Annual Report 2022
Southern Cross Electrical Engineering Limited
ABN: 92 009 307 046
ASX:SXE
Contents
2022 Highlights
Chairman’s Report
About SCEE Group
Feature Projects
Our Sectors
Sustainability
Managing Director’s Review
Directors’ Report
Remuneration Report
Financial Statements
ASX Additional Information
Corporate Directory
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Gudai-Darri Iron Ore Mine
Pilbara, WA
SCEE Electrical
SCEE Group Annual Report 2022 In 2022 SCEE Group
has delivered a year
of record revenue
and profitability
Trivantage Manufacturing Sheetmetal Workshop
Melbourne, VIC
Trivantage Manufacturing
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2022 Highlights
RECORD REVENUE
$553.3m
UP 49.5%
RECORD EBITDA
$35.3m
UP 19.3%
TOTAL FY22 DIVIDENDS
5.0cps
UP 25%
CASH
$53.1m
AND NO DEBT
RECORD ORDER BOOK
$565m
Record workforce
peaked at 2,000
employees
Recurring revenues
grown circa 30%
of activity
Trivantage exceeding
forecasts achieving
full earn-out targets
Integration activities
progressed co-location
and cross-group
project delivery
Acquisition targets
being explored
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Chairman’s report
It gives me great pleasure to report on a record-
breaking year for the SCEE Group.
2022 saw the highest activity levels in our history
delivered by our largest ever workforce. Revenue of
$553.3m was up nearly 50% on the prior year, whilst
EBITDA of $35.3m was also a record for the Group.
This growth in revenue was driven in large part by
activity in the resources sector returning to high levels in
the current year. This more than compensated for the
subdued activity in parts of our business as coronavirus
and adverse weather impacted the east coast,
particularly in the commercial sector. Our strategy of
growth through diversification has significantly reduced
our reliance on any single source of revenue and the
events of this year highlight the increasing robustness of
our Group.
The FY21 acquisition of Trivantage contributed a full
year of revenue in FY22 and continues to outperform
expectations, delivering profits in excess of earn-out
targets. The addition of the Trivantage businesses to
the Group has been a large contributor to the volume
of recurring services and maintenance works growing to
almost a third of our revenue in 2022.
I have been pleased to see a progression of our
integration initiatives this year. These included utilising
capabilities across the Group’s businesses to secure
and deliver projects, cross-selling of services within the
Group and the co-location of our businesses in Western
Australia. I believe we can derive significant further
gains in this area going forward.
The Board has resolved to pay a final fully franked
dividend of 4.0 cents per share and paid a fully franked
interim dividend of 1.0 cents per share in April. The full
year dividends of 5.0 cents per share is an increase of
25% on the prior year and demonstrates the Board’s
commitment to growing shareholder returns. On behalf
of the Board I would like to take this opportunity to
thank shareholders for their continued support.
Finally, I would like to congratulate management and
employees across the Group on their achievements
during the year. The Board recognises the significant
work involved in delivering these record results and
thanks them for their commitment.
The Board remains committed to targeting further
acquisitions aligned with our diversification strategy.
Derek Parkin
Chairman
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SCEE Group Annual Report 2022 About SCEE Group
Southern Cross Electrical Engineering Limited (‘the SCEE Group’)
was founded in 1978 and listed in 2007 (ASX:SXE). Over that
time, we have grown to be a leading national electrical,
instrumentation, communications and maintenance services
group of businesses. The acquisitions of Datatel in 2016, Heyday
in 2017 and the Trivantage Group, which includes the businesses
of Trivantage Manufacturing, S.J. Electric and SEME Solutions
in 2020, means the SCEE Group is now diversified across three
broad sectors of infrastructure, commercial and resources.
SCEE Electrical is the original operating business,
historically focussed on resources and industrial
projects, but more recently diversified into transport,
infrastructure, defence, utilities, and renewables.
Heyday is a NSW and ACT-based electrical
contractor undertaking commercial building
construction and fit-outs, and servicing the office,
retail, hotel, high-rise residential, education, health,
transport, industrial and data centre sectors.
Datatel is a telecoms and communications specialist
and provides services to the education, health,
government, resources and transport sectors.
SEME Solutions provides electronic security services
to the resources, law-enforcement, custodial,
industrial, and health sectors.
S.J. Electric is a national provider of electrical and
maintenance services to supermarkets, and the
retail, commercial and water sectors.
Trivantage Manufacturing is a leading manufacturer of
packaged electrical solutions including premium quality
switchboards, kiosk substations and switchrooms,
covering low to high voltage capabilities across the
infrastructure, resource and commercial, sectors.
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Feature Projects
Rio Tinto Gudai-Darri Iron Ore Mine
CPB Sydney Metro Pitt Street Station and Towers
Pilbara, WA
Location
Market
Performed by SCEE Electrical
Resources – Iron Ore
Sydney, NSW
Location
Market
Performed by Heyday Group
Infrastructure and Commercial
Scope of Work
The project is for a new 43 million tonne annual capacity iron ore mine.
SCEE Electrical’s scope is for the electrical and instrumentation works
at the mine processing plant.
Scope of Work
The Pitt Street metro integrated station development will connect the Pitt
and Castlereagh Street station entries with retail and commercial facilities.
Heyday’s scope includes full design and construction of low voltage systems,
UPSs and communications, and the electrical services design and construct
contracts for commercial and residential towers above Pitt Street Station.
MARBL JV Kemerton Lithium Processing Plant
Multiplex Western Sydney International Airport
Location
Market
Kemerton, South West WA
Resources – Lithium
Performed by SCEE Electrical
Scope of Work
SCEE Electrical is delivering the full E&I scope for both the Hydromat and
Pyroment sections of the plant which initially comprises of two trains each
with a capacity of 25,000 tons per annum.
Location
Market
Badgerys Creek, NSW
Infrastructure – Airport
Performed by Heyday Group
Scope of Work
The Western Sydney International (Nancy Bird Walton) airport extent
of works comprises the terminal building, airside apron, landside plaza,
carparking and two technical engineering rooms (TER) located at the site
boundary. Heyday’s scope includes full design and construction of high
voltage system, low voltage systems, UPSs and communications.
BHP Villages Security Project
Ergon Energy Asset Inspection and Maintenance Services
Pilbara, WA
Location
Market
Performed by SCEE Electrical, SEME Solutions and Datatel
Resources – Mining
Northern Region, QLD
Location
Market
Performed by SCEE Electrical
Infrastructure – Utilities
Scope of Work
SCEE has been engaged to perform upgrades to access, lighting, and
monitoring systems across BHP’s Villages in the Pilbara. The works have
drawn on capabilities from businesses across the SCEE Group, including
SCEE Electrical, SEME and Datatel, to deliver a multi-technology solution.
Scope of Work
Operating under a service agreement, SCEE Electrical’s scope is to maintain
regulatory safety and reliability of distribution supply network via inspection,
testing and maintenance of overhead lines, earthing systems, pillars and
street-light poles.
Rio Tinto Tom Price Battery Energy Storage Facility
Coles and Woolworths Supermarkets
Tom Price, WA
Location
Market
Performed by SCEE Electrical
Renewables
Nationally
Location
Market
Performed by SJ Electric
Commercial – Supermarkets
Scope of Work
SCEE has been engaged for the supply of civil, structural, and electrical works
for the installation of the balance of plant for the Tom Price 45MW/12MWh
Battery Energy Storage for Spinning Reserve (‘BESSR’) Facility.
Scope of Work
S.J. Electric have been providing ad-hoc electrical and instrumentation
maintenance services to major national supermarkets for over 40 years
with a more formalised preventative and reactive service and
maintenance contract being in place for the last 15 years.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Commercial
SCEE Group 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:
l Offices
l Shopping centres, supermarkets and retail
l Multi-storey residential developments
l Hotels
l Sporting, recreation and leisure facilities
l 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.
Wynyard Place Re-development
Sydney, NSW
Heyday Group
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Resources
SCEE Group 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, copper and nickel.
We have extensive experience in the delivery of electrical projects
at some of Australia’s largest mining and mineral processing sites.
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,
communications and security 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 maintain their operations.
In the oil and gas sector we offer solutions for
LNG upstream and downstream facilities,
and for petrochemical refineries.
Kemerton Lithium Plant
Kemerton, South West WA
SCEE Electrical
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Infrastructure
SCEE Group 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:
l Transport including road, rail, air and port facilities
l Defence facilities and installations
l Social infrastructure including hospitals, medical clinics,
aged care and prisons
l Education including universities, colleges and schools
l Government facilities
l Telecommunications and datacentres
l 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.
Forrestfield Airport Link Project
Redcliffe, WA
Datatel
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Decarbonisation
SCEE Group is well positioned to
leverage opportunities across the global
decarbonisation chain including:
l Supporting the decarbonisation of resources operations
such as battery, solar and wind projects for multiple
mining companies;
l Assisting meeting the demand for commodities required
for global decarbonisation including lithium, copper,
nickel, hydrogen developments; and
l Offering our services across a diverse and growing
range of decarbonisation initiatives including
solar farms, recycling plants, refrigeration power
efficiencies, green buildings design optimisation
and electric vehicle charging systems.
Tom Price BESSR Project
Tom Price, WA
SCEE Electrical
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Sustainability
SCEE Group is committed to delivering sustainable and
profitable growth of our businesses without compromising
on our responsibilities to the environment, our people and
the communities in which we operate. Our approach to
sustainability falls under the following broad categories:
Environment
Health and Safety
We seek to promote best environmental practices
within our areas of operation through our policies
and procedures. Highlights include:
We consider the wellbeing of our people to be of
paramount importance and are committed to providing
a workplace that achieves zero harm. Highlights include:
l
Environmental Management Systems accredited
to ISO 14001
l Health and Safety Management Systems are
accredited to ISO 45001
l
Low carbon footprint throughout our operations
l Contributing to the decarbonisation of Australia
through our delivery of renewables, recycling and
energy efficiency projects
l
5 Star Commitment safety approach addressing
the highest critical risk areas
l Regular injury prevention training
People and Community
Corporate Governance
We are committed to providing a safe workplace for our
people and investing in their growth. We engage with
the communities in which we operate seeking to create
a positive legacy through maximising local employment
opportunities. Highlights include:
The SCEE Group has a Board-endorsed Corporate
Governance Framework aimed at ensuring the business
is managed effectively and ethically and that risks are
appropriately identified, monitored and addressed.
Highlights include:
l Dedicated Health and Wellbeing Advisor and
access to an Employee Assistance Provider
l
Experienced and appropriately structured
Board and Committees
l Regular training and development opportunities
l Code of Conduct governing our dealings
l Diversity Policy encouraging and supporting
diversity in our workforce
l
Indigenous Employment Policy facilitating
sustainable employment opportunities
l Human Rights Policy and Modern Slavery Statement
with stakeholders
l Anti-Bribery and Corruption and
Whistleblower Policies
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 “With a record year end order book, significant
opportunity pipeline and strong cash position I am
confident in our ability to deliver another year of
record profitability in 2023.”
Managing Director’s Review
In 2022 SCEE Group has delivered a year of record revenue
and profitability.
