2020
Annual Report
Southern Cross Electrical Engineering Limited
ABN: 92 009 307 046
Established 1978
CONTENTS
2020 Highlights
About SCEE
Chairman's Report
Managing Director’s Review
Directors' Report
Renumeration 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
Corporate Directory
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2020 Annual Report
2020 HIGHLIGHTS
THIRD SUCCESSIVE YEAR OF RECORD REVENUES
REVENUE
$415.1m
UP 8%
EBIT
$16.4m
DOWN 16%
NPAT
$10.9M
DOWN 14%
Infrastructure remained as the largest revenue contributor
Strong balance sheet
cash of $55.3m and no debt
Fully franked dividend
3.0 cents per share
Order book of $440m
including over $330m of work secured for FY21
Significant opportunities presenting
in resources and infrastructure stimulus expected
1
2020 Annual Report ABOUT
SCEE
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 three sectors:
• Infrastructure
• Commercial
• Resources
SCEE is headquartered in Perth with additional
offices across Australia and has talented and
committed staff delivering projects and
services throughout the country.
Heyday Group
ELECTRICAL | COMMUNICATIONS | SERVICE
OUR MARKETS
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OUR CAPABILITIES
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2020 Annual Report
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
Boddington Gold
Talison Greenbushes Lithium
MARBL JV Kemerton Lithium
NorthLink Central Section
Forrestfield Airport Link
Causarina Prison
UWA, City of Belmont, Health Services
maintenance
Woodman Point Waste-Water Treatment
Agnew Windfarm
NBN and carrier construction and maintenance
Minor social infrastructure works and
services
COMMERCIAL
RESOURCES
INFRASTRUCTURE
QLD
Rio Tinto Amrun
Arrow MSA
Ergon Energy Agreement
NBN and carrier construction
and maintenance
NT
Rio Tinto Gove
ERA Ranger Mine MSA
RAAF Tindal
NSW & ACT
Parramatta Square 3 & 4 and fit-outs
Wynyard Place
Australian Technology Park Building 4
231 Elizabeth Street
Sovereign Resort Expansion
Edmondson Park
Ribbon Project
32 Smith Street
Greenland Tower
Republic
Sandstone Precinct
City 7 Development
The Parade
Locomotive Sheds
Westmead Hospital
Westconnex M5
Australian National University
RU Data Centre
Sydney Metro Pitt Street Station
2020 Annual Report
3
VIC & TAS
NBN and carrier construction and
maintenance
INFRASTRUCTURE
SCEE recognises the important role that the
Federal, State and Local governments play
in developing and providing infrastructure to
enhance and protect the lives of all Australians.
We work alongside some of Australia’s leading contractors in the construction and
maintenance of publicly funded infrastructure and assets in:
• Transport including road, rail, air and port facilities
• Defence facilities and installations
• Social infrastructure including hospitals, medical clinics, aged care and prisons
• Education including universities, colleges and schools
• Government facilities
• Telecommunications and datacentres
• Energy, renewables and utilities
We are also members of various works panels in these sectors.
Our flexibility and adaptive commercial approach enables us to competitively bid and
deliver these critical works.
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2020 Annual Report
COMMERCIAL
SCEE has the expertise in designing,
supplying, installing and maintaining a
wide range of commercial building electrical
and utility services.
These include a comprehensive range of electrical infrastructure, building controls,
energy management, security, communications, networking and structured cabling
systems.
We work closely with leading property developers and builders on new builds and with interior design and
other specialists on fit-outs, refurbishments and upgrades.
Our focus in the commercial property sector includes:
• Offices
• Hotels
• Shopping centres and retail
• Sporting, recreation and leisure facilities
• Multi-storey residential developments
• Warehouses
We recognise that commercial developments are often bespoke and require significant expertise in optimising design and
construction. In addition, clients often require buildings and precincts remain operational during construction. We work
closely with our clients and the public to ensure seamless operations continue while the project is delivered safely.
We remain abreast of the latest technologies and industry standards and pride ourselves on developing and installing smart
and energy efficient solutions.
2020 Annual Report
5
RESOURCES
SCEE provides electrical, instrumentation and
communication services to the mining and oil and
gas sectors
In the mining sector, we have broad exposure to many commodities including
iron ore, gold, lithium, zinc, alumina and coal.
We have extensive experience in the delivery of electrical projects at some
of Australia’s largest mining and mineral processing sites and have operated
extensively overseas.
Our capability covers the entire construction life-cycle from establishing first power sources at greenfield
sites, through to constructing and commissioning major ore handling, processing and transport
infrastructure and decommissioning of operations.
We also specialise in designing and installing electrical and communications services to operational centres,
mine and camp utilities and administrative buildings, and telecommunication services that support the
control and management of mine and transport operations.
Under various framework arrangements we have teams of electricians at clients’ facilities supporting and
maintaining their operations.
In the oil and gas sector we offer electrical, instrumentation and communication services for onshore and
offshore facilities and for petrochemical refineries.
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2020 Annual Report
CHAIRMAN'S
REPORT
DEAR SHAREHOLDERS,
I am pleased to report that, in a challenging year where the Coronavirus
crisis has impacted the economy, SCEE has delivered another year of
record revenues.
Our revenues of $415.1m, an increase of 8% on the prior year, were generated predominantly in the infrastructure and commercial sectors
which are markets in which SCEE had no presence until embarking on our diversification strategy four years ago. Conversely, revenues in our
historic resources sector were the lowest for some years but recent key contract wins at the Albermarle Kemerton Lithium Project and Rio
Tinto’s Gove operations will see these grow again in FY21.
EBIT for the year of $16.4m was down 16% and NPAT of $10.9m was down 14% on the prior year, being impacted by Coronavirus disruption,
lower average margins on now finished transport infrastructure projects and delay of some project scope into FY21. These matters are
discussed in more detail in the Managing Director’s review on the following pages.
We ended the year with cash of $55.3m and no debt. Continuing our diversification through further
acquisitions remains a key strategic objective for the Board and our strong financial position gives
us the ability to progress this in the year ahead. We have resumed acquisition activity having
temporarily paused during the initial phase of the Coronavirus pandemic.
Our order book at 30 June 2020 was $440m and, with $330m already secured for the
year ahead, underpins our FY21 revenue target of $400m. We continue to tender at a
high level across our three core sectors and see significant opportunities presenting in
resources and are well positioned to capitalise on the fast-tracking of infrastructure
projects backed by government stimulus spending.
I am delighted to announce that the Board has resolved to pay a fully franked dividend
of 3 cents per share in October 2020.
In closing, I would like to take this opportunity to thank our shareholders, clients and
employees for your ongoing support.
Derek Parkin
Chairman
Derek Parkin - Chairman
2020 Annual Report
7
MANAGING DIRECTOR'S
REVIEW
The second half of FY20 brought the challenge of having to adapt to
operating in a global pandemic. Against this backdrop I am pleased
to be able to report that SCEE has recorded its third successive year
of record revenues, up 8% on the prior year to $415.1m.
However, profitability was negatively impacted by the Coronavirus-related disruption, as well as experiencing lower average
margins on now finished transport infrastructure projects and the delay of some project scope into FY21. These items are
discussed further below. EBIT for the year of $16.4m was down 16% on the prior year and net profit after tax of $10.9m was
down 14%.
IMPACT OF CORONAVIRUS
SCEE’s overarching policy since the commencement of the pandemic has been to follow government guidelines and react accordingly
as and when they change. Consequently, measures to protect employee, and subcontractor, supplier and customer staff health and
to reduce the likelihood of infection were implemented including various changes to working practices and roster and shift changes.
Inter-state and intra-state travel restrictions had some initial impact on remote projects but have since been managed.
Construction work was designated early on as an essential service and has remained so throughout. As a result, SCEE’s operations
and activities have continued largely as planned. However, the second half result has been affected by the following items which,
whilst individually not material, have had a significant impact on profitability in combination:
• Substantial acquisition costs were incurred in the year for which activity had to be suspended;
• The changes to working practices outlined above resulted in some loss of productivity, particularly
at the early stages of the pandemic;
• Whilst no works were cancelled as a result of Coronavirus, some projects had mobilisation
delayed at clients’ request resulting in activity being deferred into the following FY21; and
• Levels of short-term “win and do” orders were lower than normal from March onwards..
The financial impact of the above has been partially offset by components of the Group qualifying
for Jobkeeper payments of $4.1m. The business development pipeline is currently not showing any
material impact from Coronavirus.
As we have seen over recent months, the pandemic remains a highly volatile situation and conditions
may change. The Board and management continue to monitor this closely.
Graeme Dunn - Managing Director
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2018 Annual Report MANAGING DIRECTOR'S REVIEW (CONTINUED)
FINANCIAL RESULTS
Revenue for the year was $415.1m compared to $386.0m in the prior year, an increase of 8%.
SCEE now operates across the three broad sectors of Infrastructure, Commercial and Resources. Infrastructure now also includes works
that in previous years SCEE presented separately as “Telecommunications & Datacentres” and “Industrial, Energy & Utilities”. Key revenue
contributors in the year for each sector were as follows:
• Infrastructure – revenue for the year was $196.0m compared to $183.3m in the prior year and remained the Group’s largest sector. In
transport infrastructure, work finished on the WestConnex M5 motorway tunnel project in New South Wales and the Northlink Central
Section Project in WA and is ongoing at the Forrestfield Airport Link project in WA. In the health sector, the Westmead Hospital project
in New South Wales is nearing completion and work commenced under the recently awarded maintenance panel arrangements with
a number of Metropolitan Health Services in WA. In defence, the RAAF Tindal project in the Northern Territory has now finished. In
telecommunications, NBN and carrier network construction and maintenance works continued across Australia. In energy and utilities,
work continued under the Ergon Energy Queensland service agreement and was completed on the Agnew Wind Farm project in WA.
• Commercial – revenue for the year was $172.8m compared to $114.5m in the prior year. The majority of revenue in the sector continues to
be generated in the New South Wales market on a range of large construction and fit-out projects including Parramatta Square 3 and 4
which are nearing completion, Wynyard Place, 231 Elizabeth Street and the Edmondson Square Town Centre Development.
