Annual Report 2011
For personal use only About
Service Stream
Service Stream is a leading provider of
services to the telecommunications and utilities
industries. Our people build, maintain and
manage the vital infrastructure needed for
telecommunications, electricity, solar energy
and water. You could say we are the link
between many of our country’s largest utility
companies and millions of their customers.
2011 Highlights
Chairman’s Review 4
Managing Director’s Report 5
Operational Report 6
Executive Team
Board of Directors
Corporate Governance
Directors’ Report
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Financial Statements
ASX Additional Information
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83
Corporate Directory
inside back cover
Annual General Meeting
The Annual General Meeting of
Service Stream will be held at
InterContinental Melbourne The Rialto
495 Collins Street, Melbourne
26 October 2011, 10.30am
Service Stream Limited
ABN 46 072 369 870
For personal use only Telecommunications
We are a specialist in telecommunications
infrastructure design, build, installation
and maintenance, offering clients a wide
range of services for both internal and
external networks.
Utilities
We deliver flexible, low-cost meter reading,
installation, connection and maintenance
services for Australia’s largest water, gas
and electrical utility companies.
Environmental Services
We implement federal and state government
renewable energy programs and install
commercial and residential solar solutions
for both general consumption and specialist
hot water applications.
Customer Care
Our Customer Care division is a leading provider
of outsourced Contact Centre based solutions,
delivering a wide range of services from
short-term campaigns through to complex
multi-faceted customer interactions.
Service Stream Limited Annual Report 2011
1
For personal use only 2011
Highlights
up 21.6%
up 28.1%
Revenue ($m)
EBITDA ($m)
FY11
FY10
FY09
FY08
FY07
FY11
FY10
FY09
FY08
FY07
0
100
200
300
400
500
600
700
0
10
20
30
40
Revenue of $633.3 million,
up 21.6%
EBITDA of $34.6 million,
up 28.1% on the underlying
2010 result
Strong revenue growth in AMRS
with revenue up 134.1% due
to new environmental programs
Increase in EBITDA margin from
5.2% (underlying June 2010) to 5.5%
Revenues from the Telstra A&AS
contract up 12.7% on the back
of new Western Region patches
2
Service Stream Limited Annual Report 2011
For personal use only up 46.4%
down 35.7%
Operating Cash Flow ($m)
Net Debt ($m)
FY11
FY10
FY09
FY07
FY08
FY11
FY10
FY09
FY08
FY07
-35
-25
-15
-5
5
15
25
0
20
40
60
80
100
120
Operating cash flow
of $24.6 million, up 46.4%
Net debt reduced by
$21.2 million, to a leverage
ratio of 1.1x EBITDA
Investments in the National Broadband
Network and mobile infrastructure create
significant opportunities.
Government and Private
Sector Outlook
Service Stream views the conditions
in key telecommunication markets
as the most favourable since its
inception in October 2004. Government
and private sector investments
in the National Broadband Network
(NBN) and mobile infrastructure are
expected to create significant
opportunities.
While the investment dimensions of
the NBN have been well documented,
Service Stream is also capitalising on
the growth of the mobile phone market.
Demand for smart phone services
continues to grow at exceptional rates
and this in turn is driving significant
infrastructure expansion.
In the short run, the outlook for the solar
industry is mixed, however Service
Stream believes that the use of solar
power will come into its own as the cost
of panels falls and the costs of other
electricity services rise. Service Stream
believes that solar panels will be
self-sustaining within the next two to
three years, when government subsidies
are due to finish.
The broader market for utility services
and the case for demand side
management solutions (such as
smart meters) remain strong. Ageing
networks will also create further
opportunities for maintenance and
augmentation services that Service
Stream is well equipped to provide.
Service Stream Limited Annual Report 2011
3
For personal use only Chairman’s
Review
The 2010/11 year
by any measure has
proved to be a strong
turnaround from
the disappointments
of recent years.
Dear Shareholders,
Since joining the Board in November 2010, I have been pleased with the significant
progress that Service Stream has made in its operational and financial performance.
The 2010/11 year by any measure has proved to be a strong turnaround from
the disappointments of recent years. It is the task of the Board and management
to ensure that this momentum is maintained in the coming year.
Governance and management strengthened
In addition to my appointment as Chairman, this year the Board welcomed Deborah
Page to the Board to head the Audit and Risk Management Committee. Together
with existing Non-Executive Directors Brett Gallagher and Stephe Wilks, Service
Stream is now served by a Board with a good mix of skills and experience to meet
the needs of its business activities.
Following the appointment of Graeme Sumner as Managing Director in January 2010,
the Board has worked with Graeme on additional key leadership appointments in
Finance, Legal, Human Resources, Customer Care and Operations over the past
12 months. This process of management renewal has been completed and the Board
believes the company now has the management team in place that will ensure
Service Stream delivers to its full potential.
Market outlook
The industry landscape over the past year has been dominated by the environmental
debate and planning for the rollout of the National Broadband Network (NBN).
Both of these developments, though not without their risks, provide a wide range of
opportunities for Service Stream. Additionally, Service Stream continues to see good
demand in its traditional utilities and telecommunications lines of business. Irrespective
of the progress of the NBN, copper-based telecommunications services will be
required for many years to come.
I would like to take the opportunity to thank the Board for their service this year
and look forward to the Board and management delivering a further improved
performance for shareholders in the coming year.
Peter Dempsey
Chairman
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Service Stream Limited Annual Report 2011
For personal use only Managing
Director’s
Report
As a result of the unprecedented
level of investment earmarked for
the telecommunications industry,
Service Stream has great potential
for further growth.
Fellow Shareholders,
Service Stream produces an
improved performance
Service Stream made significant
progress in the 2010/11 financial year.
All of our company’s key financial metrics
were sharply improved. Revenue of
$633.3m was up 22% on last year, net
profit of $16.5m compared to a loss of
$2.6m in 2009/10, and operating cash
flow of $24.6m improved by 46%
compared with the previous year’s result.
These results were testimony to the hard
work of the Board, management and the
entire Service Stream workforce.
Safety
While it was encouraging to see
the improvement in our financial
performance, it was important that
we continued to deliver our services
safely. It was therefore pleasing to
see our Lost Time Injury Frequency Rate
continue to decline during the year to
just 1.2 injuries per million hours worked,
from 2.0 injuries per million hours worked
a year ago. Nonetheless, delivering our
services with no injuries remains our goal.
Operational highlights
Service Stream made strong progress
in securing and delivering new work
over the past year. Highlights included:
•
•
•
•
•
•
•
The signing of a two year agreement
with Origin Energy for the installation
of solar panels
The significant growth in mobile
infrastructure services provided
to Vodafone and Telstra
A solid year of service delivery
under our Access and Associated
Services contract with Telstra
The extension of our contract with
Local Government Infrastructure
Services in Queensland
The securing of a two year contract
with Fujitsu for the provision of fibre
for new estates as part of the National
Broadband Network rollout
The establishment of a 50/50 joint
venture with Lend Lease Group
called Syntheo, to bid for NBN
design and construction work.
Since the end of the financial year,
Syntheo has secured a contract with
NBN Co for the rollout of the passive
fibre network in Western Australia.
A focus on specialist field services
and telecommunications projects
Service Stream continues to remain
principally a field services organisation,
delivering technical services,
programs and small projects to the
telecommunications and utility sectors.
These are enhanced by a range of
customer care options. Over the past
year we continued to focus on these
activities and it is this focus that has
yielded the improved result. In the
coming year we will be adding greater
capability to our organisation to cope
with the demand for larger project
activity, principally as a result of the
NBN rollout.
Growth opportunities
remain significant
As a result of the unprecedented
level of investment earmarked for
the telecommunications industry,
Service Stream has great potential
for further growth.
I would like to thank all Board members,
employees and customers for their
support through a year of significant
development for Service Stream.
Graeme Sumner
Managing Director
Service Stream Limited Annual Report 2011
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For personal use only Operational
Report
The large amount of activity in the telecommunications
sector provides a strong positive outlook for
Communications. The business is uniquely positioned
to assist both Telstra and NBN Co to achieve their
customer and corporate objectives.
Communications
This division provides a range of fixed
line network design, construction
and maintenance services to the
telecommunications industry. Its
principal customers are Telstra,
Fujitsu and NBN Co.
The Telstra Access & Associated
Services (A&AS) contract that
Communications is responsible for
delivering remains our largest single
contract. It is currently in its fifth year
and runs to June 2012. The A&AS
contract covers the whole of Western
Australia, South Australia, the Australian
Capital Territory, Tasmania and the
Northern Territory, plus approximately
half of Queensland, New South Wales
and Victoria.
Communications provides over 60%
of Telstra’s outsourced services for
installation, maintenance and
construction of copper, fibre and
broadband networks from the exchange
to the customers’ premises. Service
Stream delivered over $250 million worth
of services under the A&AS contract
in the year to 30 June 2011. Our KPI
performance under this contract has
been good and improves each quarter.
We are therefore positive about
retaining this business into the future.
The Telstra payphones contracts were
extended by Telstra under the existing
terms. These contracts have been
extended for up to a further 12 months
to 30 June 2012. Under these contracts,
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Service Stream Limited Annual Report 2011
Service Stream cleans, maintains,
installs and manages Telstra’s
national payphones network. The
Communications business is now
in its fifth year of managing Telstra’s
payphones and during this time the KPI
performance has been managed above
target. We are very pleased with this
level of service performance.
The Communications business has
invested resources to secure work
associated with NBN. Recently,
Communications completed over
400 customer lead-ins for ETSA
Utilities at the NBN First Release
Site of Willunga, South Australia.
Communications was also successful
in winning NBN Co’s greenfields design
and construction work through Fujitsu
Australia. The greenfields work is national
and includes the design and construction
of all NBN Co’s fibre in new estate
developments throughout Australia.
The project also includes the review
and acceptance of the civil pit and pipe
networks being deployed by estate
developers in advance of the NBN.
In addition to the activity being directly
undertaken by Communications, Service
Stream is party to an unincorporated
joint venture with Lend Lease, called
‘Syntheo’. Syntheo has been actively
tendering for the brownfields design
and construction packages being
let by NBN Co, and has recently been
awarded a contract by NBN Co for the
design and construction of the passive
fibre network in Western Australia.
Syntheo will continue to bid for additional
NBN design and construction work as it
becomes available.
To ensure the safe and commercially
sound delivery of the division’s work,
Communications has invested in Prince 2
training for its project team, as well as
hosted systems such as Primavera and
ConSol to manage our work activities.
Resource acquisition and retention is
a major focus of the Communications
business. Communications management
believes that this will be the major
industry challenge in 2012 and beyond.
To mitigate this issue, the business
has invested in trainees in the field
workforce and design groups. Further,
in the design area we have centralised
the team and brought the work in-house.
This change over the past 12 months
has delivered improvements in quality,
project delivery and resource certainty.
The large amount of activity in
the telecommunications sector
provides a strong positive outlook
for Communications. The business
is uniquely positioned to assist
both Telstra and NBN Co to achieve
their customer and corporate
objectives, thus providing a stable
platform on which Communications
will build its future.
For personal use only Total Communications
Infrastructure (TCI)
TCI provides turnkey and project
management services for the site design,
acquisition and construction of wireless
telecommunications infrastructure.
TCI experienced considerable growth in
2010/11, responding to its clients’
network capacity and expansion
programs. These programs are
driven by the continuing demand for
data services delivered wirelessly
through the high market penetration
of smart phones and other portable
wireless devices such as iPads.
These works include providing both
new site and existing site upgrades
to Vodafone Hutchison Australia,
Telstra and Optus. Work has also been
undertaken on the installation of Long
Term Evolution (LTE) or 4G technology
in trials by several carriers. The business
anticipates continued strong activity in the
wireless market supported by the existing
mobile carriers, the introduction of new
technology, utilities wireless network
deployment and the NBN project.
TCI has also identified and commenced
work in non telco related markets,
which uses its technical and project
management skill base. This includes
commercial solar power installations,
energy saving programs and renewable
energy solutions.
Australian Meter Reading
Services (AMRS)
AMRS is a market leader providing
a range of specialised metering and
environmental field services to utilities
and local councils nationally.
The Metering Services division provides
meter reading, meter installation,
reconnection and disconnection, credit
management and asset replacement
services across gas, water and electricity
industries. The Environmental division
focuses on the provision of energy
efficiency services including the
installation of solar panels, in home
displays and energy saving technologies.
AMRS’ environmental division
completed another solid year in which
strong growth drove the business’
continued expansion. The installation
of approximately 9,800 solar panel
systems throughout Victoria, South
Australia, New South Wales and
Queensland on behalf of Origin Energy,
coupled with the expansion into new
services including emergency hot water
replacement, further demonstrated
our national capabilities as a leader in
the provision and installation of energy
saving products and technologies.
This year AMRS renewed its contract
with Local Government Infrastructure
Services in Queensland for the continued
provision of field and contact centre
services as part of the Queensland
Government’s ClimateSmart Home
Service Program. The 18 month
extension to December 2012, valued
at $30 million, will see the provision
of an expected 150,000 in home energy
audits and the installation of energy
efficient products delivered throughout
Queensland. AMRS was also pleased
to confirm the renewal of long standing
contracts for the provision of meter
reading and associated services with
WA Gas Networks in Western Australia,
and SA Water in South Australia.
AMRS continued to provide a range of
services as part of the Victorian smart
meter rollout, across the United Energy,
Jemena, CitiPower and Powercor
networks over the past 12 months.
AMRS has now installed more than
250,000 smart meters across these
networks to date, and AMRS has
cemented itself as a dominant player
in the provision of large scale asset
installation and exchange programs.
Finally it was pleasing to see the
Metering Services division continuing
to expand the range of services
provided to the electricity industry to
include the provision of low voltage
aerial services. These services
incorporate fault detection, LV repairs
and service line replacement, provided
through AMRS’ ever-growing network
of contractors and service partners.
Service Stream Limited Annual Report 2011
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For personal use only Operational
Report
Customer Care
Customer Care has continued to
provide enhanced service options
to clients in the telecommunications,
financial services, government and
environmental services sectors.
In the direct outsource market Customer
Care secured a five year contract for
the Telstra mobile phone insurance
claims service, with the new product
going to market in May 2011. This
service is provided in partnership with
CGU and is supported by our newly
developed claims management
technology platform. Customer Care
has a dedicated team for this service
which will grow over the coming months
and years, building on our 16 years
of expertise in this area.
Another success was the securing
of a 12 month contract with NBN Co
for the management of customer
enquiries, an exciting acquisition for
Customer Care and one we hope to
renew at the end of the initial term.
Outstanding performance in the Contact
Centre telesales area has resulted in
plaudits from Origin Energy and AEGON
Insurance, and both of these services
continue into the new financial year.
Customer Care continued to manage
the Do Not Call Register on behalf of the
Australian Communications and Media
Authority (ACMA) and secured a three
year extension to this contract. We also
continued to support the Digital Ready
service on behalf of the Department of
Broadband Communications and Digital
Economy (DBCDE).
Working collaboratively with other
divisions, Customer Care has been
able to contribute to delivering high
value solutions to clients requiring an
end-to-end service. A real success story
this year has been the development of
the Origin Solar Customer Care model,
implemented in partnership with AMRS,
ensuring a significant uplift in the
customer satisfaction rating. Origin
Energy has grown into a strategic
partner for Service Stream and we
are currently working with the team to
implement customer support services
for additional Origin Energy projects.
Customer Care also maintains its support
to the field-based teams on the Telstra
A&AS contract (Communications), Smart
Meter installations and ClimateSmart
Home Service Program for Local
Government Infrastructure Services
Pty Ltd in Queensland (AMRS).
People, Health, Safety
and the Environment
The organisation focused on streamlining
the delivery of human resource and
compliance services throughout the
reporting period. We commenced
a review of specialist roles and moved
towards a state-based, multi-business
service delivery model for the human
resource function. The organisation will
continue to progress the implementation
of this model throughout the coming year.
The number of people employed or
engaged by the organisation grew during
the past year. Service Stream currently
employs 2,068 staff and engages up to
2,483 contracting companies.
Sound industrial relations management
strategies continue to be a key factor
in supporting business growth and
continuity. No time was lost as a result of
industrial disputes throughout the period.
During the year we reviewed our
remuneration strategy, revised our
organisation structure and improved
our short term incentive program.
Service Stream continued work on
integrating our Human Resource,
Safety and Environmental management
systems to improve the processes that
provide the information required for the
effective and efficient management of
the Company and the delivery of
services across all businesses.
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Service Stream Limited Annual Report 2011
For personal use only Lost Time Injury Frequency Rate (LTIFR)
(per million hours worked)
FY11
FY10
FY09
FY08
FY07
0
1
2
3
4
5
Significant improvement
continued to be made in
our safety and environment
performance this year.
