 2019
766
749
749
732
2,456
1,943
1,943
1,777
6,858
5,691
5,691
4,960
5,216
4,416
4,416
4,027
4,120
3,475
3,475
3,331
19,416
16,274
16,274
14,827
2019 Annual Report
41
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16. Intangible assets – goodwill and customer contracts
reconciliation of carrying amount
note
goodwill
$’000
Customer
Contracts
$’000
Other
$’000
Cost
Balance as at 1 July 2017
Acquisitions
Balance as at 30 June 2018
Balance as at 1 July 2018
Balance as at 30 June 2019
amortisation and impairment losses
Balance as at 1 July 2017
Amortisation
Balance as at 30 June 2018
Balance as at 1 July 2018
Amortisation
Balance as at 30 June 2019
Carrying amounts
At 1 July 2017
At 30 June 2018
At 1 July 2018
At 30 June 2019
82,169
-
82,169
82,169
82,169
(8,390)
-
(8,390)
(8,390)
-
(8,390)
73,779
73,779
73,779
73,779
7,491
-
7,491
7,491
7,491
(3,856)
(2,840)
(6,696)
(6,696)
(795)
(7,491)
3,635
795
795
-
19
-
19
19
19
-
(2)
(2)
(2)
(2)
(4)
19
17
17
15
total
$’000
89,679
-
89,679
89,679
89,679
(12,246)
(2,842)
(15,088)
(15,088)
(797)
(15,885)
77,433
74,591
74,591
73,794
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
2019
$’000
8,784
12,298
52,697
73,779
2018
$’000
8,784
12,298
52,697
73,779
the recoverable amounts of the above segments were based on their value in use with the group performing its annual impairment test in June 2019. the
carrying amount of the operating segments were determined to be lower than their recoverable amounts and therefore no impairment charge has been
recognised.
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% (2018: 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 2020 is based on the board approved budget with EBItDA for 2021 – 2024 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 2019.
• A pre-tax discount rate between 9.4% and 13.2% (2018: between 11.7% and 14.3%) was applied. this discount rate was estimated based on past
experience and industry average weighted cost of capital.
42
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16. Intangible assets – goodwill and customer contracts (continued)
Sensitivity to changes in assumptions
the value in use assessment for SCEE estimates a recoverable amount $13.9 million in excess of its carrying amount. this estimate is
sensitive to the realisation of the budgeted and forecast overall net cash flows to 2024. these forecasts reflect Board and management’s
expectations for future growth. In the event that the overall net cash flows are 20% 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 $6.6 million in excess of its carrying amount. this estimate
is sensitive to the realisation of the budgeted and forecast overall net cash flows to 2024. these forecasts reflect the 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.
17. Trade and other payables
trade payables
Accrued expenses
Contract liabilities
Goods and services tax payable
retentions payable
note
2019
$’000
45,186
17,436
18
13,367
929
270
77,188
2018
$’000
26,092
15,451
16,519
1,471
378
59,911
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. Contract liabilities
Current
unearned revenue
13,367
16,519
unearned revenue arises when the Group has invoiced the client in advance of performing the contracted services.
2019 Annual Report
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19. Provisions
Current
Annual leave
Long service leave
other employee leave
Bonus
Non-current
Long service leave
Bonus
2019
$’000
7,021
1,054
1,187
500
9,762
416
-
416
2018
$’000
6,868
892
2,404
500
10,664
458
500
958
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(l) to this report.
A provision for bonus has been recognised following the acquisition of heyday5 pty Ltd for the 2019 and 2018 financial years.
20. Deferred acquisition consideration
Current
Non-current
deferred acquisition consideration movements
Balance at 1 July
finance costs
Change in fair value of deferred consideration
payments
Balance at 30 June
6,500
-
6,500
14,078
411
(1,489)
(6,500)
6,500
6,452
7,626
14,078
24,501
710
(1,883)
(9,250)
14,078
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21. Capital and reserves
Share capital
Ordinary shares
Issued and fully paid
movements in shares on issue
2019
2018
note
number
$’000
number
$’000
234,067,408
102,873
231,389,097
102,873
Balance at the beginning of the financial year
231,389,097
102,873
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
2,678,311
-
-
-
-
-
232,879
145
27,480,160
13,850
44,250,000
32,222
Balance at the end of the financial year
234,067,408
102,873
231,389,097
102,873
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:
2019
final 2018 ordinary
total amount
2018
final 2017 ordinary
total amount
Cents per
share
total amount
$’000
Franked
date of
payment
3.00
7,022
7,022
-
-
franked
11 october
2018
-
-
franked dividends declared or paid during the year were franked at the tax rate of 30%.