• Resources – revenue for the year was $46.2m compared to $88.2m in the prior year as a result of large scale construction projects
demobilising in the prior year and significant new projects at the Albemarle Kemerton Lithium Project in WA and Rio Tinto’s Gove
Operations in the Northern Territory not commencing until late in the current year. In particular, the Kemerton project saw
planned scope deferred into FY21 impacting on the current full year result. The business continued to win and perform minor
works projects for Rio Tinto and BHP and secure work under its framework agreements on the Sino Iron and Boddington Gold
projects.
Gross margins for the year fell to 10.7% compared to 12.3% in the prior year, primarily due to the Coronavirus impacts
discussed above and experiencing lower average margins on finished transport infrastructure projects resulting from delays
and disruptions experienced performing this work.
Overheads were $23.4m, down 9% from $25.7m in the prior year due to the impact of efficiency initiatives introduced in
the prior year and no Executive STI or LTI awards in the current year.
EBIT for the year was $16.4m, representing a 16% decrease on the EBIT of $19.4m in the prior year. Net profit after
tax was $10.9m, down 14% compared to $12.7m in the prior year.
The balance sheet remained strong throughout the period. Net cash at 30 June 2020 increased slightly to
$55.3m with no debt. The payment of the final $6.5m tranche of deferred Heyday acquisition consideration
was offset by positive operating cashflows whilst the payment of the FY19 dividend was funded by an
underwritten Dividend Reinvestment Plan.
During the year SCEE continued to pursue commercial close out of various finished resources and
infrastructure projects for which claims and variations have been recognised in contract assets. The
Decmil arbitration process, previously disclosed to the ASX, is now at the pleadings stage.
Capital expenditure for the year was $0.6m and is expected to remain at low levels.
The new leasing accounting standard AASB 16 Leases was adopted on 1 July 2019 and resulted
in the recognition of $5.6m of right of use assets and $5.6m of lease liabilities in respect of
operating leases. The impact that the new standard had on income statement was that
EBITDA increased by $2.2m, EBIT increased by $0.1m and there was no change to NPAT.
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.
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2020 Annual Report MANAGING DIRECTOR’S REVIEW (CONTINUED)
OUTLOOK
Order Book
The Group continues to win work across its core markets. Significant awards during the year included the
Albemarle Kemerton Lithium project ($65m), the Sydney Metro’s Pitt Street Station integrated development
($40m) and the renewal of the Ergon Energy Queensland service agreement for a further five years ($40m).
The order book at 30 June 2020 was $440m, a similar level to the start of the period despite delivering record
full year revenues. Over $330m of work is already secured for FY21 representing over 80% of the FY21 target of
$400m.
There are currently over $900m of submitted tenders with clients pending decision.
Markets
Infrastructure
This market is primarily driven by government expenditure although some sectors have varying levels of private
investment.
With significant investment sanctioned, peak activity is still to come with electrical work generally later in the
cycle. Following the Coronavirus outbreak the Federal, NSW and WA governments have all announced the
fast tracking of infrastructure projects which are expected to further grow the opportunity pipeline.
Having secured work on the Pitt Street Station during the year we see further opportunities presenting
on Sydney Metro. There continues to be a significant pipeline of defence base and hospital work.
Commercial
Commercial remains the largest component of the order book with multiple base-builds and
fit-outs in progress in Sydney and Canberra and activity is forecast to remain high in FY21. The
current opportunity pipeline is not showing material impact from Coronavirus and significant
commercial developments are expected around new infrastructure hubs including the
Western Sydney Airport and new Sydney Metro stations. The Group is bidding its first
commercial project in Brisbane.
Resources
As forecast, resources activity reached a low point in FY20. However, significant
wins at the Kemerton Lithium Plant and Rio Tinto Gove have seen the order book
almost double from a year ago. Mining commodity prices have held up well
through the Coronavirus outbreak and the resources business development
pipeline is increasingly strengthening. A number of tenders for significant
iron ore and other opportunities have been submitted and are pending
decisions.
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2020 Annual Report MANAGING DIRECTOR’S REVIEW (CONTINUED)
Strategy
SCEE primarily sees itself as an electrical contractor. Historically focussed in resources, over the last five years
we have implemented a strategy to diversify organically and acquisitively into a national Group operating
across the three broad sectors of Infrastructure, Commercial and Resources.
Our growth strategy continues so as to deepen our presence in those sectors and broaden our
geographic diversity. This includes particularly targeting maintenance and recurring earnings.
We are actively pursuing acquisition opportunities having suspended such activity at the start of the
Coronavirus pandemic.
Conclusion
FY20 saw SCEE deliver a third consecutive year of record revenues with growth of 8% on
the prior year. While profit in the year was impacted by Coronavirus and other factors, the
business remains in a strong position. The order book includes $330m already secured for
FY21 which underpins over 80% of our 2021 revenue target and we continue to see a
significant pipeline of opportunities across our sectors.
The Board remains committed to our diversification strategy and with over $55m of
cash and no debt at 30 June 2020 we have funding available to progress this in the
year ahead.
I would like to take this opportunity to thank SCEE’s management and staff
for their hard work and commitment during the year, particularly in facing
the challenges posed by the Coronavirus pandemic. I would also like to
thank our shareholders for their continued support.
Graeme Dunn
Managing Director
2020 Annual Report
11
DIRECTORS’ REPORT
Your Directors submit their report for Southern Cross Electrical Engineering Limited
(“SCEE” or “the Company”) for the year ended 30 June 2020.
David Hammond, Karl Paganin, Simon Buchhorn, Derek Parkin, Graeme Dunn, Chris Douglass and Colin Harper.
Directors
The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows.
Directors were in office for this entire period unless otherwise stated.
Name and independence status
Experience, qualifications, special responsibilities and other directorships
Derek Parkin OAM
Independent Chairman and
Non-Executive Director
Derek is a Fellow of the Institute of Chartered Accountants Australia and New Zealand (CAANZ) and a Fellow
of the Australian Institute of Company Directors.
He is currently Professor of Accounting at the University of Notre Dame Australia, having previously been an
assurance partner with Arthur Andersen and Ernst & Young. Derek’s accounting experience has spanned over
40 years and four continents, primarily in the public company environment.
Derek is a past national Board member of the Institute of Chartered Accountants Australia (“ICAA”) and has
served on a number of the ICAA's national and state advisory committees. In 2011, he was a recipient of the
ICAA's prestigious Meritorious Service Award.
Derek's non-executive directorships to date have been in the non-listed sphere, principally in the oil & gas and
manufacturing sectors. He has also chaired a number of advisory committees in both the government and
not-for-profit sectors.
Derek is the Chairman of the Audit and Risk Management Committee and a member of the Nomination and
Remuneration Committee.
Derek was awarded the Medal of the Order of Australia in the 2015 Australia Day honours list. The award
recognised Derek’s service to accountancy through a range of professional, academic, business and advisory
roles.
Graeme Dunn
Managing Director and
Chief Executive Officer
Graeme has over 25 years international experience in heavy civil infrastructure, mining, oil & gas and building
projects. Graeme’s strong technical knowledge, coupled with his extensive executive management experience,
has seen him hold senior management positions throughout Australasia and the Middle East.
Graeme has a Bachelor of Civil Engineering from the University of Sydney, an MBA from the University of
Southern Queensland and has completed the Senior Executive Program from the London School of Business.
He is also a graduate of the Australian Institute of Company Directors.
12
2020 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
Executive Officers
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 focused 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 the Non-Executive Chairman of ASX listed Veris Limited and was a Non-Executive Director of
Poseidon Nickel Limited until 30 June 2020.
David was a vending shareholder of Heyday5 Pty Ltd and was appointed to SCEE’s Board as an Executive
Director on completion of the acquisition of Heyday by SCEE in March 2017.
David has more than 35 years’ electrical contracting experience and has been involved in the Heyday business
for over 20 years. During his tenure, David has held various positions up to and including his current role of
Executive Director where his responsibilities include driving business development.
The names and details of the Company’s Executive Officers during the financial year and until the date of this report are as follows.
Executive Officers were in office for this entire period unless otherwise stated.
Name
Experience and qualifications
Chris Douglass
Chief Financial Officer and
Company Secretary
Prior to joining SCEE in 2011 Chris was the Chief Financial Officer at Pacific Energy Ltd and has previously held
a number of senior finance roles with Clough Ltd.
Chris, a Chartered Accountant and member of the Governance Institute of Australia, commenced his finance
career with Deloitte. Prior to his time with Deloitte, Chris qualified and practiced as a solicitor in London.
Colin Harper
Company Secretary
Colin is a Chartered Accountant with over 15 years experience in public company finance. Colin is also a
member of the Governance Institute of Australia.
Prior to joining SCEE in 2012 Colin was the Chief Financial Officer and Company Secretary of FAR Limited and
previously worked for Ernst & Young in both Australia and the UK.
13
2020 Annual Report DIRECTORS’ REPORT (continued)
Directors’ interests
As at the date of this report, the relevant interests of the directors in the shares and rights or options over shares issued by the Company are as
follows:
Derek Parkin
Graeme Dunn 1
Simon Buchhorn
Karl Paganin
David Hammond
Director
Ordinary shares
Rights over
ordinary shares
Options over
ordinary shares
105,492
1,561,546
800,000
1,467,852
3,729,544
-
1,737,267
-
-
-
-
-
-
-
-
1 Included in the Performance Rights held by Graeme Dunn are 570,175 2018 Performance Rights which have been performance tested on finalising the
2020 results and which did not vest and will be forfeited.
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
16
16
16
16
16
16
16
16
16
16
4
-
4
4
-
4
-
4
4
-
3
-
3
3
-
3
-
3
3
-
The number of meetings held represents the time the director held office or was a member of the committee during the year.
Principal Activities
The principal activities during the year of the entities within the consolidated group were the provision of 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.
14
2020 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 8.
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 2019
Declared after balance date and not recognised as a liability
(fully franked at 30%)
Final franked dividend for 2020
Significant Events after Balance Sheet Date
2020
$’000
415,104
10,870
2019
$’000
386,031
12,713
Cents per share
Total amount
$’000
3.0
3.0
7,042
7,428
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.
Since 30 June 2020, the Group has not had a significant adverse operational or financial impact as a result of the Coronavirus pandemic. The
Group’s operations have been classified as essential services and are continuing to run in line with the required safety and health guidelines.
