SERVICE STREAM LIMITED — AGM Information 2019

Oct 22, 2019

SERVICE STREAM LIMITED

Managing Director’s AGM Presentation

Leigh Mackender

23 October 2019

==> picture [960 x 28] intentionally omitted <==

Company Profile

Service Stream Limited (ASX:SSM) is a S&P/ASX200 company providing integrated end-to-end asset life-cycle services across essential infrastructure networks within the Telecommunications and Utilities sectors

People	FY19 Revenue	FY19 EBITDA1	FY19 Adjusted EPS	FY19 Dividends / share	Market capitalisation2
2,200 Staff 3,500+ Contractors	$852.2m	$93.3m	15.14c	9.0c	$1.1b

1 EBITDA from Operations

2 based on share price of $2.70 as at 18-Oct-19

==> picture [176 x 50] intentionally omitted <==

TELECOMMUNICATIONS

UTILITIES

Telecommunication network engineering, design & construction, maintenance and operations

Utility network engineering, design & construction, maintenance and operations

==> picture [147 x 25] intentionally omitted <==

==> picture [125 x 25] intentionally omitted <==

==> picture [133 x 26] intentionally omitted <==

==> picture [161 x 25] intentionally omitted <==

2

FY19 GROUP PERFORMANCE

==> picture [960 x 28] intentionally omitted <==

Group Performance Highlights

==> picture [193 x 129] intentionally omitted <==

----- Start of picture text -----

Financial
----- End of picture text -----

==> picture [195 x 131] intentionally omitted <==

----- Start of picture text -----

Operational
----- End of picture text -----

• 2H19 is the 12th consecutive half-year of growth across key profitability measures

• Better-than-expected EBITDA to OCFBIT conversion % delivered in 2H19

• Net Cash position retained despite outlay to acquire Comdain Infrastructure

• Increased final dividend to 5.5 cps (fully franked) taking full-year dividends to 9.0 cps

• Group’s reportable segments now reflect Telecommunications & Utilities

• Continued delivery of industry leading HSE performance

• Renewed all 13 x metering services agreements which reached the end of their contract term during FY19, supporting ~$250m of works over future years

• Secured extensions of both OMMA & NMRA nbn agreements, taking effect from January 2020

• Comdain Infrastructure secured new asset renewal agreement with South East Water

==> picture [195 x 143] intentionally omitted <==

----- Start of picture text -----

Strategic
----- End of picture text -----

• Strong demand for maintenance services across both telecommunications and utilities markets

• 4

• Group revenues expected to reflect ~ 55:45 split between telecommunications and utility operations going forward

• Comdain Infrastructure integration ahead of schedule

• Business is well placed to secure additional organic growth opportunities across core markets

• Further external growth and diversification opportunities being assessed in FY20 with continued focus across core markets

4

==> picture [960 x 28] intentionally omitted <==

Key Financial Measures

==> picture [432 x 105] intentionally omitted <==

----- Start of picture text -----

Group Revenue Adjusted NPAT (NPATA) 57.7
$1,000 ($m) 852.2 $60 ($m)
$50
$750 632.9 41.5
$40
501.8 29.1
$500 411.3 438.9 $30
20.0
$250 $20 11.7
$10
$0 $0
FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19
----- End of picture text -----

								Group Revenue
								852.2 ($m)
	Key financial measures $ million FY19 Profitability: Revenue 852.2 EBITDA from Operations 93.3 EBITDA from Operations % 10.9% Adjusted EBIT (EBITA) 84.5 Adjusted NPAT (NPATA) 57.7 Adjusted EPS(cents) 15.14 Cashflow & Capital Management: OCFBIT 79.7 Operating Cashflow 59.5 Net Cash 10.5 Dividends declared per share(cents) 9.00 Statutory Profitability: Reported EBITDA 89.5 Reported EBIT 73.3 Statutory NPAT 49.9 Statutory EPS(cents) 13.09 Refer Appendix 2 for a reconciliation of statutory to adjusted profitability me All financial measures and period-on-period changes thereto are rounded to					Change 219.2 35% 27.0 41% 0.5% 25.7 44% 16.2 39% 3.75 33% (20.2) (20%) (20.2) (25%) (62.5) (86%) 1.50 20% 22.2 33% 15.5 27% 8.8 21% 1.80 16% of decimal places	$0 $250 $500 $750 $0 $20 $40 $60 $80 $100 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00	411.3 438.9 501.8 632.9
		FY19		FY18		Change
				632.9 66.3 10.5% 58.8 41.5 11.39 99.9 79.7 73.0 7.50 67.3 57.9 41.1 11.29 asures the displayed number