2019 Annual Report
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21. Capital and reserves (continued)
declared after end of year
Subsequent to 30 June 2019, a dividend of 3.00 cents per share in the amount of $7.042 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
2019
$’000
17,202
2018
$’000
21,472
the above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a) franking credits that will arise from the payment of the current tax liabilities; and
(b) franking debits that will arise from the payment of dividends recognised as a liability at the year end.
the ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
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.
46
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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 including contract assets.
Exposure to credit risk
the carrying amount of the Group’s financial assets represents the maximum credit exposure. the Group’s maximum exposure to credit risk
at the reporting date was:
Cash and cash equivalents
trade receivables (net of provision for impairment)
Contract assets
Loans to vendors
Cash
Carrying amount
2019
$’000
53,257
38,780
64,273
897
157,207
2018
$’000
58,076
35,851
39,793
1,358
135,078
the Group’s cash and cash equivalents are held with major banks and financial institutions.
trade receivables and contract assets
the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and contract with customer. the
demographics of the Group’s customer base, including the default risk of the industry and country, in which customers operate, has less of
an influence on credit risk. Approximately 57 percent (2018: 57 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 credit-worthy companies. Management
monitors the Group’s exposure on a monthly basis. In monitoring customer credit risk, customers are grouped according to their credit
characteristics, including whether they are an individual or legal entity, aging profile, maturity and existence of previous financial difficulties.
the Group does not require collateral in respect of trade receivables and contract assets.
the Group’s maximum exposure to credit risk for trade receivables and contract assets at the reporting date by geographic region was:
2019 Annual Report
47
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22. Financial instruments (continued)
Carrying amount
Australia
impairment losses
the ageing of the Group’s trade receivables and contract assets at the reporting date was:
Contract assets – not past due
trade receivables:
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
2019
$’000
64,273
27,081
5,775
2,187
3,600
217
38,860
103,133
impairment
2019
$’000
-
-
-
-
-
(80)
(80)
(80)
2019
$’000
103,053
103,053
gross
2018
$’000
39,793
29,271
3,608
1,975
370
944
36,168
75,961
2018
$’000
75,644
75,644
impairment
2018
$’000
-
-
-
-
(4)
(313)
(317)
(317)
the impairment provision related to debts that are more than one year relates to a small number of customers. the Group will continue to
strongly pursue all debts provided for.
the Group has established an allowance for impairment that represents their expected credit losses in respect of trade receivables and
contract assets.
the Group recognises a provision for impairment related to expected credit losses (“ECLs”) for trade receivables, contract assets and other
debt financial assets not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due
in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original
effective interest rate.
for trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. therefore, the Group does not track
changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. the Group uses a provision
matrix to calculate the ECLs. the provision matrix is initially established based on Group’s historically observed default rates. the Group
calibrates the matrix to adjust historical credit loss experience with forward looking factors specific to debtors and the economic environment
where appropriate. At every reporting date, historical default rates are updated and changes in the forward-looking estimates are analysed.
48
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22. Financial instruments (continued)
impairment losses (continued)
the assessment of the correlation between historical observed default rates, forecast of economic conditions and ECLs is a significant
estimate. the amount of ECLs is sensitive to changes in circumstances and of forecasts in economic conditions. the Group’s historical
credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. the
information about the ECLs on the Group’s trade receivables is disclosed in note 12.
the Group considers a financial asset’s potential for default when contractual payments are more than 90-120 days past due, factoring in
other qualitative indicators where appropriate. Exception shall apply to financial assets that relate to entities under common controls or
covered by letter of credit or credit insurance. however, in certain cases, the Group may also consider a financial asset to be in default when
internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into
account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering
the contractual cash flows.
liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. the Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
the Group uses project costing to assess the cash flows required for each project currently underway and entered into. 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 2019
non-derivative financial liabilities
trade and other payables
Deferred consideration
30 June 2018
non-derivative financial liabilities
trade and other payables
Deferred consideration
63,821
6,500
70,321
43,392
14,078
57,470
market risk
63,821
63,753
6,500
70,321
6,500
70,253
43,392
14,078
57,470
43,002
6,452
49,454
59
-
59
390
-
390
9
-
9
-
7,626
7,626
-
-
-
-
-
-
-
-
-
-
-
-
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 2019 or 30 June 2018.