Financial Results
Revenue for the year of $553.3m was a record for
the Group, up 49.5% on the prior year, driven by a
significant increase in activity in the resources sector
and the inclusion of a full year of revenue from
the Trivantage businesses which were acquired in
December 2020. Revenue in the second half of FY22
of $300.3m represented a third consecutive record
half of revenue.
Revenue contribution by sector was as follows:
Resources
Revenue for the year was $282.5m, more than
double the $129.5m in the prior year, making
resources the largest sector for the first time since
FY18. This growth was primarily driven by high
levels of activity at the MARBL JV Kemerton Lithium
Plant, Rio Tinto Gudai-Darri and the BHP Villages
Security projects and also included contributions
from the Rio Tinto Tom Price Battery Energy Storage
Facility, general works for Rio Tinto and BHP and
under framework agreements at the Sino Iron and
Newmont Boddington mine sites.
Commercial
Revenue for the year was $166.9m, compared to
$164.7m in the prior year. Activity for the year was
significantly behind planned levels with coronavirus and
weather related disruptions on the east coast resulting
in works being delayed, although volumes had returned
to more normal levels by year end. Key contributors in
the year included the Sandstone Education Building
project, the Commonwealth Bank Place Sydney North
Building fitout in Sydney, ongoing works at Parramatta
Square and Trivantage’s national supermarket services
business providing a full year of revenue in 2022.
Infrastructure
Revenue for the year was $103.9m, up from $76.0m in the
prior year. Heyday commenced work on the Multiplex
Western Sydney International Airport project, which at
over $100m was the largest award in the Group’s history.
Work continued throughout the year on the Sydney
Metro Pitt Street Station project and the Next DC S3
data centre. SCEE Electrical continues to deliver works
under the Ergon Energy Queensland Service Agreement
while the contribution from Trivantage included projects
in the water and prison sectors.
Gross profit for the year of $72.5m was up 24.6% on
the prior year. The FY21 gross profit of $58.2m included
JobKeeper receipts of $8.1m. Excluding JobKeeper
gross profit was up 44.7% and gross margins were 13.1%
in 2022 compared to 13.5% in the prior year.
The year-end cash balance of $53.1m was an increase
on the opening balance of $51.0m despite funding
Trivantage deferred consideration of $10.0m and
dividend payments of $12.7m during the year. The
Group remains debt free.
Overheads were $38.3m compared to $29.5m in the
prior year with the increase due to the inclusion of
Trivantage overheads for a full year in 2022 and the
requirement to support higher activity levels in the
current year. As a percentage of revenue overheads
decreased from 8.0% in FY21 to 6.9% in the current year.
EBITDA for the year of $35.3m was also a record for the
Group and was up 19.3% on the prior year EBITDA of
$29.6m which included $8.9m of JobKeeper receipts.
The Trivantage businesses continue to outperform
expectations and achieved FY22 earn-out targets in
full. The FY23 earn-out targets are also now expected
to be fully achieved and an additional $2.3m of deferred
acquisition consideration for that has been provided
for in the year. Amortisation of intangibles from the
acquisition was $2.2m, compared to $1.6m in FY21.
Net profit after tax of $15.3m was up 10.9% on the prior
year NPAT of $13.8m.
The Board has declared a fully franked final dividend
of 4.0 cent per share and paid an interim fully franked
dividend of 1.0 cents per share. The full year dividend
of 5.0 cents per share represents an increase of 25% on
the prior year.
Capital expenditure for the year was $3.2m and is
expected to remain at these low levels.
A full and final settlement of the dispute with Decmil
Group Limited regarding the subcontract for works at
Rio Tinto’s Amrun mine project in Queensland has been
agreed and the arbitration proceedings concerning
the dispute have been terminated.
Operational
The Group’s record revenue and profitability was
delivered by a record workforce which peaked at over
2,000. With a large proportion of the workforce being
required to service the high level of resources activity
in WA, the ability to meet these recruitment targets
in a competitive labour market and with the added
challenge of interstate border closures for part of the
year is a credit to the organisation.
Performing our work safely remains of the upmost
importance and we take great pride in the fact that
our SCEE Electrical business has now gone over 18.7
million man-hours and nearly 20 years without a Lost
Time Injury in Australia.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Managing Director’s Review
Managing Director’s Review
We were pleased to have the quality of work
acknowledged by our industry with SCEE Electrical’s
Rio Tinto Gudai Darri project being the state winner of
the “Industrial Large Project Award 2022” at the WA
National Electrical and Communications Association
(“NECA”) Excellence Awards. At the NSW NECA
Excellence awards Heyday’s apprentice Bailey Gronau
was awarded “Apprentice of the Year for 2021”.
Integration activities continued to progress during
the year. In November the WA businesses of SCEE
Electrical, Datatel and Trivantage co-located in our
new Perth CBD head office and have subsequently
also combined warehouse facilities. We immediately
saw the benefit of this with the businesses working
together to successfully win and deliver the BHP
Villages Security project. Trivantage Manufacturing
commenced the provision of switchboards to group
projects during the year. We continue to see significant
opportunity to further cross-sell services in the Group
and deliver increased capability to our clients.
Outlook
For FY23 revenues are expected to be similar to FY22
with the large resources projects completing in the
first half of FY23 and not being immediately replaced.
However, EBITDA is forecast to increase to a range of
$36m–$38m due to a more profitable project mix.
The year-end order book was $565m, which was
another record, up 31.4% from the start of the year
and with the Group continuing to win work across its
core markets.
The infrastructure sector is now the largest component
of the order book following the award of Western
Sydney International Airport. The project will run for
several years and has potential for further growth,
plus other packages at the airport, as well as general
commercial and infrastructure opportunities as the
Western Sydney Aerotropolis region develops. The
Sydney Metro Pitt Street Station project is ongoing
with further opportunities presenting on the Sydney
Metro programme.
The broader infrastructure pipeline remains strong
with record levels of infrastructure spend sanctioned
across Australia.
In the resources sector work will complete on key
FY22 projects in the first half of 2023 and there is a
long tail of smaller opportunities in the sector across
many commodities.
In the commercial sector the pipeline in Sydney is
growing again with new awards anticipated soon.
The Sydney Central Precinct Renewal Program and
Technology Hub is expected to generate multiple
commercial opportunities for Heyday. For Trivantage,
Woolworths and Coles continue to invest heavily in
efficiencies, store renewals and new store formats and
work has recently been secured with Aldi.
The Group’s workforce remains adequate to service
client requirements, although certain areas of
tightness in the labour market may mean that some
opportunities may not be maximised.
The Group continues to manage the impact of
inflationary pressures on its operations. The typically
short time between tender submission and project
mobilisation helps ensure accurate costings and, while
in many sectors most materials are free issued by the
client, in those that are not, prices are generally fixed
with suppliers on or before award. A large proportion of
the Group’s workforce are employed under Enterprise
Bargaining Agreements and as such labour rates are
known over the duration of contracts.
No significant impact from coronavirus is currently
anticipated in delivering the 2023 forecasts, however
the business continues to monitor this risk.
Strategy
Conclusion
SCEE Group primarily sees itself as an electrical
contractor diversified across the resources, commercial
and infrastructure sectors.
Our growth strategy continues to be to deepen our
presence in those sectors and broaden our geographic
diversity through expanding our core competencies
and adding adjacent and complementary capabilities,
either organically or by acquisition.
This includes particularly targeting maintenance and
recurring earnings. The acquisition of Trivantage has
taken the group along this path by:
l adding new capabilities with entry into the
security sector and with the manufacture of
electrical components;
l
increasing exposure to service and maintenance
style work with recurring revenues now circa 30%
of activity;
l offering cross-selling opportunities; and
l completing our national footprint in every state
and territory.
We are exploring acquisition targets offering further
geographic diversification and new capabilities.
I am delighted to report a year of record revenue
and profitability for the SCEE Group. We have now
delivered three consecutive halves of record revenues
since the acquisition of the Trivantage businesses,
which continue to outperform expectations.
The resilience of our organisation and the success of our
diversification strategy has again been demonstrated
by the Group achieving this record result despite
significant parts of the business being impacted during
the year by coronavirus disruption and weather events
on the east coast. This was more than offset by the high
levels of activity in the resources sector.
With a record year end order book, significant
opportunity pipeline and strong cash position I am
confident in our ability to deliver another year of record
profitability in 2023.
I would like to take this opportunity to thank our
employees across the SCEE Group for their hard work
and commitment to delivering for our clients during
the year. I would also like to thank our clients and
shareholders for their continued support.
The decarbonisation of the global economy presents
SCEE with opportunities across all the sectors in which
it operates.
Graeme Dunn
Managing Director
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Director’s Report
Director’s Report
Your Directors submit their report for Southern Cross Electrical Engineering
Limited (‘SCEE Group’ or ‘the Company’) for the year ended 30 June 2022.
The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows.
Directors were in office for this entire period unless otherwise stated.
Derek 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.
Derek’s accounting experience has spanned over 40 years and four continents, primarily in the
public company environment. He was most recently Professor of Accounting at the University of
Notre Dame Australia, having previously been an assurance partner with Arthur Andersen and
Ernst & Young. Derek’s other non-executive directorships to date have primarily been in the non-
listed sphere and he has also chaired a number of advisory committees in both the government
and not-for-profit sectors. Derek is a past national Board member of the Institute of Chartered
Accountants Australia (“ICAA”) and has served on a number of its national and state advisory
committees. In 2011, he was a recipient of the ICAA’s prestigious Meritorious Service Award and in
2015 was awarded the Medal of the Order of Australia for services to accountancy.
Derek is the Chairman of the Audit and Risk Management Committee and a member of the
Nomination and Remuneration Committee.
Graeme Dunn
Managing Director and Chief Executive Officer
Graeme has over 30 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.
Simon Buchhorn
Independent Non-Executive Director
Simon has a comprehensive understanding of SCEE Group’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 Group’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 Paganin
Independent Non-Executive Director
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.
Paul Chisholm
Non-Executive Director
Paul was a significant shareholder and Chairman of Trivantage Holdings Pty Ltd prior to
the acquisition by SCEE Group in December 2020.
Paul has over 40 years of experience in the electrical industry including 10 of which as a
director of Trivantage. He was the founder of SCADA Group Pty Ltd which was a global
company servicing the energy, mining, utility and defence sectors with automation and
control products and services solutions. Paul has also been the Chairman of a number of
private companies and is an advisor for private equity funds.
David Hammond resigned 5 November 2021
Executive Director
David was a vending shareholder of Heyday Pty Ltd and was appointed to the Board as an
Executive Director on completion of the acquisition of Heyday by SCEE Group in March 2017.
David has more than 35 years electrical contracting experience and has been involved in the
Heyday business for over 20 years. David retired from the SCEE Group Board during the year
and has continued in his ongoing executive role managing the Heyday business.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Director’s Report
Director’s Report
Executive Officers
Directors’ interests
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.
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:
Chris Douglass
Chief Financial Officer and Company Secretary
Prior to joining SCEE Group 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 has over 20 years of experience in public company finance and governance and is a
Chartered Accountant and member of the Governance Institute of Australia.
Prior to joining SCEE Group in 2012 Colin was the Chief Financial Officer and Company
Secretary of as ASX listed oil & gas exploration company and previously worked for
Ernst & Young in both Australia and the UK.