5

==> picture [960 x 28] intentionally omitted <==

Segment Results

Segment results

Segment results
$ million Telecommunications Utilities Eliminations, interest & other revenue Total Revenue Telecommunications Utilities Unallocated corporate costs EBITDA from Operations1 One-off / non-operational items Reported EBITDA Depreciation & Amortisation2 EBITA1 Financing costs Income tax expense1 NPATA1	FY19		FY18		Change
	587.8 273.4 (9.1) 852.2 75.9 12.9% 23.8 8.7% (6.4) (0.7%) 93.3 10.9% (3.7) 89.5 10.5% (8.8) (1.0%) 84.5 9.9% (1.2) (25.6) 30.7% 57.7 6.8%		535.2 106.7 (9.0) 632.9 62.3 11.6% 10.5 9.8% (6.5) (1.0%) 66.3 10.5% 1.0 67.3 10.6% (7.5) (1.2%) 58.8 9.3% 0.4 (17.7) 30.0% 41.5 6.6%		52.6 166.7 (0.1) 219.2 13.5 1.3% 13.3 (1.1%) 0.1 0.3%
					27.0 0.5% (4.7)
					22.2 (0.1%) (1.3) 0.2%
					25.7 0.6% (1.6) (7.9) 0.8%
					16.2 0.2%

1 Refer Appendix 2 for reconciliation of statutory to adjusted profitability measures

2 Excludes amortisation of customer contracts

==> picture [442 x 304] intentionally omitted <==

----- Start of picture text -----

Telecommunications Telecommunications
$700 Revenue ($m) 587.8 $80 EBITDA $m) 75.9
$600 535.2 $70 62.3
$500 $60
412.4 46.6
359.8 $50
$400 334.7
36.2
$40
$300
26.6
$30
$200
$20
$100
$10
$0
$0
FY15 FY16 FY17 FY18 FY19
FY15 FY16 FY17 FY18 FY19
Utilities Utilities
23.8
$300 Revenue ($m) 273.4 $25 EBITDA ($m)
$250 $20
$200
$15
$150 10.5
106.7
$100 77.3 82.0 94.6 $10 7.6
5.0
$50 $5 3.5
$0 $0
FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19
----- End of picture text -----

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

6

FY19 OPERATIONAL PERFORMANCE

==> picture [960 x 30] intentionally omitted <==

Safety Performance

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

• Business continues to deliver industry leading HSE performance as operations grow and expand

• Improvements delivered during FY19 across both TRIFR and MTIFR

• Targeted campaigns continue to be an ongoing focus for Management in FY20:

• Regular reviews and enhancement of critical controls across higher-risk field operations

• Continued analysis of lead-indicators to drive increased awareness and proactive improvements

• Increased focus on preventative and corrective actions across high-potential incidents

==> picture [492 x 183] intentionally omitted <==

----- Start of picture text -----

Total Recordable Injuries Medically Treated Injuries
9 5
8
4
7
6 3.02
3
5 2.36
1.68
4 3.06 3.36 2.32 2
3
2 1
1
0 0
TRI TRIFR MTI MTIFR
----- End of picture text -----

==> picture [226 x 178] intentionally omitted <==

----- Start of picture text -----

Lost Time Injuries
5
4
3
2
0.71 0.34 0.64
1
0
LTI LTIFR
----- End of picture text -----

8

TELECOMMUNICATIONS

==> picture [960 x 28] intentionally omitted <==

Telecommunications

Telecommunication network engineering, design & construction, maintenance and operations