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.
2019 Annual Report
49
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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
2019
$’000
2018
$’000
54,154
59,434
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 2019.
Profit or loss
Equity
100bp increase
$’000
100bp decrease
$’000
100bp increase
$’000
100bp decrease
$’000
1,001
1,001
944
944
(1,001)
(1,001)
(944)
(944)
-
-
-
-
-
-
-
-
30 June 2019
variable rate instruments
Cash flow sensitivity (net)
30 June 2018
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.
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.
50
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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
2019
2018
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
2019 Annual Report
51
nOtES tO tHE FinanCial StatEmEntS
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 2019 and 2018 and revenues and expenses of the joint operations for
the year 30 June 2019 and 2018, 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
2019
$’000
705
(9)
-
696
12,606
(11,750)
(297)
559
-
559
the joint operations have no contingent liabilities or capital commitments as at 30 June 2019 and 30 June 2018.
25. Share-based payments
(a) Expense recognised in profit or loss
Share based payments expenses for the year comprises:
2019 performance rights
2018 performance rights
2017 performance rights
2016 performance rights
(i)
(ii)
(iii)
2019
$’000
153
265
128
-
546
2018
$’000
10,716
(4,676)
(2)
6,038
47,067
(43,957)
(404)
2,706
(972)
1,734
2018
$’000
-
265
114
246
625
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.
52
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25. Share-based payments (continued)
2019 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 9 November 2018
performance rights issued to key management on
9 November 2018
total /performance rights
number of
instruments
271,339
739,286
1,010,625
vesting conditions
Contractual life
Employed on 30 June 2021 and exceed
performance hurdle
Employed on 30 June 2021 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 2018 to 30 June 2021 (“performance period”);
• No performance rights will vest until 30 June 2021;
• 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
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25. Share-based payments (continued)
EpS will be assessed against targets for threshold performance of 6.1 cents per share at the end of the performance period and for stretch
performance of 6.8 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 6.1 cents per share
6.1 cents per share
0% vesting
50% vesting
Between 6.1 and 6.8 cents per share
pro-rata vesting between 50% and 100%
At or above 6.8 cents per share
100% vesting
(i) 2019 Performance rights (continued)
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 2019 performance rights were forfeited.
(ii) 2018 Performance rights
there were 1,241,118 financial year 2018 performance rights on issue at 1 July 2018. No 2018 performance rights were granted, none vested
and none were forfeited during the year.
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
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25.
Share-based payments (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
0% vesting
8% per annum compounded
50% vesting
Between 8% and 12% per annum compounded pro-rata vesting between 50% and 100%
At or above 12% per annum compounded
100% vesting
EpS 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.
(iii) 2017 Performance rights
there were 1,310,069 financial year 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 were 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
2019 Annual Report
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25. Share-based payments (continued)
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
(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
2019
2018
9 November 2018
7 November 2017
30 June 2021
30 June 2020
$0.67
2.6 years
40%
2.12%
4.4%
$0.29
$0.59
$0.80
2.6 years
47%
1.87%
2.5%
$0.53
$0.75
(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
2019
number of rights
2018
number of rights
5,229,498
1,010,625
(2,678,311)
-
3,561,812
-
4,818,116
1,241,118
(232,879)
(596,857)
5,229,498
-
Subsequent to 30 June 2019 the vesting conditions in respect of the 2017 performance rights have been performance tested and it has been
determined that 655,034 performance rights have vested and are now exercisable and that 655,035 have been forfeited.
