01/02/2010 - 15:34

Southern Cross buys Qld firm for $12.4m

01/02/2010 - 15:34


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Southern Cross Electrical Engineering has today executed a deal to acquire Queensland business Oceanic Industries for $12.4 million and has forecast first half earnings to reach $4.8 million.

Southern Cross buys Qld firm for $12.4m

Southern Cross Electrical Engineering has today executed a deal to acquire Queensland business Oceanic Industries for $12.4 million and has forecast first half earnings to reach $4.8 million.


The announcement is below:


Southern Cross Electrical Engineering Ltd (ASX:SXE) today announced the execution of an agreement to acquire Queensland based electrical and instrumentation specialist, Oceanic Industries Pty Ltd ("Oceanic"). To date Oceanic has focussed on the coal seam gas ("CSG") market and retains a blue-chip customer base including: QGC, Origin, Santos, Arrow and Cougar. In addition to servicing the CSG market, Oceanic undertakes electrical and instrumentation installations as a preferred contractor to the BP and Caltex refineries in Queensland.

Oceanic's revenue for FY09 was $12.9m which delivered normalised earnings before interest, tax, depreciation and amortisation of $3.0m. The acquisition price is $12.4 million and will be funded through a combination of existing cash reserves ($3.4m), equity ($4.0m) and debt ($5.0m) with settlement expected to be finalised on 26 February 2010. The acquisition will be immediately EPS accretive.

SXE Managing Director, Mr Stephen Pearce said "SXE welcomes the team from Oceanic to the SXE Group and looks forward to substantially growing the Oceanic business. This acquisition presents a strong strategic fit with SXE's acquisition criteria and will augment the pursuit of a range of SXE's key growth objectives, particularly:

- Oceanic provides an excellent platform to grow SXE's overall presence in the Queensland market.

- It further expands SXE's presence in the growing energy sector.

- Provides organic revenue growth opportunities - SXE to strengthen its footprint in the Queensland power line and mining electrical construction markets that Oceanic currently does not participate in.

- Existing Oceanic senior management team to strengthen SXE's skill base in the Oil and Gas sector - specialised capability in Hazardous areas.

- Strengthens tendering capability for key Queensland based contracts.

Earnings Update

SXE is currently finalising the results for the first half and expects to report an underlying consolidated net profit after tax result of between $4.5m and $4.8m from revenue of $38.8m.

Based on the current order book, the revenue for the second half is expected to be between $45m and $50m. SXE is continuing to submit tenders for work that is expected to commence in FY10. If successful, these tenders will result in revenue being broadly in line with FY09. Margins in the second half are expected to be similar to the first half.

Chief Financial Officer, Mr Stephen Fewster said "the underlying NPAT result for the half is approximately $1.6m lower than the underlying NPAT for the previous half. The key drivers of the first half result were:

- The gross margin percentage for the period has remained in line with FY09.
- The lower level of activity in the first half impacted earnings due to delays in the commencement of key projects.
- The decision to recruit and retain staff in advance of the increased level of activity expected in FY11.
- The financial performance of KJJ and Hindles is in line with expectations at the time of acquisition."

Mr Fewster continued "the significant commitments now being made to energy and resource projects by key clients should provide substantial opportunities for SXE in FY11 and FY12. The investment SXE has made in people, systems and capabilities over the last 18 months positions SXE to successfully pursue these opportunities."


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