• Revenue up $52.6m or 10% on prior year, in line with expectation

• Improvement in EBITDA margin to 12.9% due to a higher proportion of revenue under a free-issue-materials commercial framework and further operational efficiencies

• Continued demand for nbn customer activations, with strong bias to 2H19, representing a 27% increase on 1H19 volumes

• Maintenance work continues to increase as nbn network footprint expands and activations add more connections requiring support

• Since secured extension of key nbn OMMA & NMRA contracts, commencing January 2020

==> picture [472 x 152] intentionally omitted <==

----- Start of picture text -----

nbn customer activations nbn 'maintenance' tickets
1,000k 600k
800k 786.8 727.3 500k 470.8
400k 382.2
600k 545.5
300k
400k
200k
200k 100k 82.7
0k 0k
FY17 FY18 FY19 FY17 FY18 FY19
----- End of picture text -----

==> picture [268 x 203] intentionally omitted <==

----- Start of picture text -----

Telecommunications
$700 Revenue ($m)
587.8
$600 535.2
$500
412.4
$400 334.7 359.8
$300
$200
$100
$0
FY15 FY16 FY17 FY18 FY19
----- End of picture text -----

==> picture [188 x 122] intentionally omitted <==

----- Start of picture text -----

Telecommunications
$80 EBITDA $m) 75.9
$70 62.3
$60
$50 46.6
$40 36.2
$30 26.6
$20
$10
$0
FY15 FY16 FY17 FY18 FY19
----- End of picture text -----

==> picture [318 x 169] intentionally omitted <==

----- Start of picture text -----

Telecommunications
16.0% EBITDA %
14.0% 12.9%
12.0% 11.3% 11.6%
10.1%
10.0%
8.0%
8.0%
6.0%
4.0%
2.0%
0.0%
FY15 FY16 FY17 FY18 FY19
----- End of picture text -----

10

==> picture [960 x 540] intentionally omitted <==

----- Start of picture text -----

UTILITIES
11
----- End of picture text -----

==> picture [960 x 28] intentionally omitted <==

==> picture [321 x 520] intentionally omitted <==

----- Start of picture text -----

Utilities
$300 Revenue ($m) 273.4
$250
$200
$150
106.7
94.6
$100 77.3 82.0
$50
$0
FY15 FY16 FY17 FY18 FY19
Utilities
$25 EBITDA ($m) 23.8
$20
$15
10.5
$10 7.6
5.0
$5 3.5
$0
FY15 FY16 FY17 FY18 FY19
Utilities
12.0% EBITDA %
9.8%
10.0%
8.7%
8.0%
8.0%
6.1%
6.0%
4.6%
4.0%
2.0%
0.0%
FY15 FY16 FY17 FY18 FY19
----- End of picture text -----

Utilities

Utility network engineering, design & construction, maintenance and operations

• Revenue up $166.7m or 156% on prior year primarily due to inclusion of Comdain Infrastructure in 2H19.

• Margin reduction from 9.8% to 8.7% due to the impact of a lower-margin contribution from Comdain Infrastructure

• Integration of Comdain Infrastructure integration is going well and ahead of schedule.

• Strong demand observed for both D&C and O&M services, with Comdain Infrastructure secured new 3+2 year agreement with South East Water in Victoria for the renewal of water and wastewater infrastructure

• Metering Services renewed all 13 x field service agreements that either came to market or reached the end of their initial contract term in FY19, supporting ~$250m of works over future contract terms

• TechSafe and Radhaz have been combined to form a broader Inspection Services business providing both electrical inspection and electromagnetic emissions services

12

13

14

Maintenance Market Outlook

Continued growth in maintenance expenditure expected across telecommunication and utility infrastructure networks

Telecommunication Maintenance by Asset Type ($B)

• Fixed-line maintenance increasing as nbn network deployment expands

• Increasing dependency on telecommunications networks supporting a technology-driven investment in new fixed-line and wireless network infrastructure