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26. Reconciliation of cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
profit on sale of assets held for sale
profit 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
Inventories
prepayments
increase/(decrease) in liabilities:
trade and other payables
provisions and employee benefits
Deferred acquisition consideration
Income tax payable
Deferred income tax
net cash from/(used in) operating activities
2019
$’000
12,713
4,293
-
(23)
-
907
(26,948)
1,188
(165)
(1,105)
17,277
(1,443)
(1,078)
-
5,114
10,730
2018
$’000
8,406
6,686
(687)
(106)
399
625
(20,438)
(1,188)
158
310
(2,685)
1,363
(1,173)
(723)
3,902
(5,151)
2019 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 2019 are:
within one year
After one but no more than five years
After more than five years
total minimum lease payments
2019
$’000
2,084
3,361
1,247
6,692
2018
$’000
2,336
3,805
2,431
8,572
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
2019
$’000
37,536
28,475
2018
$’000
35,928
11,715
total bank guarantee facilities at 30 June 2019 were $48.1 million (2018: $46 million) and the unused portion was $10.6 million (2018: $10.1
million). these facilities are subject to annual review. total surety bonds facilities at 30 June 2019 were $69.5 million (2018: $26.8 million) and
the unused portion was $41 million (2018: $15.0 million). these facilities are subject to annual review. All facilities are set to mature during
the 2019/20 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
2019
$’000
342
342
2018
$’000
298
298
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31. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2019 the parent company of the Consolidated entity was Southern Cross Electrical
Engineering Limited.
Company
result of the parent entity
Loss for the period
total comprehensive 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
2019
$’000
(2,839)
(2,839)
78,200
184,782
(55,628)
(70,856)
102,873
731
10,322
113,926
2018
$’000
(4,138)
(4,138)
72,444
182,594
(45,774)
(64,719)
102,873
1,841
13,161
117,875
parent entity contingencies:
the parent entity has commitments and contingent liabilities which are included in notes 27 and 28. At 30 June 2019, 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
2019
$’000
1,995
78
397
2,470
2018
$’000
1,784
83
487
2,354
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)).
2019 Annual Report
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32. Related parties (Continued)
key management personnel transactions
Directors of the Company control 4% 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
2019
$’000
265
-
2018
$’000
689
22
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.
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 2019 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 2018.
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 2018:
AASB 2016-6 Amendments to Australian Accounting Standards arising from AASB 9 Financial Instruments
(i) impairment of receivables
AASB 9 requires the Group to record expected credit losses (“ECL”) on all of its financial assets measured at amortised cost or fvoCI
and financial guarantees. the Group previously recorded impairment based on the incurred loss model when there is objective
evidence that financial asset is impaired.
the ECL approach sets out a new impairment model incorporated with forward-looking factors. the Group applies the AASB 9
simplified approach to measuring ECL which uses a lifetime expected loss allowance for all trade receivables and contract assets.
refer to note 22 for details of the new methodology.
upon adoption of AASB 9, no additional impairment was recognised.
AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15 Revenue from Contracts with Customers
the Group adopted AASB 15 which is effective for annual periods beginning on or after 1 January 2018. AASB 15 establishes a five-
step model to account for revenue arising from contracts with customers, and introduces new
contract cost guidance. under AASB 15, revenue is recognised at an amount that reflects the consideration which an entity expects
to be entitled in exchange for transferring goods or services to a customer. refer to note 33(n) for the new accounting policy on
revenue recognition.
the Group has elected the following practical expedients upon adoption of AASB 15:
(i)
Completed contracts that begin and end within the same annual reporting period or completed at the beginning of the
comparative period were not restated.
(ii) for completed contracts that have variable consideration, the Group used the transaction price at the completion date of the
contract rather than estimating variable consideration amounts in the comparative period.
(iii) for contracts that were modified before the comparative period, the Group did not retrospectively restate the contract for
those modifications.
(iv) for the comparative period, the Group did not disclose the amount of the transaction price allocated to the remaining
performance obligations and any explanation of when the Group expects to recognise that amount as revenue.
the Group adopted AASB 15 using the full retrospective method of adoption. there is no material impact on the financial
statements in the year of initial application. the comparative figures are not required to be restated. however, accrued revenue
previously disclosed under AASB 118 has been reclassified as contract assets under AASB 15.
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.
2019 Annual Report
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33. Significant accounting policies (Continued)
(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 foreseeable future, are considered to form part of a net investment in a foreign operation
and are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity.
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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:
• Loans and receivables.
• Cash and cash equivalents.
• Loans and receivables
• Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment
losses.
• Loans and receivables comprise trade and other receivables (see note 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.