Director
Derek Parkin
Graeme Dunn1
Simon Buchhorn
Karl Paganin
Paul Chisholm
Ordinary shares
Rights over ordinary shares
Options over ordinary shares
121,134
1,677,618
800,000
1,595,201
2,758,460
-
2,113,241
-
-
-
-
-
-
-
-
1. Included in the Performance Rights held by Graeme Dunn are 702,806 2020 Performance Rights which have been performance tested on finalising the 2022
results and it has been determined that 98% of these 2020 Performance Rights have vested and 2% 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
Derek Parkin
Graeme Dunn
Simon Buchhorn
Karl Paganin
Paul Chisholm
David Hammond
Board Meetings
Audit and Risk Management
Committee Meetings
Nomination and Remuneration
Committee Meetings
Held
Attended
Held
Attended
Held
Attended
15
15
15
15
15
8
15
15
15
15
14
6
4
-
4
4
-
-
4
-
4
4
-
-
4
-
4
4
-
-
4
-
4
4
-
-
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.
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 20.
Operating results for the year were:
Contract revenue
Profit/(loss) after income tax from continuing operations
2022
$’000
553,280
15,269
2021
$’000
370,206
13,761
26
27
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Director’s Report
Director’s Report
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 85 and forms part of the Directors’ report for the financial year ended
30 June 2022.
Remuneration Report
The Remuneration Report is set out on pages 30 to 35 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
30 August 2022
Dividends
Declared and paid during the period (fully franked at 30%)
Final franked dividend for 2021
Interim franked dividend for 2022
Declared after balance date and not recognised as a liability (fully franked at 30%)
Final franked dividend for 2022
Cents per
share
Total amount
$'000
4.0
1.0
4.0
10,382
2,600
10,400
Significant Events after Balance Sheet Date
There are no matters or circumstances that have arisen since the end of the financial year which significantly affected or may significantly
affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in
subsequent financial years.
Likely Developments and Expected Results
Other than as referred to in this report, further information as to the likely developments in the operations of the consolidated entity would,
in the opinion of the directors, be likely to result in unreasonable prejudice to the consolidated entity.
Environmental Regulation
The operations of the Group are subject to the environmental regulations that apply to our clients. During 2022 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 389,242 shares were
issued from the exercise of options or performance rights previously granted as remuneration.
Further details are contained in note 26 to the financial statements.
Indemnification and Insurance of Directors and Officers
During or since the end of the financial year, the Company has paid premiums in respect of a contract insuring all the directors of the
Company against a liability incurred in their role as directors of the Company, except where:
a) the liability arises out of conduct involving a wilful breach of duty; or
b) there has been a contravention of Sections 182 or 183 of the Corporations Act 2001.
The total amount of insurance contract premiums paid was $328,814 (2021: $353,725).
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.
28
29
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Remuneration report – audited
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:
l
l
l
l
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:
l
l
l
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 and there were no pay increases awarded to any KMP in the 2022 financial year.
Variable Remuneration – Short Term Incentive (STI)
The objective of the Group STI program is to link the achievement of the Group’s short term 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.
Graeme Dunn and Chris Douglass are the only KMPs who participate in the Group STI program and in the 2022 financial year STI scheme could
earn up to a maximum of 50% of their fixed remuneration. 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 2022, the financial KPIs accounted for 80% of the executive team’s STI and were achievable on outperforming
specific targets for profit and order book.
The non-financial KPIs accounted for 20% 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. For the 2022 financial year STI it has been determined that 100%
of the available bonus will vest.
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 which was last approved by shareholders at the 2021 Annual General Meeting.
Graeme Dunn and Chris Douglass are the only KMPs who participate in the LTI plan and in the 2022 financial year LTI scheme were issued with
performance rights equal to 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.
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. For each component of the LTI against a KPI no award is made where performance falls below the minimum threshold for
that KPI.
The Nomination and Remuneration Committee assesses the performance against KPIs and recommends the LTI vesting for approval by the
Board. For the 2020 financial year performance rights, which have been performance tested at 30 June 2022, it has been determined that 98%
of the available performance rights will vest and 2% will be forfeited. Under the terms of the LTI Plan, as approved by shareholders at the 2021
Annual General Meeting, up to 50% of vested performance rights may be exercised for cash at the participants discretion with the balance
exercised for ordinary shares in the Company.
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.
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
2022
$’000
15,269
12,982
9%
13%
2021
$’000
13,761
7,428
23%
11%
2020
$’000
10,870
7,042
(19%)
10%
2019
$’000
12,713
7,022
(24%)
12%
2018
$’000
8,406
-
23%
9%
30
31
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Remuneration report – audited
Remuneration report – audited
Short-term
Post-
employment
Share-based
payments
Salary
and
fees
$
STI cash
bonus3
$
Non-
monetary
benefits
$
Total
$
Super
annuation
benefits
$
Options
and rights4
$
Total
$
% of
remuneration
that is
performance
related
Non-Executive Directors
Derek Parkin - Chairman
2022
110,000
2021
110,000
Simon Buchhorn
2022
80,000
2021
80,000
Karl Paganin
2022
80,000
2021
80,000
Paul Chisholm1
2022
80,000
2021
43,333
Executive Directors
-
-
-
-
-
-
-
-
Graeme Dunn
2022
643,750
324,180
2021
643,750
432,696
David Hammond2
2022
82,853
-
2021
235,000
280,000
Executives
Chris Douglass - CFO
2022
370,800
192,351
Total
Total
2021
370,800
256,091
2022
1,447,403
516,531
2021
1,562,883
968,787
1. Paul Chisholm was appointed to the Board on 16 December 2020.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
110,000
11,000
110,000
10,450
80,000
8,000
80,000
7,600
80,000
8,000
80,000
7,600
80,000
8,000
43,333
4,117
-
-
-
-
-
-
-
-
121,000
120,450
88,000
87,600
88,000
87,600
88,000
47,450
967,930
27,500
298,953
1,294,383
1,076,446
25,000
356,067
1,457,513
82,853
8,285
515,000
25,000
-
-
91,138
540,000
563,151
27,500
173,725
764,376
626,891
25,000
207,444
859,335
1,963,934
98,285
472,678
2,534,897
2,531,670
104,767
563,511
3,199,948
-
-
-
-
-
-
-
-
48%
54%
-
52%
48%
54%
39%
48%
2. David Hammond retired from the Board on 5 November 2021 and ceased to be a Group level KMP from this date, although he continues in his role as an
executive of the Heyday business. Remuneration disclosed in Table 1 is for the period 1 July 2021 to 5 November 2021.
3. The STI cash bonus payable in respect of a financial year is 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 value recognised in Table 1 represents the cash payment in respect of the prior
year, less the amount accrued in the prior year, plus the accrual for the current year entitlement.
4. 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 in Table 1 is the fair value of the performance rights recognised in the financial year.
Employment Contracts
The following executives have non-fixed term employment contracts. Either party may terminate the employment contract by providing the
other party notice as follows:
Executive
Graeme Dunn
Chris Douglass
Notice Period
6 months
6 months
The Group retains the right to terminate a contract immediately by making a payment in lieu of the notice period. An executive may be
terminated immediately for a breach of their employment conditions. Upon termination the executive is entitled to receive their accrued
annual leave and long service leave together with any superannuation benefits. There are no other termination payment entitlements.
Options and rights over equity instruments
The movement during the reporting period in the number of options and rights over ordinary shares in Southern Cross Electrical Engineering
Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Performance Rights over equity instruments
Held at
30 June 2021
Granted as
remuneration
Vested and
exercised 1
Forfeited
Held at
30 June 2022
Vested and exercisable
at 30 June 2022
Graeme Dunn
Chris Douglass
1,971,706
1,141,261
605,821
359,477
(232,143)
(232,143)
2,113,241
(137,500)
(137,500)
1,225,738
3,112,967
965,298
(369,643)
(369,643)
3,338,979
-
-
-
1. Graeme Dunn elected to exercise 50% of his vested 2019 performance rights for cash and 50% for ordinary shares in accordance with the LTI Plan Rules.
Chris Douglass elected to exercise 100% of his vested 2019 performance rights for ordinary shares.
Performance rights granted as remuneration in 2022
During the period performance rights over ordinary shares in the company were granted as remuneration to KMP. These performance rights will
vest subject to the meeting of performance set out below. Details on performance rights that were granted during the period are as follows:
Executive
Instrument
Number
Grant date
Fair value per
performance right
at grant date ($)
Exercise price
per performance
right ($)
Performance
testing date
Expiry Date
Graeme Dunn1
2022 Rights
302,911
Graeme Dunn2
2022 Rights
302,910
Chris Douglass1
2022 Rights
179,739
Chris Douglass2
2022 Rights
179,738
5/11/21
5/11/21
5/11/21
5/11/21
0.41
0.61
0.41
0.61
0.00
0.00
0.00
0.00
30/6/24
5/11/25
30/6/24
5/11/25
30/6/24
5/11/25
30/6/24
5/11/25
1. Performance rights granted with Absolute TSR as the vesting condition
2. Performance rights granted with EPS growth as the vesting condition
965,298
32
33
SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Remuneration report – audited
Remuneration report – audited
2022 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:
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:
l
To be performance tested over a three year period from 1 July 2021 to 30 June 2024 (“Performance Period”);
Executive
Instrument
Number
Grant date
l No performance rights will vest until 30 June 2024;
l
l
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 Received))/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 2024 financial year. For the purposes of performance testing the Performance Rights, EPS in the 2024
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 8.57 cents per share in the 2024 financial year and
for stretch performance of 9.55 cents per share in the 2024 financial year. The vesting schedule is as follows for EPS performance in the 2024
financial year:
Less than 8.57 cents per share
8.57 cents per share
0% vesting
50% vesting
Between 8.57 and 9.55 cents per share
Pro-rata vesting between 50% and 100%
At or above 9.55 cents per share
100% vesting
Under the terms of the LTI Plan up to 50% of vested performance rights may be exercised for cash at the participants discretion with the
balance exercised for one ordinary share per vested performance right.
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.
Graeme Dunn
Chris Douglass
2019 Rights
464,286
2020 Rights (A)
702,806
2021 Rights
(B)
804,614
2022 Rights (C)
605,821
2019 Rights
275,000
2020 Rights (A)
403,878
2021 Rights (B)
462,383
2022 Rights (C)
359,477
9/11/18
8/11/19
4/12/20
5/11/21
9/11/18
8/11/19
4/12/20
5/11/21
% vested
in year
% forfeited
in year
Performance
testing date
Expiry Date
50%
50%
-
-
-
-
-
-
50%
50%
-
-
-
-
-
-
30/6/21
30/6/22
9/11/22
8/11/23
30/6/23
4/12/24
30/6/24
5/11/25
30/6/21
30/6/22
9/11/22
8/11/23
30/6/23
4/12/24
30/6/24
5/11/25
A. 50% of the 2020 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 6.8 cents per share and a stretch target of 7.6 cents per share. These performance rights have a fair value of $0.49 each. Subsequent
to 30 June 2022, the vesting conditions in respect of the 2020 performance rights have been performance tested and it has been determined that 98% of the
performance rights held by Mr Dunn and Mr Douglass have vested and 2% of the performance rights will be forfeited.