Service Stream maintained its focus
on eliminating personal injury and
occupational illness arising from our
work activities. This was not confined
to our workforce but included visitors,
clients and the community. We have
continued the work that delivered
a significant reduction in LTIFR and
have increased our focus on injury
management and getting injured
employees back to work sooner.
Significant improvement continued to
be made in our safety and environment
performance this year.
Over the past six months there has
also been a strong commitment to
improving our internal safety processes
and platforms, making us ready for
future government funded work.
Service Stream’s initial ‘Carbon
Reduction Project’ has been quite
successful and will conclude shortly.
However, we will continue to monitor
our carbon emissions and review
cost-effective alternatives that reduce
the carbon footprint and environmental
impact of our offices and warehouse,
and reduce our energy bills.
Service Stream is committed to
meeting its reporting obligations
for the National Greenhouse and
Energy Report calculation and
reporting system. Compliance is
a key component in meeting the
expectations of our large clients.
Service Stream Limited Annual Report 2011
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For personal use only Executive
Team
Rod Stanton
BEng (Civil) (Syd)
Stephen Ellich
BEng (Elec) (UTS), Grad. Dip. Admin.
(UTS), MBA (UTS), GAICD
Leigh Mackender
Juliet Fake
Executive General Manager
– TCI
Executive General Manager
– Communications
Executive General Manager
– AMRS
Executive General Manager
– Customer Care
Rod commenced with TCI
in September 1998 and held
the role of National Project
Manager prior to being
appointed Operations
Director in 2002 and then
CEO when TCI listed as
a public company in 2004.
Rod then joined Service
Stream as an Executive
Director when TCI merged
with the Company in
December 2006. Rod
maintains responsibility
for the performance
of TCI as Executive General
Manager and continues
to apply his extensive
commercial expertise in the
telecommunications industry
sectors within the business.
Prior to joining TCI, Rod spent
12 years with Lend Lease
in their construction division.
Stephen’s role as Executive
General Manager is to
manage the Communications
business nationally.
Stephen is in his seventh
year with Service Stream and
started with the company in
its Silverwater office. In 2009,
Stephen and his family
moved to Melbourne in order
to establish the head office
and national design group for
the Communications division.
Stephen has over 20 years
experience in the
telecommunications and
construction industry. His
experience covers the areas
of project management,
design, construction and
maintenance services.
Leigh joined Service Stream
when it acquired AMRS in
February 2008, and was
recently appointed to the role
of Executive General Manager
in March 2011.
Leigh is responsible for
overseeing the AMRS
business’ national operations,
including the environmental
and metering service
divisions. Leigh has over 10
years of experience working
within the utilities industry
including contract
management, financial
analysis, commercial
negotiations and field
operations across the gas,
water and electricity sectors.
Leigh is currently completing
his Masters of Business
Administration.
Juliet joined Service Stream
in June 2010 as General
Manager for Customer
Care, bringing extensive
experience in contact centre
management and business
process improvement.
During Juliet’s international
career she has held various
leadership roles including
Director of Credit and
Collections for Virgin Media
(UK). Juliet assumed the
role of Executive General
Manager for Customer Care
in July 2011.
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Service Stream Limited Annual Report 2011
For personal use only Chad Orr
Dip. Bus. (Lakewood)
Murray Outram
BSc (Psych) (Newcastle)
Paul Le Feuvre
BSc (Hons) (Staffordshire)
Jessica Lyons
BA, LLB (Monash)
Executive General Manager
– Strategy and Growth
Executive General Manager
– Human Resources
Chad brings over 14 years
experience in large scale
outsourcing projects from
a range of industries. Chad is
responsible for managing the
strategy and the associated
execution of the organisation’s
business growth. Over
the past five years at Service
Stream, he has been
involved in the start-up and
delivery of many successful
projects including metering,
environmental services
and NBN, along with a host
of other projects.
Murray joined Service Stream
in July 2011 and has over
30 years experience in
operational and corporate
human resource roles in
major Australian public
and private corporations.
Murray has experience
working in organisations
that were growing rapidly
through acquisition and
also undergoing major
workforce change.
Murray has experience
in a broad cross-section
of industries including
manufacturing, research/
technical services, logistics
and health. He has held
significant HR roles in BHP,
Linfox Australia Pty Ltd and
most recently LCM Health
Care, which operates the
Calvary Group.
Chief Technology Officer
Paul has been Service
Stream’s Chief Technology
Officer since October 2009.
Paul has over 30 years
experience across all aspects
of information technology.
Paul’s career includes
over 20 years IT consulting
in project management,
managed services, quality
assurance, strategy
and architecture, as well
as experience in sales
and training.
Before joining Service
Stream, his career in
Australia has embraced
a wide variety of lead roles
and industries, including
project management of a
safety-critical development
in the transport industry,
business development for
an international IT services
company, and management
of a major Victorian utility
company’s IT department.
General Counsel and
Company Secretary
Jessica was appointed
General Counsel and
Company Secretary in
November 2010. Jessica
brings over 12 years in-house
legal and management
experience to Service Stream.
Jessica has held senior
legal and management
positions in various industries,
including in mining, steel
milling and commodity sales
businesses, most recently as
Regional Counsel at Belgian
based Nyrstar NV, and prior
to that as Contract Counsel
for Smorgon Steel.
Jessica has significant
experience in leading large
scale projects (including
acquisitions and integration
projects), managing litigation
and disputes, and in contract
drafting and negotiation.
Service Stream Limited Annual Report 2011 11
For personal use only Board of
Directors
Peter Dempsey
BTech (Civil Eng.) (Adel), Grad. Dip.
(Bus. Admin.) (SAIT), FIEAust, MAICD
Chairman since November 2010
Peter Dempsey was appointed
Chairman of Service Stream Limited
on 1 November 2010. Peter has
extensive development and construction
experience and has been involved in the
property industry for the last 40 years.
In 2003 he retired from A W Baulderstone
Pty Ltd after a 30 year career, the
last five years as Managing Director.
Baulderstone undertook some of
Australia’s largest building and civil
infrastructure projects with annual
revenues up to $1.5b during his tenure.
The company was also involved in
projects for the resources sector and
in property development activities, with
operations in all Australian mainland
states, Papua New Guinea, Indonesia
and Vietnam.
Peter is Chairman of the Remuneration
and Nomination Committee and is
a member of the Audit and Risk
Management Committee.
Peter is currently a Non-Executive
Director of Monadelphous Limited and
Becton Property Group Limited, as well
as holding other Board roles with private
construction related organisations.
Peter has no other listed company
directorships and has held no other
listed company directorships in the
last three years.
12
Service Stream Limited Annual Report 2011
Graeme Sumner
BCom (Auckland), MBA (Massey), MAICD
Brett Gallagher
FAICD
Managing Director
since January 2010
Non-Executive Director
since April 2010
Graeme comes to Service Stream with
broad experience in the information
technology, telecommunications,
electricity, engineering and mining
services sectors. Starting his career
with IBM in Sweden and the UK, Graeme
went on to hold senior management
positions with Telecom New Zealand,
Contact Energy and Siemens NZ, where
he served as Managing Director for
five years. Most recently Graeme served
as the Chief Executive of Transfield
Services New Zealand and Chairman
of Transfield Worley NZ and INSER
Transfield Services S.A.
Graeme has no other listed company
directorships and has held no other
listed company directorships in the
last three years.
Brett has over 20 years experience
across the utility and facilities
management industries, and was
Managing Director and a major
shareholder of AMRS from 2003
until 2008 when that company was
acquired by Service Stream. Brett
was instrumental in the growth of
AMRS, establishing it as Australia’s
largest metering services provider. He
also led the negotiations and ultimate
integration of AMRS into Service Stream,
where it has continued to grow strongly
in difficult economic times.
Brett is Chairman of the Safety and
Environment Committee and is
a member of the Audit and Risk
Management Committee.
Brett has no other listed company
directorships, and has held no other
listed company directorships in the
last three years.
For personal use only Deborah Page AM
BEc (Syd), FCA, MAICD
Stephe Wilks
BSc (Macq), LLM (Syd)
Robert Grant
BCom (Qld), FCPA
Non-Executive Director
since September 2010
Deborah, a Chartered Accountant, has
held senior executive positions with the
Commonwealth Bank, Allen Allen &
Hemsley, IBM and the Lend Lease Group
and is a former KPMG partner. She
brings expertise developed from finance
and operational executive roles and from
her professional background in external
audit and corporate advisory. Since
2001 she has worked exclusively as
a Non-Executive Director across a range
of industries, including energy, insurance,
financial services and property.
Deborah is Chairman of the Audit and
Risk Management Committee
and is a member of the Remuneration
and Nomination Committee.
Deborah is currently Chairman of
Investa Listed Funds Management
Limited, the responsible entity of ASX
Listed Investa Office Fund; and a
Non-Executive Director of The Colonial
Mutual Life Assurance Society Limited,
Commonwealth Insurance Limited
and Macquarie Generation.
Deborah has held no other listed
company directorships in the last
three years.
Non-Executive Director since
September 2005 and Chairman
from April 2010 to October 2010
Stephe Wilks has over 20 years
experience in the telecommunications
industry both within Australia and
overseas. He has held senior executive
positions with BT Asia Pacific, Optus,
Hong Kong Telecom, Nextgen Networks
and Personal Broadband Australia.
He was also a consulting director
with investment bank, NM Rothschild.
Stephe is a member of the Audit
and Risk Management Committee,
the Safety and Environment
Committee, and the Remuneration
and Nomination Committee.
Stephe is currently a Non-Executive
Director of Tel.Pacific Limited and 3Q
Holdings Limited, and was previously
Chairman of Mooter Media Limited,
and a Non-Executive Director of
People Telecom Limited. Stephe is
on the advisory board of the Network
Insight Group and consults to a
number of companies in the media
and technology industries.
Alternate Director since
December 2010 and
Chief Financial Officer
since June 2010
Bob has over 20 years experience
in providing financial leadership in
prominent Australian and multi-national
companies across numerous sectors
including infrastructure services,
construction, energy, downstream
oil and mining. Before joining Service
Stream, Bob held senior finance roles
in Tenix, AGL and Shell.
Bob is an Alternate Director for Graeme
Sumner, ensuring continuity of executive
representation at Board discussions and
meetings where Mr Sumner is not
otherwise able to attend. In his capacity
as Chief Financial Officer, Bob is
responsible for all financial management,
reporting, treasury, taxation and other
finance shared services, as well as
corporate services including property,
supply chain and risk management.
Bob has no other listed company
directorships and has held no other
listed company directorships in the
last three years.
Service Stream Limited Annual Report 2011 13
For personal use only Corporate Governance
Statement
This corporate governance statement (“Statement”)
summarises the main corporate governance practices of
Service Stream Limited (“the Company”) and its controlled
entities (“the Group”). All practices, unless otherwise stated,
have been in place for the 2010/11 financial year.
The Board of Directors of the Company is committed to
achieving and maintaining high standards of corporate
governance and in this Statement the Board discloses the
extent to which the Company has followed the recommendations
set out in the ASX Corporate Governance Council’s Corporate
Governance Principles and Recommendations with 2010
Amendments, 2nd edition (“the ASX Principles”) in accordance
with rule 4.10.3 of the ASX Listing Rules.
The Board actively reviews Australian and international
developments in corporate governance and considers the
views of shareholders, regulators (such as ASIC and the ASX),
and other stakeholders prior to the adoption of any new
arrangements. The Board has adopted practices that it believes
will maximise long-term shareholder value given the Company’s
specific circumstances.
Principle 1 – Lay solid foundations
for management and oversight
The Board has adopted a Board Charter which sets out
the Board’s role, responsibilities, structure and processes
and the manner in which its performance, and that of the
Directors and committees, will be evaluated. The Board
has also adopted a Reserved Powers Policy that sets out
matters specifically reserved for determination by the Board
as distinct from matters delegated to executives in order
to manage the operations of the Group.
The Board’s focus is on representing and serving the interests
of shareholders by setting the strategic direction for, and
policies of, the Group and overseeing its performance. As
part of this function, the Board monitors financial performance,
legal compliance, risk management and ethical standards.
Responsibility for the Group’s day-to-day operations and
administration is delegated by the Board to the Managing
Director. The Managing Director is required to consult with
the Board on matters that have, or may have, a material impact
on the Group in terms of value, reputational risk and/or which
are of a sensitive or strategic nature. The Managing Director
is accountable to the Board and is supported by a Senior
Executive Team who meet informally on a regular basis and
at least monthly on a formal basis. The Managing Director
and Senior Executive Team meet to progress and coordinate
the development and implementation of the Group’s strategies,
plans, standards, policies and projects.
Board meeting agendas are proposed by the Managing
Director and Chief Financial Officer and approved by the
Chairman of the Board. Standing items include safety, financial
performance, operational and legal issues. Comprehensive
Board papers are provided to the Directors in advance of all
meetings. These papers are compiled from reports submitted
by the Senior Executive Team, who may, from time to time,
attend Board meetings to report directly to the Board on an
as-required basis.
The Board and Senior Executive Team monitor the financial
performance of the Group using monthly management financial
accounts. These accounts are compared with monthly
forecasts and budgets as well as the performance of the Group
in prior corresponding periods. The Group’s budgets and
forecasts include key performance indicators against which
performance is measured. Ongoing and consistent monitoring
of the Group’s performance with oversight by the Board
ensures areas needing attention are identified and addressed.
Performance and accountability
of the Senior Executive Team
Upon appointment, the Managing Director and each member
of the Senior Executive Team sign a letter of engagement
and are provided with an induction manual containing key
Group information and policies. Letters of engagement
include terms and conditions in relation to duties, rights
and responsibilities, termination, and where applicable,
the period of the engagement.
In addition to regular informal mechanisms of performance
evaluation and feedback, the Managing Director’s performance
is formally reviewed by the Chairman on an annual basis
against the Managing Director’s key performance indicators
and other performance criteria specified by the Board from
time to time.
The Managing Director formally assesses the performance
of each Senior Executive Team member annually against the
executive’s key performance indicators and other criteria. The
Senior Executive Team is also provided with regular, informal
feedback by the Managing Director and the Board.
The Remuneration and Nomination Committee considers
the performance of the Managing Director and members
of the Senior Executive Team when formulating remuneration
arrangements, including short term and long term incentive
plans and annual salary reviews. The short term incentive
plan contains measurable key performance indicators with
respect to the current financial year budget that are approved
by the Board. The long term incentive plan contains incentive
targets for the financial years to which each offer made under
the plan applies.
14
Service Stream Limited Annual Report 2011
For personal use only Principle 2 – Structure the Board
to add value
The Board is composed of a Non-Executive Chairman,
three Non-Executive Directors and the Managing Director.
During the year the Company engaged in a process of
Board renewal, including a review of the mix and skills
required of its Directors, and as a consequence there were
various changes to the composition of the Board. In addition,
between 8 October 2010 and 1 November 2010, the
Company did not have a majority of Independent Directors.
On 23 December 2010, the Board announced that it had
approved the appointment of an Alternate Director (Robert
Grant, Chief Financial Officer) to represent the Managing
Director in his absence. The Chairman (Peter Dempsey) and
two of the Non-Executive Directors (Stephe Wilks and Deborah
Page) are Independent Directors. Brett Gallagher is not
considered an Independent Director because within the last
three years, he was employed in an executive capacity within
the Service Stream group of companies.
The Board believes that the current mix of Directors brings
a broad range of complementary skills and experience to their
responsibility of governing the Company. Further information
about the Board (and the Company Secretary) is set out in
the Directors’ Report on pages 19 to 32.
Director’s independence
The Board assesses whether a Director is independent on
a case-by-case basis, and at least annually. Directors are
required to provide the Board with the information needed
to make this assessment.
The Board uses the independence and materiality tests
as set out in the ASX Principles when assessing a Director’s
independence. The Board regards a Director as independent
if he or she is a Non-Executive Director who is not a member
of management and who is free of any business or other
relationship that could materially interfere with – or could
reasonably be perceived to materially interfere with – the
independent exercise of the Director’s judgment.
To the extent that any Directors identified as being independent
in this Statement have any affiliation with a customer of or
supplier to the Group, or a contractual relationship with the
Company or a controlled entity of the Company, all such
relationships are immaterial as determined by this standard.
The Board has a policy of separating the role of Chairman
and Managing Director. The Chairman is independent and
his role and responsibilities are independent from those
of the Managing Director.
Under current practice, there is a minimum of 11 scheduled
Board meetings per year, with other meetings convened
as required to consider specific or urgent matters.
Committees
The Board has established three key Committees to assist
in the execution of its duties and functions, being the:
•
•
•
Safety and Environment Committee;
Audit and Risk Management Committee; and
Remuneration and Nomination Committee.
