SERVICE STREAM LIMITED — Interim / Quarterly Report 2012

Feb 22, 2012

==> picture [140 x 34] intentionally omitted <==

Service Stream Limited Level 1, 355 Spencer Street West Melbourne, VIC, 3003 PO Box 14570 Tel: 61 3 9677 8888 Melbourne, VIC 8001 Fax: 61 3 9677 8877 www.servicestream.com.au ABN: 46 072 369 870

ASX & Media Release

23 February 2012

Service Stream announces record first half results and a resumption of dividends

Leading telecommunications and utilities services company Service Stream Limited (ASX: SSM) is pleased to announce its results for the half-year ended 31 December 2011.

Half-Year Results Highlights

• Record first half Revenue, EBITDA, NPAT and Operating Cashflow

• EBITDA of $19.2 million up 19.1% on prior corresponding period

• Revenue of $308.0 million and NPAT of $10.0 million

• EPS growth of 27.6%

• Cashflow from Operations of $19.5 million up $17.1 million on prior corresponding period

• Resumption of dividends with fully-franked interim dividend of 1.0 cent per share

• EBITDA for the full-year to 30 June 2012 now expected to exceed the $34.6 million result for FY11

Summary of Financial Results

Half-Year to 31 December	2011 ($ million)	2010 ($ million)	Change ($ million)	Change %
Revenue	308.0	300.3	�7.6	2.5%
EBITDA	19.2	16.1	�3.1	19.1%
EBITDA %	6.2%	5.4%	�0.8%	n/a
EBIT	15.4	13.0	�2.4	18.1%
NPAT	10.0	7.8	�2.2	27.9%
EPS (cents)	3.51	2.75	�0.76	27.6%
DPS (cents)	1.0	-	�1.0	n/a
Cashflow from Operations	19.5	2.3	�17.1	>100%
Net debt	22.6	38.11	▼15.6	40.8%

1 as at 30 June 2011

Results Commentary

The results for the six months to December 2011 reflect a continuation of Service Stream’s recent success in delivering half-on-half profitability growth.

Although revenue growth was relatively modest at 2.5%, EBITDA growth was strong, up $3.1 million or 19.1% against the prior corresponding period. This was underpinned by a significant improvement in EBITDA margins, which have increased from 5.4% to 6.2% largely due to a favourable mix of work and the absence of poor results and restructuring costs associated with businesses that were closed during last year.

Cashflow performance for the half-year was a highlight, with Cashflow from Operations up $17.1 million to $19.5 million for the period. This resulted in a further reduction in the Company’s net debt, which at 31 December 2011 was down to $22.6 million, 40.8% lower than that recorded six months earlier.

Commenting on the Company’s financial results, Managing Director Graeme Sumner said:

“The first half produced a great all-round set of results for the Company. These record results reflect the investments that have been made in improving capabilities and disciplines across the business, and underscore the potential for the Company to grow further. The improvement in EBITDA was particularly pleasing given that our Utilities & Environmental segment had been adversely affected by softening market conditions and the cessation of some customer contracts. The cashflow result for the period was once again outstanding, thanks to the Company’s continuing focus on working capital management and a positive contribution from the Syntheo Joint Venture.”

“The past six months has seen a significant change in the telecommunications landscape in Australia with construction commencing on the National Broadband Network. Service Stream has positioned itself well to take advantage of NBNrelated opportunities, both in its own name and through the Syntheo Joint Venture with Lend Lease. Nonetheless, the provision of high quality and cost effective services to our current customers remains a key focus for the Company, and in that context we will seek to consolidate and expand existing relationships with customers such as Telstra.”

Operational Summary

Following a number of changes to the Service Stream business and the markets in which it operates, the Company has re-aligned its external reporting around two new reporting segments, Telecommunications and Utilities & Environmental.

Telecommunications

The Telecommunications segment delivered very strong growth, with revenue up 17.8% to $221.2 million and EBITDA up 37.0% to $15.7 million. The EBITDA margin of 7.1% was up significantly on the 6.1% that was recorded in the prior comparative period. Key drivers of the result were:

• Strong volumes with respect to the Telstra A&AS contract, most notably in Network Projects, Pre-provisioning and New Estates, which assisted revenues from this contract to grow by 8.9% to $132.3 million;

• Revenues from other fixed-line communication services growing by 29.1% to $21.3 million following the commencement of contracts with Fujitsu and with individual property developers for the installation of National Broadband Network services in New Estates;

• Continued strong demand for wireless infrastructure services, which led to a 69.2% jump in revenues to $52.8 million for the period. This lift in volumes was fuelled by mobile carriers investing to keep pace with advances in technology and with growth in the volume of data transmitted across their networks;

• The start up of operations in the Syntheo Joint Venture, which commenced survey and design operations associated with the roll-out of the National Broadband Network in two regions of Western Australia, namely Geraldton and Victoria Park, Perth. Due to the project still being in a start-up phase, revenues for the six months to 31 December 2011 were modest at $0.6 million; and

• Revenues from the infrastructure services businesses which totalled $14.2 million, down 23.5% from the previous period, largely due to the closure of under-performing businesses that were operating for part of the previous comparative period.