B. 50% of the 2021 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 $0.31 each. 50% of the 2021 performance rights have EPS growth as the vesting condition
with a threshold target of 5.62 cents per share and a stretch target of 6.27 cents per share. These performance rights have a fair value of $0.48 each.
C. The vesting conditions and fair values of the 2022 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:
Additions
Disposals
Other
Held at
30 June 2022
Held at
30 June 2021
112,320
1,561,546
800,000
1,524,022
8,814
116,072
-
71,179
Directors
Derek Parkin1
Graeme Dunn2
Simon Buchhorn
Karl Paganin1
Paul Chisholm3
-
2,758,460
David Hammond4
3,629,544
-
Executives
Chris Douglass2
1,512,366
137,500
-
-
-
-
-
-
-
-
-
-
-
-
121,134
1,677,618
800,000
1,595,201
2,758,460
(3,629,544)
-
-
1,649,866
34
35
1. Shares acquired through participation in the Company’s Dividend Reinvestment Plan.
2. Shares acquired on exercise of vested FY19 performance rights.
3. Shares acquired as part consideration for the prior year acquisition of Trivantage Holdings Pty Ltd on receipt of shareholder approval at the 2021 Annual
General Meeting.
4. David Hammond ceased to be a KMP following his retirement from the Board on 5 November 2021.
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.
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Financial Statements
Contents
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cashflows
Notes to the Financial Statements
Employee benefits expenses
Depreciation and amortisation expenses
Finance income and expenses
Income tax expense
Reporting entity
Basis of preparation
Segment reporting
1.
2.
3.
4. Contract revenue
5. Other income
6.
7.
8.
9.
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.
18. Trade and other payables
19.
20. Provisions
21. Deferred acquisition consideration
22. Capital and reserves
23. Financial instruments
24.
25.
26. Share-based payments
27. Reconciliation of cash flows
from operating activities
Investments in subsidiaries
Interest in joint operations
Intangible assets
Lease liability
36
SCEE Group Annual Report 2022
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
Director’s Declaration
Independent Auditor’s Report
Lead Auditor’s Independence Declaration
38
39
40
41
42
42
43
43
44
44
45
45
46
48
48
49
49
49
50
51
52
53
54
54
55
55
57
61
62
62
65
65
66
66
66
67
67
77
78
79
85
37
SCEE Group Annual Report 2022 Consolidated Statement of Comprehensive Income
For the year ended 30 June 2022
Consolidated Balance Sheet
For the year ended 30 June 2022
Contract revenue
Contract expenses
Gross profit
Other income
Employee benefits expenses
Occupancy expenses
Administration expenses
Depreciation expense
Amortisation expense
Amortisation of customer contracts and relationships
Other expenses from ordinary activities
Profit from operations
Finance income
Finance expenses
Change in fair value of deferred acquisition consideration
Net finance expense
Profit before tax
Income tax expense
Profit from continuing operations
Other comprehensive income
Items that are or may be reclassified to the profit and loss
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
7
7
7
8
8
21
9
2022
$’000
553,280
(480,776)
72,504
1,101
(21,900)
(2,558)
(10,625)
(3,513)
(2,981)
(2,172)
(3,168)
2021
$’000
370,206
(311,994)
58,212
892
(17,006)
(1,851)
(8,340)
(2,949)
(2,742)
(1,636)
(2,293)
26,688
22,287
12
(2,067)
(2,253)
(4,308)
271
(1,740)
-
(1,469)
22,380
20,818
(7,111)
15,269
(7,057)
13,761
-
-
-
-
15,269
13,761
15,269
13,761
10
10
6.10
6.01
5.55
5.27
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
Lease liability
Provisions
Deferred acquisition consideration
Tax payable
Total current liabilities
Non-current liabilities
Lease liability
Provisions
Deferred acquisition consideration
Deferred tax liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Note
2022
$’000
2021
$’000
11
12
13
15
16
17
18
19
20
21
9
19
20
21
9
53,083
155,586
1,386
1,176
51,006
147,703
1,796
1,089
211,231
201,594
10,700
10,614
112,961
134,275
345,506
115,727
2,145
20,198
5,641
153
12,664
7,992
114,986
135,642
337, 236
102,094
2,585
17,878
9,954
5,704
143,864
138,215
8,816
752
7,105
10,681
27,354
171,218
174,288
5,687
405
10,206
11,550
27,848
166,063
171,173
22
115,953
109,967
743
6,046
57,592
55,160
174,288
171,173
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
The above balance sheet should be read in conjunction with the accompanying notes.
38
39
SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Consolidated Statement of Changes in Equity
For the year ended 30 June 2022
Consolidated Statement of Cash Flows
For the year ended 30 June 2022
Share
Capital
$’000
Retained
Earnings
$’000
Share
Based
Payments
Reserve
$’000
Deferred
acquisition
payment
Reserve
$’000
Translation
Reserve
$’000
Total
Equity
$’000
Balance as at 1 July 2020
109,767
48,498
622
-
(514)
158,373
Total comprehensive income for the year
Profit for the year
Total comprehensive income
Transactions with owners, recorded directly in equity
Dividends
Dividend re-investment and share placements, net
Deferred acquisition payment
Performance rights (net of tax)
Equity-settled share-based payment
-
-
-
200
-
-
-
13,761
13,761
(7,428)
-
-
329
-
Total transactions with owners
200
(7,099)
-
-
-
-
-
(329)
767
438
Balance as at 30 June 2021
109,967
55,160
1,060
-
-
-
-
5,500
-
-
5,500
5,500
-
-
-
-
-
-
-
-
13,761
13,761
(7,428)
200
5,500
-
767
(961)
(514)
171,173
Balance as at 1 July 2021
109,967
55,160
1,060
5,500
(514)
171,173
Total comprehensive income for the year
Profit for the year
Total comprehensive income
Transactions with owners, recorded directly in equity
Dividends
Dividend re-investment and share placements, net
Deferred acquisition payment
Performance rights (net of tax)
Equity-settled share-based payment
-
-
-
270
5,495
221
-
15,269
15,269
(12,982)
-
-
145
-
Total transactions with owners
5,986
(12,837)
-
-
-
-
-
(447)
644
197
-
-
-
-
(5,500)
-
-
(5,500)
-
-
-
-
-
-
-
-
15,269
15,269
(12,982)
270
(5)
(81)
644
(12,154)
Balance as at 30 June 2022
115,953
57,592
1,257
-
(514)
174,288
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 paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Payment of deferred acquisition consideration
Proceeds from the sale of assets
Acquisition of property, plant and equipment
Acquisition of intangible asset
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
Cash and cash equivalents at 30 June
Note
2022
$’000
2021
$’000
606,733
(561,804)
-
12
(1,734)
(13,533)
29,674
364,195
(337,175)
9,795
271
(1,460)
(6,342)
29,284
-
(22,247)
(10,000)
1,449
(3,225)
(256)
-
492
(1,789)
(88)
(12,032)
(23,632)
-
(12,694)
(2,871)
(15,565)
2,077
51,006
53,083
200
(7,428)
(2,690)
(9,918)
(4,266)
55,272
51,006
27
21
15
17
22
11
The above statement of changes in equity should be read in conjunction with the accompanying notes.
The above cash flow statement should be read in conjunction with the accompanying notes.
40
41
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
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
2022 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 30 August 2022.
(b) Basis of measurement
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.
(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 2021.
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:
The consolidated financial statements have been prepared on
the historical cost basis except as set out below:
l Note 4, 14 and 33 (n) – estimation of total contract cost and
measurement of variable consideration;
l Share-based payment arrangements are measured at
fair value.
l 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.
l Note 15, 17 and 33 (k) – recoverable amount for testing
property, plant and equipment and goodwill;
l Note 16, 19, and 33 (g) – initial and subsequent measurement
of Right-of-use assets and Lease liability;
l Note 21 and 33 (u) – measurement of deferred
consideration; and
l 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).
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
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.
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, Heyday, and Trivantage.
The directors believe that the aggregation of the operating segments is appropriate as to differing extents they:
l have similar economic characteristics;
l perform similar services using similar business processes;
l provide their services to a similar client base;
l have a centralised pool of shared assets and services; and
l 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 two largest customers of the Group’s Australian segment generated $181.2 million of the Group’s total revenue
(2021: $102 million generated from the two largest customers).
4. Contract revenue
Disaggregated revenue information
Note
2022
$’000
2021
$’000
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
Contract balances
Trade receivables
Contract assets
166,922
282,484
103,874
553,280
403,625
149,655
553,280
553,280
553,280
67,189
87,233
154,422
164,671
129,510
76,025
370,206
279,550
90,656
370,206
370,206
370,206
68,250
79,049
147,299
12
14
Trade receivables are non-interest bearing and are generally on 30 to 45 days term. In 2022, no additional amount (2021: $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.
42
43
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
The following amounts are included in revenue from contracts for the year ended 30 June 2022:
7. Depreciation and amortisation expenses
Revenue recognised as a contract liability in prior period
Unsatisfied Performance Obligations
2022
$’000
2021
$’000
33,504
33,205
Transaction price expected to be recognised in future years for unsatisfied performance obligations at 30 June 2022:
Construction revenue
Services revenue
360,691
136,281
496,972
303,901
83,060
386,961
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:
l Construction revenue
Services revenue
l
1 to 2 years
1 to 5 years
5. Other income
Other income
Apprenticeship incentive
Net (loss)/gain on disposals
Other
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
2022
$’000
2021
$’000
581
(227)
747
1,101
(17,138)
(2,112)
(2,006)
(644)
-
226
179
487
892
(14,657)
(1,380)
(1,123)
(767)
921
(21,900)
(17,006)
26
The above employee benefits expenses do not include employee benefits expenses recorded within contract expenses. Employee benefits
included in contract expenses were $189.8m (2021: $86.9m), inclusive of Government grant (Job Keeper) applied amounting to $Nil (2021: $8.1m).
The total employee benefits expense is therefore $211.7m (2021: $103.9m).
Buildings
Leasehold improvements
Plant and equipment
Motor vehicles
Office furniture and equipment
Total depreciation expense for the year
Amortisation of right-of-use asset
Amortisation of customer contract intangibles
Amortisation of intellectual property
Other
Total amortisation expense for the year
8. Finance income and expenses
Interest income on bank deposits
Finance income
Interest expense
Bank charges
Bank guarantee fees
Deferred consideration
Lease liability interest
Other
Finance expenses
Change in fair value of deferred acquisition consideration
Net finance expense
Note
2022
$’000
(17)
(241)
(1,068)
(1,116)
(1,071)
(3,513)
(2,872)
(2,172)
(109)
-
(5,153)
12
12
(631)
(558)
(333)
(486)
(59)
(2,067)
(2,253)
(4,308)
15
16
17
17
21
21
2021
$’000
(17)
(242)
(926)
(788)
(976)
(2,949)
(2,544)
(1,636)
(55)
(143)
(4,378)
271
271
(645)
(484)
(281)
(288)
(42)
(1,740)
-
(1,469)
44
45
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
9.