2019 Annual Report
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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)
(f)
intangible assets (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
2019
2018
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)
Contract assets
Contract assets represents construction work in progress equal to gross unbilled amount expected to be collected from customers
for contract work performed to date. It is measured at cost plus profit recognised to date (note 33(n)) less progress billings and
recognised losses. Cost includes all expenditure related directly to projects and an allocation of fixed and variable overheads incurred
in the Group’s contract activities based on normal operating capacity.
If payments received from customers exceed the income recognised, then the difference is presented as 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.
2019 Annual Report
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33. Significant accounting policies (Continued)
(k)
impairment
(i) Financial assets
A financial asset not carried at fair value through the profit or loss is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred
after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of the
asset that can be estimated reliably.
objective evidence that a financial asset (including equity securities) is impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor
or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity
security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
the Group considers evidence of impairment for receivables at both a specific asset level and collective level. All individually
significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically
impaired are then collectively assessed for any impairment that has been incurred but not yet identified. receivables that are not
individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.
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)
(l)
Employee benefits
(i) long-term benefits
the Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned
in return for their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present
value, and the fair value of any related assets is deducted. the discount rate is the yield at the reporting date on high quality
corporate bonds or government bonds that have maturity dates approximating the terms of the Group’s obligations and that are
denominated in the same currency in which the benefits are expected to be paid. the calculation is performed using the projected
unit Credit method.
(ii) termination benefits
termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of
withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. termination benefits for voluntary redundancies are
recognised as an expense if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be
accepted, and the number of acceptances can be estimated reliably.
(iii) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided.
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a
present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation
can be estimated reliably.
(iv) Share-based payment transactions
the fair value of performance rights and share options granted to employees is recognised at grant date as an employee expense,
with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the performance
rights and share options. the amount recognised as an expense is adjusted to reflect the number of awards for which the related
service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense
is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
(m)
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of
money and the risks specific to the liability. the unwinding of the discount is recognised as finance cost.
2019 Annual Report
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33. Significant accounting policies (Continued)
(n)
revenue
AASB 15 applies to contracts with customers to deliver goods or services as part of the entity’s ordinary course of
business. It replaces existing revenue recognition guidance, including AASB 118 revenue and AASB 111 Construction Contracts. AASB
15 contains a single model that applies to contracts with customers, with two approaches to recognising revenue: either at a point in
time or over time. the model introduces a five-step assessment to determine whether, how much and when revenue is recognised.
revenue is recognised over time if one of the following is met:
• the customer simultaneously receives and consumes the benefits as the entity performs;
• the customer controls the asset as the entity creates or enhances it; or
• the seller’s performance does not create an asset for which the seller has an alternative use and there is a right to payment for
the performance to date.
the Group adopted AASB 15 using the cumulative method and based on the Group’s assessment there has been no impact on
adoption in opening retained earnings or in the Group’s financial statements other than disclosure and terminology.
In accordance with AASB 15, the Group will present its contract balances as a contract asset and contract liability that have
previously been disclosed as work in progress and unearned revenue.
revenue recognition accounting policy
under AASB 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the
transfer of control, at a point in time or over time, requires judgement.
(i) Construction revenue
the benefits being provided by the Group’s construction work transfer to the customer as the work is performed and as such
revenue is recognised over the duration of the project based on percentage complete. percentage complete is generally measured
according to the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs
(input method). If this would not be representative of the stage of completion then it is measured by reference to surveys of work
performed (output method).
when it is probable that total contract costs will exceed total contract revenue, the unavoidable loss is recognised as an expense
immediately.
(ii) Services revenue
the Group performs maintenance and other services for a variety of different sectors. typically, under the performance obligations
of a service contract, the customer consumes and receive the benefit of the service as it is provided. As such, service revenue is
recognised over time as the services are provided.
(iii) Contract modifications
revenue in relation to modifications, such as a change in the scope or price (or both) of the contract, will only be included in the
contract price, when it is approved by the parties to the contract and the modification is enforceable. Approval of a contract
modification can be in writing, by oral agreement or implied by customary business practices.
revenue estimated and recognised in relation to claims and variations is only included in the contract price to the extent that it is
highly probable that a significant reversal in the amount recognised will not occur.
In making this assessment the Group considers a number of factors, including the nature of the claim, formal or informal acceptance
by the customer of the validity of the claim, the stage of negotiations, and the historical outcome of similar claims to determine
whether the enforceable and “highly probable” thresholds have been met.