The Audit and Risk Management Committee and the
Remuneration and Nomination Committee have their
own Charter approved by the Board. The Board is in
the process of reviewing the Charter for the Safety and
Environment Committee.
The Charters are reviewed annually and include a requirement
that each Committee will review its own effectiveness
and make any necessary recommendations to the Board
regarding improvement.
The Remuneration and Nomination Committee has three
members who are all independent Directors. The Committee
is also chaired by an independent Director.
Appointment of Directors
While the Board does not have a formal procedure in place
in relation to the selection, appointment and re-appointment
of Board members, Directors actively and regularly consider
the composition of the Board, taking into account the duration
of each Director’s tenure and the competencies required by
the Company from time to time.
When nominating and appointing Directors, the Board seeks a
balanced mix of qualifications, age, skill, gender and experience
in order to achieve the most favourable outcome for the
Company and its shareholders. The Board has appointed three
new Directors in the past year, giving careful consideration to
these matters in the context of the Company’s requirements.
Conditions relating to appointment are provided to all Directors,
in writing, prior to appointment. Apart from the Managing
Director and his Alternate, all Directors are subject to re-election
by rotation at least every three years in accordance with the
Company’s constitution, and shareholders are encouraged
to participate in the re-election of Directors.
Directors have a right of access to all relevant Group
information and the Senior Executive Team. In addition,
the Company’s policy is to allow Directors to obtain
independent professional advice, at the Company’s expense,
on matters arising in the course of their Board duties. Directors
must obtain the Chairman’s approval prior to seeking advice
(which cannot be unreasonably withheld), and a copy of the
advice is made available to all other members of the Board.
Further, all Directors have access to the Company Secretary,
who is accountable to the Board on all governance matters.
During the year, the Board assessed its performance and
that of its Committees and individual members, to ensure its
effectiveness in meeting shareholder expectations. The Board
is also reviewing its process for such performance evaluations
to use in future appraisals.
Service Stream Limited Annual Report 2011 15
For personal use only Corporate Governance
Statement
The Board considers that the shareholders of the Company
ultimately assess the performance of the Board, its
Committees, individual Directors and the Senior Executive
Team based on the financial performance of the Group
and the commercial, legal and ethical framework within
which the Group operates.
Principle 3 – Promote ethical and responsible
decision-making
The Company is committed to being a socially responsible
corporate citizen, using honest and fair business practices
of the highest standard. All Directors, employees and
sub-contractors are expected to comply with the law and
act at all times with integrity.
The Company has a Standards of Behaviour Policy which
contains a Code of Conduct. This Policy sets out the expected
standards of behaviour, including a requirement for ethical
and responsible decision-making by the Company, its Directors
and employees.
The Code of Conduct sets out the Company’s expectations
in relation to matters such as honesty, relations with customers,
prevention of fraud, conflicts of interest, sexual harassment/
discrimination, drug/alcohol abuse, disputes with fellow
employees, and the protection of information.
A Whistleblower Policy has also been established to encourage
a culture of reporting matters that may cause the Group
financial loss or damage to its reputation. This is supported
by the Company’s Whistleblower Protection Program, which
is designed to ensure that an employee who comes forward
to disclose such matters does not suffer any adverse
consequences. The program is compliant with AS:8004
Whistleblower Protection Programs for Entities.
The Board and the Senior Executive Team, through their own
actions, promote and foster an ethical corporate culture for
the entire Group. To this end, the Board promotes open and
honest disclosure and discussion, together with consideration
and respect for the interests of all legitimate stakeholders at
all Board and management meetings. In addition, the Board
and the Senior Executive Team regularly consider relevant
matters including conflicts of interest, corporate opportunities,
confidentiality, fair dealing, complaints handling, the proper use
of the Group’s assets, compliance with laws and regulations,
and reporting of unlawful or unethical behaviour.
In accordance with the Corporations Act and the Company’s
Board Charter, Directors must keep the Board advised,
on an ongoing basis, of any interest that could potentially
conflict with that of the Company. Where the Board believes
that a significant conflict exists, the Director concerned does
not receive the relevant Board papers and is not present at
meetings when the relevant item is considered or voted on.
16
Service Stream Limited Annual Report 2011
The Board has ultimate responsibility for resolving all matters
concerning ethical and responsible decision-making, with
the above policies and practices designed to ensure
the integrity of the Company is maintained and investor
confidence is enhanced.
Dealing in Company shares by Directors,
other officers and employees
The Directors have established a policy which governs dealings
in securities to ensure the highest standards of corporate
conduct and governance.
The Company’s Constitution permits Directors to acquire
an interest in securities, including shares, warrants and other
financial products, in the Company and the Board encourages
Directors, officers and employees to own securities in the
Company to further link their interests with the interests of all
security holders. The holding of, and dealing in, such securities
is governed by the Company’s Securities Trading Policy.
In accordance with the provisions of the Corporations Act
and the ASX Listing Rules, Directors are required to advise
the Company and the ASX of any changes in their interests
in the Company, including securities in the Company.
Diversity
The Group is comprised of men and women of varying ages,
ethnicities and cultural backgrounds. The Board has
established a Diversity Committee which includes the Company
Secretary and is sponsored by the Managing Director. The
Committee is currently formalising a policy on diversity which
includes measurable objectives for achieving gender diversity
at all levels within the Group. These objectives will be assessed
annually by the Board to assess progress in achieving them.
The Company’s diversity policy will be available on the
Company’s website and the Company will report to shareholders
annually on its performance and progress in relation to diversity.
Further, the Company currently requires senior mangers
including the Senior Executive Team to attend corporate
governance training on an annual basis. This training includes
a focus on the need for flexible work practices and inclusive
behaviours to counteract unconscious bias in recruitment
and progression.
As at 31 March 2011, women constituted 25% of the Group’s
employees, 20% of the Board and 17% of the Senior
Executive Team.
Principle 4 – Safeguard integrity
in financial reporting
The Audit and Risk Management Committee has been
established to assist the Board in fulfilling its responsibilities to
provide shareholders and regulatory authorities with timely and
reliable financial reports of the Company.
For personal use only The Board has adopted a Charter for the Committee which
sets out its role and responsibilities in relation to reviewing the
integrity of the Company’s financial reporting and overseeing
the independence of the Company’s external auditors. Among
other things, the Committee reviews audit scopes, assesses
the performance of and fees paid to the external auditors,
liaises with the external auditors to ensure that the annual audit
and half-year review are conducted in an effective, accurate
and timely manner, and considers whether non-audit
services provided by the external auditors are consistent
with maintaining the external auditor’s independence.
The Committee reports to the Board on financial and
audit matters at each relevant Board meeting.
The Committee is comprised of four Directors, all of whom
are Non-Executive Directors and the majority of whom are
independent. The Committee is chaired by Deborah Page, who
is an Independent Non-Executive Director and not Chairman
of the Board. The Board considers that this structure maintains
integrity and is operationally effective for a company of its size
and composition.
The external auditors, Deloitte Touche Tohmatsu, were
appointed as auditors for the Company in November 2006.
Prior to this, they had been auditors for Service Stream
Holdings Pty Ltd since 1 July 1992. Deloitte changes the lead
audit engagement partner for the Company every five years.
The current lead audit engagement partner has held this
position since December 2009.
The Managing Director and Chief Financial Officer state
in writing to the Board that the Company’s financial reports
present a true and fair view, in all material respects, of the
Company’s financial position and operational results and
are in accordance with all relevant accounting standards.
Further information with respect to safeguarding the integrity
of financial reporting, including information about the members
and meetings of the Committee, is provided in the Directors’
Report on pages 19 to 32.
Principle 5 – Make timely
and balanced disclosure
The Board has delegated to the Company Secretary day-to-day
responsibility for monitoring compliance with the ASX Listing
Rules and communications with the ASX.
The Company is committed to providing timely and accurate
disclosure to the market of all material matters concerning
the Company in accordance with the Corporations Act and
ASX Listing Rules. All information disclosed to the ASX is
posted on the Company’s website following confirmation from
the ASX that the information has been disclosed to the market.
The Company has adopted the following mechanisms to
ensure compliance and to create accountability at a senior
management level for timely and balanced disclosure:
•
•
•
•
•
All matters requiring disclosure by the Listing Rules
are disclosed to the ASX;
The Directors, Managing Director, Chief Financial Officer
and the Company Secretary (“Disclosure Officers”) are
responsible for reviewing potentially material matters and
determining what information should be disclosed;
Only a Disclosure Officer may authorise communication
on behalf of the Company in relation to matters requiring
disclosure by the Listing Rules;
Executives must inform a Disclosure Officer of any
potential disclosures as soon as they become aware of
the information. The Senior Executive Team is responsible
for ensuring staff understand and comply with this
procedure; and
ASX and media releases must be approved by a Director
to ensure the disclosure is factual, includes all material
information and is expressed clearly and objectively.
Principle 6 – Respect the rights
of shareholders
The Company respects the rights of its shareholders
and facilitates the effective exercise of those rights.
Shareholders are responsible for voting on the election of
Directors at the Annual General Meeting. The Annual General
Meeting also provides shareholders with the opportunity to
express their views on matters concerning the Company and
to vote on other items of business (such as the adoption of the
Company’s remuneration report). The Company’s policy is to
encourage effective shareholder participation at Annual General
Meetings, with a notice of such meeting sent to shareholders
along with the Annual Report prior to the meeting.
The Company requires the engagement partner of the firm
of external auditors (or other representative from that firm) to
attend the Annual General Meeting and be available to answer
shareholder questions about the conduct of the audit and the
preparation and content of the Auditor’s Report (which is set
out on pages 34 and 35).
The Company has a policy of effectively communicating
with shareholders using various methods such as:
•
•
•
•
•
•
the Annual Report which is made available to shareholders;
disclosures made to the ASX;
information uploaded in the “Investors” section of the
Company’s website;
notices of meeting and explanatory memoranda in relation
to resolutions to be put to a vote of shareholders;
Annual General Meetings at which shareholders are given
an opportunity to participate in, ask questions about and
comment on the performance and operations of the
Company and its subsidiaries; and
responding to communications from shareholders in a timely
and responsive manner.
Service Stream Limited Annual Report 2011 17
For personal use only Corporate Governance
Statement
Principle 7 – Recognise
and manage risk
The Company has established an Audit and Risk Management
Committee to:
•
•
•
assist the Board in identifying, monitoring and managing
the Group’s material business risks;
review the Company’s risk management policies and
make recommendations to the Board from time to time to
enhance the Company’s risk management framework; and
review the appropriateness and effectiveness of the
Company’s internal control procedures.
The Managing Director, the Audit and Risk Management
Committee and the Board recognise that they have ultimate
responsibility for ensuring that the risk mitigation actions
and internal control environment of the Group is fit for
purpose and adequate in terms of safeguarding shareholder
value. The Company has put in place a comprehensive risk
management framework designed to promote a culture
that encourages the active management of opportunities
as well as risks to the business. That framework has been
developed in line with the recommendations contained within
the AS/NZS ISO 31000:2009 Risk Management – Principles
and Guidelines standard.
As part of its risk management framework, the Board
has adopted a Risk Management Policy which is designed
to promote a standardised Group-wide approach to the
management of risks by requiring that as an organisation
the Group will:
•
•
•
•
•
implement a standard Group-wide approach to risk
management;
implement a structured and consistent process for
identifying, assessing and managing business risks
as well as opportunities;
comply with all applicable laws, licensing and government
regulations applicable to its business activities;
promote a culture that accepts both good and bad news,
encourages personal responsibility and expects proactive
identification and management of risks and opportunities; and
monitor, address and report on risk management
performance measures.
In accordance with its risk management framework, the
Company has in place various processes designed to
safeguard the Group’s assets, minimise its liabilities and
ensure the integrity of its reporting.
The Company is currently in the process of implementing
a management reporting program to assist with reporting
on the adequacy and effectiveness of its internal risk
management and controls environment.
The Company has put in place appropriate internal controls
in relation to accounting, financial reporting, delegations of
authority, payment systems, segregation of duties, contract
review, ISO auditing, safety and health, property and
environmental management activities.
18
Service Stream Limited Annual Report 2011
The identification, assessment, monitoring and management
of business risks and the internal controls environment is
monitored by the Senior Executive Team of the Group on
an ongoing basis and formally as part of regular monthly
meetings. The Senior Executive Team also reports to the
Board on a regular basis in relation to the Group’s effective
management of risk.
The Board has received an assurance from the Managing
Director and the Chief Financial Officer that the declaration
provided in accordance with section 295A of the Corporations
Act 2001 is founded on a sound system of internal control
and that the system is operating effectively in all material
respects in relation to financial reporting risks.
Principle 8 – Remunerate fairly
and responsibly
The Company has established a Remuneration and Nomination
Committee. The Committee has three members and a majority
of its members are Independent Directors. The Committee
is chaired by Peter Dempsey, who is an Independent Director.
The Committee has responsibility for reviewing and making
recommendations to the Board in relation to remuneration,
in particular ensuring that the Group offers remuneration
which is fair and competitive, which is appropriately linked to
performance, and which motivates the Senior Executive Team
to pursue the long-term growth and success of the Group.
The Committee also reviews senior management remuneration
structures and succession plans and monitors the level and
nature of Directors’ remuneration to ensure it is in line with
current standards. The Committee provides recommendations
to the Board which, in turn, has ultimate responsibility for fair
and responsible remuneration for Group personnel.
As required, the Board engages appropriately qualified
consultants to provide it with advice and recommendations.
Executive Directors receive salaries and employee benefits
and do not receive additional fees for their services as
Directors. Discussions are undertaken between Non-Executive
and Executive Directors with regard to setting appropriate levels
of remuneration. No Executive Director or other executive
participates in any decision relating to their own remuneration.
Non-Executive Directors are remunerated by way of fees
and statutory superannuation.
The Senior Executive Team is remunerated by way of fixed
salary, long term and short term incentives and superannuation.
The remuneration report (at pages 26 to 32 of this annual
financial report) sets out information relating to the Committee
and its meetings, and the remuneration of Directors and the
Senior Executive Team.
Documents referred to in this Statement, unless under review,
are published in the Corporate Governance section of the
Company’s website, www.servicestream.com.au.
For personal use only Directors’
Report
Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Service Stream
Limited and the entities it controlled at the end of, or during, the year ended 30 June 2011. In order to comply with the provisions
of the Corporations Act 2001, the Directors report as follows:
Information about the Directors and senior management
The names and particulars of the Directors of the Company during or since the end of the financial year are:
Name
Particulars
Peter Dempsey
BTech (Civil Eng.) (Adel),
Grad. Dip. (Bus. Admin.) (SAIT),
FIEAust, MAICD
Chairman
Graeme Sumner
BCom (Auckland),
MBA (Massey), MAICD
Managing Director
Brett Gallagher
FAICD
Non-Executive
Director
Term of Office: Chairman since November 2010
Peter Dempsey was appointed Chairman of Service Stream Limited on 1 November 2010. Peter
has extensive development and construction experience and has been involved in the property industry
for the last 40 years. In 2003 he retired from A W Baulderstone Pty Ltd after a 30 year career, the last
five years as Managing Director. Baulderstone undertook some of Australia’s largest building and civil
infrastructure projects with annual revenues up to $1.5b during his tenure. The company was also
involved in projects for the resources sector and in property development activities, with operations
in all Australian mainland states, Papua New Guinea, Indonesia and Vietnam.
Peter is Chairman of the Remuneration and Nomination Committee and is a member of the Audit
and Risk Management Committee.
Peter is currently a Non-Executive Director of Monadelphous Limited and Becton Property Group
Limited, as well as holding other Board roles with private construction related organisations.
Peter has no other listed company directorships and has held no other listed company directorships
in the last three years.
Term of Office: Managing Director since January 2010
Graeme Sumner comes to Service Stream with broad experience in the information technology,
telecommunications, electricity, engineering and mining services sectors. Starting his career with
IBM in Sweden and the UK, Graeme went on to hold senior management positions with Telecom
New Zealand, Contact Energy and Siemens NZ, where he served as Managing Director for five
years. Most recently Graeme served as the Chief Executive of Transfield Services New Zealand
and Chairman of Transfield Worley NZ and INSER Transfield Services S.A.
Graeme has no other listed company directorships and has held no other listed company directorships
in the last three years.
Term of Office: Non-Executive Director since April 2010
Brett Gallagher has over 20 years experience across the utility and facilities management industries,
and was Managing Director and a major shareholder of AMRS from 2003 until 2008 when that
company was acquired by Service Stream. Brett was instrumental in the growth of AMRS,
establishing it as Australia’s largest metering services provider. He also led the negotiations and
ultimate integration of AMRS into Service Stream, where it has continued to grow strongly in difficult
economic times.