The extent of any future impact of the pandemic on the Group’s operational and financial performance will depend on certain developments,
including the duration and spread of the outbreak, regulations imposed by governments with respect to the outbreak response and impacts
on customers, employees and vendors—all of which are uncertain and cannot be predicted at this time.
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 2020 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, 655,034 shares were issued from the exercise of options or performance rights previously granted as
remuneration.
Further details are contained in note 26 to the accounts.
Indemnification and Insurance of Directors and Officers
During or since the end of the financial year, the Company has paid premiums in respect of a contract insuring all the directors of the
Company against a liability incurred in their role as directors of the Company, except where:
a)
b)
the liability arises out of conduct involving a wilful breach of duty; or
there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.
The total amount of insurance contract premiums paid was $248,552 (2019: $174,963).
15
2020 Annual Report DIRECTORS’ REPORT (continued)
Proceedings on Behalf of Company
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the
Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.
The Company was not a party to any such proceedings during the year.
Non-audit Services
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 79 and forms part of the Directors’ report for the financial year ended 30 June
2020.
Remuneration Report
The Remuneration Report is set out on pages 17 to 24 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
29 September 2020
16
2020 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.
17
2020 Annual Report REMUNERATION REPORT – AUDITED (continued)
Variable Remuneration – Short Term Incentive (STI)
The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the
executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the
executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances.
Actual STI payments granted to each executive depend on the extent to which specific targets as set at the beginning of the financial year
are met. The targets consist of a number of Key Performance Indicators (“KPIs”) covering both financial and non-financial measures of
performance.
For the year ended 30 June 2020, 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.
Executives can earn up to a maximum of 50% of their fixed remuneration under the STI program. Graeme Dunn and Chris Douglass are the
only KMPs that participate in the STI program.
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.
Executives can be issued with performance rights under the LTI plan up to a maximum of 50% of their fixed remuneration converted at the
5 day volume weighted average price of the Company’s ordinary shares at the start of the three year performance period. Graeme Dunn and
Chris Douglass are the only KMPs that participate in the LTI plan.
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.
18
2020 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
2020
$’000
10,870
7,042
(19%)
10%
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%
19
2020 Annual Report REMUNERATION REPORT – AUDITED (continued)
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s
a
l
g
u
o
D
s
i
r
h
C
s
e
v
i
t
u
c
e
x
E
.
8
1
0
2
r
e
b
o
t
c
O
0
3
d
e
r
i
t
e
R
1
0
2
0
2
l
a
t
o
T
9
1
0
2
l
a
t
o
T
REMUNERATION REPORT – AUDITED (continued)
Notes in relation to the table of directors’ and executive officers’ remuneration
A.
B.
The STI cash bonus is for the achievement of KPIs in respect of the financial year. The amount is finally determined after the
results for the year have been audited and performance reviews are completed and approved by the Nomination and Remuneration
Committee and Board.
The fair value of the 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 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 performance rights recognised in this reporting period. The credit recognised in the
current financial year is the result of a reversal of expenses recognised in previous financial years for performance rights which are
no longer expected to meet the non-market performance conditions.
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
David Hammond
6 months
6 months
3 months
The Group retains the right to terminate a contract immediately by making a payment in lieu of the notice period. An executive may be
terminated immediately for a breach of their employment conditions. Upon termination the executive is entitled to receive their accrued
annual leave and long service leave together with any superannuation benefits. There are no other termination payment entitlements.
21
2020 Annual Report
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 2019
Granted as
remuneration
Vested and
exercised
Forfeited
Held at 30 June 2020
Vested and
exercisable at
30 June 2020
Graeme Dunn
Chris Douglass
1,636,313
969,200
702,806
403,878
(300,926)
(300,926)
(178,240)
(178,241)
2,605,513
1,106,684
(479,166)
(479,167)
1,737,267
1,016,597
2,763,864
-
-
-
Performance rights granted as remuneration in 2020
During the period performance rights over ordinary shares in the company were granted as remuneration to KMP. These performance rights will
vest subject to the meeting of performance set out below. Details on performance rights that were granted during the period are as follows:
Fair value per
performance right
at grant date ($)
Exercise price per
performance right ($)
Performance
testing date
Expiry
Date
0.49
0.29
0.49
0.29
0.00
0.00
0.00
0.00
30/6/22
30/6/22
30/6/22
30/6/22
8/11/23
8/11/23
8/11/23
8/11/23
Executive
Instrument
Number
Grant date
Graeme Dunn1
Graeme Dunn2
Chris Douglass1
Chris Douglass2
2020 Rights
2020 Rights
2020 Rights
2020 Rights
351,403
351,403
201,939
201,939
1,106,684
8/11/19
8/11/19
8/11/19
8/11/19
1 Performance rights granted with EPS growth as the vesting condition
2 Performance rights granted with Absolute TSR as the vesting condition
2020 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 2019 to 30 June 2022 (“Performance Period”);
• No performance rights will vest until 30 June 2022;
• 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
22
2020 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 performance will be measured in the 2022 financial year. For the purposes of performance testing the Performance Rights, EPS in the
2022 financial year will be the Basic EPS for the year, as prescribed by the accounting standards and set out in the Company's Financial
Reports, adjusted to remove the following non-cash items from the calculation of profit or loss attributable to ordinary shareholders in the
year, in order to reflect the companies underlying profitability:
(a) amortisation of acquired intangibles;
(b) unwinding of interest on deferred acquisition consideration payments;
(c)
adjustments to the assessment of deferred consideration payable; and
(d) acquisition costs.
EPS, as described above, will be assessed against targets for threshold performance of 6.8 cents per share in the 2022 financial year and
for stretch performance of 7.6 cents per share in the 2022 financial year. The vesting schedule is as follows for EPS performance in the 2022
financial year:
Less than 6.8 cents per share
6.8 cents per share
0% vesting
50% vesting
Between 6.8 and 7.6 cents per share
Pro-rata vesting between 50% and 100%
At or above 7.6 cents per share
100% vesting
Once the performance measurement calculation has been finalised the company will allot and issue the equivalent number of shares at nil
consideration on the basis of one ordinary share per vested performance right for all performance rights exercised.
Where a participant ceases employment prior to the vesting of their share options or performance rights, the share options or performance
rights are forfeited unless in the event of retirement, permanent disablement or death the Board, at their 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.
23
2020 Annual Report 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
2017 Rights
601,852
18/11/16
50%
50%
2018 Rights (A)
570,175
2019 Rights (B)
464,286
2020 Rights (C)
702,806
7/11/17
9/11/18
8/11/19
-
-
-
-
-
-
2017 Rights
356,481
18/11/16
50%
50%
2018 Rights (A)
337,719
2019 Rights (B)
275,000
2020 Rights (C)
403,878
7/11/17
9/11/18
8/11/19
-
-
-
-
-
-
30/6/19
30/6/20
30/6/21
30/6/22
30/6/19
30/6/20
30/6/21
30/6/22
18/11/20
7/11/21
9/11/22
8/11/23
18/11/20
7/11/21
9/11/22
8/11/23
A.
B.
50% of the 2018 performance rights have TSR as the vesting condition with a threshold target of 8% per annum compounded and a stretch target of
12% per annum compounded. These performance rights have a fair value of $0.53 each. 50% of the 2018 performance rights have EPS growth as the
vesting condition with a threshold target of 5.7 cents per share and a stretch target of 6.1 cents per share. These performance rights have a fair value
of $0.75 each. Subsequent to 30 June 2020 the vesting conditions in respect of the 2018 performance rights have been performance tested and it has
been determined that none of the performance rights held by Mr Dunn and Mr Douglass have vested and as a result all 2018 performance rights will be
forfeited.
50% of the 2019 performance rights have TSR as the vesting condition with a threshold target of 8% per annum compounded and a stretch target of
12% per annum compounded. These performance rights have a fair value of $0.29 each. 50% of the 2019 performance rights have EPS growth as the
vesting condition with a threshold target of 6.1 cents per share and a stretch target of 6.8 cents per share. These performance rights have a fair value of
$0.59 each.
C.
The vesting conditions and fair values of the 2020 performance rights are set out above.
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
Held at
30 June 2019
Purchases
Sales
Exercise of
Performance
RightsA
Dividend
Reinvestment
Plan
Held at
30 June 2020
100,000
1,260,620
800,000
822,668
-
-
-
600,000
-
-
-
-
-
300,926
-
-
-
5,492
-
-
45,184
-
105,492
1,561,546
800,000
1,467,852
3,729,544
David Hammond
6,870,040
100,000
(3,240,496)
Executives
Chris Douglass
1,180,743
-
178,240
74,640
1,433,623
A. Shares were received during the year on the exercise of vested 2017 Performance Rights issued under the company’s senior management long term
incentive scheme as discussed above.
Transactions with key management personnel
There were no transactions between the company and Key Management Personnel during the year. There are no loans between the
company and Key Management Personnel.
24
Ordinary shares
Directors
Derek Parkin
Graeme Dunn
Simon Buchhorn
Karl Paganin
2020 Annual Report CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2020
Contract revenue
Contract expenses
Gross profit
Other income
Employee benefits expenses
Occupancy expenses
Administration expenses
Reduction in earn out payable
Amortisation expense
Depreciation expense
Other expenses from ordinary activities
Profit from operations
Finance income
Finance expenses
Net finance expense
Profit/(loss) before tax
Income tax (expense)/benefit
Profit/(loss) from continuing operations
Other comprehensive income
Items that are or may be reclassified to the profit and loss:
Foreign currency translation gain for foreign operations
Other comprehensive income net of income tax
Total comprehensive income
Total comprehensive income attributable to:
Owners of the Company
Earnings per share:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Note
4
5
6
5
8
8
7
7
9
2020
$’000
415,104
(370,579)
44,525
492
(13,155)
(1,235)
(7,489)
-
(2,153)
(3,001)
(1,566)
16,418
310
(1,259)
(949)
2019
$’000
386,031
(338,485)
47,546
353
(15,239)
(2,308)
(6,212)
1,489
(797 )
(3,496)
(1,983)
19,353
530
(1,703)
(1,173)
15,469
18,180
(4,599)
10,870
(5,467)
12,713
-
-
-
-
10,870
12,713
10,870
12,713
10
10
4.46
4.46
5.44
5.40
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
25
2020 Annual Report
CONSOLIDATED BALANCE SHEET
For the year ended 30 June 2020
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Provisions
Lease liability
Deferred acquisition consideration
Tax payable
Total current liabilities
Non-current liabilities
Lease liability
Provisions
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
The above balance sheet should be read in conjunction with the accompanying notes.