Income tax expense
(a) Income Statement
Current tax expense
Current period
Over provision from prior year
Deferred tax expense
Origination and reversal of temporary differences
Over/(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
2022
$’000
2021
$’000
(8,357)
377
(7,980)
619
250
(7,111)
-
-
(5,979)
-
(5,979)
(1,076)
(2)
(7,057)
(1)
(1)
(c) Reconciliation between tax expense and pre-tax accounting profit
Accounting profit before income tax
22,380
20,818
Income tax expense using the Company’s domestic tax rate of 30%
(6,714)
(6,245)
Over provision from prior year
Acquisition costs included in cost base
Share based payments
Non-deductible deferred consideration interest
Non-deductible change in fair value of deferred consideration
Other
Income tax expense reported in the income statement
The applicable effective tax rates are:
627
-
(193)
(100)
(676)
(55)
(7,111)
31.8%
-
(428)
(230)
(84)
-
(70)
(7,057)
33.9%
Deferred tax assets
and liabilities
Deferred tax liabilities
Balance Sheet
2022
$’000
2021
$’000
Income Statement
2021
$’000
2022
$’000
Equity
Acquisition of Subsidiary
2022
$’000
2021
$’000
2022
$’000
2021
$’000
Retentions receivable
-
(60)
(60)
Contract assets
(20,448)
(17,360)
Right-of-use assets
(3,183)
(2,398)
Sundry debtors
Intangible assets
-
-
(2,976)
(3,603)
Property, plant and equipment
(397)
(243)
3,088
785
-
(627)
154
(279)
4,513
(677)
(432)
(457)
(86)
(27,004)
(23,664)
3,340
2,582
Deferred tax assets
Provisions
Employee entitlements
Property, plant and equipment
Unearned revenue
Lease liability
Tax losses
Other
1,534
6,073
-
4,485
3,320
235
676
73
6,329
19
2,300
2,513
-
880
(1,461)
256
19
13
(894)
-
(2,185)
(1,750)
(807)
(235)
204
633
-
492
16,323
12,114
(4,209)
(1,506)
Net deferred tax liabilities
(10,681)
(11,550)
(869)
1,076
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
(1)
(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,285)
-
(4,060)
(306)
(5,651)
13
2,232
-
-
1,356
-
356
3,957
1,694
46
47
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
10. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2022 was based on the profit attributable to ordinary shareholders of $15,269,000
(2021: $13,761,000) and a weighted average number of ordinary shares outstanding of 250,458,122 (2021: 247,914,045), calculated as follows:
Profit attributable to ordinary shareholders
Note
2022
$’000
15,269
2021
$’000
13,761
12. Trade and other receivables
Trade receivables
Sundry debtors
Provision for impairment of trade receivables
Contract assets
Retentions
Note
14
2022
$’000
67,189
1,339
(197)
87,233
22
155,586
2021
$’000
68,250
315
(112)
79,049
201
147,703
2022
2021
22
248,050,102
247,614,481
2,408,020
299,564
250,458,122
247,914,045
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:
Profit for the period
Weighted average number of ordinary shares
Issued ordinary shares at 1 July
Effective new balance resulting from issue of shares in the year
Weighted average number of ordinary shares at 30 June
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2022 was based on the profit attributable to ordinary shareholders of $15,269,000
(2021: $13,761,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential
ordinary shares of 252,929,240 (2021: 260,991,548) as follows:
Profit attributable to ordinary shareholders (diluted)
Profit for the period
2022
$’000
15,269
2021
$’000
13,761
Weighted average number of ordinary shares (diluted)
2022
2021
Weighted average number of ordinary shares for basic earnings per share
250,458,122
247,914,045
Effect of dilution:
Contingently issuable shares – acquisition
Share options and performance rights on issue
Weighted average number of ordinary shares at 30 June
11. Cash and cash equivalents
Bank balances
Short term deposits
Cash and cash equivalents in the statement of cash flows
-
3,492,647
11,120,923
1,956,580
253,950,769
260,991,548
2022
$’000
33,113
19,970
53,083
2021
$’000
34,538
16,468
51,006
The effective interest rate on cash and cash equivalents was 0.03% (2021: 0.5%); these deposits are either at call or on short term deposit.
Balance at start of year
Impairment losses recognised
Write-offs
Amounts recovered
Balance at 30 June
112
396
(46)
(265)
197
112
6
(6)
-
112
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.
13. Inventories
Raw materials and consumables – cost
1,386
1,796
14. Contract assets
Costs incurred to date
Recognised profit
Progress billings
386,412
75,116
(374,295)
87,233
166,529
74,132
(161,612)
79,049
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. Contract assets, for which revenue was earned longer than 12 months ago and for which cash is yet to be received,
is $43.3m (2021: $47.7m)
48
49
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
15. Property, plant and equipment
Land and
Buildings
$’000
Leasehold
Improvements
$’000
Plant and
Equipment
$’000
Motor
Vehicles
$’000
Note
Office
Furniture and
Equipment
$’000
Total
$’000
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:
Cost
Balance at 1 July 2020
916
2,825
Acquisitions through business combination
Additions
Disposals
Balance as at 30 June 2021
Balance at 1 July 2021
Additions
Disposals
Balance at 30 June 2022
Depreciation
Balance at 1 July 2020
Depreciation for the year
Disposals
Balance at 30 June 2021
Balance at 1 July 2021
Depreciation for the year
Disposals
Balance at 30 June 2022
Carrying amounts
At 30 June 2021
At 30 June 2022
-
-
-
916
916
-
-
916
(201)
(17)
-
(218)
(218)
(17)
-
(235)
698
681
7
7
11,869
11,350
45,246
18,286
1,060
467
(308)
385
73
-
1,181
891
(1,861)
325
358
-
3,283
19,505
12,080
12,033
2,951
1,789
(2,169)
47,817
47,817
3,225
(7,565)
12,033
649
(118)
12,564
43,477
(8,557)
(34,098)
(976)
-
(2,949)
1,894
(9,533)
(35,153)
(9,533)
(1,071)
102
(35,153)
(3,513)
5,889
3,283
467
(1,546)
2,204
(1,232)
(242)
-
19,505
843
(3,524)
16,824
(15,051)
(926)
245
(1,474)
(15,732)
(1,474)
(15,732)
(241)
869
(1,068)
2,789
12,080
1,266
(2,377)
10,969
(9,057)
(788)
1,649
(8,196)
(8,196)
(1,116)
2,129
(846)
(14,011)
(7,183)
(10,502)
(32,777)
1,809
1,358
3,773
2,813
3,884
3,786
2,500
2,062
12,664
10,700
Opening carrying amount at 1 July 2020
Additions
Acquired through acquisition
Remeasurement
Amortisation charged for the year
Derecognition during the year (net)
Closing carrying amount at 30 June 2021
Opening carrying amount at 1 July 2021
Additions
Remeasurement
Amortisation charged for the year
Derecognition during the year (net)
Closing carrying amount at 30 June 2022
Land and
Buildings
$’000
Motor
Vehicles
$’000
Note
Office
Furniture and
Equipment
$’000
4,908
295
4,281
123
(1,945)
(29)
7,633
7,633
5,064
1,261
(2,545)
(970)
10,443
7
7
921
138
-
-
-
(522)
(101)
298
298
-
29
(255)
-
72
-
-
-
(77)
-
61
61
-
110
(72)
-
99
Total
$’000
5,967
295
4,281
123
(2,544)
(130)
7,992
7,992
5,064
1,400
(2,872)
(970)
10,614
50
51
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
17. Intangible assets
Cost
Balance as at 1 July 2020
Acquisitions through business combinations
Additions
Balance as at 30 June 2021
Balance as at 1 July 2021
Additions
Balance as at 30 June 2022
Amortisation and impairment losses
Balance as at 1 July 2020
Amortisation
Balance as at 30 June 2021
Balance as at 1 July 2021
Amortisation
Balance as at 30 June 2022
Carrying amounts
At 30 June 2021
At 30 June 2022
Note
Goodwill
$’000
Customer
Contracts and
Relationships
$’000
Other
$’000
Total
$’000
82,169
29,263
-
111,432
111,432
-
7,491
12,258
-
19,749
19,749
-
111,432
19,749
7
7
(8,390)
-
(8,390)
(8,390)
-
(7,491)
(1,636)
(9,127)
(9,127)
(2,172)
(8,390)
(11,299)
19
1,276
88
1,383
1,383
256
1,639
(6)
(55)
(61)
(61)
(109)
(170)
89,679
42,797
88
132,564
132,564
256
132,820
(15,887)
(1,691)
(17,578)
(17,578)
(2,281)
(19,859)
103,042
103,042
10,622
8,450
1,322
1,469
114,986
112,961
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 disruption due to state border closures, the Group has since 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:
l Cash flows were projected based on past experience, actual operating results, known and expected contract wins, and independent
l
l
l
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 2023. Growth assumptions thereafter are SCEE -1.4% (2021: -2.9%), Heyday 2.1% (2021: -2.6%), and Trivantage -0.9% (2021: -0.6%) per
annum for each future year, each being reductions in revenues. The terminal value assumes perpetual growth of 2.5% (2021: 2.5%).
The margins included in the projected cash flow are the same rate that has been achieved by historical .
A pre-tax discount rate between 12.9% and 13.2% (2021: between 14.2% and 14.6%) was applied. This discount rate was estimated based
on past experience and industry average weighted cost of capital.
Sensitivity to changes in assumptions
Management believes that any reasonable change in the key assumptions for the Heyday and Trivantage segments would not cause the
carrying value to exceed its recoverable amount. SCEE is able to withstand a reduction in revenue forecasts or a reduction in gross margin
forecast of up to 5% before carrying value exceeds its recoverable amount.
18. Trade and other payables
Trade payables
Contract liabilities
Accrued expenses
Goods and services tax payable
Retentions payable
2022
$’000
2021
$’000
31,448
31,066
41,068
40,218
36,114
29,410
2,339
4,672
654
832
115,727
102,094
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.
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.
The aggregate carrying amounts of goodwill allocated to each segment are as follows:
SCEE
Heyday
Trivantage
2022
$’000
21,082
52,697
29,263
2021
$’000
21,082
52,697
29,263
103,042
103,042
Contract liabilities
Current
Unearned revenue evenue
41,068
36,114
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.
The recoverable amounts of the above segments were based on their value in use with the group performing its annual impairment test in
June 2022. The carrying amount of the operating segments were determined to be lower than their recoverable amounts and therefore no
impairment charge has been recognised.
52
53
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
19. Lease liability
Current portion
Non-current portion
2022
$’000
2,145
8,816
10,961
2021
$’000
2,585
5,687
8,272
21. Deferred acquisition consideration
Current portion
Non-current portion
Balance at 30 June
The average remaining lease term for the leased assets per underlying asset class as at 30 June 2022 are as follows:
Deferred acquisition consideration movements
2022
$’000
5,641
2021
$’000
9,954
7,105
10,206
12,746
20,160
20,160
-
333
2,253
(10,000)
12,746
-
19,879
281
-
-
20,160
2022
(in years)
2021
(in years)
2.34
3.12
2.63
1.98
1.06
0.95
2022
$’000
2021
$’000
14,013
12,355
3,474
3,314
2,656
2,104
55
105
20,198
17,878
Balance at 1 July
From acquisition of Trivantage
Finance costs
Change in fair value of deferred acquisition consideration (i)
Payments
Balance at 30 June
(i) During the year, the Directors reassessed the expected achievement of earn out targets for the 2023 financial year associated with the
acquisition of Trivantage Group, resulting in an increase in recognised deferred acquisition consideration to the maximum amount payable
under the Share Purchase Agreement. The corresponding expense has been recognised as a finance cost in the Consolidated Statement of
Comprehensive Income.
