WestConnex Arbitration Costs Push SCEE to Half-Year Loss Despite Growth

Mixed Half-Year Performance

Southern Cross Electrical Engineering Limited (SCEE) has delivered a half-year financial report that blends strong operational progress with a significant legal setback. The company’s revenue declined by 12.2% to $349.1 million, primarily due to the winding down of major projects such as the Collie Battery Energy Storage System and the Western Sydney International Airport Terminal. However, underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) surged 30.8% to $35.4 million, reflecting improved project margins and the full consolidation of the Force Fire acquisition.

Despite this underlying strength, SCEE reported a net loss after tax (NPAT) of $12.8 million, largely attributable to a $46.1 million cost associated with settling a long-running arbitration dispute over the WestConnex M5 motorway tunnel project. This settlement included a $25.3 million cash payment and the write-off of a $19.5 million contract asset, alongside legal fees.

Sector Performance and Growth Drivers

The company’s commercial segment saw a robust 44.2% revenue increase, driven by Force Fire’s industrial and commercial projects and ongoing contracts with major retailers like Coles and Woolworths. Infrastructure revenue declined by 33.8%, reflecting project completions, but remains the largest order book component at 65%. Resources sector revenue was steady, supported by ongoing work for industry giants such as BHP and Rio Tinto.

Notably, SCEE’s gross profit hit a record $65.9 million, with margins improving to 18.9% from 12.7% a year earlier. This margin expansion was credited to successful project outcomes and a more favourable project mix, including contributions from newly acquired businesses.

Strong Order Book and Future Outlook

The group’s order book increased by 6% to $710 million, with over 85% of contracts located on Australia’s East Coast. SCEE is capitalising on a surge in data centre construction, with over $1 billion worth of projects currently tendered or underway. The company’s expertise across electrical contracting and adjacent disciplines such as fire, security, and communications is positioning it well to capture this growth.

Management has raised FY26 underlying EBITDA guidance to at least $72 million, a 31% increase on the previous year, citing the unprecedented pipeline of data centre projects and ongoing infrastructure investments. The group remains debt free and declared a fully franked interim dividend of 2.5 cents per share, maintaining shareholder returns despite the NPAT loss.

Strategic Positioning and Market Dynamics

SCEE’s strategy focuses on deepening sector presence and geographic diversification, leveraging acquisitions like Force Fire to broaden capabilities. The company is also expanding into services and maintenance, aiming to maximise cross-selling opportunities within its multi-disciplinary model. With Australia’s energy transition accelerating demand for electrification and renewable infrastructure, SCEE is well placed to benefit from structural tailwinds in data centres, battery storage, and electrification projects.

CEO Graeme Dunn highlighted the company’s confidence in future growth, noting the strong order book and multi-disciplinary approach as key competitive advantages. The recent WestConnex arbitration settlement, while costly, clears a significant legal uncertainty, allowing management to focus on execution and expansion.