Brett is Chairman of the Safety and Environment Committee and is a member of the Audit and Risk
Management Committee.
Brett has no other listed company directorships, and has held no other listed company directorships
in the last three years.
Service Stream Limited Annual Report 2011 19
For personal use only Directors’
Report
Name
Particulars
Deborah Page AM
BEc (Syd), FCA, MAICD
Non-Executive
Director
Stephe Wilks
BSc (Macq), LLM (Syd)
Non-Executive
Director
Robert Grant
BCom (Qld), FCPA
Alternate Director
and Chief Financial
Officer
Russell Small
DBus (Valuations)
Non-Executive
Director
Term of Office: Non-Executive Director since September 2010
Deborah Page, a Chartered Accountant, has held senior executive positions with the Commonwealth
Bank, Allen Allen & Hemsley, IBM and the Lend Lease Group and is a former KPMG partner. She brings
expertise developed from finance and operational executive roles and from her professional background
in external audit and corporate advisory. Since 2001 she has worked exclusively as a Non-Executive
Director across a range of industries, including energy, insurance, financial services and property.
Deborah is Chairman of the Audit and Risk Management Committee and is a member of the
Remuneration and Nomination Committee.
Deborah is currently Chairman of Investa Listed Funds Management Limited, the responsible entity
of ASX Listed Investa Office Fund; and a Non-Executive Director of The Colonial Mutual Life Assurance
Society Limited, Commonwealth Insurance Limited and Macquarie Generation.
Deborah has held no other listed company directorships in the last three years.
Term of Office: Non-Executive Director since September 2005
Chairman from April 2010 to October 2010
Stephe Wilks has over 20 years experience in the telecommunications industry both within Australia
and overseas. He has held senior executive positions with BT Asia Pacific, Optus, Hong Kong Telecom,
Nextgen Networks and Personal Broadband Australia. He was also a consulting director with
investment bank, NM Rothschild.
Stephe is a member of the Audit and Risk Management Committee, the Safety and Environment
Committee and the Remuneration and Nomination Committee.
Stephe is currently a Non-Executive Director of Tel.Pacific Limited and 3Q Holdings Limited, and
was previously Chairman of Mooter Media Limited, and a Non-Executive Director of People Telecom
Limited. Stephe is on the advisory board of the Network Insight Group and consults to a number
of companies in the media and technology industries.
Stephe has no other listed company directorships and has held no other listed company directorships
in the last three years.
Term of Office: Alternate Director since December 2010 and Chief Financial Officer since June 2010
Bob Grant has over 20 years experience in providing financial leadership in prominent Australian
and multi-national companies across numerous sectors including infrastructure services, construction,
energy, downstream oil and mining. Before joining Service Stream, Bob held senior finance roles
in Tenix, AGL and Shell.
Bob is an Alternate Director for Graeme Sumner, ensuring continuity of executive representation at
Board discussions and meetings where Mr Sumner is not otherwise able to attend. In his capacity as
Chief Financial Officer, Bob is responsible for all financial management, reporting, treasury, taxation
and other finance shared services, as well as corporate services including property, supply chain and
risk management.
Bob has no other listed company directorships and has held no other listed company directorships
in the last three years.
Term of Office: Non-Executive Director since December 2006, resigned in October 2010
Russell Small was a co-founding Director who brought extensive telecommunications industry
knowledge to the Company, with over 20 years experience in the areas of business ownership,
general management, operations management, and sales and account management with Fujitsu,
Honeywell, Skilled Communications Services Pty Ltd and Communication Services Australia Pty Ltd.
Russell was Chairman of the Audit and Risk Management Committee and was a member of the
Remuneration and Nomination, and Safety and Environment Committees. Russell was also Chairman
of the Investment and Strategy Committee while it was operational.
Russell had no other listed company directorships and held no other listed company directorships
in the last three years.
20
Service Stream Limited Annual Report 2011
For personal use only Directors’ shareholdings
The following table sets out each Director’s relevant interest in shares, debentures, and rights or options in shares or debentures
of the Company or related body corporate as at the date of this report.
Directors
P Dempsey
D Page AM
B Gallagher
G Sumner
R Grant (Alternate Director to G Sumner)
Service Stream Limited
Fully paid
ordinary shares
Number
Share
options
Number
Performance
rights
Number
200,000
27,400
8,792,113
350,000
144,166
–
–
–
–
–
–
–
–
–
626,959
The issuance of 626,959 performance rights to Mr Grant is subject to approval by the shareholders at the 2011 Annual General
Meeting. Refer page 31 for further details.
Remuneration of Directors and senior management
Information about the remuneration of Directors and senior management is set out in the remuneration report of this Directors’
report, on pages 26 to 32.
Performance rights granted to Directors and senior management
During and since the end of the financial year, an aggregate of 1,587,571 performance rights were granted to the following Directors
and to the five highest remunerated officers of the Group as part of their remuneration:
Directors and senior management
Number of
rights granted
Issuing entity
Number of ordinary
shares under rights
R Grant1
R Stanton
S Ellich
C Orr
L Mackender
1 R Grant is an Alternate Director for G Sumner.
626,959
Service Stream Limited
322,571
Service Stream Limited
299,765
Service Stream Limited
256,270
Service Stream Limited
82,006
Service Stream Limited
626,959
322,571
299,765
256,270
82,006
Company Secretary
Ms Jessica Lyons joined Service Stream in September 2010 as General Counsel and was appointed Group Company Secretary
in November 2010. As Company Secretary, she is responsible for the corporate administration, corporate governance, and investor
relations of the Group.
Ms Lyons has extensive experience within the legal profession, most recently as the in-house Regional Counsel for Nyrstar,
the world’s largest zinc producer.
Ms Lyons has a Bachelor of Laws and Bachelor of Arts from Monash University and is also a member of Chartered
Secretaries Australia.
Principal activities
Service Stream continues to service all aspects of the telecommunications industry, providing specialist end-to-end services
including fixed line and wireless infrastructure design, maintenance, deployment and management, contact centre activities
and logistics. The Group has added capabilities in the utilities sector in the reading, maintaining, installing and exchanging
of meters in the water, gas and electricity sectors and recently extended its capabilities through the installation of solar energy
and hot water systems.
Service Stream Limited Annual Report 2011 21
For personal use only Directors’
Report
Review of operations
Revenue for the Group for the 30 June 2011 financial year was $633.3 million, up $112.5 million or 21.6% against the prior
corresponding period. The lift in revenue was primarily the result of strong growth in the Specialist Field Services segment,
driven by:
•
•
•
The full year effect of new lines of business within the environmental sector;
Expanded regions and continued strong maintenance demand which underpinned strong revenue growth in the Telstra
Access and Associated Services (A&AS) contract; and
Continued strong demand for increased mobile telephony capacity.
The Group reported EBITDA of $34.6 million, up $28.2 million on the reported result for the previous corresponding period.
Strong underlying performance by the business and a continued focus on working capital management has resulted
in cash flows from operating activities increasing year on year by 46.4% to $24.6 million.
Specialist Field Services
The Specialist Field Services segment continued its strong first half performance and delivered an EBITDA contribution of
$39.6 million on operating revenue of $580.7 million. The EBITDA margin of 6.8% was a significant improvement on the 1.0%
recorded in 2010 when a one time charge relating to an infrastructure project significantly impacted the earnings of the segment.
AMRS provided the greatest contribution to the lift in revenue within the segment, with revenue increasing by $98.0 million
or 134.1% to $171.1 million. This increase was due to new environmental programs with Origin Energy and Local Government
Infrastructure Services (LGIS). During the year AMRS signed a number of significant contracts:
•
•
•
•
A new two-year contract with Origin Energy, Australia’s largest electricity and gas retailer, for the installation of solar panel
systems to its customers. AMRS completed nearly 10,000 residential solar installations for the year, compared to the 500
installations completed in 2010;
An 18-month extension to its contract with LGIS to continue providing environmental services as part of the Queensland
Government’s ClimateSmart Home Services program. Under this extension, worth up to $30 million in contract revenue,
AMRS will provide an anticipated 150,000 in-home services, including infield energy and water assessments and the provision
of energy efficient products. To date AMRS has performed over 50,000 in-home services across Queensland;
A four-year meter reading contract with ATCO Gas Australia (formerly WA Gas Networks), a two-year extension with Sydney
Water for water meter replacement services and a two-year extension with SA Water for the provision of meter reading services
worth a total of $14.5 million. Over the course of the 2011 financial year, AMRS completed over 31 million meter reads for
electricity, gas and water utilities across Australia; and
Extensions to contracts for the installation of smart meters and associated services across the Jemena, United Energy and
CitiPower/Powercor distribution networks as part of the Victorian Government’s Advanced Metering Infrastructure (AMI) rollout
to be completed by June 2013. In FY11, AMRS installed over 160,000 smart meters across Victoria.
The Communications business delivered revenue of $291.2 million, up $18.9 million or 7.0% on 2010. Increased volumes were
achieved under the A&AS contract through contributions from new geographic patches in Western Australia and South Australia
and solid demand for installation and maintenance services across most regions. In addition, the Communications business
achieved two significant milestones during the year in relation to the National Broadband Network rollout:
•
•
First, it signed a contract with Fujitsu Australia to provide network provisioning and fibre deployment services to new estates
as part of Fujitsu’s partnership with NBN Co. The contract is for 12 months with an option to extend for a second year and
has an estimated value of $35 million p.a.
Secondly, ETSA Utilities awarded Service Stream the contract to perform the lead-ins to the first release site that it
was constructing for NBN Co at Willunga in South Australia. The work was successfully completed in June this year.
The TCI business (including Infrastructure Services) delivered revenue of $118.5 million, an increase of $17.0 million or 16.8%
from last year. The business has seen continued strong demand for mobile telephony infrastructure as carriers continue to improve
network capability and capacity in the wake of strong market growth for comparatively data-hungry smart phones. During the year,
the business undertook a range of network enhancement programs for Vodafone and Telstra and completed 412 new sites and
888 site upgrades. The General Purpose Group (GPG) business was closed during the year, continuing the Group’s strategy of
exiting under-performing infrastructure activities.
The overall EBITDA contribution of the Specialist Field Services segment of $39.6 million was up $35.2 million on last year,
reflecting a period of significantly improved performance across the segment.
22
Service Stream Limited Annual Report 2011
For personal use only Customer Care
The Customer Care segment achieved an EBITDA contribution of $2.5 million on revenue of $59.6 million. Revenue was down
25.4%, largely due to the loss of the Vodafone contract part way through the previous year following the relocation of its call centre
operations. EBITDA fell 71.8%, largely as a result of reduced margins in the mobile handset insurance business and the one-time
profit from the sale of the MRTM platform of $3.4 million that was recorded in the prior year’s results. Pleasingly, however, during
the year the Customer Care segment has reinforced the value of its role in scheduling many of the activities of the Group’s
Specialist Field Services programs of work, and has won and commenced a number of key contracts which will bolster the
growth prospects of this segment going forward, namely:
•
•
•
Origin Energy – contract to provide the end-to-end customer interface for its solar panel program, including sales, scheduling
and post-installation contact. Service Stream’s ability to offer this range of customer care is unique within the residential solar
industry and provides Service Stream with a key point of differentiation;
NBN Co – contract to operate the public contact centre and manage all inbound call enquiries about the NBN rollout,
including how the technology operates and what it will mean for homes and businesses right across the country; and
CGU – contract to provide call centre services for Telstra’s new mobile “Premium Care” offering, which provides Telstra
customers with an insurance program via CGU for their mobile handset.
Changes in state of affairs
There was no significant change in the state of affairs of the Group during the financial year.
Subsequent events
There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected,
or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future
financial years.
Future developments
Disclosure of information regarding likely developments in the operations of the Group in future financial years and the expected
results of those operations is likely to result in unreasonable prejudice to the Group. Accordingly, this information has not been
disclosed in this report.
Environmental regulations
No company in the Group is required to hold any Environmental Protection Authority licences.
Dividends
No dividends have been paid during the year. No dividends are payable in respect of the financial year ended 30 June 2011.
Service Stream Limited Annual Report 2011 23
For personal use only Directors’
Report
Shares under option or issued on exercise of options
Details of unissued shares or interests under option as at the date of this report are:
Issuing
entity
Service Stream Limited
Service Stream Limited
Service Stream Limited
Service Stream Limited
Option
series
Series 15
Series 16
Series 17
Series 18
Class of
shares
Exercise price
of option
Expiry date
of options
Number of shares
under option
Ordinary
Ordinary
Ordinary
Ordinary
$1.0761
31 October 2011
$1.6311
31 October 2011
$0.9611
$1.7111
1 March 2012
1 March 2013
500,000
730,000
40,000
40,000
1,310,000
The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of
the Company or of any other body corporate or registered scheme. No further share options have been issued during or since
the end of the financial year.
Shares under performance rights
Issuing
entity
LTIP
series
Service Stream Limited
FY11 Tranche
Class of
shares
Ordinary
Exercise price
of right
Vesting
date
Number of shares
under option
$0.0000
30 June 2013
2,864,212
2,864,212
The holders of these rights do not have the right, by virtue of the right, to participate in any share issue or interest issue of the
Company or of any other body corporate or registered scheme. No further share rights have been issued during or since the end
of the financial year. The above balance includes 626,959 performance rights issued to Mr Grant (Alternate Director for Mr Sumner),
which are subject to approval by shareholders.
Indemnification of officers and auditors
During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company (as named
above), the Company Secretary, and all executive officers of the Company and of any related body corporate against a liability
incurred as such a Director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract
of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified
or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such
an officer or auditor.
24
Service Stream Limited Annual Report 2011
For personal use only Directors’ meetings
The following table sets out the number of Directors’ meetings (including meetings of Committees of Directors) held during the
financial year and the number of meetings attended by each Director (while they were a Director or Committee member). During
the financial year, thirteen Board meetings, four Audit and Risk Management Committee meetings, three Remuneration and
Nomination Committee meetings and two Safety and Environment Committee meetings were held.
P Dempsey
D Page AM
R Small
S Wilks
B Gallagher
G Sumner
R Grant1
Board of Directors
Audit and Risk
Management Committee
Remuneration and
Nomination Committee
Safety and
Environment Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
8
11
3
13
13
13
–
7
11
3
13
12
12
–
3
3
1
4
4
–
–
3
3
1
4
4
–
–
2
2
1
3
–
–
–
2
2
1
3
–
–
–
–
–
–
2
2
–
–
–
–
–
2
2
–
–
1 Mr Grant is an Alternate Director for Mr Sumner.
Non-audit services
Details of any amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined
in note 32 to the financial statements.
The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person or firm on
the auditor’s behalf) are compatible with the general standard of independence of auditors imposed by the Corporations Act 2001.
The Directors are of the opinion that the services disclosed in note 32 to the financial statements do not compromise the external
auditor’s independence, based on advice received from the Audit and Risk Management Committee, for the following reasons:
•
•
All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity
of the auditor and
None of the services undermine the general principles relating to auditor independence as set out in the
110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including
reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting
as advocate for the Company or jointly sharing economic risks and rewards.
Code of Conduct APES
Auditor’s independence declaration
The auditor’s independence declaration is included on page 33 of the annual financial report.
Rounding off of amounts
The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with
that Class Order, amounts in the Directors’ report and the financial statements are rounded off to the nearest thousand dollars,
unless otherwise indicated.
Service Stream Limited Annual Report 2011 25
For personal use only Directors’
Report
Remuneration report
This remuneration report, which forms part of the Directors’ report, sets out information about the remuneration of Service Stream
Limited’s Directors and its senior management for the financial year ended 30 June 2011. The prescribed details of each person
covered by this report are detailed below under the following headings:
•
•
•
•
•
•
Director and senior management details;
Remuneration policy;
Relationship between remuneration policy and Company performance;
Remuneration of Directors and senior management;
Key terms of employment contracts; and
Share-based payments granted as compensation.
Director and senior management details
The following persons acted as Directors of the Company during or since the end of the financial year:
Mr P Dempsey (Chairman – appointed 1 November 2010)
Mr S Wilks (Non-Executive Director; resigned as Chairman 1 November 2010)
Mr G Sumner (Managing Director)
Mr R Small (Non-Executive Director – resigned 7 October 2010)
Mr B Gallagher (Non-Executive Director)
Mrs D Page AM (Non-Executive Director – appointed 21 September 2010)
Mr R Grant (Alternate Director, Chief Financial Officer – appointed as Alternate Director 23 December 2010)
The following key management personnel held their current position for the whole of the financial year and since
the end of the financial year, except as noted below:
Mr R Stanton (Executive General Manager – TCI)
Mr S Ellich (Executive General Manager – Service Stream Communications)
Mr R Blinko (Executive General Manager – Customer Care – resigned from position 30 June 2011)
Ms J Fake (Executive General Manager – Customer Care – appointed 1 July 2011)
Mr A Haynes (Executive General Manager – AMRS – resigned 18 March 2011)
Mr L Mackender (Executive General Manager – AMRS – appointed 21 March 2011)
The term ‘senior management’ is used in this remuneration report to refer to the key management personnel and other executives.