22. Capital and reserves
Share capital
Ordinary shares
Issued and fully paid
2022
2021
Number
$’000
Number
$’000
260,006,961
115,953
248,050,102
109,967
Land and building
Motor vehicles
Office equipment
20. Provisions
Current
Annual leave
Long service leave
Other employee leave
Other
Non-current
Long service leave
752
405
Movements in shares on issue
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.
Balance at the beginning of the financial year
248,050,102
109,967
247,614,481
Exercise of employee performance rights,
net of transaction costs
Issue of ordinary shares under dividend reinvestment plan,
net of transaction costs
Shares issued for acquisition of Trivantage Group,
net of transaction costs
389,242
446,698
221
270
-
435,621
11,120,919
5,495
-
109,767
-
200
-
Balance at the end of the financial year
260,006,961
115,953
248,050,102
109,967
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.
Deferred consideration payment reserve
During the year, the Group issued the $5.5 million of ordinary shares to the selling shareholders following Trivantage Group successfully
achieving a predetermined earnings before interest and tax target.
Share based payments reserve
The share based payments reserve records the fair value of share based payments provided to employees.
54
55
SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Notes to the financial statements
Notes to the financial statements
Dividends
Dividends recognised in the current year by the Group are:
2022
Final 2021 ordinary
Interim dividend
Total amount
2021
Final 2020 ordinary
Total amount
Cents per share
Total amount
$’000
Franked
Date of
payment
4.00
10,382
Franked
22 October 2021
4.00
1.00
4.00
3.00
10,382
2,600
12,982
10,382
7,428
7,428
Franked
22 October 2021
Franked
13 April 2022
Franked
22 October 2021
Franked
22 October 2020
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
Declared after end of year
Subsequent to 30 June 2022, a dividend of 4.00 cents per share in the amount of $10.4 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
2022
$’000
31,688
2021
$’000
23,824
23. Financial instruments
Overview
The Group has exposure to the following risks from their use of financial instruments:
l Credit risk
l
Liquidity risk
l Market risk
This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring
and managing risks, and the management of capital. Further quantitative disclosures are included throughout this financial report.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has
established an Audit and Risk Management Committee, which is responsible for overseeing how management monitors risk and for reviewing
the adequacy of the risk management framework in relation to the risks faced by the Group. The committee reports regularly to the Board of
Directors on its activities.
Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to
monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and
the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive
control environment in which all employees understand their roles and obligations in relation to the management and mitigation of these risks.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group’s receivables from customers 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:
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a)
franking credits that will arise from the payment of the current tax liabilities; and
(b)
franking debits that will arise from the payment of dividends recognised as a liability at the year end.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
Cash and cash equivalents
Trade and sundry receivables (net of provision for impairment)
Contract assets
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 does not require collateral in respect of
trade receivables and contract assets. The Group utilises trade credit insurance against certain customers to reduce the Groups exposure to
credit risk.
The Group’s maximum exposure to credit risk for trade receivables and contract assets at the reporting date by geographic region was:
56
Australia
Carrying amount
2022
$’000
2021
$’000
155,586
147,703
57
Carrying amount
2022
$’000
53,083
68,353
87,233
2021
$’000
51,006
68,654
79,049
208,669
198,709
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
Impairment losses
The ageing of the Group’s trade receivables and contract assets at the reporting date was:
Contract assets – not past due
Trade Receivables:
Not past due
Past due 0-30 days
Past due 30-60 days
Past due 60 days and less than 1 year
More than 1 year
Note
14
Gross
2022
$’000
87,233
54,565
10,057
2,298
1,421
209
68,550
155,783
Allowance for
Impairment
2022
$’000
-
-
-
-
-
(197)
(197)
(197)
Gross
2021
$’000
79,049
58,219
6,730
1,788
1,524
505
68,766
147,815
Allowance for
Impairment
2021
$’000
-
-
-
-
-
(112)
(112)
(112)
The provision of $197,000 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. 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.
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.
58
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 months
or less
$’000
More than
6 months
up to 1 year
$’000
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 2022
Non-derivative financial liabilities
Trade and other payables
Deferred consideration
Lease liability
30 June 2021
Non-derivative financial liabilities
Trade and other payables
Deferred consideration
Lease liability
74,659
12,746
10,961
74,659
73,871
13,001
5,667
12,483
1,237
98,366
100,143
80,775
65,980
20,160
8,272
65,980
20,674
9,376
94,412
96,030
65,090
10,000
1,487
76,577
788
-
1,129
1,917
890
-
1,362
2,252
-
7,334
2,123
-
-
5,285
9,457
5,285
-
5,666
2,054
7,720
-
5,008
4,168
9,176
-
-
2,709
2,709
-
-
305
305
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 2022 or 30 June 2021.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an
acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
Interest rate risk
Profile
At the reporting date the interest rate profile of the Company’s and the Group’s interest-bearing financial instruments was:
Variable rate instruments
Financial assets
Carrying amount
2022
$’000
2021
$’000
53,083
51,006
59
SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Notes to the financial statements
Notes to the financial statements
Fair value sensitivity analysis for fixed rate instruments
24. Investments in subsidiaries
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 as 2021.
The consolidated financial statements include the financial statements of Southern Cross Electrical Engineering Ltd and the subsidiaries listed
in the following table.
Country of
Incorporation
Equity Interest (%)
2022
2021
Profit or loss
Equity
Southern Cross Electrical Engineering (WA) Pty Ltd (i)
Cruz Del Sur Ingeniería Electra (Peru) S.A
100bp increase
$’000
100bp decrease
$’000
100bp increase
$’000
100bp decrease
$’000
1,082
1,082
1,189
1,189
(1,082)
(1,082)
(1,189)
(1,189)
-
-
-
-
-
-
-
-
30 June 2022
Variable rate instruments
Cash flow sensitivity (net)
30 June 2021
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.
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)
Trivantage Holdings Pty Ltd (i)
Trivantage Group Pty Ltd (i)
Trivantage Pty Ltd (i)
S.J. Electric Group Pty Ltd (i)
S.J. Electric Group (NSW) Pty Ltd (i)
S.J. Electric Group (QLD) Pty Ltd (i)
S.J. Electric (SA) Pty Ltd (i)
S.J. Electric (VIC) Pty Ltd (i)
S.J. Electric (WA) Pty Ltd (i)
Seme Solutions Pty Ltd (i)
Group CCTV Pty Ltd (i)
Central Control Sheetmetal Pty Ltd (i)
Positive Systems Pty Ltd (i)
Ladd Electric Pty Ltd (i)
Peru
Australia
Tanzania
Ghana
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
100
100
100
100
100
100
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 is not materially
different to those of the Group.
60
61
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
25. Interest in joint operations
During the year the Group had a 50% interest in KSJV Unincorporated and KSJV Australia Pty Ltd, both of which were dormant for the period.
These joint arrangements are accounted for as joint operations. Subsequent to the year end the Joint Venture Agreement and Shareholder
Agreement in respect of these entities have been terminated by mutual consent.
The Group’s share of the underlying assets and liabilities as at 30 June 2022 and 2021 and revenues and expenses of the joint operations for
the year ended 30 June 2022 and 2021, which are proportionally consolidated in the consolidated financial statements, are not material.
26. Share-based payments
(a) Expense recognised in profit or loss
Share based payments expenses for the year comprises:
2022 Performance Rights
2021 Performance Rights
2020 Performance Rights
2019 Performance Rights
(i)
(ii)
(iii)
2022
$’000
(225)
(224)
(195)
-
(644)
2021
$’000
-
(224)
(195)
(348)
(767)
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) 2022 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.
Grant date / employees entitled
Performance rights issued to senior
management on 5 November 2021
Performance rights issued to key
management on 5 November 2021
Total /performance rights
Number of
instruments
Vesting conditions
351,872
965,298
1,317,170
Employed on 30 June 2024 and
exceed performance hurdle
Employed on 30 June 2024 and
exceed performance hurdle
Contractual
life
30 months
30 months
(a) Expense recognised in profit or loss continued
The TSR formula is:
((Share Price at Test Date – Share Price at Start Date) + (Dividends Received))/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
Between 8% and 12% per annum compounded
At or above 12% per annum compounded
0% vesting
50% vesting
Pro-rata vesting between 50% and 100%
100% vesting
EPS performance will be measured in the 2024 financial year. For the purposes of performance testing the Performance Rights, EPS in the
2024 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 8.57 cents per share in the 2024 financial year and
for stretch performance of 9.55 cents per share in the 2024 financial year. The vesting schedule is as follows for EPS performance in the
2024 financial year:
Less than 8.57 cents per share
8.57 cents per share
Between 8.57 and 9.55 cents per share
At or above 9.55 cents per share
0% vesting
50% vesting
Pro-rata vesting between 50% and 100%
100% vesting
Under the terms of the LTI Plan up to 50% of vested performance rights may be exercised for cash at the participants discretion with the
balance exercised for one ordinary share per vested performance right.
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) 2021 Performance Rights
There were 1,719,954 financial year 2021 Performance Rights on issue at 1 July 2021. No 2021 Performance Rights were granted, none
vested and none were forfeited during the year.
The 2021 Performance Rights will be performance tested over a three-year period from 1 July 2020 to 30 June 2023. The hurdles used
to determine performance are Absolute Total Shareholder Return (TSR) and Earnings per Share (EPS) performance.
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:
(iii) 2020 Performance Rights
l
Performance testing over a three-year period from 1 July 2021 to 30 June 2024 (“Performance Period”);
l No performance rights will vest until 30 June 2024;
l
l
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
There were 1,502,329 financial year 2020 Performance Rights on issue at 1 July 2020. No 2020 Performance Rights were granted, none
vested and none were forfeited during the year.
The 2020 Performance Rights are performance tested over a three-year period from 1 July 2019 to 30 June 2022. The hurdles used to
determine performance are Absolute Total Shareholder Return (TSR) and Earnings per Share (EPS) performance. Subsequent to the
year end it has been determined that 98% of the 2020 Performance Rights have vested and 2% will be forfeited.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Notes to the financial statements
Notes to the financial statements
(b) Measurement of fair values
27. Reconciliation of cash flows from operating activities
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.
2022
2021
Profit for the year
Adjustments for:
Depreciation and amortisation
5 November 2021 4 December 2020
Equity-settled share-based payment transactions
30 June 2024
30 June 2023
Other
Loss/(profit) on sale of property, plant and equipment and other
The inputs used in the measurement of the fair values at grant date were as follows:
The performance rights issued were granted in one tranche as follows:
Grant date
Vesting date
Share price at grant date
Expected life
Volatility
Risk free interest rate
Dividend yield
Fair value of TSR component
Fair value of EPS component
(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
$0.55
$0.55
2.7 years
2.6 years
36%
0.82%
5.7%
$0.41
$0.61
36%
0.11%
5.5%
$0.31
$0.48
2022
Number of rights
2021
Number of rights
4,232,908
1,317,170
(505,313)
(505,312)
3,754,072
1,719,954
-
(1,241,118)
4,539,453
4,232,908
-
-
The performance rights exercised and forfeited during the year were the 2019 financial year performance rights which were performance tested
on finalisation of the 2021 financial year results with 50% of these performance rights vesting.