26
Note
2020
$’000
2019
$’000
11
12
13
15
16
17
18
20
19
21
9
19
20
9
22
22
55,272
113,073
1,588
901
170,834
11,148
5,967
73,792
90,907
261,741
75,278
9,114
1,749
-
4,031
90,172
53,257
103,950
2,335
1,693
161,235
14,827
-
73,794
88,621
249,856
77,188
9,762
-
6,500
-
93,450
4,218
-
197
8,781
13,196
103,368
158,373
416
8,282
102,148
102,148
147,708
109,767
102,873
108
48,498
158,373
551
44,284
147,708
2020 Annual Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
Share
Capital
$’000
Retained
Earnings
$’000
Share Based
Payments Reserve
$’000
Translation Reserve
$’000
Total Equity
$’000
Balance as at 1 July 2018
102,873
36,488
2,263
(514)
141,110
Total comprehensive loss for the period
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
-
-
-
-
-
-
Balance as at 30 June 2019
102,873
12,713
12,713
(7,022)
2,105
-
(4,917)
44,284
-
-
-
(1,744)
546
(1,198)
1,065
-
-
-
-
-
-
12,713
12,713
(7,022)
361
546
(6,115)
(514)
147,708
Share
Capital
$’000
Retained
Earnings
$’000
Share Based
Payments Reserve
$’000
Translation
Reserve
$’000
Total Equity
$’000
Balance as at 1 July 2019
102,873
44,284
1,065
(514)
147,708
Total comprehensive income for the period
Profit for the year
Total comprehensive income
-
-
10,870
10,870
Transactions with owners, recorded directly in equity
Dividends
-
(7,042)
Dividend re-investment and share placements, net
6,894
Performance rights (net of tax)
Equity-settled share-based payment
Total transactions with owners
Balance as at 30 June 2020
-
-
6,894
109,767
-
386
-
(6,656)
48,498
-
-
-
-
(1,013)
570
(443)
622
-
-
-
-
-
-
-
10,870
10,870
(7,042)
6,894
(627)
570
(205)
(514)
158,373
The above statement of changes in equity should be read in conjunction with the accompanying notes.
27
2020 Annual Report CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Government grants (Job Keeper) received
Interest received
Interest paid
Income taxes received/(paid)
Net cash from operating activities
Non-current assets
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
Proceeds from issue of shares
Dividends paid
Payment of lease liabilities principal
Net cash used in financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 30 June
The above cash flow statement should be read in conjunction with the accompanying notes.
Note
27
21
15
22
11
2020
$’000
424,081
(415,673)
2,655
310
(1,259)
(5)
10,109
(6,500)
1,362
(594)
(5,732)
6,831
(7,042)
(2,151)
(2,362)
2,015
53,257
-
55,272
2019
$’000
366,904
(356,608)
-
530
(1,291)
1,195
10,730
(6,500)
49
(2,076)
(8,527)
-
(7,022)
-
(7,022)
(4,819)
58,076
-
53,257
28
2020 Annual Report INDEX TO NOTES TO THE FINANCIAL STATEMENTS
22. Capital and reserves
23. Financial instruments
24. Investments in subsidiaries
25. Interest in joint operations
26. Share-based payments
27. Reconciliation of cash flows from operating activities
28. Contingencies
29. Subsequent events
30. Auditor’s remuneration
31. Parent entity disclosures
32. Related parties
33. Significant accounting policies
34. Determination of fair values
45
46
51
52
52
55
56
56
56
57
57
58
72
1. Reporting entity
2. Basis of preparation
3. Segment reporting
4. Contract revenue
5. Other income
6. Employee benefits expenses
7. Finance income and expenses
8. Depreciation and amortisation expenses
9.
Income tax expense
10. Earnings per share
11. Cash and cash equivalents
12. Trade and other receivables
13. Inventories
14. Contract assets
15. Property, plant and equipment
16. Right-of-use assets
17. Intangible assets – goodwill and customer contracts
18. Trade and other payables
19. Lease liability
20. Provisions
21. Deferred acquisition consideration
30
30
31
32
33
33
34
34
35
37
38
38
39
39
40
41
42
43
43
44
44
29
2020 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 Securities Exchange.
The consolidated financial statements for the year ended 30 June 2020 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(w).
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 29 September 2020.
(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.
30
2020 Annual Report 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.
The significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2019 except for the
judgement management used for the initial recognition on 1 July 2019 and subsequent measurement of right-of-use asset and lease liability
in accordance with the newly adopted AASB 16 Leases (see note 33).
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 these accounting estimates is included in the following
notes:
• Note 4 and 33 (n) –estimation of total contract cost and measurement of variable consideration;
• Note 9 and 33 (p) and (k) – recognition and measurement of deferred tax asset;
• Note 15, 17 and 33 (k) – recoverable amount for testing property, plant and equipment and goodwill;
• Note 16, 19, 33 and (g) – initial and subsequent measurement of Right-of-use (ROU) assets and Lease liability;
• Note 21 and 33 (u) – measurement of deferred consideration;
• Note 23 – expected credit losses (“ECLs”) on trade receivables; and
• Note 26 – measurement of share-based payments;
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements
relate to contract revenue (note 33(n) and 4) and contract assets (note 33(i) and 14).
Estimates and judgements are made by management with due consideration for the historical and potential impacts of Coronavirus on the
Group’s operations and forecast cash flows based on best estimates and reasonably possible scenarios, and taking into account the evolving
nature of Coronavirus which makes it inherently difficult to forecast outcomes with more certainty. The impacts of Coronavirus are included
in the specific notes such as but not limited to impairment testing and impairment of financial instruments (note 23) and non-financial assets
(note 17).
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 through construction and services contracts to
customers in the following sectors: Commercial; Resources; and Infrastructure. During the year, the composition of the operating sectors
was realigned to better reflect the Group’s markets. As a result, the Public Infrastructure and Defence, Industrial, Utilities and Energy, and
Telecommunications and Data Centres sectors were consolidated into the Infrastructure sector.
The Group identified its operating segments based on the internal reports that are reviewed and used by the Group Managing Director in
assessing performance and in determining the allocation of resources, and on the nature of the services provided. Financial information
about each of these operating segments is reported to the Group Managing Director on a recurring basis. The Group provides its services
through 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.
In presenting information on the basis of geographical location, segment revenue, based on the geographical location of customers and
segment assets, based on the geographical location of the assets are all located in Australia.
Revenues from the three largest customers of the Group’s Australian segment generated $169 million of the Group’s total revenue (2019:
$64 million generated from the two largest customers).
31
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
4. Contract revenue
Disaggregated revenue information
Operating sectors
Commercial
Resources
Infrastructure
Total Revenue
Revenue type
Construction revenue
Services revenue
Total revenue
Timing of revenue recognition
Products and services transferred over time
Revenue from contracts with customers
Note
2020
$’000
172,755
46,209
196,140
415,104
341,856
73,248
415,104
2019
$’000
114,469
88,207
183,355
386,031
297,782
88,249
386,031
415,104
415,104
386,031
386,031
Revenue from the Infrastructure sector amounting to $196.1m (2019: $183.4m) represents the revenues from sectors previously disclosed as
three separate sectors namely; Public Infrastructure and Defence, Industrial, Utilities and Energy, and Telecommunications and Data Centres,
in the annual report as at and for the year ended 30 June 2019.
Contract balances
Trade receivables
Contract assets
12
14
24,324
86,374
110,698
36,995
64,273
101,268
Trade receivables are non-interest bearing and are generally on 30 to 45 days term. In 2020, an additional $32,000 (2019: $ nil) was recognised
as provision for expected credit losses on trade receivables.
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.
The following amounts are included in revenue from contracts for the year ended 30 June 2020:
Revenue recognised as a contract liability in prior period
13,052
15,687
Unsatisfied Performance Obligations
Transaction price expected to be recognised in future years for unsatisfied performance obligations at 30 June 2020:
Construction revenue
Services revenue
296,540
59,472
356,012
347,550
21,868
369,418
32
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
4. Contract revenue (continued)
Disaggregated revenue information (continued)
In line with the Group’s accounting policy described in Note 33 (n), the transaction price expected to be recognised in future years excludes
variable consideration that is constrained.
The average duration of contracts is given below. However, some contracts will vary from these typical lengths. Revenue is typically earned
over these varying timeframes:
1 to 2 years
1 to 5 years
Construction revenue
Services revenue
5. Other income
Other income
Net gain on disposal of assets
Rebates received
Other
Reduction in earn out payable
Reduction in earn out payable
6. Employee benefits expenses
Remuneration, bonuses and on-costs
Superannuation contributions
Amounts provided for employee entitlements
Share-based payments expense
Government grant (Job Keeper) applied
Note
2020
$’000
90
10
392
492
-
21
2019
$’000
23
36
294
353
1,489
Note
2020
$’000
2019
$’000
(12,035)
(12,573)
(903)
(1,016)
56
743
(978)
(1,142)
(546)
-
(13,155)
(15,239)
26
The above employee benefits expenses do not include employee benefits expenses recorded within contract expenses. Employee benefits
included in contract expenses were $76.3m (2019: $115.8m), inclusive of Government grant (Job Keeper) applied amounting to $3.3m. The
total employee benefits expense is therefore $89.5m (2019: $131.0m).