Remuneration policy
The Board, through the Remuneration and Nomination Committee, reviews the remuneration packages of all Directors and key
management personnel on an annual basis. Remuneration packages are reviewed and determined with due regard to current
market rates and are benchmarked against comparable industry salaries, adjusted by a performance factor to reflect changes
in the performance of the Company.
In order to retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the Company’s
operations, the Board seeks the advice of external advisers in connection with the structure of remuneration packages.
Service Stream Limited’s remuneration framework is based on the concept of Total Employee Reward (“TER”). This encompasses
three components:
1. Fixed remuneration;
2. Variable remuneration (at risk remuneration); and
3. Reward and recognition.
26
Service Stream Limited Annual Report 2011
For personal use only 1. Fixed remuneration
Service Stream’s principal remuneration strategy is to align fixed remuneration with the medians of comparable industry positions.
Fixed remuneration will be expressed as Total Fixed Remuneration (“TFR”). TFR includes salary, superannuation entitlements
and salary sacrifice elections, and is used as the basis for remuneration review, leave payments on termination and redundancy
payments. Benefits such as mobile phones, incentive payments and work vehicles are excluded from this figure.
The range of remuneration for each position will be determined by market data, which the job evaluation has determined the role
to fit within. From time to time, where a need arises, other more specific market data may be used for certain positions. Service
Stream does not incorporate cost of living differentials into its remuneration policy.
2. Variable remuneration
Variable Remuneration is currently comprised of the Short Term Incentive Plan, the Long Term Incentive Plan and the Executive
Option Plan.
Short Term Incentive Plan (“STIP”)
Employees invited to participate in the STIP have the opportunity to earn an annual lump sum incentive payment through the
achievement of annual goals established with their manager and approved by the Salary and Reward Management Committee
or Remuneration and Nomination Committee as appropriate at the beginning of each financial year.
The annual goals that are established are considered outside the normal scope of the employee’s duties and/or require significantly
above average performance. STIP performance goals are also tied directly to the annual objectives of Service Stream, which
are linked directly to the overall Group strategy. All eligible employees’ STIP is comprised of three mandated performance criteria,
with weighting relevant for their role in the Company:
1. Group earnings before interest, tax, deprecation and amortisation;
2. Divisional earnings before interest, tax, deprecation and amortisation; and
3. Individual goals (that are specific, measurable, achievable, realistic and timely).
Long Term Incentive Plan (“LTIP”)
From time to time employees in senior management roles and/or Directors may be invited, with approval from the Board, to
participate in the Long Term Incentive Plan (“LTIP”). The LTIP operates within the Service Stream shareholder approved Employee
Share Ownership Plan (“ESOP”), under the administration of the Remuneration and Nomination Committee. The extent of individual
participation and the associated number of performance rights offered is recommended by the Managing Director and reviewed
by the Remuneration and Nomination Committee, which will then make recommendations to the Board for approval.
In accordance with the provision of the ESOP, Directors and employees in senior management roles were invited to participate
in the LTIP, which entitled them to receive a number of performance rights in respect of the year ending 30 June 2011 (“FY11
Tranche”). Each performance right converts into one ordinary share of Service Stream Limited on vesting. No amounts are paid
or payable by the recipient on receipt of the performance right. The performance rights carry neither rights to dividends nor
voting rights. The number of performance rights granted is based on the employee’s long term incentive participation rate, which
is expressed as a percentage of the participant’s TFR, and the volume-weighted average market price of the Company’s shares
over a prescribed period of time. The performance rights are subject to service and performance criteria, being:
•
•
The participant must be an employee at the vesting date;
50% of the performance rights granted will each vest where:
–
Service Stream’s earning per share (EPS) achieves annual growth of 10% or more (full achievement) or 7.5% (pro-rata
achievement) over the performance period from an agreed base EPS. The performance rights issued in the year ending
30 June 2011 have a three year performance period to 30 June 2013 and a base EPS of 3.85 cents per share;
Service Stream’s total shareholder return (TSR) over the performance period is such that it would rank at or above the
75th percentile (full achievement) or the 50th percentile (pro-rata achievement) of a relevant peer group of companies,
being those comprising the ASX 200 Industrials index.
–
Executive Option Plan (“EOP”)
In the past, employees in senior management roles were invited to participate in the Executive Option Plan (“EOP”). The EOP
also operates within the Service Stream Employee Share Ownership Plan (“ESOP”) under the administration of the Remuneration
and Nomination Committee.
Refer page 31 for details of options in existence for the year ended 30 June 2011. No options were granted or vested under
the EOP during the financial year.
Service Stream Limited Annual Report 2011 27
For personal use only Directors’
Report
Remuneration report continued
3. Reward and recognition
From time to time an employee or a team of employees may work beyond the call of duty to meet a challenging objective, or may
substantially exceed expectations. Service Stream encourages recognition and reward for such behaviours, and may choose to
recognise high performance via a discretionary bonus.
Relationship between remuneration policy and Company performance
Each element of the remuneration framework is linked to the Group’s financial performance. Changes to fixed remuneration
is determined by an employee’s performance and by the Group’s capacity to fund any changes.
The Remuneration and Nomination Committee reviews the remuneration packages of all Directors and executive officers on an
annual basis and makes recommendations to the Board. Remuneration packages are reviewed with due regard to performance,
data on remuneration paid by comparable companies and where appropriate, the Remuneration and Nomination Committee
receives expert independent advice regarding remuneration levels required to attract and compensate Directors and executives,
given the nature of their work and responsibilities.
In considering the Group’s performance and benefits for shareholder wealth, the Remuneration and Nomination Committee
have regard to a number of indices, including the following:
Revenue
Net profit/(loss) before tax
Net profit/(loss) after tax
Share price at end of year 3,5
Interim dividend 1
Final dividend1,2
Basic earnings per share 3,4
Diluted earnings per share 3,4
30 June
2011
$’000
30 June
2010
$’000
30 June
2009
$’000
30 June
2008
$’000
30 June
2007
$’000
633,290
520,781
558,216
450,587
247,108
22,631
16,452
0.49
–
–
(7,315)
(2,555)
0.23
–
–
5.80 cps
-0.99cps
5.80 cps
-0.99cps
15,300
11,118
0.41
3.50cps
–
5.93cps
5.93cps
25,947
18,095
1.00
3.50cps
4.00cps
16,598
11,235
1.88
3.00cps
4.50cps
10.51cps
10.20cps
9.97cps
9.16cps
1 Franked to 100% at 30% corporate income tax rate.
2 Declared after the balance date and not reflected in the financial statements of that year.
3 On 20 December 2006, the merger between Service Stream Limited and Service Stream Holdings Limited became effective. The transaction has been accounted for
as a reverse acquisition using the guidelines set out in AASB 3 ‘Business Combinations’. In accordance with this standard the comparative period earnings per share
and share price have been recalculated using the number of ordinary shares issued by Service Stream Limited to the owners of Service Stream Holdings Limited.
4 Earnings per share for prior years has been restated to reflect the October 2009 rights issue.
5 Share price as at 1 July 2006 was $0.925.
The overall level of key management personnel compensation takes into account the size, complexity, financial performance
and growth prospects of the Group.
28
Service Stream Limited Annual Report 2011
For personal use only Remuneration of Directors and senior management
Short-term employee benefits
Post-
employment
benefits
Salary &
fees
$
Short term
incentives6
$
Other
bonuses7
$
Non-
monetary
$
Superannuation
$
2011
Non-Executive
Directors
Other
long-term
employee
benefits
Long
service
leave
$
P Dempsey1
85,000
S Wilks4
R Small2
151,708
43,125
B Gallagher
101,875
83,077
D Page1
Executive
officers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,650
13,654
3,881
9,169
7,477
–
–
–
–
–
G Sumner
630,116
446,976
800,000
61,970
R Grant 9
375,000
239,194
R Stanton
374,182
167,765
S Ellich
R Blinko3
A Haynes2
326,517
134,281
317,265
169,177
–
–
L Mackender1
61,198
8,136
M Doery2,5
366,232
–
C Orr 5
283,230
190,964
M Stackpool5
309,895
96,653
–
–
–
–
–
–
–
–
–
–
44,931
26,123
–
–
–
6,821
26,585
–
63,760
25,000
468
301
37,418
15,219
25,000
19,567
50,335
11,722
3,800
8,806
27,000
28,068
210
5,914
3,153
–
8,068
6,374
Share-based
payment
Termination
benefits
Total
Performance
rights
$
–
–
–
–
–
–
153,605
79,030
73,442
–
–
$
–
–
–
–
–
$
92,650
165,362
47,006
111,044
90,554
– 2,003,290
–
–
–
–
793,100
718,545
604,930
367,810
12,012
198,825
5,023
–
81,310
–
189,370
571,229
62,786
–
–
–
598,633
440,990
1 Appointed as Director/senior manager during the year.
2 Resigned from position of Director/senior manager during the year.
3 Resigned from position of Director/senior manager at 30 June 2011, however still remains employed by Service Stream.
4 Mr Wilks’ remuneration is paid to High Expectations Pty Ltd, a company in which Mr Wilks has a beneficial interest.
5 These executives do not qualify as key management personnel but are included in the above table as they are among the five relevant Group executives
with the highest remuneration for the year.
6 These amounts represent cash short term incentives payable for the year ended 30 June 2011, which are scheduled to be paid in September 2011. Included
in these amounts are any variances between the 30 June 2010 estimation as included in the remuneration report for the year ended 30 June 2010 and the
actual amount subsequently paid.
7 For the current financial year, the other bonus applicable to Mr Sumner relates to an entitlement that is described as a long term incentive in his employment
contract, but which in effect is payable in full within six months of measurement. Refer page 31 for further details.
8 The fair value of performance rights issued during the year under the Long Term Incentive Plan, allocated on a pro-rata basis, to the current financial year.
9 Since Mr Grant is an Alternate Director, his performance rights are subject to shareholder approval at the next Annual General Meeting.
Service Stream Limited Annual Report 2011 29
For personal use only Directors’
Report
Remuneration report continued
Short-term employee benefits
Post-
employment
benefits
Salary &
fees
$
Short term
incentives
$
Other
bonuses
$
Non-
monetary
$
Superannuation
$
Other
long-term
employee
benefits
Long
service
leave
$
2010
Non-Executive
Directors
S Wilks3
R Small
130,333
153,333
B Gallagher1
16,771
J L Davies2
203,646
55,583
A Field2
Executive
officers
–
–
–
–
–
G Sumner1
351,267
158,844
R Grant1
32,128
–
R Stanton
363,636
80,000
S Ellich
R Blinko1
A Haynes1
M Doery 7
339,705
288,000
73,957
–
81,519
106,350
370,731
–
–
P J Flannigan2,5
85,611
C Boutas 4
285,538
150,000
J Gramc2
J Ryan2,6
293,002
195,846
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,252
–
40,007
5,954
–
–
12,188
6,322
–
17,527
14,211
11,730
13,800
1,509
18,328
5,002
–
–
–
–
–
12,401
1,205
176
20
36,364
11,455
14,462
10,016
2,966
7,231
8,436
1,205
14,462
17,607
10,847
34
3,277
13,606
31,119
9,335
6,805
6,823
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share-based
payment
Termination
benefits
Total
Performance
rights
$
$
–
–
–
–
–
–
–
–
–
–
–
–
$
142,063
167,133
18,280
221,974
60,585
529,940
33,353
531,462
658,137
76,957
198,377
404,961
685,208
809,465
–
–
–
459,335
334,941
227,727
1 Appointed as Director/senior manager during the year.
2 Resigned from position of Director/senior manager during the year.
3 Mr Wilks’ remuneration is paid to High Expectations Pty Ltd, a company in which Mr Wilks has a beneficial interest.
4 This executive does not qualify as key management personnel but is included in the above table as he is among the five relevant Group executives
with the highest remuneration for the year.
5 The termination benefits relate to payment in lieu of notice period.
6 This executive did not receive a termination payment as he acted as an employee/consultant after ceasing to be a member of senior management.
7 This executive resigned from his key management personnel position during the year, however remained as an employee of the Company.
No Director or senior management person appointed during the period received a payment as part of his or her consideration
for agreeing to hold the position.
30
Service Stream Limited Annual Report 2011
For personal use only Key terms of employment contracts
Except as detailed below, the employment contracts for the senior managers listed in the remuneration table provide
for the following key specific performance related elements:
•
•
•
Base remuneration including non-monetary and post-employment benefits;
Payment of a short term bonus if and to the extent that the agreed short term annual targets, as determined
by the Remuneration and Nomination Committee, are met;
Eligibility to be invited to participate in the LTIP.
Graeme Sumner
Mr Sumner’s contract is for three years commencing 4 January 2010. Either the Company or Mr Sumner may terminate the contract
by giving at least six months’ notice of termination in which case the contract will terminate on the expiration of the period of notice.
Mr Sumner’s employment contract provides for the payment of a bonus of up to $800,000 in respect of the year ending
30 June 2011 dependant upon achievement by the Company of two performance criteria:
•
•
Service Stream’s earnings per share (“EPS”) for the year ending 30 June 2011 achieves growth of 10% or more (full achievement)
or 7.5% (pro-rata achievement) from a base of 3.85 cents per share;
Service Stream’s total shareholder return (“TSR”) in respect of the year ending 30 June 2011 is such that it would rank at or
above the 75th percentile (full achievement) or the 50th percentile (pro-rata achievement) of a relevant peer group of companies,
being those comprising the ASX 200 Industrials index.
This bonus is payable 50% within one month of measurement, with the balance payable within six months of measurement.
At least 25% of the post-tax amount paid to Mr Sumner under the arrangement must be used to purchase shares in the Company.
Mr Sumner’s employment contract stipulates that he will subsequently participate in the LTIP commencing in the year ending
30 June 2012.
Robert Grant
The issuance of performance rights under the FY11 Tranche of the LTIP to Mr Grant requires approval by shareholders due
to Mr Grant’s status as an Alternate Director, failing which the amount payable will revert to a cash-equivalent upon vesting.
This remuneration report has been prepared on the basis that the shareholders will approve the issuance of performance
rights at the 2011 Annual General Meeting.
Rod Stanton
Rod Stanton has been provided with a motor vehicle for his personal use.
Share-based payments granted as compensation
Executive Option Plan
In previous years, Service Stream Limited operated an option-based scheme for executives and senior employees of the Group.
During the financial year, the following arrangements remained in existence:
Option
series
Series 12
Series 13
Series 14
Series 15
Series 16
Series 17
Series 18
Grant
date
Expiry
date
Grant date
fair value
Vesting
date
4/01/2007
4/01/2007
4/01/2007
4/01/2007
4/01/2007
23/10/2007
23/10/2007
1/01/2011
1/01/2011
1/01/2011
31/10/2011
31/10/2011
1/03/2012
1/03/2013
0.2833
0.2355
0.1815
0.0767
0.1006
0.0823
0.1423
Vested 30 September 2007
Vested 30 September 2008
Vested 30 September 2009
Vested 4 January 2007
Vested 4 January 2007
Vested 23 October 2007
Vested 23 October 2007
During the year, no options were granted to or exercised by Directors and senior management as part of their remuneration.
Service Stream Limited Annual Report 2011 31
For personal use only Directors’
Report
Remuneration report continued
Long Term Incentive Plan (“LTIP”)
Service Stream Limited operates an LTIP whereby employees in senior management roles are granted performance rights
subject to service and performance criteria. During the financial year, the following LTIP arrangements were in existence:
LTIP series
FY11 Tranche
Grant date1
Grant date fair value
18 February 2011
Relative TSR hurdle – $0.72
EPS hurdle – $0.75
Vesting date
30 June 2013
1 The performance period for the FY11 tranche of LTIP performance rights commenced 1 July 2010. At least one employee had a grant date different to the grant
date above.
The following table outlines the performance rights issued under the LTIP to Directors and senior management in the current
financial year:
Name
R Grant1
R Stanton
S Ellich
L Mackender2
C Orr
During the financial year
LTIP
series
No. rights
granted
No. rights
vested
% of grant
vested
% of grant
forfeited
% of compensation for
the year consisting of
performance rights
FY11 Tranche
FY11 Tranche
FY11 Tranche
FY11 Tranche
626,959
322,571
299,765
82,006
FY11 Tranche
256,270
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19.4%
11.0%
12.1%
6.2%
10.5%
1 R Grant is an Alternate Director for G Sumner.
2 L Mackender was appointed to Executive General Manager during the year.
The Directors’ report is signed in accordance with a resolution of the Directors made pursuant to s.298(2)
of the Corporations Act 2001.