Subsequent to 30 June 2022, the vesting conditions in respect of the 2020 performance rights have been performance tested and it has been
determined that 1,472,282 of the 2020 performance rights have vested and 30,047 will be forfeited.
(Increase)/decrease in assets:
Trade and other receivables
Inventories
Prepayments
Increase/(decrease) in liabilities:
Trade and other payables
Provisions and employee benefits
Deferred acquisition consideration
Income tax payable
Deferred income tax
Net cash from operating activities
28. Contingencies
2022
$’000
15,269
8,666
227
644
(40)
(2,929)
410
(87)
8,679
2,667
2,586
(5,551)
(869)
29,674
2021
$’000
13,761
7,327
(179)
767
-
(7,916)
1,172
100
12,535
2,024
281
(793)
205
29,284
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 and Surety Bonds
63,018
66,902
Bank Guarantees and Surety Bonds are provided to customers for satisfactory contract performance. Total bank guarantee facilities at
30 June 2022 were $50.4 million (2021: $51.6 million) and the unused portion was $17.2 million (2021: $17.8 million). These facilities are subject to
annual review. Total surety bonds facilities at 30 June 2022 were $66.2 million (2021: $67.2 million) and the unused portion was $36.3 million
(2021: $34.1 million). These facilities are subject to annual review. All facilities are set to mature during the 2022/23 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 and a voluntary mediation process in relation to construction contracts. The Directors are
of the opinion that disclosure of any further information relating to these claims and mediation process would be prejudicial to the interests of
the Group. At 30 June 2022 the Group was also managing an arbitration process in relation to a construction contract. Subsequent to the year
end these proceedings have been terminated as further disclosed in note 29.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
29. Subsequent events
Decmil settlement
On 4 August 2022, the Group announced that it has agreed a full and final settlement of its dispute with Decmil Group Limited regarding the
subcontract between them for works at Rio Tinto’s Amrun mine project in Queensland. The arbitration proceedings concerning this dispute
have been terminated.
Dividend declared
On 30 August 2022, the Directors of Southern Cross Electrical Engineering Limited declared a final dividend on ordinary shares in respect of
the 2022 financial year. The total amount of the dividend is $10.4 million, which represents a fully franked final dividend of 4 cents per share.
This dividend has not been provided for in the 30 June 2022 financial statements. The Southern Cross Electrical Engineering Limited Dividend
Reinvestment Plan will apply to the dividend.
Otherwise, 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.
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
2022
$’000
1,964
98
473
2,535
2021
$’000
2,532
105
564
3,200
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)).
2022
$’000
2021
$’000
33. Significant accounting policies
30. Auditor’s remuneration
Remuneration of KPMG Australia as the auditor of the parent entity for:
- Auditing or reviewing the financial report
Remuneration of PwC Australia as the component auditor of Trivantage for:
- Auditing or reviewing the financial report of component
475
475
-
-
397
397
102
102
For the financial year ending 30 June 2022, the auditor for the Group are engaged by the parent company.
31. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2022 the parent company of the Consolidated entity was Southern Cross Electrical
Engineering Limited.
Result of the parent entity
Profit/(loss) for the period
Total comprehensive 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
Accumulated losses
Total Equity
Parent entity contingencies:
1,240
1,240
96,391
243,226
(134,340)
(159,276)
115,953
922
(32,925)
83,950
(8,131)
(8,131)
79,220
224,925
(105,181)
(130,059)
109,967
6,227
(21,328)
94,866
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 2021.
The Group did not early adopt any standard, interpretation or amendment that has been issued but is not yet effective.
The Group did not adopt any new standard and amendments or interpretation to standards from 1 July 2021 which had a material effect on
the financial position or performance of the Group.
(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.
(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.
The parent entity has contingent liabilities which are included in note 28. At 30 June 2022, there were in existence guarantees of performance
of a subsidiary.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to
Australian dollars at exchange rates at the reporting date. Income and expenses of foreign operations are translated to Australian
dollars at exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation reserve.
When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred
to profit or loss.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of
which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and
are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity.
(c) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity of
three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in fair value.
For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net
of outstanding bank overdrafts.
(d) Financial instruments
(i) Non-derivative financial assets
The Group initially recognises 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:
l
l
Financial assets at amortised cost
Cash and cash equivalents
Financial assets at amortised cost
l
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.
l
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.
(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 – 40 years
2 – 20 years
2 – 10 years
2 – 20 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:
l
l
l
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages,
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
(ii) Other intangible assets
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated
amortisation and accumulated impairment losses.
The Group’s non-derivative financial liabilities comprise Lease liability, Deferred acquisition consideration and Trade and other payables.
(iii) Subsequent expenditure
(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.
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.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Notes to the financial statements
Notes to the financial statements
(iv) Amortisation
(h) Inventories
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:
l
Customer contracts
2022
1 – 5 years
2021
1 – 5 years
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
(g) Leases
The Group recognises lease assets and lease liabilities in accordance to AASB 16 - Leases in for accounting its leases previously classified
as operating leases other than those leases with short-term, i.e. twelve (12) months or less, and/or of low-value, i.e. less than $7,000.
(i)
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.
(ii) 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.
The Group remeasures the lease liability and make an adjustment to the right-of-use asset in the following instances:
l 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;
l 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
l 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.
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.
(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.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Notes to the financial statements
Notes to the financial statements
(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 based on cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the
unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are
assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised.
(l) Employee benefits
(i) Long-term benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned
in return for their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present
value. 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:
l The customer simultaneously receives and consumes the benefits as the Group performs;
l The customer controls the asset as the Group creates or enhances it; or
l 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.
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:
1)
Identify the contract(s) with a customer
2) Identify the performance obligations in the contract
3) Determine the transaction price
4) Allocate the transaction price to the performance obligations in the contract
5) 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.
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.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
(v) Variable consideration
(s) Segment reporting
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.
(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.
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:
l the loss allowance determined in accordance with AASB 9 Financial Instruments; and
l 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:
l the likelihood of the guaranteed party defaulting in a year period;
l the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and
l the maximum loss exposed if the guaranteed party were to default.
(u) Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred
by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree.
Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date,
except that:
l 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;
l 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
l 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.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets
in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the
recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction
basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard.
Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent
consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value
of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during
the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the
acquisition date.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Notes to the financial statements
Notes to the financial statements
The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that
is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 9 ‘Financial Instruments’, or
AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised
in profit or loss.
Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value
at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss.
Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive
income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the
Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during
the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts
and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
(v) 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 2022, 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:
Amendments to Australian Accounting Standards:
AASB 2014-10
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
AASB 2020-1
Classification of Liabilities as Current or Non-current
AASB 2021-2
Disclosure of Accounting Policies and Definition of Accounting Estimates
AASB 2021-5
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
AASB 2021-6
Disclosure of Accounting Policies: Tier 2 and Other Australian Accounting Standards
AASB 2021-7c
Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections
The Group has yet to determine the likely impact of these new standards and amendments to standards.
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.
(vi) Customer contracts and relationships
The fair value of customer contracts and relationships acquired in a business combination is estimated as the present value of future cash
flows, discounted at the market rate of interest at the acquisition date.
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022
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 2022 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; and
b.
c.
the financial report also complies with International Financial Reporting Standards as disclosed in
note 2(a); and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
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 2022.
At the date of this declaration, there are reasonable grounds to believe that the Company and the group
entities identified in Note 24 will be able to meet any obligations or liabilities to which they are or may
become subject to by virtue of the Deed of Cross Guarantee between the Company and those group
entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785.
2.
3.
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
30 August 2022
78
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Southern Cross Electrical Engineering Limited
To the shareholders of Southern Cross Electrical Engineering Limited
Report on the audit of the Financial Report
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Opinion
Southern Cross Electrical Engineering Limited
(the Company).
We have audited the Financial Report of
Southern Cross Electrical Engineering Limited
In our opinion, the accompanying Financial
(the Company).
Report of the Company is in accordance with the
Corporations Act 2001, including:
In our opinion, the accompanying Financial
Report of the Company is in accordance with the
• Giving a true and fair view of the Group's
Corporations Act 2001, including:
financial position as at 30 June 2022 and of
its financial performance for the year ended
• Giving a true and fair view of the Group's
on that date; and
financial position as at 30 June 2022 and of
its financial performance for the year ended
Standards and the Corporations Regulations
on that date; and
2001.
• Complying with Australian Accounting
• Complying with Australian Accounting
Standards and the Corporations Regulations
2001.
Basis for opinion
The Financial Report comprises:
• Consolidated balance sheet as at
The Financial Report comprises:
30 June 2022;
• Consolidated statement of comprehensive
• Consolidated balance sheet as at
• Consolidated statement of comprehensive
income, Consolidated statement of changes
30 June 2022;
in equity, and Consolidated statement of cash
flows for the year then ended;
income, Consolidated statement of changes
in equity, and Consolidated statement of cash
accounting policies; and
flows for the year then ended;
• Notes including a summary of significant
• Directors’ Declaration.
• Notes including a summary of significant
accounting policies; and
The Group consists of the Company and the
entities it controlled at the year-end or from time
• Directors’ Declaration.
to time during the financial year.
The Group consists of the Company and the
entities it controlled at the year-end or from time
to time during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
Basis for opinion
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
the audit of the Financial Report section of our report.
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
the audit of the Financial Report section of our report.
for Professional Accountants (including Independence Standards) (the Code) that are relevant to our
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
accordance with the Code.
for Professional Accountants (including Independence Standards) (the Code) that are relevant to our
audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in
accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified are:
Key Audit Matters
• Recognition of Contract Revenue; and
The Key Audit Matters we identified are:
• Value of Goodwill.
• Recognition of Contract Revenue; and
• Value of Goodwill.
Key Audit Matters are those matters that, in our
professional judgement, were of most
significance in our audit of the Financial Report of
Key Audit Matters are those matters that, in our
the current period.
professional judgement, were of most
These matters were addressed in the context of
significance in our audit of the Financial Report of
our audit of the Financial Report as a whole, and
the current period.
in forming our opinion thereon, and we do not
These matters were addressed in the context of
provide a separate opinion on these matters.
our audit of the Financial Report as a whole, and
in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
a scheme approved under Professional Standards Legislation
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
a scheme approved under Professional Standards Legislation
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Recognition of Contract Revenue ($553 million)
Refer to Note 4 to the Financial Report – Contract Revenue
The key audit matter
How the matter was addressed in our audit
Recognition of Contract revenue is a key audit
matter due to the:
• Significance of revenue to the financial
statements; and
• Large number of customer contracts with
numerous estimation events that may
occur over the course of the contract's life.
This results in complex and judgemental
revenue recognition from rendering of
services and construction contracts.