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33. Significant accounting policies (Continued)
(n)
revenue (continued)
(iv) Performance obligations
revenue is allocated to each performance obligation and recognised as the performance obligation is satisfied
which may be at a point in time or over time.
AASB 15 requires a granular approach to identify the different revenue streams (i.e. performance obligations) in a contract by
identifying the different activities that are being undertaken and then aggregating only those where the different activities are
significantly integrated or highly interdependent. revenue will continue to be recognised, on certain contracts over time, as a single
performance obligation when the services are part of a series of distinct goods and services that are substantially integrated with
the same pattern of transfer.
AASB 15 provides guidance in respect of the term over which revenue may be recognised and is limited to the period for which
the parties have enforceable rights and obligations. when the customer can terminate a contract for convenience (without a
substantive penalty), the contract term and related revenue is limited to the termination period.
the Group has elected to apply the practical expedient to not adjust the total consideration over the contract term for the effect of a
financing component if the period between the transfer of services to the customer and the customer’s payment for these services
is expected to be one year or less.
(v) variable consideration
If the consideration in the contract includes a variable amount, the Group estimates the amount of the consideration to which it
is entitled in exchange for transferring the goods and services to the customer. the variable consideration is estimated at contract
inception and constrained to the extent that it is highly probable that a significant reversal in the amount recognised will not occur
when the associated uncertainty with the variable consideration is subsequently resolved. All revenue is stated net of the amount of
goods and services tax (GSt).
(o)
lease payments
payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. the finance expense is allocated to each period during the lease term so as to produce a constant periodic rate
of interest on the remaining balance of the liability.
(p)
Finance income and expenses
finance income comprises interest income on funds invested and dividend income. Interest income is recognised as it accrues in
profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group’s right
to receive payment is established, which in the case of quoted securities is the ex-dividend date.
finance expenses comprise interest expense on borrowings, bank charges and lease payments. Borrowing costs that are not directly
attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective
interest rate method.
foreign currency gains and losses are reported on a net basis.
2019 Annual Report
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33. Significant accounting policies (Continued)
(q)
income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that
it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on
the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for
the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not
recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax
rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend is recognised.
(r)
goods and services tax
revenue, expenses and assets are recognised net of the amount of goods and services tax (GSt), except where the amount of
GSt incurred is not recoverable from the taxation authority. In these circumstances, the GSt is recognised as part of the cost of
acquisition of the asset or as part of the expense.
receivables and payables are stated with the amount of GSt included. the net amount of GSt recoverable from, or payable to, the
Ato is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. the GSt components of cash flows arising from investing
and financing activities which are recoverable from, or payable to, the Ato are classified as operating cash flows.
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33. Significant accounting policies (Continued)
(s)
Earnings per share
the Group presents basic and diluted earnings per share (EpS) data for its ordinary shares. Basic EpS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding
during the period. Diluted EpS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise performance
rights and share options granted to employees.
(t)
Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate to transactions with any of the Group’s components. All operating
segments’ operating results are reviewed regularly by the Group’s Managing Director to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible
assets other than goodwill.
(u)
Financial guarantees
financial guarantee contracts are initially measured at their fair values and subsequently measured at the higher of:
the amount of obligation under the contract, as determined in accordance with AASB 137 provisions, Contingent Liabilities and
Contingent Assets; and
the amount recognised initially less cumulative amortisation recognised in accordance with AASB 118 revenue.
the fair value of financial guarantee contracts has been assessed using a probability weighted discounted cash flow approach. the
probability has been based on:
the likelihood of the guaranteed party defaulting in a year period;
the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and
the maximum loss exposed if the guaranteed party were to default.
(v)
business combinations
Acquisitions of businesses are accounted for using the acquisition method. the consideration transferred in a business combination
is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group,
liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for
control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in
accordance with AASB 112 ‘Income taxes’ and AASB 119 ‘Employee Benefits’ respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance
with AASB 2 ‘Share-based payment’ at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets held for Sale and
Discontinued operations’ are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-
date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date
amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount
of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any),
the excess is recognised immediately in profit or loss as a bargain purchase gain.
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33. Significant accounting policies (Continued)
(v)
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.
