SERVICE STREAM LIMITED — AGM Information 2018

Oct 23, 2018

Service Stream Limited

Managing Director's AGM Presentation

Leigh Mackender

24 October 2018

Company Profile

Service Stream Limited (ASX: SSM) is a S&P/ASX 300 company providing design, construction, installation and maintenance services across essential infrastructure networks within the Telecommunication and Utility sectors

FY18 GROUP PERFORMANCE

Group Highlights

Financial	FY18EBITDAof$67.3m…up39%onFY17
	FY18NPATof$41.1m…up45%onFY17
	FY18EPSof11.29cps…up45%onFY17
	SolidcashgenerationleadingtoNetCashof$73.0mat30-Jun-18
	Interimandfinaldividendsduringtheyearof7.5centspershare(fully-franked)
	10consecutivereportingperiodsofdeliveringconsistentandincrementalgrowth
Operational	Maintainedindustry-leadingperformanceacrossHSEmetrics
	Furtherincreasedshareofnbncustomeractivations…andfurtherincreaseinnbn'maintenance'activitiesasnetworkexpands
	Securedmultiplenewfieldserviceagreementswithutilityassetowners,providingfuturegrowthofannuity-stylerevenues
	SolidpipelineofcontractedrevenuetosupportgrowthintoFY19
Strategic	Achieved the successful integration of TechSafe and seeing emerging opportunities for ongoing growth
	Leading national provider of wireless network design and construction services
	Technology-agnostic capabilities to take advantage of increasing investment across both fixed-line andwireless technologies
	Making solid progress on the identification of external expansion and diversification opportunities

Financial Performance

$ million	FY18	FY17	Change
Profitability:
Revenue	632.9	501.8	131.1	26%
EBITDA	67.3	48.4	18.9	39%
EBITDA %	10.6%	9.6%	1.0%
EBITA	63.9	45.3	18.5	41%
EBIT	57.9	40.9	17.0	42%
EBIT %	9.1%	8.1%	1.0%
Net profit after tax	41.1	28.4	12.7	45%
Cashflow & Capital Management:Operating Cashflow	79.7	50.7	29.0	57%
Net Cash	73.0	49.9	23.2	46%
Earnings per share (cents)	11.29	7.78	3.51	45%
	7.5	4.5	3.0	67%
Dividends declared per share (cents)
Adjusted Profitability:
NPATA1	41.5	29.1	12.4	43%

All financial measures and period-on-period changes thereto are rounded to the displayed number of decimal places

NPAT ($m)

0.5

$0 $5 $10 $15 $20 $25

1.8

4.0

7.7 8.8

11.2

1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18

13.0

15.3

19.9

21.2

Safety Performance

Maintaining our focus on the safety of our people, our customers and the community

• Focus continues on maintaining a strong safety culture as operations across the business continue to grow and expand
• Delivered further improvements in reducing lost time injuries and severity rates throughout the year
• Working through a range of new initiatives to drive further improvement across Recordable and Medically Treated Injuries as performance improvement levels moderate
  • Increasing use of lead indicators to proactively assess group performance across key risk areas
  • Targeted campaigns to review and improve HSE processes associated with higher risk field activities

BUSINESS UNIT UPDATE

Fixed Communications

Network operations, maintenance and minor works

FY18 Highlights

• Revenue up 39.7% on prior year driven by an increase in nbn OMMA volumes and minor projects, with a solid revenue contribution of $48.3 million from other customers
• EBITDA margin steady in line with 2H17 & 1H18
• nbn NMRA contract extended to Dec-19
• Increase in nbn OMMA assurance & remediation volumes in 2H18 offset the expected decline in activations due to the HFC pause

FY19 Priorities

• Scaling and multi-skilling resource base to meet forecasted growth in activation and assurance works for nbn
• Continued focus on superior service delivery and customer satisfaction

Network Construction

Network engineering, design and construction

FY18 Highlights

• Revenue up 19.3% on prior year driven by increases in Wireless and nbn design & construction activities under the MIMA & DCMA contracts
• Increases more than offsetting cessation of the nbn New Developments contract
• EBITDA margin maintained in line with that achieved in recent years
• Revenue under the MIMA & DCMA contracts increased to $105.7m in line with expectation
• Wireless revenues driven by significant focus on the Telstra 'black-spot' program

FY19 Priorities

• Scaling resources associated with the DCMA contract to support the build program
• Secure extension of Telstra SAED / SMR Wireless contract post December 2018

9

Energy & Water

Utility asset installation, inspection and maintenance

FY18 Highlights

• Revenue up 10.7% on prior year with TechSafe's revenue of $14.9m for the year impacted by a slightly slower second-half.
• EBITDA margin steady and in line with 2H17 & 1H18.
• 100% of incumbent metering contracts were retained during the year.
• Three new field service contracts, with an aggregate annual value of $9.5 million, have been won from competitors over recent months.
• 11.8 MW of solar PV installed during the year, with a strong continuing bias to commercial end-users.

FY19 Priorities

• Grow market share and work pipeline of new energy opportunities e.g. commercial solar PV, battery storage
• Successfully mobilise new Metering Service contracts secured mid-FY18

GROUP STRATEGY & OUTLOOK

Group Strategic Pillars

We continue to focus on five fundamentals which drive operational effectiveness, continual improvement and support future growth

SERVICE DELIVERY	CLIENTRELATIONSHIPS	OPTIMISE OURDELIVERY MODEL	OURPEOPLE	DELIVERGROWTH
Continued focus onsuperior service deliveryand execution for ourvalued clientsDrive ongoingimprovements across ourSafety performanceMaintain a strong balancesheet and continue tominimise working capitalrequirementsMaintain or improve GroupEBITDA margins throughscale and operationalefficiencies	Continue to develop andenhance our existing clientrelationshipsExpand and secure newrelationships to supportongoing business growth	Ongoing investments intechnology to supportgrowth and increaseefficiencyImplement mature andscalable businessframeworks and processesIncrease use of dataanalytics and Businessintelligence tools to driveimproved businessoutcomes	Continual investment intalent development andsuccession programstosupport our valued peopleOngoing investment inprograms to attract andretain new talentContinue to drive andsupport an 'ownersmentality' across thebusinessMake it simple for our fieldworkforce to engage withthe business	Target additional 'annuitystyle' revenues to supportongoing future growthMaximise organic 'valueadd' opportunities acrossour existing client baseContinue to assess andprogress acquisitionswhichprovide revenue diversityand support growth acrossknown / adjacent markets

Outlook

• We anticipate growth in Group Profit during FY19, leading to EPS growth of at least 10%

• EPS growth subject to forecasted customer demand and excludes the impact of any capital management initiatives e.g. on-market buy back.

• Group performance for Quarter 1 FY19 has exceeded target, bolstering our confidence in respect of meeting outlook for the year

• Expect outcome on the assessment of current acquisition opportunities within the next few months

• Business Unit outlooks for FY19:

  • Fixed Communications - expected to grow as the aggregate number of customer activations and assurance (maintenance) works completed under our nbn contracts increases
  • Network Construction - expected to be relatively flat with increased earnings from the nbn DCMA contract offsetting lower expected Wireless spend prior to the expected start of the 5G roll-out in FY20
  • Energy & Water - expected to grow with a full-year's contribution from recently secured Metering Service contracts and growth across commercial solar operations

QUESTIONS