Bourse Discourse: FWD, SXE

Contrasting results from two small industrials involved in the resources sector – one a loss on a contract; the other, a solid profit after a big takeover nearly two years ago.

But Southern Cross Electrical (ASX:SXE) and Fleetwood (ASX:FWD) have a couple of major pluses in common – they have a lot of cash on hand and both have no debt, so there is something to be said about running a tight ship in an inflationary environment.


A big writedown in the cost of an accommodation village in WA for Rio Tinto blighted the 2021-22 results for mobile home, caravan and RV group Fleetwood (ASX:FWD).

The company Wednesday reported an underlying EBITA loss of $12.3 million and a statutory after-tax loss of $47.5 million loss of $47.5 million after taking impairment losses in the contract.

That loss forced the company to drop its final dividend for the year, but directors said in Wednesday’s statement they expect the company to return to profitability in the new financial year.

They also highlighted the reassuring figure of $55 million in cash the company had in its accounts at June 30.

The shares didn’t move on the news, ending the day steady at $1.555.

Fleetwood said it’s problem in the June year was “difficulties in the Building Solutions Business related to performance on major projects, materials and labour shortages, and COVID-19 pandemic construction industry lockdowns.”

“A clearly unacceptable result in our Building solutions business with approximately 80% of the $24.3m loss as a result of major project underperformance. The vast majority of these losses relate to the Rio Tinto Ti Tree Rail Camp Upgrade mining project in Western Australia.

“The project experienced significant delays and cost escalation during the year and in preparing the year end accounts a further review of the project and its associated risks was undertaken. Following this review a conservative approach was adopted and a further onerous contract provision of $8.9m was taken.”

Fleetwood says it will complete the project and “will continue to pursue a number of material claims which remain the subject of ongoing commercial negotiations. These claims have not been accounted for in the result.”

On the other hand, Fleetwood said its RV Solutions business “had an outstanding year with ongoing popularity in domestic tourism. Community Solutions (formerly Accommodation Solutions) was similar to the annualised H2 FY21 run rate as expected with new supply entering the Karratha market ahead of major project commencements.”

Overall, revenue for the period was up 24% to $446.1 million from $360.1 million the year before.

Besides the $55.3 million on hand at June 30, Fleetwood says it had no debt after accounting for dividend payments of $11.8 million. “The cash position remains well- matched to the company’s ongoing requirements,” directors said.

“Given the results for the year and the continuing challenges in the construction industry, including supply chain disruption and labour shortages, the Board considered it prudent for Fleetwood not to pay a final dividend for FY22. The Company’s dividend policy remains to pay out 100% of net profit after tax (NPATA basis).

“Based on the order book and outlook across the operating businesses, Fleetwood anticipates a return to profitability in FY23. We have embedded the Build, Transform & Grow strategy in the business with the aim to focus on quality of revenue through diversification, generating sustainable margins, increasing utilisation, and reducing overheads to improve earnings. This is underpinned by building leadership capability across the business to successfully execute our strategy,” the company explained.


Southern Cross Electrical Engineering (ASX:SXE) managed to survive labour shortages, rising costs and Covid as it turned in a year of higher revenues and earnings, as well as boost to its dividend.

The company’s performance was helped along by a full year’s contribution from the purchase of the smaller electricals business Trivantage for $54 million in cash and shares in late 2020.

That purchase and an upturn in business from the resources boom saw Southern Cross’ revenue for the June year jump more than 49% to a record $553.3 million.

Revenue in the June half of 2021-22 of $300.3 was the third third consecutive record half of revenue, according to Southern Cross.

EBITDA for the year of $35.3 million was also a record and was up 19.3% on the prior year EBITDA of $29.6 million which included $8.9 million of JobKeeper receipts.

Net profit after tax of $15.3 million was up 10.9% on the prior year’s $13.8 million.

A fully franked final dividend of 4.0 cent will be paid and with the one cent interim, the full year payout of 5 cents a share is up 25% on the previous year.

Southern Cross said 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”

Year-end cash of $53.1 million was up from $51 million at the start of the year “despite funding Trivantage deferred consideration of $10.0m and dividend payments of $12.7m during the year.”

Southern Cross says it is debt-free.

“Subsequent to 30 June 2022, 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 in line with our accounting position and the arbitration proceedings concerning the dispute have been terminated,” Southern Cross said.

Looking to 2023, the company was very upbeat.

“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 $565 million, which Southern Cross said 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 FY23 and there is a long tail of smaller opportunities in the sector across many commodities.”

SXE shares ended up 2.8% at 73.5 cents.