• Service Stream remains technology-agnostic, providing a range of maintenance services across both fixed-line and wireless technologies

==> picture [300 x 153] intentionally omitted <==

----- Start of picture text -----

3.0
2.5
2.0
1.5
1.0
0.5
FY19 FY20 FY21 FY22 FY23 FY24
Copper HFC nbn Fibre Other Fibre Mobile Fixed Wireless
----- End of picture text -----

Utility Maintenance by Asset Type ($B)

• Ageing utility asset base supporting growth across network maintenance

• Increased investment in renewal and upgrade of water and wastewater infrastructure to support population growth

• Service Stream provides services associated with the design, construction, installation and maintenance of gas, water and electricity assets

==> picture [297 x 152] intentionally omitted <==

----- Start of picture text -----

7.0
6.0
5.0
4.0
3.0
2.0
1.0
FY19 FY20 FY21 FY22 FY23 FY24
Electricity (Distribution) Gas Pipeline Water & Waste Water
----- End of picture text -----

14

Source: BIS Oxford Economics, Maintenance In Australia 2019-2033

17

Group Strategic Pillars

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

==> picture [58 x 50] intentionally omitted <==

==> picture [58 x 50] intentionally omitted <==

==> picture [58 x 50] intentionally omitted <==

==> picture [58 x 50] intentionally omitted <==

==> picture [58 x 50] intentionally omitted <==

SERVICE DELIVERY CLIENT OPTIMISE OUR OUR DELIVER RELATIONSHIPS DELIVERY MODEL PEOPLE GROWTH

• Continued focus on superior  Continue to develop and enhance service delivery and execution for our existing client relationships our valued clients

• Expand and secure new

• Drive ongoing improvements relationships to support ongoing across our Safety performance business growth

• Maintain a strong balance sheet and continue to minimise working capital requirements

• Maintain or improve Group EBITDA margins through scale and operational efficiencies

• Ongoing investments in technology to support growth and increase efficiency

• Continual investment in talent  Target additional ‘annuity style’ development and succession revenues to support ongoing programs to support our valued future growth people

• Implement mature and scalable  Maximise organic ‘value add’ business frameworks and  Ongoing investment in programs opportunities across our existing processes to attract and retain new talent client base

• Continue to drive and support an  Continue to assess and progress ‘owners mentality’ across the acquisitions which provide

• business revenue diversity and support growth across known / adjacent

• Make it simple for our field markets workforce to engage with the business

• Increase use of data analytics and Business intelligence tools to drive improved business outcomes

15

==> picture [960 x 28] intentionally omitted <==

FY20 Outlook

• The Group expects continued revenue and profit growth in FY20, subject to a continuation of prevailing market conditions.

• FY20 will be characterised by a full-year contribution from Comdain Infrastructure, partly offset by reduced earnings from cessation of nbn D&C operations.

• Group earnings from FY20 onwards will be reported under AASB16 Leases with an uplift in EBITDA arising from the revised accounting treatment of motor vehicle and property leases.[1]

• Remaining FY20 priorities include:

• securing organic growth opportunities as they emerge across existing operations

• maintaining readiness to deliver increased volume of wireless services as 5G upgrade/augmentation activities gain momentum

• successfully winding-up nbn MIMA & DCMA operations

• finalising the integration of Comdain Infrastructure with a focus on enhancing financial and project management controls through adoption of the Group’s ERP system

==> picture [226 x 398] intentionally omitted <==

• continuing to identify and assess further market expansion and diversification opportunities

16

1 Had AASB16 been adopted from 1-Jul-18, FY19 EBITDA would have increased by approximately $10.1m due to lower lease charges to motor vehicle and occupancy expenses, whilst Depreciation would have increased by approximately $10.0m and Interest Expense would hve increased by approximately $1.1m, resulting in a minor adverse impact to NPAT and EPS.

17

QUESTIONS

17

Service Stream Limited ABN: 46 072 369 870 Level 4, 357 Collins Street Melbourne, Victoria 3000

WWW.SERVICESTREAM.COM.AU

==> picture [411 x 76] intentionally omitted <==