(w)
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 2019, 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 16 Leases, will become mandatory for the Group’s 2020 consolidated financial statements. AASB 16 introduces a single, on-
balance sheet lease accounting model for lessees. At commencement date of a lease, lessees will recognise a liability to make lease
payments (i.e., the lease liability) and an asset representing the right to use the underlying asset (i.e. right-of-use 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. there are recognition exemptions for those that are short term leases and leases of low-value items. the
Group has assessed the estimated impact that initial application of AASB 16 will have on its consolidated financial statements as
described below:
• total assets and total liabilities will increase, due to recognition of a “right of use Asset” and a “Lease Liability” grossing up the
assets and liabilities in the balance sheet;
•
Interest expense will increase due to the effective interest rate implicit in the lease, where the interest expense component is
higher in early years on the lease;
• Amortisation charge will increase as the amortisation of the right-of-use assets is recognised;
• Management will no longer recognise provisions for operating leases assessed to be onerous as described under note 19 and will
instead, include payments due under the lease in its liability and assess the right-of-use assets for impairment;
• operating cash flows will be favourable as repayment of the principal portion of all lease liabilities will be classified as financing
activities.
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2019 Annual Report
33. Significant accounting policies (Continued)
(w)
new standards and interpretations issued but not yet effective (continued)
the actual impacts of adopting the standard on 1 July 2019 may change because:
• the Group has not finalised the testing and assessment of controls over its It systems; and
• the new accounting policies are subject to change until the Group presents its first financial statements that include the date of
initial application
other amendments to existing standards that are not yet effective are not expected to result in significant impact on the Group.
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.
2019 Annual Report
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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 2019 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;
b.
c.
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.
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 2019.
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
27 August 2019
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indEPEndEnt audit rEPOrt
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indEPEndEnt audit rEPOrt
Recognition of contract revenue
Refer to Note 4 to the Financial Report – Contract revenue $386 million
The key audit matter
How the matter was addressed in our audit
Recognition of revenue is a key audit matter due
to the:
•
•
•
Significance of revenue to the financial
statements;
Large number of contracts with numerous
estimation events that may occur over the
course of the contract's life. This results in
complex and judgemental revenue
recognition from rendering of services and
construction contracts and therefore
significant audit effort is required to gather
sufficient appropriate audit evidence for
revenue recognition; and
First time transition to AASB 15 Revenue
from Contracts with Customers resulting in
additional audit focus. This effort is due to
the complex nature of the changes to the
accounting standard and the financial impact
on rendering of services and construction
contract revenue, requiring senior team
involvement.
We focused on the Group's assessment of the
following elements of revenue recognition for
rendering of services and construction contracts,
as applicable:
•
•
The Group's determination of contractual
entitlement and assessment of the
probability of customer approval of changes
in scope and/or price. The Group's
consideration of the enforceability or approval
of the modification of the terms of a contract
may include evidence that is written, oral or
implied by customary business practice and
therefore requires a degree of judgement.
The Group's determination of modifications
can drive different accounting treatments,
increasing the risk of inappropriately
recognising revenue;
Estimating total expected costs to complete
at initiation of the contract, including cost
contingencies for contracting risks, which
have a high level of estimation uncertainty;
and
• Revisions to total expected costs for certain
events or conditions that occur during the
performance of the contract, or are expected
to occur to complete the contract, which is
difficult to estimate.
Our procedures included:
•
•
understanding the Group’s contract revenue
accounting process. We tested a sample of the
controls in this process including 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)
testing 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 evaluated the Group's assessment of when
a modification to the contract scope and/or price
for variations and claims is approved and
enforceable. This included assessing underlying
records, legal documents and customer
correspondence. We recalculated the amount of
revenue including the modifications to the
contract. We compared the recalculated
amounts against the amounts recorded by the
Group;
− we assessed the Group's estimation of
variations and claims by comparing underlying
evidence such as customer correspondence and
reports from objective time and cost claim
experts (where applicable) for consistency with
contract terms;
− we evaluated the Group's legal and external
experts' reports received on contentious matters
to assess the recognition of variations and
claims under the revenue accounting standard.
We checked the consistency of this to the
inclusion or not of an amount in the estimates
used for revenue recognition; and
− we assessed the scope, competency and
objectivity of the legal and external experts
engaged by the Group.
