SERVICE STREAM LIMITED — M&A Activity 2018

Dec 2, 2018

Service Stream Limited

Acquisition of Comdain Infrastructure

Leigh Mackender Managing Director

3 December 2018

Transaction Overview

ComdainInfrastructureOverview	Service Stream has entered into a binding agreement to acquire Comdain Infrastructure Pty Ltd (ComdainInfrastructure)Comdain Infrastructure is a market leading provider of integrated asset lifecycle services to Australia's utilityasset owners and operatorsProvider of engineering, design & construction (D&C) and operations & maintenance (O&M) of gas and waterinfrastructure services
TransactionMetrics	Implied enterprise value of $161.7m1 on a cash and debt free basisEquates to an attractive FY19F EV/EBITDA multiple of 7.4x
Offer Structure	The offer consideration is structured as:$93.7m cash payable at completion$68.0m scrip payable at completion in Service Stream ordinary shares based on the 1-month VWAP of$1.692 per share equating to approximately 40.2 million shares
BoardRepresentation& Management	Comdain Infrastructure's Chairman, Mr. Tom Coen, has been invited to join the Service Stream Board as aNon-Executive DirectorMr. Peter Coen will remain in his current role as the head of ComdainInfrastructure's operations to supportongoing growth, success and integration of the business, with a strong management team including COOJim Gahato remain in place and supportive of the transaction
FundingStructure	Cash consideration will be funded through a combination of cash-on-hand and bank borrowings of $60mwhich are supported by credit-approved term sheets from Service Stream's existing financiersExisting finance facilities have been further expanded to cater for additional performance guarantees andincreased short-term working capital funding capacity.Service Stream expected to maintain a conservative leverage position of <1.0x PF EBITDA2 post deal

1 Subject to adjustment at and post completion for tax liability, net cash and movements in working capital

Transaction Overview … continued

	The acquisition is strategically attractive…
StrategicRationale	Consistent with Service Stream's strategy of diversifying and increasing annuity-style revenues, leading toa relatively even distribution of Group revenues from the utility and telecommunications sectors.
	Comdain Infrastructure operates across well-known utility markets and shares a familiar client base
	Operations align with Service Stream's core capabilities being a mix of design, construction, operationsand maintenance services
	Presents significant opportunities to expand across additional geographies, grow future service offeringsand broaden scope of works to cover other utility networks
Financial Impact	Financially compelling transaction…
	Comdain Infrastructure expects to generate revenue of ~$320m and EBITDA of ~$22m in FY19
	Service Stream anticipates continued growth in FY20 and beyond
	Acquisition multiple in-line with Service Stream's trading multiple
	Projected to be 11.3% EPS accretive in FY19 on a pro-forma basis1
Integration	Well developed integration plan designed to manage the transition and support Comdain Infrastructure'scontinued growth
	Leveraging the learnings from the recent successful TechSafeintegration process
Other	Expected completion date of either 2 January 2019 or 1 February 2019 (upon satisfaction of conditionsprecedent)
	Transaction costs of up to $2.0m are expected to be incurred by Service Stream
	Rothschild & Co acted as financial advisers and King & Wood Mallesons acted as legal advisers to ServiceStream

Strategic Rationale

Enhancing Service Stream's exposure to the utility market, supporting a broader utility asset life-cycle service capability

Highly complementary to Service Stream's existing capabilities and service offerings

• Comdain Infrastructure is a market leader across gas and water utility sectors with strong brand heritage spanning 50+ years of operations
• Provides services associated with the design & construction (D&C) and operation & maintenance (O&M) of gas & water utility infrastructure
• Operates across known markets and a common utility client base
• Aligned operating model
  • D&C panel provider / bid-win individual projects
  • O&M dedicated service and maintenance provider

Provides diversification to Group revenues

• Utility-focussed operations, adding bulk to the Energy & Water Business Unit and diversifying existing Group revenues
• Long-term annuity-style O&M, providing revenue visibility and earnings predictability
• Long-held recurring relationships across blue chip client base, extending up to 30 years on the back of consistent service delivery
• No duplication of services / contractual agreements across common client base

Aligned business models and organisational cultures

• Cultural alignment and shared values
• Solid safety performance and demonstrable safety-first culture
• Strong industry reputation and client relationships

Strategic Rationale … continued

Enhancing Service Stream's exposure to the utility market, supporting a broader utility asset life-cycle service capability

Enhances Service Stream's capabilities and increases the Group's exposure to growing markets