33
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
7. Finance income and expenses
Interest income on bank deposits
Finance income
Interest expense
Bank charges
Bank guarantee fees
Deferred consideration
Lease liability interest unwinding
Other
Finance expenses
Net finance expense
8. Depreciation and amortisation expenses
Buildings
Leasehold improvements
Plant and equipment
Motor vehicles
Office furniture and equipment
Total depreciation expense for the year
Amortisation of ROU asset
Amortisation of customer contract intangibles
Other
Total amortisation expense for the year
Note
2020
$’000
2019
$’000
310
310
(604)
(406)
-
(146)
(103)
(1,259)
(949)
530
530
(573)
(573)
(411)
-
(146)
(1,703)
(1,173)
21
Note
2020
$’000
2019
$’000
(17)
(196)
(1,115)
(768)
(905)
(3,001)
(2,151)
-
(2)
(2,153)
(17)
(195)
(1,358)
(1,015)
(911)
(3,496)
-
(795)
(2)
(797)
15
16
17
17
34
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
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
2020
$’000
(4,037)
-
(4,037)
(562)
-
(4,599)
(63)
(63)
2019
$’000
-
(2)
(2)
(5,114)
(351)
(5,467)
-
-
(c) Reconciliation between tax expense and pre-tax accounting profit
Accounting profit before income tax
15,469
18,180
Income tax expense using the Company’s domestic tax rate of 30%
(4,641)
(5,454)
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:
-
126
-
-
(84)
(4,599)
29.7%
447
419
(239)
(124)
(516)
(5,467)
30.1%
35
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
9. Income tax expense (continued)
Deferred tax assets and liabilities
Deferred tax liabilities
Retentions receivable
Contract assets
Right-of-use assets
Long term contracts adopting estimated profits basis
Sundry debtors
Property, plant and equipment
Deferred tax assets
Provisions
Employee entitlements
Property, plant and equipment
Unearned revenue
Lease liability
Tax losses
Other
Net deferred tax liabilities
Balance Sheet
Income Statement
Equity
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
2019
$’000
(339)
(488)
(149)
172
(12,847)
(15,887)
(3,040)
5,326
(1,790)
-
(432)
(23)
-
-
-
(23)
1,790
-
432
-
(824)
-
-
(15,431)
(16,398)
(967)
4,674
73
63
3,203
3,470
19
550
1,790
-
1,015
6,650
8,781
19
125
-
3,747
692
8,116
(8,282)
(10)
267
-
(425)
(1,790)
3,747
(260)
1,529
562
71
409
-
215
(214)
(41)
440
5,114
-
-
-
-
-
-
-
-
-
-
-
(63)
(63)
(63)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36
2020 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 2020 was based on the profit attributable to ordinary shareholders of $10,870,000
(2019: $12,713,000) and a weighted average number of ordinary shares outstanding of 243,919,677 (2019: 233,583,111), calculated as follows:
Profit/(loss) attributable to ordinary shareholders
Profit/(loss) for the period
Weighted average number of ordinary shares
Note
2020
$’000
10,870
2019
$’000
12,713
Note
2020
2019
Issued ordinary shares at 1 July
22
234,067,408
231,389,097
Effective new balance resulting from issue of shares in the year
Weighted average number of ordinary shares at 30 June
9,852,269
243,919,677
2,194,014
233,583,111
Diluted earnings per share
Basic earnings per share and diluted earnings per share are the same at 30 June 2020 as there are no dilutive potential shares. In 2019,
the calculation of diluted earnings per share was based on the profit attributable to ordinary shareholders of $12,713,000 and a weighted
average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 235,364,018 as at
30 June 2019.
Profit attributable to ordinary shareholders (diluted)
Profit for the period
Weighted average number of ordinary shares (diluted)
Note
2020
$’000
10,870
2019
$’000
12,713
Note
2020
2019
Weighted average number of ordinary shares for basic earnings per
share
243,919,677
233,583,111
Effect of dilution:
Share options and performance rights on issue
Weighted average number of ordinary shares at 30 June
-
1,780,907
243,919,677
235,364,018
37
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
11. Cash and cash equivalents
Bank balances
Short term deposits
Cash and cash equivalents in the statement of cash flows
Notes
2020
$’000
10,544
44,728
55,272
2019
$’000
24,157
29,100
53,257
The effective interest rate on cash and cash equivalents was 0.7% (2019: 1.2%); 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
Notes
2020
2019
14
24,324
1,358
(112)
86,374
1,129
-
36,995
237
(80)
64,273
1,628
897
113,073
103,950
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
Impairment losses recognised
Write-offs
Amounts recovered
Balance at 30 June
Notes
2020
$’000
80
502
(470)
-
112
2019
$’000
317
-
-
(237)
80
The ageing of trade receivables and the related provision for expected credit losses are detailed in note 23. All write-offs of bad debts are made
when there is no reasonable expectation of recovering the contractual cash flows.
38
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
13. Inventories
Raw materials and consumables – cost
14. Contract assets
Costs incurred to date
Recognised profit
Progress billings
Notes
Notes
2020
$’000
1,588
2020
$’000
237,968
70,701
2019
$’000
2,328
2019
$’000
220,421
50,178
(222,295)
(206,326)
86,374
64,273
Contract assets 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.
The timing of cash inflows for contract assets is dependent on the status of processes underway to gain acceptance from customers as
to the enforceability of recognised modifications resulting from contractual claims and variations. The Group pursues various options
with customers to accelerate the inflow of cash including, but not limited to, negotiations, security of payment adjudications and
arbitration involving the support of legal counsel and external consultants. Accordingly, there remains a risk that settlement of contract
assets takes longer than 12 months.
The period in which revenue has been earned and for which cash is yet to be received included in contract assets at 30 June 2020 is as
follows:
2020
2019
2018
Total
62,131
20,253
3,990
86,374
On 11 June 2020, the Group announced that it was pursuing Decmil Australia Pty Ltd in relation to amounts it considers entitled
pursuant to a contract for electrical services in which the Group had demobilised from site by the end of November 2018. In accordance
with its accounting policies, the Group has previously recognised revenue in relation to this contract, applying constraint. The amount is
included within contract assets.
39
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
15. Property, plant and equipment
Land and
Buildings
Leasehold
Improvements
Plant and
equipment
Motor
Vehicles
Office Furniture
and Equipment
Total
20,427
13,604
10,382
2,784
29
-
2,813
627
(130)
666
(70)
20,924
14,200
2,813
20,924
14,200
12
-
2,825
(841)
(195)
-
66
(2,704)
18,286
(14,736)
(1,358)
130
149
(2,480)
11,869
(9,188)
(1,015)
30
(1,036)
(15,964)
(10,173)
(1,036)
(196)
-
(15,964)
(10,173)
(1,115)
2,028
(768)
1,884
767
-
11,149
11,149
367
(166)
11,350
(6,907)
(911)
-
(7,818)
(7,818)
(905)
166
48,113
2,089
(200)
50,002
50,002
594
(5,350)
45,246
(31,839)
(3,496)
160
(35,175)
(35,175)
(3,001)
4,078
(1,232)
(15,051)
(9,057)
(8,557)
(34,098)
1,943
1,777
1,777
1,593
5,691
4,960
4,960
3,235
4,416
4,027
4,027
2,812
3,475
3,331
3,331
2,793
16,274
14,827
14,827
11,148
Cost
Balance at 1 July 2018
Additions
Disposals
Balance at 30 June 2019
Balance at 1 July 2019
Additions
Disposals
Balance at 30 June 2020
Depreciation and impairment losses
Balance at 1 July 2018
Depreciation for the year
Disposals
Balance at 30 June 2019
Balance at 1 July 2019
Depreciation for the year
Disposals
Balance at 30 June 2020
Carrying amounts
At 1 July 2018
At 30 June 2019
At 1 July 2019
At 30 June 2020
916
-
-
916
916
-
-
916
(167)
(17)
-
(184)
(184)
(17)
-
(201)
749
732
732
715
40
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
16. Right-of-use assets
The Group leases assets including property, motor vehicles and office furniture and equipment. Information about leased assets for
which the Group is a lessee is presented below:
Recognised on application of AASB 16
Additions
Remeasurement
Note
33
Land and
Buildings
$’000
4,213
262
1,671
Amortisation charged for the year
8
(1,238)
Derecognition during the year (net)
Closing carrying amount at 30 June 2020
-
4,908
Motor Vehicles
$’000
Office Furniture
and Equipment
$’000
1,181
332
244
(836)
-
921
215
0
0
(77)
-
138
Total
$’000
5,609
594
1,915
(2,151)
-
5,967
17.
Intangible assets – goodwill and customer contracts
Reconciliation of carrying amount
Cost
Balance as at 1 July 2018
Acquisitions
Balance as at 30 June 2019
Balance as at 1 July 2019
Acquisitions
Balance as at 30 June 2020
Amortisation and impairment losses
Balance as at 1 July 2018
Amortisation
Balance as at 30 June 2019
Balance as at 1 July 2019
Amortisation
Balance as at 30 June 2020
Carrying amounts
At 30 June 2019
At 30 June 2020
Note
Goodwill
$’000
Customer
Contracts
$’000
Other
$’000
Total
$’000
82,169
-
82,169
82,169
-
82,169
7,491
-
7,491
7,491
-
7,491
(8,390)
(6,696)
-
(8,390)
(8,390)
8
-
(8,390)
73,779
73,779
(795)
(7,491)
(7,491)
-
(7,491)
-
-
19
-
19
19
-
19
(2)
(2)
(4)
(4)
(2)
(6)
15
13
89,679
-
89,679
89,679
-
89,679
(15,088)
(797)
(15,885)
(15,885)
(2)
(15,887)
73,794
73,792
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:
41
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
17. Intangible assets – goodwill and customer contracts (continued)
SCEE
Datatel
Heyday
2020
$’000
8,784
12,298
52,697
73,779
2019
$’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 2020. The carrying amount of the operating segments were determined to be lower than their recoverable amounts and therefore no
impairment charge has been recognised.
The Group has paid particular attention to those indicators impacted by the Coronavirus pandemic. We have considered the effect of
the pandemic on our clients’ activities which may include resources commodity prices, commercial construction activity, awards of new
contracts, deferrals of existing contracts, disruptions to supply chain and disruptions to existing operations. The Group’s operations
were classified as essential services and whilst experiencing some initial disruption have subsequently continued to operate materially
unaffected. The management team continues to monitor and manage the impacts and risks arising from the global pandemic.
Value in use was determined by preparing five year discounted cash flow forecasts, and extrapolating the cash flows beyond the terminal
year using a terminal growth-rate. 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.
• The five year cash flow estimates used in assessments for all CGU’s were based on Board approved budgets for the year ending 30 June
2021. Growth assumptions thereafter are SCEE 0.0% (2019: 0.0%), Datatel 3.0% (2019: 4.7%) and Heyday -0.1% (2019: 3.6%) per annum
for each future year. The terminal value assumes perpetual growth of 2.5% (2019: 2.5%).
• The margins included in the projected cash flow are the same rate that has been achieved by projects commencing in 2020.