Therefore, significant audit effort is required
to gather sufficient appropriate audit
evidence for revenue recognition.
We focused on the Group's assessment of the
following elements of revenue recognition for
rendering of services and construction
contracts, as applicable:
• The Group's determination of contractual
entitlement and assessment of the
probability of customer approval of changes
in scope and/or price. The Group's
consideration of the enforceability or
approval of the modification of the terms of
a contract may include evidence that is
written, oral, or implied by customary
business practice and may include
involvement from the Group’s legal, time
and cost experts. The Group's
determination of modifications requires a
degree of judgement and can drive different
accounting treatments, increasing the risk
of inappropriately recognising revenue;
• Estimating total expected costs at initiation
of the customer contract, which have a high
level of estimation uncertainty; and
• Revisions to total expected costs for certain
events or conditions that occur during the
performance of the contract, or are
expected to occur to complete the
customer contract, which is difficult to
estimate.
Our procedures included:
• Understanding the Group’s contract revenue
accounting process. We tested a sample of
the key controls in this process including
customer approval of progress claim
submissions;
• We read key contracts and other underlying
documentation such as customer
correspondence to evaluate the inputs to the
Group’s calculation of revenue;
• We tested a sample of revenue transactions
by agreeing it to documentation to support the
satisfaction of the performance obligations;
• We tested a sample of unbilled revenue
accruals to by agreeing it to documentation to
support the satisfaction of the performance
obligations;
• For key contracts where revenue is recognised
on a percentage of completion basis, we
assessed the total expected cost estimates by
(1) obtaining an understanding of the activities
required to complete the customer contract
from the Group’s contract teams, (2) analysing
the costs of those activities compared to
recent project cost trends and prices, (3)
testing a sample of committed expenditure to
underlying documentation, and (4) using our
knowledge of the contract characteristics to
challenge the completeness of costs and
activities;
• We evaluated the Group's assessment of
when a modification to the contract scope
and/or price for variations and claims is
approved and enforceable. This included
assessing underlying records, legal
documents, and customer correspondence;
• We assessed the Group's estimation of
variations and claims by comparing underlying
evidence such as customer correspondence
and reports from the Group’s time and cost
experts (where applicable) for consistency
with contract terms. We recalculated the
amount of revenue including the modifications
to the contract. We compared the recalculated
amounts against the amounts recorded by the
Group;
• We evaluated the Group's legal time and cost
experts' reports received on contentious
matters to assess the recognition of variations
and claims under the revenue accounting
standard. We checked the consistency of this
to the inclusion or not of an amount in the
Group’s estimates used for revenue
recognition;
• We assessed the scope, competency, and
objectivity of the legal, time and cost experts
engaged by the Group;
• We evaluated the Group’s ability to recover
outstanding variation and claim amounts not
yet settled with customers by assessing the
status of contract negotiations, historical
recoveries and expert reports obtained by the
Group;
• We tested significant credit notes recognised
post year end to check the Group’s recognition
of revenue in the correct period; and
• We assessed the appropriateness of the
disclosures in Notes 4, 14 and 33(n).
Value of Goodwill ($103 million)
Refer to Note 17 to the Financial Report – Intangible assets - goodwill and customer contracts
The key audit matter
How the matter was addressed in our audit
We focused on the Group’s annual testing of
Goodwill for impairment as a key audit matter
due to the size of the balance, being 30% of
total assets. We focused on the significant
forward-looking assumptions the Group applied
in their value in use models for the SCEE,
Heyday, Trivantage segments, including:
• The valuation models are sensitive to
changes in forecast revenues and margins
which could reduce or remove available
headroom, and increases the possibility of
goodwill being impaired. This drives
additional audit effort specific to their
feasibility within the Group’s strategy; and
• Discount rates - these are complicated in
nature and vary according to the conditions
and environment the specific segments are
subject to from time to time. The Group’s
modelling is sensitive to changes in the
discount rate. We involve our valuation
specialists with the assessment.
Our procedures included:
• Considering the Group’s determination of the
level at which goodwill is tested based on our
understanding of the operations of the Group’s
business and how independent cash inflows
were generated, against the requirements of
the accounting standards;
• Considering the appropriateness of the value
in use method applied by the Group to perform
the annual test of goodwill for impairment
against the requirements of the accounting
standards. We assessed the integrity of the
value in use models used, including the
accuracy of the underlying calculation
formulas. We, along with our modelling
specialists, assessed the methodology applied
the value in use models used;
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SCEE Group Annual Report 2022SCEE Group Annual Report 2022
• Challenging the feasibility of the Group’s
Other Information
revenue and margin assumptions within the
forecast cash flows in light of varying
competitive conditions in the markets in which
the Group operates. We compared growth
rates and terminal growth rates to published
studies of industry trends and historical trends.
We further assessed forecast cash flows
against the secured value of work for those
respective years and the level of secured work
at similar times in previous years. We used our
knowledge of the Group, their past
performance, business and customers, and
our industry experience;
• Comparing the forecast cash flows contained
in the value in use models to Board approved
forecasts;
• Assessing the accuracy of previous Group
forecasting to inform our evaluation of
forecasts included in the value in use models.
We applied increased scepticism to current
period forecasts in areas where previous
forecasts were not achieved and/or where
future uncertainty is greater or volatility is
expected;
• Considering the sensitivity of the models by
varying key assumptions, such as forecast
revenue, margins, growth rates, terminal
growth rates and discount rates, within a
reasonably possible range. We did this to
identify those segments with a higher risk of
impairment and to focus our further
procedures;
• Working with our valuation specialists, we
independently developed a discount rate range
considered comparable using publicly available
market data for comparable entities, adjusted
by risk factors specific to the Group and the
industry it operates in;
• Working with our valuation specialists, we
considered the deficiency of market
capitalisation to the net assets of the Group,
having regard to valuation cross checks; and
• We assessed the Group's disclosures of the
quantitative and qualitative considerations in
relation to the valuation of goodwill, by
comparing these disclosures to our
understanding obtained from our testing and
the requirements of the accounting standards.
Other Information is financial and non-financial information in Southern Cross Electrical Engineering
Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s
Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other
Information. In doing so, we consider whether the Other Information is materially inconsistent with
the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We are required to report if we conclude that there is a material misstatement of this Other
Information, and based on the work we have performed on the Other Information that we obtained
prior to the date of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• Preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001;
•
Implementing necessary internal control to enable the preparation of a Financial Report that gives
a true and fair view and is free from material misstatement, whether due to fraud or error; and
• Assessing the Group and Company’s ability to continue as a going concern and whether the use
of the going concern basis of accounting is appropriate. This includes disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless they
either intend to liquidate the Group and Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
• To obtain reasonable assurance about whether the Financial Report as a whole is free from
material misstatement, whether due to fraud or error; and
• To issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the
Auditing and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our
Auditor’s Report.
82
83
SCEE Group Annual Report 2022SCEE Group Annual Report 2022
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Southern Cross Electrical Engineering Limited
for the year ended 30 June 2022, complies
with Section 300A of the Corporations Act
2001.
The Directors of the Company are responsible for
the preparation and presentation of the
Remuneration Report in accordance with Section
300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included
in the Directors’ report for the year ended 30 June
2022.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
KPMG
R Gambitta
Partner
Perth
30 August 2022
Lead Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Southern Cross Electrical Engineering Limited
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
I declare that, to the best of my knowledge and belief, in relation to the audit of Southern Cross
Electrical Engineering Limited for the financial year ended 30 June 2022 there have been:
No contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
i.
To the Directors of Southern Cross Electrical Engineering Limited
No contraventions of any applicable code of professional conduct in relation to the audit.
ii.
I declare that, to the best of my knowledge and belief, in relation to the audit of Southern Cross
Electrical Engineering Limited for the financial year ended 30 June 2022 there have been:
i.
KPMG
ii.
No contraventions of the auditor independence requirements as set out in the
R Gambitta
Corporations Act 2001 in relation to the audit; and
Partner
No contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Perth
30 August 2022
R Gambitta
Partner
Perth
30 August 2022
84
85
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
a scheme approved under Professional Standards Legislation
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
a scheme approved under Professional Standards Legislation
SCEE Group Annual Report 2022SCEE Group Annual Report 2022
ASX additional information
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 22 August 2022.
Distribution of equity security holders
Substantial shareholders
The number of shares held by substantial shareholders and their associates as disclosed in substantial holding
notices are:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of equity security holders
Ordinary shares
Performance rights
Shareholder
458
1,061
599
1,436
200
3,754
-
-
-
-
4
4
Frank Tomasi Nominees Pty Ltd
TIGA Trading Pty Ltd
Colonial First State Investments Limited
Corporate Governance Statement
Number
46,862,764
43,757,761
23,679,944
The number of shareholders holding less than a marketable parcel of ordinary shares is 194.
Twenty largest shareholders
Name
Frank Tomasi Nominees Pty Ltd
UBS Nominees Pty Ltd
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
Mr Paul Chisholm
Chemco Superannuation Fund Pty Ltd
HSBC Custody Nominees (Australia) Limited
CS Fourth Nominees Pty Ltd
Asgard Capital Management Ltd <1109440 Kaleidoscope a/c>
Westor Asset Management Pty Ltd
Neweconomy Com Au Nominees Pty Limited <900 account>
Alfiedoug Pty Ltd
Stanco Pty Ltd
Mr Raymond John Wise
BNP Paribas Noms Pty Ltd
Mr Roger Edward Koch
Felix Ventures Pty Ltd
DPHD5 Pty Ltd
Poco Asino Investments Pty Ltd
86
Number of ordinary
shares held
Percentage of
capital held
46,862,764
40,800,440
33,162,303
12,333,705
5,494,096
2,658,757
2,030,000
1,941,121
1,683,287
1,677,618
1,506,345
1,488,801
1,432,824
1,091,093
1,076,846
1,073,366
1,050,000
1,008,112
1,000,008
969,077
18.02
15.69
12.75
4.74
2.11
1.02
0.78
0.75
0.65
0.65
0.58
0.57
0.55
0.42
0.41
0.41
0.40
0.39
0.38
0.37
160,340,563
61.67
The Corporate Governance Statement can be found at www.scee.com.au/investors/corporate-governance
87
SCEE Group Annual Report 2022SCEE Group Annual Report 2022 Corporate Directory
Directors
Derek Parkin
Independent Chairman
Non-Executive Director
Registered Office
Level 15, 225 St Georges Terrace
Perth WA 6000
T: +618 9236 8300
Share Registry
Computershare Investor
Services Pty Limited
Level 11, 172 St Georges Terrace
Perth WA 6000
T: 1300 787 272
Solicitors
K & L Gates
Level 32,
44 St Georges Terrace
Perth WA 6000
Auditors
KPMG
235 St Georges Terrace
Perth WA 6000
Graeme Dunn
Chief Executive Officer
Managing Director
Simon Buchhorn
Independent
Non-Executive Director
Karl Paganin
Independent
Non-Executive Director
Paul Chisholm
Non-Executive Director
Company
Secretaries
Chris Douglass
Colin Harper
ASX Code: SXE
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SCEE Group Annual Report 2022
SCEE Group Annual Report 2022
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scee.com.au