On behalf of the Directors
P Dempsey
Chairman
Melbourne, 24 August 2011
G Sumner
Managing Director
Melbourne, 24 August 2011
32
Service Stream Limited Annual Report 2011
For personal use only
Auditor’s Independence
Declaration
Service Stream Limited Annual Report 2011 33
For personal use only Independent
Auditor’s Report
34
Service Stream Limited Annual Report 2011
For personal use only Service Stream Limited Annual Report 2011 35
For personal use only Directors’
Declaration
The Directors declare that:
(a)
in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable;
(b) in the Directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards,
as stated in note 2 to the financial statements;
(c)
in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001,
including compliance with accounting standards and giving a true and fair view of the financial position and performance of the
consolidated entity; and
(d) the Directors have been given the declarations required by s.295A of the Corporations Act 2001.
At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature
of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in
full of any debt in accordance with the deed of cross guarantee.
In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC
Class Order applies, as detailed in note 26 to the financial statements will, as a group, be able to meet any obligations or liabilities
to which they are, or may become, subject by virtue of the deed of cross guarantee.
Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
P Dempsey
Chairman
Melbourne, 24 August 2011
G Sumner
Managing Director
Melbourne, 24 August 2011
36
Service Stream Limited Annual Report 2011
For personal use only
Financial
Statements
for the financial year ended 30 June 2011
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
38
39
40
41
42
Service Stream Limited Annual Report 2011 37
For personal use only Consolidated Statement
of Comprehensive Income
for the financial year ended 30 June 2011
Continuing Operations
Revenue
Other income
Share of profits/(losses) of investment in associate
Company administration and insurance expenses
Consulting and temporary staff fees
Employee salaries and benefits
Motor vehicles expenses
Occupancy expenses
Raw materials and consumables used
Site and construction costs
Subcontractor fees
Technology and communication services
Finance costs
Depreciation and amortisation
Write down in respect to McCourt Dando GCDA claim
Other expenses
Profit/(Loss) before tax
Income tax benefit/(expense)
Profit/(Loss) for the year
Other comprehensive income
Exchange differences on translating foreign investment
Total comprehensive income for the year
Profit/(Loss) attributable to the equity holders of the parent
Total comprehensive income attributable to equity holders of the parent
Earnings per share
Basic (cents per share)
Diluted (cents per share)
Notes to the Financial Statements are included on pages 42 to 82.
Note
5
6
11
7
8.1
8.4
9
22
22
2011
$’000
2010
$’000
633,786
517,746
(496)
3,035
633,290
520,781
(16)
(10,547)
(10,124)
(11)
(11,977)
(6,731)
(133,076)
(123,025)
(7,189)
(8,480)
(113,893)
(42,282)
(6,913)
(8,129)
(53,240)
(40,105)
(258,683)
(231,478)
(7,535)
(6,482)
(6,436)
–
(5,916)
22,631
(6,179)
16,452
(249)
16,203
16,452
16,203
5.80
5.80
(5,398)
(7,198)
(7,339)
(14,814)
(11,738)
(7,315)
4,760
(2,555)
247
(2,308)
(2,555)
(2,308)
(0.99)
(0.99)
38
Service Stream Limited Annual Report 2011
For personal use only Consolidated Statement
of Financial Position
as at 30 June 2011
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Total current assets
Non-current assets
Investments accounted for using the equity method
Plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Capital and reserves
Issued capital
Reserves
Retained earnings
Total equity
Notes to the Financial Statements are included on pages 42 to 82.
Note
27.1
10
14
11
12
9
13
16
17
9
18
17
18
19
20
21
2011
$’000
2010
$’000
9,171
105,428
14,309
43,804
–
72,003
14,936
50,817
172,712
137,756
1,180
9,124
7,589
211,377
229,270
401,982
1,445
13,193
5,121
207,612
227,371
365,127
79,456
58,973
5,165
6,374
12,524
103,519
42,139
2,191
44,330
147,849
254,133
4,917
611
8,308
72,809
54,422
1,978
56,400
129,209
235,918
228,416
227,106
1,720
23,997
1,267
7,545
254,133
235,918
Service Stream Limited Annual Report 2011 39
For personal use only Retained
earnings
$’000
10,100
(2,555)
–
(2,555)
–
–
–
–
7,545
16,452
Total
$’000
203,080
(2,555)
247
(2,308)
32,908
4,000
(1,517)
(245)
235,918
16,452
–
(249)
16,452
16,203
–
–
702
1,310
(520)
–
247
247
–
–
–
–
(273)
–
(249)
(249)
–
–
(522)
23,997
254,133
Consolidated Statement
of Changes in Equity
for the financial year ended 30 June 2011
Share
capital
$’000
Note
Employee
equity-
settled
benefits
reserve
$’000
Foreign
currency
translation
reserve
$’000
Balance at 1 July 2009
Loss for the period
Other comprehensive income
Total comprehensive income for the period
Issue of share capital
Issue of shares as consideration
for business combinations
Costs associated with the issue of shares
Income tax associated with issue of shares
Balance at 30 June 2010
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Equity-settled share-based payment
Tax adjustment in relation to the cost of shares
issued in prior periods
9.2
Balance at 30 June 2011
191,960
1,540
–
–
–
32,908
4,000
(1,517)
(245)
–
–
–
–
–
–
–
227,106
1,540
–
–
–
–
1,310
228,416
–
–
–
702
–
2,242
Notes to the Financial Statements are included on pages 42 to 82.
40
Service Stream Limited Annual Report 2011
For personal use only Consolidated Statement
of Cash Flows
for the financial year ended 30 June 2011
Cash flows from operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Cash generated from operations before interest and tax
Interest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Payments for plant and equipment
Proceeds from sale of plant and equipment
Payments for intangible assets
Proceeds from sale of intangible assets
Payments for businesses
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issues of shares
Payments for share issue costs
Proceeds from borrowings
Repayment of borrowings
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
27.1
Notes to the Financial Statements are included on pages 42 to 82.
Note
2011
$’000
2010
$’000
689,548
571,887
(657,777)
(548,289)
31,771
23,598
27.3
27.2
311
(5,894)
(1,575)
24,613
(2,668)
2,265
(4,012)
1,008
–
(3,407)
–
–
40,691
(52,035)
(11,344)
9,862
(691)
9,171
19
(6,396)
(408)
16,813
(3,418)
1,550
(1,110)
2,888
(4,900)
(4,990)
32,908
(1,517)
10,000
(62,939)
(21,548)
(9,725)
9,034
(691)
Service Stream Limited Annual Report 2011 41
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
1. General information
Service Stream Limited (“the Company”) is a limited company incorporated in Australia and listed on the Australian Stock
Exchange (ASX: SSM).
Service Stream Limited’s registered office and its principal place of business are as follows:
Level 1
355 Spencer Street
West Melbourne
Victoria 3003
The principal activities of the Company and its subsidiaries (“the Group”) are described in note 4.
2. Significant accounting policies
In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period.
Details of the impact of the adoption of these new accounting standards are set out in individual accounting policy notes below.
2.1 Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the
Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law.
The financial statements comprise the consolidated financial statements of the Group.
Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that
the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’).
2.2 Basis of preparation
The consolidated financial statements have been prepared on the basis of historical cost, except for certain non-current assets
that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally
based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless
otherwise noted.
The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with
that Class Order amounts in the annual financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.
2.3 Critical accounting estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed
in note 3.
2.4 Standards and Interpretations adopted with no effect on financial statements
The following new and revised Standards and Interpretations have been adopted in these financial statements. Their adoption
has not had any significant impact on the amounts reported in these financial statements of the consolidated entity.
•
•
•
AASB 2009-5 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’
AASB 2009-8 ‘Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions’
AASB 2010-3 ‘Amendments to Australian Accounting Standards arising from the Annual Improvements Project’
The following standards have been adopted in advance of the effective date of 1 January 2011:
•
•
Amendments to AASB 7 ‘Financial Instruments: Disclosure’
AASB 2010-4 ‘Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project’
42
Service Stream Limited Annual Report 2011
For personal use only
2.5 Standards and Interpretations issued not yet effective
At the date of authorisation of the annual financial report, the Standards and Interpretations listed below were in issue
but not yet effective.
Standard/Interpretation
AASB 124 ‘Related Party Disclosures’ (revised
December 2009), AASB 2009-12 ‘Amendments
to Australian Accounting Standards’
AASB 9 ‘Financial Instruments’, AASB 2009-11 ‘Amendments
to Australian Accounting Standards arising from AASB 9’
and AASB 2010-7 ‘Amendments to Australian Accounting
Standards arising from AASB 9 (December 2010)’
AASB 2010-5 ‘Amendments to Australian
Accounting Standards’
AASB 2010-8 ‘Amendments to Australian
Accounting Standards – Deferred Tax:
Recovery of Underlying Assets’
Effective for annual reporting
period beginning on or after
Expected to be initially applied
in the financial year ending
1 January 2011
30 June 2012
1 January 2013
30 June 2014
1 January 2011
30 June 2012
1 January 2012
30 June 2013
The following significant accounting policies have been adopted in the preparation and presentation of the annual financial report:
2.6 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity
so as to obtain benefit from its activities. The Company and its subsidiaries together are referred to in this annual financial report
as the Group or Consolidated Entity.
Where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies
into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
2.7 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred to
the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group
in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date,
the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
•
•
•
deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured
in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured
in accordance with AASB 2 ‘Share-based Payments’ at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale
and Discontinued Operations’ are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests
in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the
acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest
in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Service Stream Limited Annual Report 2011 43
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
2. Significant accounting policies continued
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's
net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate
share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on
a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable,
on the basis specified in another Standard.
Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a
contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes
in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively,
with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts
and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration
that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139 ‘Financial
Instruments’, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain
or loss being recognised in profit or loss.
Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured
to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised
in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised
in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were
disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts
are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information
obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognised as of that date.
Business combinations that took place prior to 1 July 2009 were accounted for in accordance with the previous version
of AASB 3 ‘Business Combinations’.
2.8 Investments in associates
Investments in entities where the Group has significant influence are accounted for using the equity method. Under the equity
method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post
acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual
investments.
2.9 Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary economic environment
in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and
financial position of each entity are expressed in Australian dollars (‘$’), which is the functional currency of Service Stream
and for the presentation of the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in other currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of
each reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing
at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not re-translated.
Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary
items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur (therefore forming
part of the net investment in a foreign operation). These differences are recognised initially in other comprehensive income
and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.
44
Service Stream Limited Annual Report 2011
For personal use only For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
expressed in Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are
translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which
case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other
comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities
of the foreign operation and translated at the closing rate.
2.10 Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
(i)
where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost
of acquisition of an asset or as part of an item of expense; or
(ii)
for receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing
and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
2.11 Revenue
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer
returns, stock rotation, price protection, rebates and other similar allowances.
Rendering of services
Revenue from a contract to provide services is recognised when probable and measurable, by reference to the stage
of completion of the contract. The stage of completion of the contract is determined as follows:
•
•
installation fees are recognised by reference to the stage of completion of the installation, determined as the proportion
of the total time expected to install that has elapsed at reporting date
revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct
expenses are incurred.
Revenue from construction contracts is recognised in accordance with the accounting policy set out in note 2.12.
Dividend and interest revenue
Dividend revenue from investments is recognised when the Group’s right to receive payment has been established (provided
that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).
Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue
can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the
financial asset to that asset’s net carrying amount on initial recognition.
2.12 Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to
the stage of completion of the contract activity at the end of the reporting period This is measured according to the proportion
of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would
not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included
to the extent that the amount can be measured reliably and its receipt is considered probable.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent
that it is probable that contract costs incurred will be recoverable. Contract costs are recognised as expenses in the
period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised
as an expense immediately.
Service Stream Limited Annual Report 2011 45
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
2. Significant accounting policies continued
Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is
shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred
to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for contract work.
Amounts received before the related work is performed are included in the consolidated statement of financial position, as a liability,
as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated
statement of financial position under trade and other receivables.
2.13 Share-based payments
Executive Option Plan (“EOP”)
In the past, employees in senior management roles were invited to participate in the Executive Option Plan (“EOP”). Equity
instruments issued under the EOP were measured at fair value at the grant date. Fair value is measured by use of a binomial
model. The expected life used in the model was adjusted based on management’s best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural considerations. Details regarding the determination of the fair value
of the EOP are set out in note 29.
The fair value determined at the grant date of the equity instruments issued under the EOP are expensed on a straight-line basis
over the vesting period, based on the Company’s estimate of shares that will eventually vest.
At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest.
The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
No expense amount has been recognised in profit and loss for the year ended 30 June 2011 (2010: nil) in respect of the EOP.
Long Term Incentive Plan (“LTIP”)
Equity-settled share-based payments to employees under the LTIP are measured at the fair value of the equity instrument at the
grant date. As there are two separate hurdles, being relative total shareholder return (TSR) and earnings per share (EPS), a fair
value has been determined for each. In respect of the TSR hurdle, fair value is measured using a Monte-Carlo simulation, whilst
for the EPS hurdle, fair value is measured using a Binomial tree methodology. Both valuation methodologies are underpinned by
a ‘risk neutral’ probability framework with lognormal share prices. Details regarding the determination of the fair value of the LTIP
are set out in note 29.
The fair value determined at the grant date of the LTIP is expensed on a straight-line basis over the vesting period. However, in
respect of the EPS portion, at the end of each reporting period the Group revises its estimate of the number of equity instruments
expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. Whereas
the fair value determined for TSR at the grant date expensed on a straight-line basis with no adjustments.
An expense amount of $701,732 has been recognised in profit and loss for the year ended 30 June 2011 (2010: nil) in respect
of the LTIP.
2.14 Income tax
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated
statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which those deductible temporary
differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
46
Service Stream Limited Annual Report 2011
For personal use only Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability
is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end
of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current
tax assets and liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are
recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also
recognised outside profit or loss, or where they arise from the initial accounting for a business combination. In the case of
a business combination, the tax effect is included in the accounting for the business combination.
Tax consolidation
Refer to note 9.5.
2.15 Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three
months or less at the date of acquisition.
Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position.
2.16 Financial assets
All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under
a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned.
Such assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair
value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL),
‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends
on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised costs of a debt instrument and of allocating interest income
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees
paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the debt instrument or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market
are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method,
less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when
the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period.
Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are,
in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could
include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past
the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with
default on receivables.
Service Stream Limited Annual Report 2011 47
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
2. Significant accounting policies continued
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception
of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable
is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written
off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit
or loss.
When an ‘available-for-sale’ (AFS) financial asset is considered to be impaired, cumulative gains or losses previously recognised
in other comprehensive income are reclassified to profit or loss in the period.
With the exception of AFS equity instruments, if in a subsequent period the amount of the impairment loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised
impairment loss is reversed through profit or loss. However this is limited to the extent that the carrying amount of the investment
at the date the impairment is reversed does not exceed what the carrying amount would have been had the impairment not been
recognised.
In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss.
Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income.
2.17 Inventories
Inventories are stated at the lower of cost and net realisable value. Costs are assigned to inventories by the method most
appropriate to the particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value
represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
2.18 Plant and equipment
Plant and equipment, leasehold improvements and motor vehicles are stated at cost less accumulated depreciation and
impairment. Cost includes expenditure that is directly attributable to the acquisition. In the event that settlement of all or part
of the purchase consideration is deferred, cost is determined by discounting the amount payable to their present value as at
the date of acquisition.
Depreciation is calculated on a straight-line basis so as to write off the net costs or other revalued amount of each asset over
its expected useful life to its estimated residual value. Depreciation methods are reviewed at the end of each annual accounting
period, with effect of any changes recognised on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, the term of the relevant lease.
The gain or loss arising on disposal or retirement of an item of plant and equipment is determined as the difference between
the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.
The following estimated useful lives are used in the calculation of depreciation:
•
•
•
•
•
Leasehold improvements
Plant and equipment
Equipment under finance lease
Motor vehicles
Motor vehicles under finance lease
2–10 years
2–10 years
2–7 years
3–7 years
3–7 years
2.19 Leasing
Leases are classified as finance leases whenever the terms of the lease substantially transfer all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or,
if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement
of financial position as a finance lease obligation.
48
Service Stream Limited Annual Report 2011
For personal use only Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they
are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on
borrowing costs.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The
aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
2.20 Goodwill
Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business
combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised
at the date of the acquisition. Goodwill is subsequently measured at its cost less any impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units, or groups of
cash-generating units, expected to benefit from the synergies of the business combination. Cash-generating units or groups
of cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently if events
or changes in circumstances indicate that goodwill might be impaired.