• Enhances the provision of services offered to utility customers not currently within Service Stream's core-capabilities
• Opens up multiple opportunities to support ongoing and sustainable future growth of the consolidated business:
  • Expansion into other states and territories by leveraging Service Stream's existing base of operations and client relationships
  • Offer a broader asset life-cycle integrated service across existing and new gas and water utility clients
  • Enhance future service offerings across current markets i.e. larger and more specialised asset support
  • Expand and capture additional utility markets such as electricity
• Positive outlook for water and gas sector growth underpinned by the critical nature of infrastructure, aging assets, population growth, urban expansion and ongoing maintenance requirements

Expected to deliver solid financial returns to Service Stream's shareholders

• Positions Service Stream as a materially larger enterprise with Revenue of ~$1bn and EBITDA approaching ~$100m
• Grows the revenue of the Energy & Water reporting segment to ~$450m
• Delivers double-digit EPS accretion to Service Stream

Comdain Infrastructure

A leading provider of critical infrastructure services across Australia's east coast, supporting major utility network owners and operators throughout the asset life-cycle process

Company Overview

• Comdain Infrastructure is a leading provider of critical utility infrastructure services across Australia's east coast, with a strong brand, experience and extensive client relationships built over 50+ years of operations
• Long-standing client relationships with Australia's leading gas and water utility asset owners and operators spanning 30+ years
• Annuity style revenues, with a significant portion under longterm contracts including a current order book of $640m and a $2bn pipeline of near-term growth opportunities in the sector
• Comdain Infrastructure is prequalified to deliver over $900m in current annual panel work, typically delivering 20%-40% of the total panel value alongside other participants
• Consistent track record of delivering solid organic revenue growth ~20% over past 5 years

Sectors and Capabilities

• Provides integrated asset lifecycle service offerings incorporating Engineering, Design & Construction (D&C) and Operations & Maintenance (O&M)
• Servicing major utility asset owners and operators across the Gas & Water sectors
• Capabilities include:
  • Asset Management
  • Planned and 24/7 Emergency Response
  • Asset Maintenance, Renewals, Upgrades & Modernisation
  • Electrical Mechanical Instrumentation (EMI)
  • Automation control
  • Treatment, Distribution and Transmission assets
  • Pipelines and Pump stations

Comdain Infrastructure

A leading provider of critical infrastructure services across Australia's east coast, supporting major utility network owners and operators throughout the asset life-cycle process

• Well regarded and highly experienced management team
• Self-performs over 50% of works and is the principal contractor on ~90% of all secured projects
• Employs over 500+ specialist staff nationally, including 130+ qualified civil, electrical and mechanical engineers
• Strong safety culture and positive demonstrable performance across key HSE performance metrics
• Diverse employee base and strong business culture

• Positioned as a market leading utility infrastructure services provider
• Provides asset management services to two-thirds of Victoria's gas distribution network
• 12 locations providing strategic coverage across Australia's east coast infrastructure networks
• Established operations in NSW and QLD now providing a platform for further growth

Pro Forma Financials

Service Stream's acquisition of Comdain Infrastructure is EPS accretive by 11.3%1 on a FY19 pro forma basis2

$m	SSM 3FY19FBroker consensus	Comdain 4FY19F1Mgmt forecast	TransactionAdjustments 52	Pro forma3Combined4Group
Revenue	678.6	320.0		998.6
EBITDA	72.5	22.0		94.5
% Margin	10.7%	6.9%		9.5%
Depreciation & Amortisation 6	(7.6)	(3.3)		(10.9)
EBITA 7	63.1	18.7		81.8
NPATA 8	45.8	13.1	(2.2)	56.6
9Adjusted EPS (cents)	12.7			14.1
Adjusted EPS accretion				11.3%

Notes:

1 Accretion based on Adjusted EPS

2 FY19 pro forma basis assumes the business combination had taken place on 1-Jul-18

3 SSM FY19F broker consensus financials based on most recent published research from Canaccord (15-Aug-18) and Ord Minnett (3-Sep-18)

4 Comdain FY19F financials based on management forecast assuming no financing costs and effective tax rate of 30%

5 Transaction Adjustments includes additional financing costs (tax-effected) to fund the acquisition, and excludes one-time transaction costs and non-cash amortisation of customer contracts (to be

determined post completion following a formal purchase price allocation exercise)

6 D&A excludes non-cash amortisation of customer contracts

7 EBITA: Earnings before interest, tax and amortisation of customer contracts

8 NPATA: Net Profit After Tax adjusted for amortisation of customer contracts (tax-effected) and excluding one-time transaction costs

9 Adjusted EPS based on NPATA and assumes an additional 40.2 million SSM shares issued to the Comdain vendors as scrip consideration