• A pre-tax discount rate between 12.0% and 13.4% (2019: between 9.4% and 13.2%) was applied. This discount rate was estimated based
on past experience and industry average weighted cost of capital.
Sensitivity to changes in assumptions
The value in use assessment for SCEE estimates a recoverable amount $3.2 million in excess of its carrying amount. This estimate is
sensitive to the realisation of the budgeted and forecast overall net cash flows to 2025. These forecasts reflect Board and management’s
expectations for future growth. In the event that the overall net cash flows are 10% 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 $1.9 million in excess of its carrying amount. This estimate
is sensitive to the realisation of the budgeted and forecast overall net cash flows to 2025. These forecasts reflect the Board and
management’s expectations for future growth. Testing of sensitivities performed in isolation from one another showed that:
• In the event that the overall net cash flows are 12% 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.
• An increase in the discount rate of 1.2 percentage points would result in the value in use being less than the carrying value.
• A reduction in the long term growth rate for the terminal year of 1.5 percentage points would result in the value in use being less than the
carrying value.
Management believes that any reasonable change in the key assumptions for the Heyday segment would not cause the carrying value to
exceed its recoverable amount.
42
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
18. Trade and other payables
Current
Trade payables
Contract liabilities
Accrued expenses
Retentions payable
Goods and services tax payable
2020
$’000
27,990
34,158
11,417
1,048
665
75,278
2019
$’000
45,186
13,367
17,436
270
929
77,188
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 23.
Contract liabilities
Current
Unearned revenue
2020
$’000
34,158
2019
$’000
13,367
Unearned revenue arises when the Group has invoiced the client in advance of performing the contracted services. Contract liabilities
fluctuate based on progress of completion of contracts.
19. Lease liability
Current
Current portion
Non-current portion
2020
$’000
1,749
4,218
5,967
2019
$’000
-
-
-
Expense relating to short-term and low value leases was $0.1 million. The weighted average discount rate used for the leases is 4.5%. The
average remaining lease term for the leased assets per underlying asset class as at 30 June 2020 are as follows:
Land and building
Motor vehicles
Office equipment
2020
(in years)
2.43
1.37
2.04
The Group made its initial application of the new AASB 16 ‘Leases’ on 1 July 2019 (note 33).
43
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
20. Provisions
Current
Annual leave
Long service leave
Other employee leave
Bonus
Non-current
Long service leave
2020
$’000
6,635
1,434
1,045
-
2019
$’000
7,021
1,054
1,187
500
9,114
9,762
197
197
416
416
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.
21. Deferred acquisition consideration
Deferred acquisition consideration movements
Balance at 1 July
Finance costs
Change in fair value of deferred consideration
Payments
Balance at 30 June
2020
$’000
2019
$’000
6,500
-
-
(6,500)
-
14,078
411
(1,489)
(6,500)
6,500
44
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
22. Capital and reserves
Share capital
Ordinary shares
Issued and fully paid
Movements in shares on issue
2020
2019
Note
Number
$’000
Number
$’000
247,614,481
109,767
234,067,408
102,873
Balance at the beginning of the financial year
234,067,408
102,873
231,389,097
102,873
Exercise of Employee performance rights
655,034
-
2,678,311
Issue of ordinary shares under dividend reinvestment
plan, net of transaction costs
12,892,039
6,894
-
-
-
Balance at the end of the financial year
247,614,481
109,767
234,067,408
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:
2020
Final 2019 ordinary
Total amount
2019
Final 2018 ordinary
Total amount
Cents per
share
Total amount
$’000
Franked
Date of
payment
3.00
3.00
7,042
7,042
7,022
7,022
Franked
10 October 2019
Franked
11 October 2018
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
45
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
22. Capital and reserves (continued)
Declared after end of year
Subsequent to 30 June 2020, a dividend of 3.00 cents per share in the amount of $7.4 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
2020
$’000
14,184
2019
$’000
17,202
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a)
(b)
franking credits that will arise from the payment of the current tax liabilities; and
franking debits that will arise from the payment of dividends recognised as a liability at the year end.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
23. 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
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
23. 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
Carrying amount
2020
$’000
55,272
26,699
86,374
-
168,345
2019
$’000
53,257
38,780
64,273
897
157,207
Cash
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. 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:
Australia
Carrying amount
2020
$’000
113,073
113,073
2019
$’000
103,053
103,053
47
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
23. Financial instruments (continued)
Impairment losses
The ageing of the Group’s trade receivables and contract assets at the reporting date was:
Note
Gross
2020
$’000
Impairment
2020
$’000
Contract assets – not past due
14
86,374
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
19,138
3,394
602
1,531
2,146
26,811
113,185
-
(2)
(3)
(0)
(1)
(106)
(112)
(112)
Gross
2019
$’000
64,273
27,081
5,775
2,187
3,600
217
38,860
103,133
Impairment
2019
$’000
-
-
-
-
-
(80)
(80)
(80)
The provision of $112,000 relates to expected credit losses. Impairment provision related to specific debts that are more than one year
overdue pertains to a small number of customers with the 2020 amount owing mostly paid subsequent to 30 June. The Group continues 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 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. To
date, the Group has not observed or expects to see material decline in its customers’ abilities to pay as a result of the Coronavirus pandemic
due in part to the nature of those customers, which mainly includes large private sector corporations and government organisations,
meaning the risk of default of receivables is low. Accordingly, no additional expected credit loss allowance pertaining to the Coronavirus
pandemic have been included.
48
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
23. 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 Group considers a financial asset’s potential for default when contractual payments are more than 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. Cash flow is
monitored by management using rolling forecasts and annual budgets that are reviewed monthly at the Board level.
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
More than
6 mths up
to 1 year
More than 1
year up to 2
years
$’000
More than
2 years up
to 5 years
$’000
More than 5
years
$’000
30 June 2020
Non-derivative financial liabilities
Trade and other payables
Lease liability
41,120
5,967
47,087
30 June 2019
Non-derivative financial liabilities
Trade and other payables
Deferred consideration
63,821
6,500
70,321
41,120
6,765
47,885
63,821
6,500
70,321
40,905
1,039
41,944
63,753
6,500
70,253
145
856
1,001
59
-
59
70
1,407
1,477
-
2,436
2,436
9
-
9
-
-
-
-
1,027
1,027
-
-
-
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return.
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional
currency in which they are measured. The Group has no material currency risk exposures at 30 June 2020 or 30 June 2019.
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.
49
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
23. 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
2020
$’000
2019
$’000
55,272
54,154
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 2020.
Profit or loss
Equity
100bp increase
100bp decrease
100bp increase
100bp decrease
$’000
1,093
1,093
1,001
1,001
$’000
(1,093)
(1,093)
(1,001)
(1,001)
$’000
$’000
-
-
-
-
-
-
-
-
30 June 2020
Variable rate instruments
Cash flow sensitivity (net)
30 June 2019
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 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
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
24. 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 (i)
Southern Cross Electrical Engineering Tanzania Pty Ltd
Southern Cross Electrical Engineering Ghana Pty Ltd
S&DH Enterprises Pty Ltd (i)
FMC Corporation Pty Ltd (i)
Southern Cross Electrical Engineering (Australia) Pty Ltd (i)
Hazquip Industries Pty Ltd (i)
Datatel Communications Pty Ltd (i)
Heyday5 Pty Ltd (i)
Electrical Data Projects Pty Ltd (i)
Country of Incorporation
2020
2019
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
(i)
These wholly-owned subsidiaries have entered into a deed of cross guarantee with Southern Cross Electrical Engineering Limited
pursuant to ASIC Corporations (wholly-owned companies) Instrument 2016/785 (Instrument) and are relieved of the requirement to
prepare and lodge an audited financial and Directors’ report.
(a) Deed of cross guarantee
The parties to a deed of cross guarantee for the Group as listed in note 24 represent a ‘majority group’ for the purposes of the Instrument,
as the parties not subject to the Instrument are non-trading entities. A separate consolidated statement of comprehensive income and
consolidated balance sheet of the parties to the deed of cross guarantee have not been disclosed separately as it in not materially different
to those of the Group.
51
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
25. Interest in joint operations
The Group has a 50% interest in KSJV Unincorporated and KSJV Australia Pty Ltd, of which the principal activity is to deliver electrical,
instrumentation and telecommunication works to onshore processing elements of 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 2020 and 2019 and revenues and expenses of the joint operations for
the year 30 June 2020 and 2019, 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
Equity
Share of the joint operations’ revenue and profit:
Revenue
Contract expenses
Other expenses
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year from continuing operations
2020
$’000
592
(5)
587
-
-
(9)
(9)
-
(9)
The joint operations have no contingent liabilities or capital commitments as at 30 June 2020 and 30 June 2019.
26. Share-based payments
(a) Expense recognised in profit or loss
Share based payments expenses for the year comprises:
2020 Performance Rights
2019 Performance Rights
2018 Performance Rights
2017 Performance Rights
(i)
(ii)
(iii)
2020
$’000
195
(50)
(201)
-
(56)
2019
$’000
705
(9)
696
12,606
(11,750)
(297)
559
-
559
2019
$’000
-
153
265
128
546
52
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
26. Share-based payments (continued)
The amount recognised is adjusted to reflect the number of awards for which the related service and non-market performance conditions
are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and
non-market performance conditions at the vesting date.
(i)
2020 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 8
November 2019
Performance rights issued to key management on 8
November 2019
Total /performance rights
Number of
instruments
395,645
1,106,684
1,502,329
Vesting conditions
Contractual life
Employed on 30 June 2022 and exceed
performance hurdle
Employed on 30 June 2022 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. The key terms of the
performance rights are as set out below:
• Performance testing over a three-year period from 1 July 2019 to 30 June 2022 (“Performance Period”);
• No performance rights will vest until 30 June 2022;
• 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
EPS performance will be measured in the 2022 financial year. For the purposes of performance testing the Performance Rights, EPS in the
2022 financial year will be the Basic EPS for the year, as prescribed by the accounting standards and set out in the Company's Financial
Reports, adjusted to remove the following non-cash items from the calculation of profit or loss attributable to ordinary shareholders in the
year, in order to reflect the companies underlying profitability:
(a) amortisation of acquired intangibles;
(b) unwinding of interest on deferred acquisition consideration payments;
(c) adjustments to the assessment of deferred consideration payable; and
(d) acquisition costs.