If the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount
of the cash-generating unit (or groups of cash-generating units), the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating units pro-rata on the basis of the carrying amount of each asset
in the cash-generating unit (or groups of cash-generating units). An impairment loss recognised for goodwill is recognised
immediately in the profit or loss and is not reversed in a subsequent accounting period.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
2.21 Intangible assets
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their
fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.
Internally-generated intangible assets
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated
intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if,
all of the following have been demonstrated:
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention and ability to complete the intangible asset and use or sell it;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use
or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset
can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Software
Software is carried at cost less accumulated amortisation and accumulated impairment. Amortisation is recognised on
a straight-line basis over the estimated useful lives. The estimated useful life and amortisation method are reviewed at the
end of each annual accounting period, with the effect of any changes in estimate being accounted for on a prospective basis.
The estimated useful lives used in the calculation of amortisation range from between two and four years.
Service Stream Limited Annual Report 2011 49
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
2. Significant accounting policies continued
2.22 Impairment of tangible and intangible assets excluding goodwill
At the end of each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have incurred an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate
the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which
a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually,
and whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using the pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately
in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal
of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as a revaluation decrease.
2.23 Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service
leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of employee benefits are measured at their nominal values using the remuneration rate expected
to apply at the time of the settlement.
Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future
cash outflows to be made by the Group in respect of services provided by employees up to reporting date.
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered
service entitling them to the contributions.
2.24 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured
using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as a provision. An onerous contract
is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be received under it.
50
Service Stream Limited Annual Report 2011
For personal use only Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. At the end
of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised
in accordance with AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’ and the amount initially recognised less
cumulative amortisation recognised in accordance with AASB 118 ‘Revenue’.
2.25 Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual
arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ (FVTPL) or ‘other financial liabilities’.
Financial liabilities at FVTPL
Financial liabilities are classified at FVTPL when the financial liability is either held for trading or it is designated at FVTPL.
A financial liability is held for trading if:
•
•
•
it has been incurred principally for the purpose of repurchasing it in the near term; or
on initial recognition it is part of an identified portfolio of identified financial instruments that the Group manages together
and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading is designated at FVTPL upon initial recognition if:
•
•
•
such designation eliminates or significantly reduces a measurement or recognition inconsistently that would otherwise arise; or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance
evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and
information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and AASB 139 ‘Financial Instruments: Recognition
and Measurement’ permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses recognised in profit or loss. The net gain or loss arising
on measurement recognised in the profit or loss incorporates any interest paid on the financial liability and is included in the other
income line item in the statement of comprehensive income. Fair value is determined in the manner described in note 28.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through
the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying value on initial recognition.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 2, the Directors are required to make
judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Service Stream Limited Annual Report 2011 51
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
3. Critical accounting judgements and key sources of estimation uncertainty continued
3.1 Critical judgements in applying accounting polices
The following are the critical judgements that, apart from those involving estimations (see 3.2 below), the Directors have made
in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised
in the financial statements.
Revenue recognition
Under AASB 111 ‘Construction Contracts’, where a construction contract can be estimated reliably, revenue and costs are
recognised by reference to the stage of completion of the contract activity at balance sheet date. This is a key area of judgement
and is determined through an analysis of the contracted design documents to assess the proportion of contract costs incurred for
work performed to date.
3.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill
has been allocated. The value in use calculation requires the Directors to estimate the future cash flows expected to arise from
the cash-generating unit and a suitable discount rate in order to calculate present value.
Useful lives of plant and equipment
As described at 2.18 above, the Group reviews the estimated useful lives of plant and equipment at the end of each annual
reporting period.
TCI Ericsson Jersey dispute
In 2006, TCI, a Group company and Ericsson Australia Pty Limited (“Ericsson”) entered into a contract for the installation
of telecommunications services at sites in Queensland and New South Wales.
Ericsson has sought to recover part of the $50 million remitted to Service Stream for this project. Whilst the Company expects to
be successful at arbitration, it has not yet recognised the full amount received as revenue, with only $45 million recognised to date.
The balance of $5 million has been provided in trade and other payables as at balance date.
The Company believes that these claims have been appropriately recorded in the financial statements in accordance with its
principles of revenue recognition.
4. Segment information
4.1 Products and services from which reportable segments derive their revenues
For management purposes, the Group is organised into two main operating segments – Specialist Field Services and Customer
Care. These segments are the basis on which the Group reports its primary segment information. The principal products and
services of each of these segments are as follows:
Specialist Field Services
Maintenance, provision and construction of infrastructure assets relative to the
telecommunications and utilities sector.
Customer Care
Specialist end-to-end services management; Contact Centre activities and logistics services.
4.2 Adoption of AASB 8 ‘Operating Segments’
The Group has adopted AASB 8 ‘Operating Segments’ with effect from 1 July 2009. AASB 8 requires operating segments to be
identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision
maker in order to allocate resources to the segments and to assess their performance.
52
Service Stream Limited Annual Report 2011
For personal use only 4.3 Segment revenues and results
Segment revenue
Segment revenue
Customer Care
Specialist Field Services
Total of all segments
Eliminations
Unallocated
Earnings before interest, tax, depreciation and amortisation
Net Interest received/(paid)
Depreciation/Amortisation
Total Revenue
Profit/(Loss) before income tax expense
Income tax benefit/(expense)
Profit/(Loss) for the period
4.4 Other Segment information
Customer Care
Specialist Field Services
Total of all segments
Unallocated
Consolidated
2011
$’000
59,596
580,746
640,342
2010
$’000
79,846
446,764
526,610
(7,363)
(5,848)
311
19
633,290
520,781
2011
$’000
2,538
39,640
42,178
–
(7,594)
34,584
(5,517)
(6,436)
–
22,631
(6,179)
16,452
2010
$’000
9,008
4,428
13,436
–
(7,035)
6,401
(6,377)
(7,339)
–
(7,315)
4,760
(2,555)
Depreciation
and amortisation
Additions to
non-current assets
2011
$’000
992
4,564
5,556
880
6,436
2010
$’000
1,571
5,372
6,943
396
7,339
2011
$’000
988
4,215
5,204
3,690
8,893
2010
$’000
362
3,552
3,914
628
4,542
Information about major customers
Included in revenues arising from rendering of services of $633,475,000 are revenues of approximately $330,607,000 which arose
from sales to the Group’s largest customer.
Information on geographical segments
The Group carries out its business entirely within Australia except for an investment in Total Comm Infra Services Pvt Ltd
incorporated in India (refer note 11).
5. Revenue
Revenue from the rendering of services
Interest revenue
2011
$’000
2010
$’000
633,475
517,727
311
19
633,786
517,746
Service Stream Limited Annual Report 2011 53
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
6. Other income
Gain/(Loss) on disposal of plant, equipment and intangible assets
7. Finance costs
Interest on bank overdrafts and loans
Interest on obligations under finance leases
Facility costs
Other interest expense
8. Profit/(Loss) for the year before tax
Profit/(Loss) before income tax includes the following expenses:
8.1 Depreciation and amortisation expense
Depreciation of plant and equipment
Amortisation of intangible assets
Impairment of assets
8.2 Operating lease rental expenses
Minimum lease payments
8.3 Employee benefit expense
Post employment benefits:
Defined contribution plans
Share-based payments:
Equity-settled share-based payments
2011
$’000
(496)
(496)
2011
$’000
4,936
884
654
8
2010
$’000
3,035
3,035
2010
$’000
5,146
1,214
802
36
6,482
7,198
2011
$’000
4,741
1,695
–
6,436
2011
$’000
6,022
6,022
2010
$’000
5,255
1,284
800
7,339
2010
$’000
5,982
5,982
2011
$’000
2010
$’000
9,069
8,294
702
9,771
–
8,294
8.4 Write down in respect to McCourt Dando GCDA claim
Included in the prior year’s result is a substantial non-cash provision in relation to the disputed claim on the McCourt Dando Gold
Coast Desalination Project (GCDA Project). As is the case with any legal proceeding, there are numerous costs and uncertainties
in pursuing the claim, and an increasing risk that (regardless of the underlying merits) the Company may not be fully successful in
any arbitration or court proceeding. Whilst the Company continues to pursue the $14.8 million claim, management believed it was
prudent to make a provision for this amount. Legal fees relating to this claim are shown within the category of company
administration and insurance expenses.
54
Service Stream Limited Annual Report 2011
For personal use only 9. Income taxes
9.1 Income tax recognised in profit or loss
Tax expense comprises:
Current tax expense in respect of the current year
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of temporary differences
Total tax expense/(benefit) relating to continuing operations
The tax expense/(benefit) for the year can be reconciled to accounting profit as follows:
Profit/(loss) from continuing activities
Income tax expense/(benefit) calculated at 30%
Effect of expenses that are not deductible in determining taxable profit
Items deducted for tax purposes only
Accounting profit on sale of assets not assessable for tax purposes
Other
Adjustments recognised in the current year in relation to the current tax of prior years
2011
$’000
2010
$’000
8,243
(565)
7,678
(1,499)
(1,499)
6,179
2011
$’000
22,631
6,789
66
(111)
–
–
(565)
6,179
3,704
(1,303)
2,401
(7,161)
(7,161)
(4,760)
2010
$’000
(7,315)
(2,195)
83
(332)
(1,005)
(8)
(1,303)
(4,760)
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on
taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous
reporting period.
9.2 Income tax recognised directly in equity
The following current amounts were charged/(credited) directly to equity during the period:
Current tax
Share-issue expenses
9.3 Current tax assets and liabilities
Current tax liabilities
Income tax payable attributable to:
Parent entity
Entities in the tax-consolidated group
2011
$’000
(1,310)
(1,310)
2011
$’000
–
6,374
6,374
2010
$’000
245
245
2010
$’000
–
611
611
Service Stream Limited Annual Report 2011 55
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
9. Income taxes continued
9.4 Deferred tax balances
Deferred tax assets/(liabilities) arise from the following:
2011
Temporary differences
Trade and other receivables
Trade, other payables and provisions
Share issue costs
Deferred tax balances are presented in the statement of financial position as follows:
Deferred tax assets
2010
Temporary differences
Trade and other receivables
Trade, other payables and provisions
Share issue costs
Deferred tax balances are presented in the statement of financial position as follows:
Deferred tax assets
Opening
balance
$’000
Charged
to income
$’000
Timing
difference
related to
prior periods
$’000
Charged
to equity
$’000
Closing
balance
$’000
(1,234)
6,067
288
5,121
686
1,136
(323)
1,499
–
579
(99)
480
–
–
489
489
Opening
balance
$’000
Charged
to income
$’000
Timing
difference
related to
prior periods
$’000
Charged
to equity
$’000
Closing
balance
$’000
863
(107)
533
987
6,174
–
(3,084)
–
–
1,289
7,161
(3,084)
–
–
(245)
(245)
(548)
7,782
355
7,589
7,589
7,589
(1,234)
6,067
288
5,121
5,121
5,121
9.5 Tax consolidation
Relevance of tax consolidation to the Group
The Company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation
law. Service Stream Limited is the head entity in the tax-consolidated group. The members of the tax-consolidated group are
identified in note 26. A tax funding arrangement and a tax sharing agreement has been entered into between the entities. As such
a notional current and deferred tax calculation for each entity as if it were a taxpayer in its own right (except that unrealised profits,
distributions made and received, and capital gains and losses and similar items arising on transactions within the tax-consolidated
group are treated as having no tax consequences) has been performed. Current tax liabilities and assets, and deferred tax assets
arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company
(as head entity in the tax consolidated group).
Nature of tax funding arrangements and tax sharing agreements
Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head
entity. Under the terms of the tax funding arrangement, Service Stream Limited and each of the entities in the tax-consolidated
group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset
of the entity.
The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the
allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity
should leave the tax-consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable
by the tax consolidated group is limited to the amount payable to the head entity under the tax funding arrangement.
56
Service Stream Limited Annual Report 2011
For personal use only 10. Trade and other receivables
Trade receivables
Allowance for doubtful debts
Goods and services tax recoverable
Other
Disclosed in the financial statements as:
Current trade and other receivables
Non-current trade and other receivables
2011
$’000
100,097
(998)
99,099
4,015
2,314
2010
$’000
67,368
(1,429)
65,939
3,616
2,448
105,428
72,003
105,428
72,003
–
–
105,428
72,003
The ageing of trade receivables as at 30 June 2011 and 30 June 2010 respectively is detailed below:
2011
2010
Not past due
Past due 0–30 days
Past due 31–60 days
Past due 61–90 days
Past 90 days
Gross
$’000
88,880
7,333
1,956
685
1,243
100,097
Allowance
$’000
–
–
–
–
(998)
(998)
In the above analysis trade receivables have been aged according to their original due date.
The movement in the allowance for doubtful debts in respect of trade receivables is detailed below:
Balance at the beginning of the year
Impairment losses recognised on receivables
Amounts written off during the year as uncollectible
Impairment losses reversed during the year
Balance at the end of the year
Gross
$’000
58,372
4,675
1,723
808
1,790
67,368
2011
$’000
(1,429)
(724)
217
938
(998)
Allowance
$’000
–
–
–
–
(1,429)
(1,429)
2010
$’000
(1,792)
–
–
363
(1,429)
All new customers are subject to an external credit check to ascertain their risk profile against both internal and industry
benchmarks. Additionally, credit checks determine appropriate internal credit limits to be applied. The average credit period
on sales of goods and rendering of services is 30 days.
Trade receivables are periodically assessed for recoverability on an account by account basis, with appropriate provisions made
for specific impairments. All risks associated with trade receivables have been provided for in the statement of financial position.
Included in the Group’s trade receivables balance are debtors with a carrying amount of $10.2 million (2010: $7.6 million) which
are past due at the reporting date for which the Group has not provided. These trade receivables have a good debt history and
are considered recoverable.
Of the trade receivables balance at the end of the year, $55 million (2010: $29 million) is due from Telstra Corporation Ltd,
$11 million (2010: $6 million) is due from the Vodafone Hutchison group, $8 million (2010: $3 million) is due from Origin
Electricity Limited, $7 million (2010: $2 million) is due from Jemena Asset Management Pty Ltd, $5 million (2010: $12 million)
is due from SingTel Optus Pty Ltd and $2 million (2010: $1 million) is due from Powercor Australia Ltd. Of the balance,
90% is held with large ASX or multinational companies.
Service Stream Limited Annual Report 2011 57
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
11. Investments accounted for using the equity method
Investment in associate
Balance at 1 July
Share of profit/(loss) for the year
Foreign exchange currency movements
Balance at 30 June
Name of entity
Total Comm Infra Services Pvt Ltd
Country of
incorporation
India
Summarised financial information in respect of the Group’s investment in associate is set out below:
Financial position:
Total assets
Total liabilities
Net assets
Group’s share of associate net assets (40%)
Financial performance:
Income
Expenses
Profit/(loss) of associate
Group’s share of associate profit/(loss) (40%)
Dividends received from associates
During the year, the Group received no dividends (2010: nil) from the investment in the associate.
Capital commitments
The Group’s share of capital commitments and other expenditure commitments of associates is nil.
2011
$’000
1,180
1,445
(16)
1,429
(249)
1,180
2010
$’000
1,445
1,209
(11)
1,198
247
1,445
Ownership interest
2011
%
40
2011
$’000
3,917
(966)
2,951
1,180
1,059
(1,098)
(39)
(16)
2010
%
40
2010
$’000
5,774
(2,162)
3,612
1,445
6,540
(6,568)
(28)
(11)
58
Service Stream Limited Annual Report 2011
For personal use only 12. Plant and equipment
Leasehold
improvements
at cost
$’000
Plant and
equipment
at cost
$’000
Equipment
under finance
lease at cost
$’000
Motor
vehicles
at cost
$’000
Motor
vehicles
under finance
lease at cost
$’000
Gross carrying amount
Balance at 1 July 2009
Additions
Transfers
Disposals
5,095
212
17
(3)
10,065
1,502
(138)
(714)
Balance at 1 July 2010
5,321
10,715
Additions
Transfers
Disposals
Balance at 30 June 2011
Accumulated depreciation
and impairment
Balance at 1 July 2009
Disposals
Impairment losses recognised
in the profit or loss
Depreciation expense
Balance at 1 July 2010
Transfers
Disposals
Depreciation expense
Balance at 30 June 2011
Net book value
As at 30 June 2010
As at 30 June 2011
676
(221)
(1,398)
4,378
(2,531)
3
–
(914)
(3,442)
18
1,213
(797)
(3,008)
1,879
1,370
1,919
(1,135)
(1,800)
9,699
(5,463)
385
(690)
(1,548)
(7,316)
489
1,390
(1,012)
(6,449)
3,399
3,250
14,175
3
154
(2,614)
11,718
–
1,217
(4,984)
7,951
(5,867)
1,224
–
(1,946)
(6,589)
(533)
3,009
(1,942)
(6,055)
5,129
1,896
Total
$’000
33,794
3,432
–
(3,853)
33,373
3,353
–
(8,972)
27,754
(16,145)
2,020
(800)
(5,255)
2,529
1,715
(33)
(475)
3,736
758
(1,037)
(790)
2,667
(1,373)
383
(110)
(569)
1,930
–
–
(47)
1,883
–
1,176
–
3,059
(911)
25
–
(278)
(1,669)
(1,164)
(20,180)
(621)
679
(96)
647
–
(894)
–
6,291
(4,741)
(1,707)
(1,411)
(18,630)
2,067
960
719
1,648
13,193
9,124
Impairment losses recognised in the year
In the prior year, a review of the recoverable amount of heavy earth moving equipment and related motor vehicles used in the
Group’s Specialist Field Services segment led to the recognition of an impairment loss of $0.8 million, which has been recognised
in the statement of comprehensive income as depreciation and amortisation. The recoverable amount of the relevant assets has
been determined on the basis of fair value less cost to sell approach.
