SERVICE STREAM LIMITED — Annual Report 2011

Aug 24, 2011

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Service Stream Limited Level 1, 355 Spencer Street Tel: 61 3 9677 8888 West Melbourne, VIC 3003 Fax: 61 3 9677 8800 PO Box 14570, ABN: 46-072-369-870 Melbourne, VIC 8001 www.servicestream.com.au

25 August 2011

The Manager – Listings Australian Securities Exchange Limited Exchange Centre 20 Bridge Road SYDNEY NSW 2000

Via Electronic Lodgement

Dear Sir,

Re: Service Stream Reports Results for the Full Year Ended 30 June 2011

Attached is a release to the Exchange from Service Stream of its Market Presentation for the full-year ended 30 June 2011.

Yours faithfully

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Jessica Lyons Company Secretary SERVICE STREAM LIMITED

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Service Stream LimitedService Stream Limited FY11 Results Presentation FY11 Results Presentation August 2011 August 2011

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2

Agenda

1. Results overview

2. Financial review

3. Strategy & outlook

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3

Results overview

Graeme Sumner – Managing Director

4

Full Year Highlights

• EBITDA of $34.6m up 28.1% on underlying FY10 result

• Increase in EBITDA margin from 5.2% to 5.5%

• Basic EPS of 5.80 cents

• LTIFR down to 1.21 per million hours worked

• Contract wins, extensions and renewals underpin solid forward revenue

• Important NBN wins including new estates, lead-ins for first release site in SA, and call centre contract

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Capability : Ambition : Growth

5

FY11 reflects improvement across all key metrics

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Revenue ($m) Lost Time Injury Frequency Rate
(per million hours worked)
FY 11
FY 11
FY 10
FY 10
FY 09
FY 09
FY 08
FY 08
FY 07
FY 07
0 100 200 300 400 500 600 700 0.0 1.0 2.0 3.0 4.0 5.0
EBITDA ($m) Operating Cashflow ($m)
FY 11 FY 11
FY 10 FY 10
FY 09 FY 09
FY 08 FY 08
FY 07 FY 07
0 10 20 30 40 -35 -25 -15 -5 5 15 25
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Capability : Ambition : Growth

6

It’s been a busy FY11 across all core segments

 1.6 million tickets of work completed under A&AS contract

 3,800 fibre lead-ins completed

• 31 million utility meters read

• 9,800 solar panel installations completed

• 310,000 utility meter replacements

• 900 mobile phone tower locations upgraded

 400 new mobile phone towers constructed

 1.5 million in-bound calls

• 0.6 million out-bound calls

• 60,000 mobile handsets dispatched

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Capability : Ambition : Growth

7

Financial review

Bob Grant – Chief Financial Officer

8

FY11 reflects strong financial performance across all key financial metrics

			June		June		Change		Change
$ million			2011		2010		$m		%
Revenue			633.3		520.8		112.5		21.6%
UnderlyingEBITDA			34.6		27.0		7.6		28.1%
Reported EBITDA			34.6		6.4		28.2		440.3%
EBIT			28.1		(0.9)		29.1		n/a
NPAT			16.5		(2.6)		19.0		n/a
Operatingcash flow			24.6		16.8		7.8		46.4%
Net debt			38.1		59.3		21.2		35.7%
EPS(cents per share)			5.80		(0.99)		6.79		n/a

Capability : Ambition : Growth

9

The strategic rebalancing of our revenue mix continues

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$ million
700
29.1 40.2
660
31.8
4.7
1.5 633.3
12.2
620
85.8
580
540
520.8
500
460
Jun 10 Environmental Metering TCI & A&AS Discontinued Other Eliminations Jun 11
Infrastructure Activities
Services
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Capability : Ambition : Growth

10

Significant growth in AMRS drives lift in revenues whilst EBITDA margins continue to improve

		REVENUE	EBITDA	EBITDA %
	$ million	June 2010 June 2011	June 2011 June 2010	June 2011 June 2010
	Specialist Field Services	446.8 580.7	27.3 39.7	6.1% 6.8%
	Customer Care	79.8 59.6	2.5 5.6	4.2% 7.0%
	Eliminations	(5.8) (7.4)	- -	- -
	Corporate	- 0.3	(7.6) (5.9)	- -
	Total Service Stream Group	520.8 633.3	27.0 34.6	5.2% 5.5%
	Communications, $291.2 AMRS, $171.1 Communications, $272.2 AMRS, $73.1 Revenue 2011 Revenue 2010