53
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
26. Share-based payments (continued)
EPS, as described above, will be assessed against targets for threshold performance of 6.8 cents per share in the 2022 financial year and
for stretch performance of 7.6 cents per share in the 2022 financial year. The vesting schedule is as follows for EPS performance in the 2022
financial year:
Less than 6.8 cents per share
6.8 cents per share
0% vesting
50% vesting
Between 6.8 and 7.6 cents per share
Pro-rata vesting between 50% and 100%
At or above 7.6 cents per share
100% vesting
Once the performance measurement calculation has been finalised the company will allot and issue the equivalent number of shares at nil
consideration on the basis of one ordinary share per vested performance right for all performance rights exercised.
Where a participant ceases employment prior to the vesting of their share options or performance rights, the share options or performance
rights are forfeited unless in the event of retirement, permanent disablement or death the Board, at their 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.
(ii) 2019 Performance Rights
There were 1,010,625 financial year 2019 Performance Rights on issue at 1 July 2019. No 2019 Performance Rights were granted, none vested
and none were forfeited during the year.
The 2019 Performance Rights will be performance tested over a three-year period from 1 July 2018 to 30 June 2021. The hurdles used to
determine performance are Absolute Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.
(iii) 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.
The 2018 Performance Rights will be performance tested over a three-year period from 1 July 2017 to 30 June 2020. The hurdles used to
determine performance are Absolute Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.
(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:
2020
2019
8 November 2019
9 November 2018
30 June 2022
30 June 2021
$0.56
2.6 years
37%
0.88%
4.9%
$0.29
$0.49
$0.67
2.6 years
40%
2.12%
4.4%
$0.29
$0.59
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
54
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
26. Share-based payments (continued)
(c) Reconciliation of outstanding performance rights
The number 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
2020
Number of rights
2019
Number of rights
3,561,812
1,502,329
(655,034)
(655,035)
3,754,072
-
5,229,498
1,010,625
(2,678,311)
-
3,561,812
-
Subsequent to 30 June 2020 the vesting conditions in respect of the 2018 performance rights have been performance tested and it has been
determined that no performance rights have vested and that 1,241,118 have been forfeited.
27. Reconciliation of cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
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 (used in)/from operating activities
2020
$’000
2019
$’000
10,870
12,713
5,154
(90)
63
(56)
4,293
(23)
-
907
(9,123)
(26,948)
-
746
792
(1,910)
(867)
-
4,463
67
10,109
1,188
(165)
(1,105)
17,277
(1,443)
(1,078)
-
5,114
10,730
55
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
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
2020
$’000
20,559
37,355
2019
$’000
37,536
28,475
Bank Guarantees and Surety Bonds are provided to customers for satisfactory contract performance. Total bank guarantee facilities at
30 June 2020 were $51.0 million (2019: $48.1 million) and the unused portion was $30.4 million (2019: $10.6 million). These facilities are
subject to annual review. Total surety bonds facilities at 30 June 2020 were $85.0 million (2019: $69.5 million) and the unused portion was
$47.6 million (2019: $41 million). These facilities are subject to annual review. All facilities are set to mature during the 2020/21 year. It is
management’s intention to review these facilities at maturity to a level appropriate to support the ongoing business of the Group.
Other contingent liabilities
The Group is currently managing a number of claims, security of payment adjudication and arbitration processes in relation to construction
contracts. The Directors are of the opinion that disclosure of any further information relating to these claims, adjudication and arbitration
processes would be prejudicial to the interests 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.
Since 30 June 2020, the Group has not had a significant adverse operational or financial impact as a result of the Coronavirus pandemic. The
Group’s operations have been classified as essential services and are continuing to run in line with the required safety and health guidelines.
The extent of any future impact of the pandemic on the Group’s operational and financial performance will depend on certain developments,
including the duration and spread of the outbreak, regulations imposed by governments with respect to the outbreak response and impacts
on customers, employees and vendors—all of which are uncertain and cannot be predicted at this time.
30. Auditor’s remuneration
Remuneration of KPMG Australia as the auditor of the parent entity for:
- Auditing or reviewing the financial report
2020
$’000
2019
$’000
358
358
342
342
56
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
31. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2020 the parent company of the Consolidated entity was Southern Cross Electrical
Engineering Limited.
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
2020
$’000
(9,764)
(9,764)
76,690
177,492
(61,256)
(73,534)
109,767
288
(6,097)
103,958
2019
$’000
(2,839)
(2,839)
78,200
184,782
(55,628)
(70,856)
102,873
731
10,322
113,926
Parent entity contingencies:
The parent entity has contingent liabilities which are included in note 28. At 30 June 2020, 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
2020
$’000
1,575
96
(63)
1,608
2019
$’000
1,995
78
397
2,470
Compensation of the Group’s key management personnel includes salaries and non-cash benefits made up of a short-term incentive and
long-term incentive scheme (see note 26 (a)(i)).
(ii) Key management personnel transactions
Directors of the Company control 3% of the voting shares of the Company.
The Group has entered into rental agreements over properties in which Gianfranco Tomasi has an ownership interest. During the prior year,
Mr Tomasi ceased to be a key management personnel for the Group.
57
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
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 2019.
The Group has adopted the following new standard and amendments to standards, including any consequential amendments to other
standards, with a date of initial application 1 July 2019:
AASB 16 Leases
Impact of transition to AASB 16 Leases
AASB 16 Leases 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 arising from lease contract and a right-of-use (ROU) asset representing the right to use
the underlying asset during the lease term. Lessees are required to separately recognise the interest expense on the lease liability and
depreciation expense on the ROU asset.
Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under the related interpretations
of AASB 117. The Group now assess whether a contract is or contains a lease based on the definition of a lease in AASB 16 Leases (see note
33(g)).
On transition to AASB 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases.
The AASB 16 Leases definition of a lease is applied only to contracts that were previously identified as leases at the date of initial application.
Contracts that were not identified as leases under AASB 117 were not reassessed for whether there is a lease under AASB 16. From the date
of initial application, lease accounting under AASB 16 is applied to all leases, including those identified in accordance with the requirements
of AASB 117.
The Group leases assets including property, motor vehicles and office equipment. The Group previously classifies leases as operating or
finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards incidental to ownership
of the underlying asset to the Group. Under AASB 16, the Group recognises ROU assets and lease liabilities on most of these leases. On
transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments discounted at the Group’s
incremental borrowing rate as at 1 July 2019. ROU assets are measured at an amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments, if any.
The Group has applied AASB 16 using the modified retrospective approach, under which the cumulative effect of the initial application is
recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented in the previous financial year 2019 is not
restated – i.e. it is presented as previously reported, under AASB 117 and related interpretations. Additionally, the disclosure requirements of
AASB 16 have not generally been applied to comparative information.
The Group has applied a number of practical expedients upon the initial application of AASB 16 to leases previously classified as operating
leases under AASB 117. In particular, the Group applied:
• Recognition exemptions for short-term leases, i.e. twelve (12) months or less, and/or low-value items, i.e. less than $7,000, on a lease-
by-lease basis, in general, hence, the related lease payments are outright recognised in the statement of income as occupancy expenses.
This recognition exemption was not applied on the Group’s lease contracts and arrangements wherein motor vehicles are the underlying
assets;
• Used a single discount rate of 4.5% to a portfolio of leases with reasonably similar characteristics
• Exclusion of initial direct costs from the measurement of the ROU asset at the date of initial application; and
• The use of hindsight when determining the lease term.
58
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (Continued)
AASB 16 Leases (continued)
Impact of transition to AASB 16 Leases (continued)
The following is a reconciliation of total operating lease commitments at 30 June 2019 to the lease liabilities recognised at 1 July 2019:
Total operating lease commitments disclosed as at 30 June 2019
Recognition exemptions:
Leases of low value assets
Leases with lease term of 12 months or less
$’000
6,692
(16)
(599)
Low-value and short-term leases with motor vehicles as underlying asset
365
Variable lease payments not recognised
Other minor adjustments relating to commitment disclosures
Operating lease liabilities before discounting
Discount using incremental borrowing rate
Operating lease liabilities
Reasonably certain extension options
Total lease liabilities recognised under AASB 16 at 1 July 2019
(250)
-
(190)
(440)
6,252
(692)
5,560
49
5,609
As at 30 June 2020, the Group has minimal low-value and short-term lease commitments related to leases of office furniture and
equipment.
The following tables summarise the impact of adopting AASB 16 on affected line items, as lessee, in the Group’s consolidated financial
statements as at and for the year ended 30 June 2020:
Consolidated Statement of Comprehensive Income for the year ended 30 June 2020
Contract expenses
Occupancy expenses
Amortisation
Finance expenses
Consolidated Balance Sheet as at 30 June 2020
Right-of-use asset
Lease liability – current portion
Lease liability – non-current portion
Before
application of
AASB 16
$’000
Impact of AASB
16 (as lessee)
$’000
(371,760)
(2,351)
(2)
(1,113)
-
-
-
1,181
1,116
(2,151)
(146)
5,967
1,749
4,218
Reported
$’000
(370,579)
(1,235)
(2,153)
(1,259)
5,967
1,749
4,218
59
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (Continued)
AASB 16 Leases (continued)
Impact of transition to AASB 16 Leases (continued)
Before
application of
AASB 16
$’000
Impact of AASB
16 (as lessee)
$’000
Reported
$’000
(1,113)
10,255
-
(211)
(146)
(146)
(2,151)
(2,151)
(1,259)
10,109
(2,151)
(2,362)
Cash flows from operating activities
Interest paid
Net cash from/(used in) operating activities
Cash flows from financing activities
Payment of lease liabilities principal
Net cash used in financing activities
(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 arrangement
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 right to the underlying assets and obligations for liabilities and are accounted for by recognising the
share of those assets and liabilities. 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
arrangement 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.
60
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (Continued)
(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.m receivable from or payable to a foreign operation, the settlement of
which is neither planned nor likely in the fores eeable future, are considered to form part of a net investment in a foreign operation
and are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity.
Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation
reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is
transferred to profit or loss.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement
of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation
and are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity.
(c)
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short term deposits with an original
maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk
of changes in fair value.
For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above,
net of outstanding bank overdrafts.