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indEPEndEnt audit rEPOrt
Value of Goodwill
Refer to Note 16 to the financial report – Intangible assets – goodwill and customer contracts $73.8 million
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 30% 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 value for
Datatel which has experienced lower than
forecast profitability which increases the
possibility of goodwill being impaired;
forecast growth rates and terminal values.
The Group’s models are sensitive to 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 sensitive to changes in the
discount rate. We involve our valuations
specialists with the assessment.
Our procedures included:
•
•
considering the appropriateness of the value in use
method applied by the Group to perform the annual
test of goodwill for impairment against the
requirements of the accounting standards.
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. 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;
• we assessed the accuracy of previous Group
forecasting to inform our evaluation of forecasts
included in the value in use models. For the Datatel
CGU with a higher risk of impairment, we applied
increased scepticism to current period forecasts in
areas where previous forecasts were not achieved
and/or where future uncertainty is greater or
volatility is expected;
•
considering the sensitivity of the models by varying
key assumptions, such as forecast 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;
• working with our valuation specialists we
independently developed a discount rate range
considered comparable using publicly available
market data for comparable entities, adjusted by
risk factors specific to the Group and the industry it
operates in; and
• we assessed the Group's disclosures of the
quantitative and qualitative considerations in
relation to the valuation of goodwill, by comparing
these disclosures to our understanding and the
requirements of the accounting standards.
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.
2019 Annual Report
77
indEPEndEnt audit rEPOrt
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 and the Company’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 and Company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from
material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of 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.
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2019 Annual Report
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 2019 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 2019.
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
27 August 2019
2019 Annual Report
79
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 2019 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
27 August 2019
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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2019 Annual Report
lEad auditOr’S indEPEndEnCE dEClaratiOn
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 2019.
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
185
355
258
529
87
1,414
-
-
-
-
4
4
the number of shareholders holding less than a marketable parcel of ordinary shares is 156.
Twenty largest shareholders
name
number of ordinary
shares held
Percentage of
capital held
frANK toMASI NoMINEES pty LtD
uBS NoMINEES pty LtD
CItICorp NoMINEES pty LIMItED
J p MorGAN NoMINEES AuStrALIA pty LIMItED
hSBC CuStoDy NoMINEES (AuStrALIA) LIMItED
ZEro NoMINEES pty LtD
NAtIoNAL NoMINEES LIMItED
DhhD5 pty LtD
tBhD5 pty LtD
rLhD5 pty LtD
JwhD5 pty LtD
ChEMCo SupErANNuAtIoN fuND pty LtD
CArMAN SupEr pty LtD
DphD5 pty LtD
Mr ANDrEw MCKENZIE + MrS CAthErINE MCKENZIE
ASGArD CApItAL MANAGEMENt LtD <1109440 KALEIDoSCopE A/C>
Mr rAyMoND JohN wISE
BNp pArIBAS NoMS pty LtD
ALfIEDouG pty LtD
NEwECoNoMy CoM Au NoMINEES pty LIMItED <900 ACCouNt>
46,813,482
30,932,981
25,619,596
21,772,073
17,145,646
12,500,000
12,317,640
6,870,040
6,870,040
3,435,020
2,061,012
2,030,000
2,000,000
1,374,008
1,300,000
1,260,620
1,076,846
1,064,656
975,000
837,141
20.00
13.22
10.95
9.30
7.33
5.34
5.26
2.94
2.94
1.47
0.88
0.87
0.85
0.59
0.56
0.54
0.46
0.45
0.42
0.36
Substantial shareholders
the number of shares held by substantial shareholders and their associates are set out below:
Shareholder
number
number
198,255,801
84.70
Gianfranco tomasi
tIGA trading pty Ltd
Mitsubishi ufJ financial Group Inc
westoz funds Management pty Ltd
46,813,482
36,646,377
19,770,442
12,384,040
20.0%
15.7%
8.5%
5.4%
2019 Annual Report
81
COrPOratE dirECtOry
directors
Derek Parkin
Chairman
Independent Non-Executive Director
graeme Dunn
CEo and Managing Director
Simon Buchhorn
Independent Non-Executive Director
karl Paganin
Independent Non-Executive Director
David Hammond
Executive Director
Company Secretaries
Chris Douglass
Colin Harper
auditors
kPMg
235 St Georges terrace
perth wA 6000
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
scee.com.au
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2019 Annual Report
2019 Annual Report
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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