Capability : Ambition : Growth

11

Excellent operating cashflow result assisted by continued improvement in working capital efficiency

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Working Capital % of Revenue
June June
$ million
2011 2010
20%
Reported EBITDA 34.6 6.4
+/- change in working capital (2.8) 17.2
OCFBIT [1] 31.8 23.6 15%
Net tax paid (1.6) (0.4)
Net interest paid (5.6) (6.4)
10%
Operating cash flow 24.6 16.8
Proceeds from sale of assets 3.3 4.4
Capital expenditure (6.7) (4.5) 5%
Payments for businesses - (4.9)
Free cash flow 21.2 11.8
0%
HY09 FY09 HY10 FY10 HY11 FY11
1 Operating Cashflow before Interest & Tax
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1 Operating Cashflow before Interest & Tax

Capability : Ambition : Growth

12

Increased borrowing capacity through lower gearing levels and new trade line facility

As at 30 June 2011 ($ million)	Facility Limit	Amount Drawn	Amount Available
Commercial bills	65.0	38.0	27.0
Overdraft	5.0	-	5.0
Finance leases	15.0	9.3	5.7
Cash on hand	-	(9.2)	9.2
Net debt	85.0	38.1	46.9
Bank guarantees	15.0	7.6	7.4
Total Banking Facilities	100.0	45.7	54.3
+ new trade line (July 2011)	40.0	-	40.0

Capability : Ambition : Growth

13

Capital Management Update

• The directors have not declared a dividend in respect of FY11

• SSM is well positioned to take advantage of opportunities (e.g. NBN) without the need to raise capital

• Shareholders’ desire for dividends is well understood, and the Company’s objective is to resume dividends in respect of FY12

Capability : Ambition : Growth

14

Income Tax opportunity update

 Background

Following amendments to Income Tax law in May 2010, Service Stream lodged a series of objections with the ATO with respect to the tax treatment of acquisitions made by the company dating back to 2004, including the merger with TCI in Jan 2007.

The total amount of additional tax deductions being claimed is $41.0m. $40.5m of the claim relates to prior years and would, if approved in full, result in a tax refund of $12.1m.

 Update

In March 2011, the Federal Assistant Treasurer requested that the Board of Taxation undertake a review of the Income Tax law amendments which has temporarily stalled the processing of the Company’s claim by the ATO.

As Service Stream continues to await the outcome of its objection, the Company is yet to record any amounts in the consolidated entity’s financial statements in relation to the matter.

Capability : Ambition : Growth

15

Strategy & outlook

Graeme Sumner – Managing Director

16

Strategy - A communications and utilities focus by:

• Retaining our leadership position in fixed line maintenance services

• Delivering on our build and upgrade programs in mobile infrastructure

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• Developing additional resources and capabilities to meet the demands of the National Broadband Network

• Providing skilled and flexible resources to meet the needs of environmental programs and utility customers

• Providing innovative end to end customer care options

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Capability : Ambition : Growth

17

National Broadband Network update

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Source: www.budget.gov.au
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 Addressable market[* ] $16-20 billion

 <10% awarded to date

• Service Stream’s estimate of the addressable market relating to fibre network design & construct, lead-ins, installation of optical network terminals (ONTs), maintenance augmentation services, wireless design & construct and mutli-dwelling units (MDUs)

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Capability : Ambition : Growth

18

We’re well positioned for NBN

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 : Capabilities

Can meet all of Telstra’s network remediation requirements Specialist capability to perform lead-ins and installation of ONTs Formed Syntheo JV with Lend Lease to bid for fibre network design & construct Design and construct wireless towers

Subcontract to prime network construction contractors

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 Contracts already won:

Greenfields (ie. new estates) fibre network design and construct via Fujitsu Completed lead-ins for ETSA at the Willunga first release site in SA NBN call centre

 Bids currently being evaluated:

Fibre network design & construct (Vic & WA) via Syntheo Project management of MDUs

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Capability : Ambition : Growth

19

Outlook: Significant opportunities for growth

 National Broadband Network proceeding:

<10% of addressable work released to the market so far SSM has already secured significant work

 Mobile telephony market remains very active:

Data demand continues to drive growth in infrastructure 4G technology already being implemented in limited form