61
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (Continued)
(d)
Financial instruments
(i) Non-derivative financial assets
The Group initially recognises non-derivative financial assets 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:
• Financial assets at amortised cost
• Cash and cash equivalents
Financial assets at amortised cost
• Financial assets at amortised cost are receivables 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,
these financial assets are measured at amortised cost using the effective interest method, less any impairment losses.
• Financial assets at amortised cost 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 Lease liability, Deferred acquisition consideration 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.
62
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
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.
Leasehold 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
1 – 6 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.
63
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (Continued)
(f)
Intangible assets (continued)
(ii) Other intangible assets
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated
amortisation and accumulated impairment losses.
(iii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which
it relates. All other expenditure including expenditure on internally generated goodwill and brands is recognised in profit or loss as
incurred.
(iv) Amortisation
Amortisation is calculated over the cost of the asset, or another amount substituted for cost, less its residual value.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than
goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the asset. The estimated useful lives for the current period are as follows:
Customer contracts 1-5 years
1 – 5 years
1 – 5 years
2020
2019
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
(g)
Leases
Until 30 June 2019, leases in terms of which the Group assumes substantially all the risks and rewards of ownership were 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. Effective from 1 July 2019 the Group adopted AASB 16 recognising lease assets and lease liabilities for those leases previously
classified as operating leases.
Leased assets
The right-of-use asset recognised by the Group comprise the initial measurement of the related lease liability, any lease payments
made at or before the commencement of the contract, less any lease incentives received and any direct costs. Costs incurred by the
Group to dismantle the asset, restore the site or restore the asset are included in the cost of the right-of-use asset.
Subsequently, right-of-use asset is measured at cost less any accumulated amortisation and impairment losses and adjusted for
certain remeasurements of the lease liability. The Group amortises the right-of-use assets on a straight-line basis from the lease
commencement date to the end of the useful life of the underlying asset or the end of the lease term, whichever is earlier.
If the recoverable amount of a right-of-use asset is less than its carrying value, an impairment charge is recognised in the profit or
loss and the carrying value of the asset is written down to its recoverable amount.
Short-term or low-value operating leases subject to recognition exemption under AASB 16 are not recognised in the Balance Sheet.
The costs incurred during the period related to these leases are recognised in the profit or loss.
Lease liabilities
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing
rate.
The lease liability is separately disclosed on the statement of financial position. The liabilities which will be repaid within twelve
months are recognised as current and the liabilities which will be repaid in excess of twelve months are recognised as non-current.
The lease liability is subsequently measured by reducing the balance to reflect the principal lease repayments made and increasing
the carrying amount by the interest on the lease liability.
64
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (continued)
(g)
Leases (continued)
The Group is remeasures the lease liability and make an adjustment to the right-of-use asset in the following instances:
• The term of the lease has been modified or there has been a change in the Group’s assessment of the purchase option being
exercised, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount rate; and
• The lease payments are adjusted due to changes in the index or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate.
However, if a change in lease payments is due to a change in a floating interest rate, a revised discount rate is used.
Lease and non-lease components of a contract are accounted for separately. Non-lease components of the lease payments are
expensed as incurred and are not included in determining the present value.
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option
to extended the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the assets for additional periods. The Group applies judgement in
evaluating whether it is reasonably certain to exercise the option to renew and considers all relevant factors that create an economic
incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant
event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew.
(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 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 contract liabilities under
Trade and other payables in the balance sheet.
Payments from customers are received based on a billing schedule or milestone basis, as established in our contracts.
(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.
65
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
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 (see note 23). 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 forward-looking economic and credit
conditions are such that actual losses are likely to be greater or less than suggested by historical trends (see note 23).
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.
66
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
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. 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.
(n)
Revenue
Revenue recognition accounting policy
The Group applies two approaches to recognising revenue to contracts with customers: either at a point in time or over time,
depending on the manner the customer obtains control of the goods or services. Revenue is recognised over time if one of the
following is met:
• The customer simultaneously receives and consumes the benefits as the Group performs;
• The customer controls the asset as the Group creates or enhances it; or
• The Group's performance does not create an asset for which the Group has an alternative use and there is a right to payment for
the performance to date.
67
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (continued)
(n)
Revenue (continued)
Revenue recognition accounting policy (continued)
Revenue from 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. The
following are the steps in determining revenue from contracts as prescribed by Five (5) Step Revenue Recognition Model introduced
by AASB 15:
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
Judgement is required in determining the timing of the transfer of control, at a point in time or over time, as well as in each of the
five enumerated steps in the revenue recognition model above.
(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, are to 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, assessments by independent experts and the historical
outcome of similar claims to determine whether the enforceable and "highly probable" thresholds have been met.
(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 detailed and technical approach to identify the different revenue streams (i.e. performance obligations) in a
contract. This is done 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 is to be continuously 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.
68
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (continued)
(n)
Revenue (continued)
(iv) Performance obligations (continued)
The term over which revenue may be recognised 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
Variable consideration includes performance or other incentive fees or penalties associated with contracts. 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)
Finance income and expenses
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the
effective interest method.
Finance expenses comprise interest expense on borrowings, bank charges and lease payments. Borrowing costs that are not directly
attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective
interest rate method.
Foreign currency gains and losses are reported on a net basis.
(p)
Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that
it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on
the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for
the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not
recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax
rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend is recognised.
69
2020 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (continued)
(q)
Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of
GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the
ATO is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing
and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.
(r)
Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding
during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise performance
rights and share options granted to employees.
(s)
Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate to transactions with any of the Group’s components. All operating
segments’ operating results are reviewed regularly by the Group’s Managing Director to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible
assets other than goodwill.
(t)
Financial guarantees
Financial guarantee contracts are initially measured at their fair values and subsequently measured at the higher of:
• the loss allowance determined in accordance with AASB 9 Financial Instruments; and
• the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with AASB 15
Revenue from Contracts with Customer.
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.
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2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
33. Significant accounting policies (continued)
(u)
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination
is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group,
liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for
control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in
accordance with AASB 112 'Income Taxes' and AASB 119 'Employee Benefits' respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in
accordance with AASB 2 'Share-based Payment' at the acquisition date; and
• assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 'Non-current Assets Held for Sale and
Discontinued Operations' are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-
date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date
amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount
of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the
excess is recognised immediately in profit or loss as a bargain purchase gain.
(v)
Government grants
Government grants are recognised only when there is reasonable assurance that the Group will comply with the conditions attaching
to them and the grants will be received. When the grant relates to an expense item, it is recognised as income over the period
necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an
asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.
(w)
New standards and interpretations issued but not yet effective
The new standards and amendments to standards and interpretations effective for annual reporting periods beginning after 30
June 2020, such as those disclosed below, have not been applied in preparing these consolidated financial statements. The Group
intends to adopt these new standards and amendment to standards and interpretations, if applicable, when they become effective:
AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business
AASB 2018-7 Amendment to Australian Accounting Standards – Definition of Material
AASB 2019-3 Amendment to Australian Accounting Standards – Interest Rate Benchmark Reform
AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards not yet issued in
Australia
AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current
AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and other Amendments
AASB 2019-1 Amendments to References to the Conceptual Framework in AASB Standard – Conceptual Framework for Financial
Reporting
The Group has yet to determine the likely impact of these new standards.
71
2020 Annual Report NOTES TO THE FINANCIAL STATEMENTS
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 are determined using market comparison technique and cost technique
– the valuation model considers quoted market prices for similar items when available and depreciated replacement cost when
appropriate.
(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, including contract asset as well as 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.
72
2020 Annual Report
DIRECTORS’ DECLARATION
1.
In the opinion of the directors of Southern Cross Electrical Engineering Limited (the “Company”):
a.
The consolidated financial statements and notes, and the Remuneration report in the Directors’ Report, are in accordance
with the Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the
financial year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a),
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
b.
c.
2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the managing director and
chief financial officer for the financial year ended 30 June 2020.
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
29 September 2020
73
2020 Annual Report INDEPENDENT AUDIT REPORT
74
2020 Annual Report INDEPENDENT AUDIT REPORT
75
2020 Annual Report INDEPENDENT AUDIT REPORT
76
2020 Annual Report INDEPENDENT AUDIT REPORT
77
2020 Annual Report INDEPENDENT AUDIT REPORT
78
2020 Annual Report LEAD AUDITOR’S INDEPENDENCE DECLARATION
79
2020 Annual Report ASX ADDITIONAL INFORMATION
Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. The
information is current at 21 September 2020.
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
205
534
349
951
137
2,176
-
-
-
-
4
4
The number of shareholders holding less than a marketable parcel of ordinary shares is 205.
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
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
DHHD5 Pty Ltd
Chemco Superannuation Fund Pty Ltd
Carman Super Pty Ltd
Asgard Capital Management Ltd <1109440 Kaleidoscope a/c>
Westor Asset Management Pty Ltd
Alfiedoug Pty Ltd
Neweconomy Com Au Nominees Pty Limited <900 account>
Mr Raymond John Wise
BNP Paribas Noms Pty Ltd
DPHD5 Pty Ltd
Mr Andrew McKenzie + Mrs Catherine McKenzie
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd
Icon Holdings Pty Ltd
Buchhorn Pty Ltd
46,835,451
38,779,568
36,075,656
20,007,979
19,292,810
4,878,276
3,629,544
2,030,000
2,000,000
1,561,546
1,307,755
1,216,581
1,130,801
1,076,846
1,038,864
1,000,008
1,000,000
875,955
843,939
800,000
185,381,579
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
Gianfranco Tomasi
TIGA Trading Pty Ltd
Mitsubishi UFJ Financial Group Inc
Perennial Value Management Limited
Number
46,835,451
45,880,371
19,770,442
15,145,527
18.91
15.66
14.57
8.08
7.79
1.97
1.47
0.82
0.81
0.63
0.53
0.49
0.46
0.43
0.42
0.40
0.40
0.35
0.34
0.32
74.87
Corporate Governance Statement
The Corporate Governance Statement can be found at https://www.scee.com.au/investors/corporate-governance
80
2020 Annual Report 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
2020 Annual Report
81
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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 | MELBOURNE
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
QLD 86545
VIC 30407
ABN: 92 009 307 046
Established 1978
ABN: 85 158 865 091
Established 1978
ABN: 24 082 372 834
Established 1998