Utilities & Environmental

Revenues from the Utilities & Environmental segment decreased by 22.3% to $89.2 million, with EBITDA of $6.7 million down $1.9 million against the prior corresponding period. EBITDA margins remained relatively stable at 7.5%. Key drivers of this result were:

• A widespread softening in the residential solar system market, principally as a result of the scale-back of state and federal government incentives. The number of residential solar panel installations completed by the Company’s environmental services business reduced from approximately 4,400 during the prior corresponding period to 2,600 for the six months to 31 December 2011. This contributed to a reduction in environmental services revenues of 32.5% to $35.2 million;

• On a positive note, the group’s metering services business is continuing to build momentum, with revenue lifting 22.8% to $39.3 million on the back of solid demand for both meter reading and meter installation services. During the six months to 31 December 2011 the business installed approximately 104,000 smart meters in Victoria compared to 81,000 for the prior corresponding period; and

• The cessation of the Optus mobile handset insurance contract during the period, leading to a reduction in revenues from customer care services of 51.8% to $14.7 million.

Safety

Service Stream reported a Lost Time Injury Frequency Rate at 31 December 2011 of 1.7 injuries per million hours worked. Whilst this was a slight increase on the LTIFR reported 12 months earlier, we were pleased to see significantly greater levels of safety reporting and remedial action. Service Stream remains committed to an injury free workplace.

Banking Facilities

During the period, Service Stream secured new trade finance facilities totalling $40.0 million to fund the purchase of inventory and materials and to provide bank guarantees required under customer contracts. The $6.5 million of borrowings drawn under these trade finance facilities as at 31 December 2011 has been classified as current borrowings since it requires repayment within 12 months of balance date.

Separately, the Company had $26.0 million of fixed and variable bank debt at balance date. The facilities under which this debt was drawn are due to expire on 2 September 2012, leading to it also being classified as current borrowings. The Company is well advanced in securing renewal of these facilities.

Dividend

Following the Company’s strong cashflow performance and an assessment of working capital requirements needed to fund current contracts and near term growth opportunities, the Board has declared a fully-franked interim dividend of 1.0 cent per share in relation to the Company’s half-year earnings, with the relevant dates being:

Ex-dividend date: 12 March 2012 Record date: 16 March 2012 Payment date: 20 April 2012

The Company’s Dividend Reinvestment Plan (DRP) will not operate in respect of this dividend.

Commenting on the Company’s resumption of dividends, Chairman Peter Dempsey said:

“The Board acknowledges the significant progress that the Company has made in the last 24 months in restoring profitability, reducing debt and positioning itself to take advantage of market opportunities, and is very pleased to announce a resumption of dividends to our shareholders.”

Outlook

Commenting on the Company’s outlook, Mr Sumner said:

“With a good first half now behind us, we expect that Service Stream will deliver an EBITDA for the full-year to 30 June 2012 exceeding the $34.6 million that was recorded for FY11. The extent of any outperformance of last year’s result will depend on the market conditions that we experience over the second half of the year.”

“We believe that the Company’s prospects for growth in the medium term are strong, due mainly to a range of opportunities related to the roll-out of the National Broadband Network and consumer demand for smart mobile communication devices which continue to drive investment in wireless infrastructure.”

For further details contact:

Service Stream Limited Service Stream Limited Graeme Sumner, Managing Director Bob Grant, Chief Financial Officer Tel: (61 3) 9677 8817 Tel: (61 3) 9677 8817

About Service Stream Limited:

Service Stream is a public company listed on the Australian Stock Exchange (Code: SSM) with 2010/11 revenues of A$633 million. The Company is an industrial services enterprise with proven outsourced infrastructure deployment, management and service capabilities operating out of more than 50 locations throughout Australia. Service Stream’s technical workforce of over 4,000 employees and contractors supports large asset owners on the deployment, management and servicing of essential network infrastructure in the telecommunication, electricity, water and gas sectors. For more information please visit the Company’s website at www.servicestream.com.au.