Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Southern Cross Electrical Engineering Ltd (ASX:SXE) reported a record half-year revenue of $397.4 million, up 55.5% from the previous period.
• The company achieved a record half-year EBIT of $23.2 million, marking a 73.7% increase from the prior corresponding period.
• The order book increased to $670 million, reflecting strong future business prospects.
• The company declared a fully franked interim dividend of $2.05 per share, a 150% increase from the previous year.
• Southern Cross Electrical Engineering Ltd (ASX:SXE) remains debt-free with a record cash balance of $114.8 million, providing a strong financial position for future growth and acquisitions.

Negative Points

• The gross margin percentage decreased by 2% to 12.7%, partly due to $3 million in legal costs related to the West Connex arbitration.
• The commercial building sector experienced a less profitable mix of projects, impacting overall margins.
• There are ongoing legal costs associated with the West Connex proceedings, although future costs are expected to be lower.
• The company faces challenges in scaling its workforce to meet growth demands, although it has managed to attract necessary talent so far.
• The gross profit increase of 34.2% was lower than the revenue growth, indicating potential pressure on profitability.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Sign with ASX:SXE.

Q: Have you had any trouble scaling up the workforce given the growth? A: Graeme Dunn, CEO: We have been able to attract the necessary workforce for our projects. While there have been minor challenges, they have not impeded our growth. Our ability to scale up and down is a key strength of our business.

Q: Can you provide any comments on the contract award for the second phase of the Colli battery project? A: Graeme Dunn, CEO: The second phase of the Colli battery project has not yet been put out for tender. We do not expect it to be tendered before the completion of the first phase.

Q: Can you comment on the tender pipeline for battery projects in terms of opportunity size and volume? A: Graeme Dunn, CEO: We have identified 7 to 10 battery projects, mostly in early development stages. We are confident in securing at least one additional battery project this calendar year.

Q: Will there be further litigation costs on the West Connex proceedings? A: Christopher Douglass, CFO: We expect some costs, but they will not be as high as before. Most costs were incurred during the preparation phase. Any future costs are included in our guidance.

Q: How much work remains in the data centre space over the foreseeable future? A: Graeme Dunn, CEO: We are looking at over $500 million in tenders for data centre projects over the next two years. In the last half, we secured $60 million in new data centre work.

Q: Can you discuss the acquisition pipeline? A: Graeme Dunn, CEO: We are actively exploring acquisition opportunities, receiving approaches regularly. We are interested in both direct and adjacent business opportunities, with hopes to complete an acquisition within this calendar year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.