 Utility & Environmental services more mixed:

Contracted revenue for meter services is stable

Solar holding up for now but volatile. Longer term outlook remains strong Promising environmental diversification options gathering pace Smart meter market challenging

 Further earnings growth in FY12 expected

Capability : Ambition : Growth

20

Appendices

21

Balance sheet

		30 June	30 Jun
	$ million	2011	2010
	Cash	9.2	-
	Receivables and WIP	146.6	120.5
	Plant and equipment – WDV	9.1	13.2
	Inventory	14.3	14.9
	Other	11.4	9.0
	Goodwill and other intangible assets	211.4	207.6
	Total assets	402.0	365.1
	Payables	79.5	59.0
	Core debt	38.0	49.0
	Finance leases	9.3	9.6
	Bank overdraft	-	0.7
	Provisions and other	21.1	10.9
	Total liabilities	147.8	129.2
	Net assets	254.1	235.9
	Issued capital	228.4	227.1
	Retained earnings and reserves	25.7	8.8
	Equity	254.1	235.9

Capability : Ambition : Growth

22

Cash flow statement

		30 June	30 June
	$ million	2011	2010
	Receipts from customers	689.6	571.9
	Payments to suppliers and employees	(657.8)	(548.3)
	Net interest and other finance costs	(5.6)	(6.4)
	Income tax paid	(1.6)	(0.4)
	Net cash used in operating activities	24.6	16.8
	Net capital expenditure and payments for businesses	(3.4)	(5.0)
	Net cash used in investing activities	(3.4)	(5.0)
	Net movement in borrowings	(11.0)	(46.0)
	Net movement in finance lease	(0.3)	(6.9)
	Capital raising and exercise of options	-	31.4
	Net cash provided by/(used in) financing activities	(11.3)	(21.5)
	Net increase/(decrease) in cash held	9.9	(9.7)

Capability : Ambition : Growth

23

Group overview

Service Stream is a field services organisation, delivering technical services and small projects predominantly to the telecommunications and utilities sectors. It is a niche provider of value added services & applications to government, utilities and public corporations

SERVICE STREAM LIMITED

SERVICE STREAM LIMITED
ASX code	SSM
EBITDA (June 2011) Net debt (June 2011)	$34.6m $38.1m
Total shareholders’ equity	$254.1m
Enterprise value (Net debt plus market cap)	$155.7m
Shares on issue (June 2011)	283.4m
Market capitalisation*	~$117.6m

SHAREHOLDER PROFILE

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Institutions, 49%
2010: 35%
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Retail, 51%
2010: 65%
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SHARE PRICE PERFORMANCE

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0.80
0.70
0.60
0.50
0.40
0.30
0.20
Jul‐ Aug‐ Sep‐ Oct‐ Nov‐ Dec‐ Jan‐ Feb‐ Mar‐ Apr‐ May‐ Jun‐ Jul‐ Aug‐
10 10 10 10 10 10 11 11 11 11 11 11 11 11
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BOARD & MANAGEMENT

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Peter Dempsey Chairman
Graeme Sumner Managing Director
Stephe Wilks Non‐Executive Director
Brett Gallagher Non‐Executive Director
Deborah Page AM Non‐Executive Director
Bob Grant CFO, Alternate Director
Jessica Lyons Company Secretary
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• As at 12 August 2011 ( share price $0.415)

24

Group overview (continued)

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Business Segment CUSTOMER CARE SPECIALIST FIELD SERVICES
TCI
CUSTOMER CARE COMMUNICATIONS AMRS
(Including Infrastructure Services)
50% 30%
FY11 Segment
Revenue
Contributions
20%
Business Offers a complete end to end Provides a range of network Specialist project Offers a range of metering
Description solution to customers in the and specialist services to the management company services and associated
areas of contact centre telecommunications working within the mobile field services to utilities and
management (including industry including telecommunications industry local councils. AMRS’ field‐
inbound / outbound calls and installation and in the area of technology and based workforce provide
insurance management), maintenance (telephony and infrastructure deployment. meter / smart meter
supply chain fulfilment broadband). installations, meter reading,
capabilities (back office water and environmental
Specialist contractor in
processes), administrative and management services and
underground multi utility
information vetting field and solar photovoltaic
solutions for the
distribution services. installations.
telecommunications, power,
water, gas and civil sectors.
Key
Customers
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