Service Stream Limited Annual Report 2011 59
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
13. Intangible Assets
Gross carrying amount
Balance at 1 July 2009
Additions
Disposals
Balance at 1 July 2010
Additions
Disposals
Balance at 30 June 2011
Accumulated amortisation
Balance at 1 July 2009
Disposals
Amortisation expense
Reduction in deferred consideration on business
combinations previously recognised1
Balance at 1 July 2010
Disposals
Amortisation expense
Balance at 30 June 2011
Net book value
As at 30 June 2010
As at 30 June 2011
Software
under
finance
lease
$’000
Software
$’000
Goodwill
$’000
Total
$’000
3,290
1,110
(1,671)
2,729
3,360
(189)
5,900
(2,629)
1,521
(523)
–
(1,631)
109
(479)
(2,001)
1,098
3,899
2,147
205,368
210,805
–
–
2,147
2,180
–
–
–
1,110
(1,671)
205,368
210,244
–
–
5,540
(189)
4,327
205,368
215,595
(234)
–
(761)
–
(995)
–
(1,216)
(2,211)
–
–
–
(6)
(6)
–
–
(6)
(2,863)
1,521
(1,284)
(6)
(2,632)
109
(1,695)
(4,218)
1,152
2,116
205,362
205,362
207,612
211,377
1 During the previous financial year, the Group determined that the deferred consideration associated with the acquisition of Radhaz Consulting Pty Ltd
(acquired in December 2006) be reduced from the earn-out payable as calculated at the time of acquisition.
Allocation of goodwill to cash-generating units
Goodwill has been allocated for impairment testing purposes to the following cash-generating units:
•
•
Customer Care, including customer Contact Centre operations – $8,718,678
Specialist Field Services, including maintenance and construction of infrastructure assets – $196,642,867
The recoverable amount of the cash-generating units is determined based on a value in use calculation which uses cash flow
projections based on past experience and financial budgets approved by the Board. A discount rate of 15.5% has been applied
(2010: 14.4%).
Cash flow projections in the budget for each cash-generating unit are based on the expected gross margins for the budget
period and the consumer price inflation during the budget period. The cash flows beyond the end of the budget period have
been extrapolated reflecting the expected growth in current contracts. Management believes that any reasonable possible change
in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the
aggregate recoverable amount of the cash-generating unit.
60
Service Stream Limited Annual Report 2011
For personal use only 14. Other assets
Current
Accrued Income
Prepayments
Other
2011
$’000
2010
$’000
41,251
48,475
2,366
187
2,146
196
43,804
50,817
15. Assets pledged as security
All companies of the Group are subject to a registered deed of cross-guarantee in relation to any debts incurred by a Group entity.
A fixed and floating mortgage charge exists over all assets and uncalled capital of the Group as security for all borrowings under
its various bank debt and finance facilities. Assets held under lease are secured by a superior charge against the underlying asset
to which they relate.
16. Trade and other payables
Current
Trade creditors1
Sundry creditors and accruals
Goods and services tax payable
Income in advance
2011
$’000
2010
$’000
33,043
33,033
8,864
4,516
22,620
28,471
6,278
1,604
79,456
58,973
1 Typically no interest is charged on trade creditors for the first 30 days from the date of the invoice. The Group has financial risk management policies in place
to ensure that all payables are paid within the credit timeframe.
17. Borrowings
Secured – at amortised cost
Current
Bank overdrafts
Finance lease liabilities1
Non-current
Commercial bills2
Finance lease liabilities1
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
2011
$’000
2010
$’000
–
5,165
5,165
38,000
4,139
42,139
47,304
5,165
42,139
47,304
691
4,226
4,917
49,000
5,422
54,422
59,339
4,917
54,422
59,339
Summary of borrowing arrangements:
1 Secured by the assets leased and hire purchased, the current value of which exceeds the value of the finance lease liability. Refer note 24.
2 The Commercial bill facility matures in September 2012. See note 15 in relation to assets pledged as security.
Service Stream Limited Annual Report 2011 61
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
18. Provisions
Current
Employee benefits
Warranty provision
Non-current
Employee benefits
19. Issued capital
2011
$’000
12,034
490
12,524
2,191
2,191
2010
$’000
8,308
–
8,308
1,978
1,978
14,715
10,286
283,418,867 fully paid ordinary shares (2010: 283,418,867)
228,416
227,106
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital
from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not
have a par value.
19.1 Fully paid ordinary shares
Balance at 1 July 2009
Issue of shares as partial consideration for business combinations
Issue of shares during the year – rights issue
Net costs associated with issue of shares
Balance 30 June 2010
Tax adjustment in relation to the cost of shares issued in prior periods
Balance at 30 June 2011
Number
of shares
’000
Share
capital
$’000
186,432
191,960
10,387
86,600
–
4,000
32,908
(1,762)
283,419
227,106
–
1,310
283,419
228,416
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
19.2 Share Options
As at 30 June 2011, employees, former employees or associates thereof have 1,310,000 options over ordinary shares in aggregate,
with 1,230,000 of those options expiring on 31 October 2011, 40,000 expiring on 1 March 2012 and the remainder expiring on
31 March 2013.
Share options carry no rights to dividends and no voting rights. Further details of the executive option plan are contained in note 29.
19.3 Performance Rights
As at 30 June 2011, employees have 2,864,212 performance rights issued under the Long Term Incentive Plan. These rights
are due to vest on 30 June 2013 whereby each performance right converts into one ordinary share, subject to satisfaction
of vesting criteria.
Performance rights carry no rights to dividends and no voting rights. Further details of the Long Term Incentive Plan are contained
in note 29.
62
Service Stream Limited Annual Report 2011
For personal use only 20. Reserves
Equity-settled employee benefits
Foreign currency translation
Employee equity-settled benefits reserve
Balance at beginning of financial year
Share-based payments
Balance at end of financial year
2011
$’000
2,242
(522)
1,720
1,540
702
2,242
2010
$’000
1,540
(273)
1,267
1,540
–
1,540
The equity-settled employee benefits reserve arises on the grant of share options to executives and senior employees under
the executive option plan. Amounts are transferred out of the reserve and into issued capital when the options are exercised.
Further information about share-based payments is disclosed in note 29 to the financial statements.
Foreign currency translation reserve
Balance at beginning of financial year
Translation of foreign investment
Balance at end of financial year
(273)
(249)
(522)
(520)
247
(273)
Exchange differences relating to the translation from the functional currencies of the Group’s joint venture operations into Australian
dollars are brought to account by entries made directly to the foreign currency translation reserve.
21. Retained earnings
Balance at beginning of financial year
Net profit attributable to members of the parent entity
Balance at end of financial year
2011
$’000
7,545
16,452
23,997
2010
$’000
10,100
(2,555)
7,545
Service Stream Limited Annual Report 2011 63
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
22. Earnings per share
Basic earnings per share:
Total basic earnings per share
Diluted earnings per share:
Total diluted earnings per share
2011
Cents per
share
2010
Cents per
share
5.80
(0.99)
5.80
(0.99)
Basic earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
Profit/(loss) for the year attributable to owners of the Company
Earnings used in the calculation of basic EPS
2011
$’000
16,452
16,452
2011
No.’000
2010
$’000
(2,555)
(2,555)
2010
No.’000
Weighted average number of ordinary shares for the purposes of basic earnings per share
283,419
257,002
Diluted earnings per share1
The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows:
Profit/(loss) for the year attributable to owners of the Company
Earnings used in the calculation of diluted EPS
2011
$’000
16,452
16,452
2011
No.’000
2010
$’000
(2,555)
(2,555)
2010
No.’000
Weighted average number of ordinary shares used in the calculation of diluted earnings per share
283,419
257,002
1 Neither the options nor the performance rights issued have a dilutive impact on earnings per share.
23. Dividends
There were no dividends declared, paid or proposed during the year.
Adjusted franking account balance as at 30 June
Company
2011
$’000
16,492
2010
$’000
7,048
The above amount represents the balance of the dividend franking account at year end adjusted for franking credits that will arise
from the payment of the amount of the provision for income tax.
64
Service Stream Limited Annual Report 2011
For personal use only 24. Obligations under finance leases
24.1 Leasing arrangements
The Group leases plant and equipment, a number of motor vehicles and software assets with lease terms of between 1 to 4 years.
The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets.
24.2 Finance lease liabilities
Not longer than 1 year
Later than 1 year and not later than 5 years
Minimum future lease payments 1
Less future finance charges
Present value of minimum lease payments
Included in the financial statements as:2
Current borrowings
Non-current borrowings
Minimum future
lease payments
Present value of minimum
future lease payments
2011
$’000
5,810
4,597
10,407
(1,103)
9,304
2010
$’000
4,928
5,941
10,869
(1,221)
9,648
2011
$’000
5,165
4,139
9,304
–
9,304
5,165
4,139
9,304
2010
$’000
4,226
5,422
9,648
–
9,648
4,226
5,422
9,648
1 Minimum future lease payments include the aggregate of all lease payments and any guaranteed residual.
2 Refer note 17.
24.3 Fair value
The fair value of the finance lease liabilities is shown at note 28.10.
25. Operating lease arrangements
25.1 Leasing arrangements
The Group leases a number of premises throughout Australia. The rental period of each individual lease agreement varies
between 1 and 6 years with the renewal options ranging from 1 to 6 years. The majority of lease agreements are subject
to rental adjustments in line with movements in the Consumer Price Index or market rentals.
25.2 Non-cancellable operating lease commitments
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
2011
$’000
5,691
1,741
–
7,432
2010
$’000
4,352
3,044
69
7,465
Service Stream Limited Annual Report 2011 65
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
26. Subsidiaries
Details of the Company’s subsidiaries at 30 June 2011 are as follows:
Name of entity
Parent entity
Service Stream Limited 1
Subsidiaries
Service Stream Holdings Pty Ltd 2,8
Service Stream Communications Pty Ltd 2,3,8
Resourcing Solutions Pty Ltd 2,4,8
Total Communications Infrastructure Pty Ltd 2,3,8
Service Stream Solutions Pty Ltd 2,3,8
Radhaz Consulting Pty Ltd 2,8
General Purpose Group Pty Ltd 2,3,8
Fibercom Technology Pty Ltd 2,3,8
Service Stream Infrastructure Services Pty Ltd 2,3,8
Milcom Communications Pty Ltd 2,3,8
Total Communications Infrastructure (Singapore) Pte Ltd 5
McCourt Dando Pty Ltd 2,6,8
McCourt Dando Civil Pty Ltd 2,6,8
McCourt Dando Plant Hire Pty Ltd 2,6,8
Metering Services Australasia Pty Ltd 2,3,8
MSA Plant Pty Ltd 2,7,8
AMRS (Aust) Pty Ltd 2,7,8
Service Stream Financial Services Pty Ltd 2,3,8
Country of
incorporation
Ownership interest
2011
%
2010
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1 Service Stream Limited is the head entity within the tax-consolidated group.
2 These companies are members of the tax-consolidated group.
3 These companies are wholly owned subsidiaries of Service Stream Holdings Pty Ltd.
4 This company is a wholly owned subsidiary of Service Stream Communications Pty Ltd.
5 This company is a wholly owned subsidiary of Total Communications Infrastructure Pty Ltd.
6 These companies are wholly owned subsidiaries of Service Stream Infrastructure Services Pty Ltd.
7 These companies are wholly owned subsidiaries of Metering Services Australasia Pty Ltd.
8 These wholly-owned subsidiaries have entered into a deed of cross guarantee with Service Stream Limited pursuant
to ASIC Class Order 98/1418 and are relieved of the requirement to prepare and lodge an audited financial report.
66
Service Stream Limited Annual Report 2011
For personal use only The consolidated statement of comprehensive income of the entities party to the deed of cross guarantee are:
Statement of comprehensive income
Revenue
Other income
Company administration and insurance expenses
Consulting and temporary staff fees
Employee salaries and benefits
Motor vehicles expenses
Occupancy expenses
Raw materials and consumables used
Site and construction costs
Subcontractor fees
Technology and communication services
Finance costs
Depreciation and amortisation
Write down in respect to McCourt Dando GCDA claim
Other expenses
Profit before tax
Income tax expense
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
2011
$’000
2010
$’000
633,786
517,746
(496)
3,035
633,290
520,781
(10,547)
(10,124)
(11,977)
(6,731)
(133,076)
(123,025)
(7,189)
(8,480)
(113,893)
(42,282)
(6,913)
(8,129)
(53,240)
(40,105)
(258,683)
(231,478)
(7,535)
(6,482)
(6,436)
–
(5,916)
22,647
(6,179)
16,468
–
(5,398)
(7,198)
(7,339)
(14,814)
(11,738)
(7,304)
4,760
(2,544)
–
16,468
(2,544)
–
–
16,468
(2,544)
Service Stream Limited Annual Report 2011 67
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
26. Subsidiaries continued
The consolidated statement of financial position of the entities party to the deed of cross guarantee are:
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Total current assets
Non-current assets
Other financial assets
Plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings*
Total equity
*Retained earnings
Retained earnings as at beginning of the financial year
Net profit/(loss)
Retained earnings as at end of the financial year
68
Service Stream Limited Annual Report 2011
2011
$’000
2010
$’000
9,171
105,428
14,309
43,804
–
72,003
14,936
50,817
172,712
137,756
1,347
9,124
7,589
211,377
229,437
402,149
1,347
13,193
5,121
207,612
227,273
365,029
79,455
58,972
5,165
6,374
12,524
103,518
42,139
2,191
44,330
147,848
254,301
4,917
611
8,308
72,808
54,422
1,978
56,400
129,208
235,821
228,416
227,106
2,242
23,643
1,540
7,175
254,301
235,821
7,175
16,468
23,643
9,719
(2,544)
7,175
For personal use only 27. Notes to the statement of cash flow
27.1 Reconciliation of cash and cash equivalents
Cash at bank
Bank overdraft
Cash and cash equivalents
2011
$’000
9,171
–
9,171
2010
$’000
–
(691)
(691)
27.2 Businesses acquired
The net cash outflow on deferred consideration payments in the prior period of $4,900,000 relates to acquisitions made during
the year ended 30 June 2009.
27.3 Reconciliation of profit/(loss) for the period to net cash flows from operating activities
Profit/(loss) for the year
(Gain)/loss on sale of disposal of non-current assets
(Gain)/loss on sale of disposal of intangible assets
Depreciation and amortisation
Share of joint venture arrangements’ (profit)/loss
Expense recognised in respect of equity-settled share-based payments
Write down in respect to McCourt Dando GCDA claim
Impairment loss (reversed)/recognised on trade receivables
(Increase) in deferred tax balances
(Decrease)/increase in current tax liability
Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:
(Increase)/decrease in receivables
Decrease/(increase) in other assets
Decrease/(increase) in inventories
Increase/(decrease) in trade and other payables
Increase in provisions
Net cash provided by operating activities
16,452
416
80
6,436
16
702
–
(214)
(2,468)
5,763
(34,219)
7,013
627
19,580
4,429
24,613
(2,555)
265
(3,300)
7,339
11
–
14,814
2,094
(4,077)
(1,091)
4,067
(1,380)
(1,476)
(466)
2,568
16,813
Service Stream Limited Annual Report 2011 69
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
28. Financial instruments
The Group’s activities expose it to a variety of financial risks including credit, currency, interest rate and liquidity risk exposures.
The Group’s risk management program looks to identify and quantify these exposures and where relevant reduce the sensitivity
to potential adverse impacts on its financial performance.
The Group operates a centralised treasury function that manages its day-to-day exposure to financial risks. Treasury is the
only area of the Group authorised to transact financial instruments on its behalf to manage these financial risk exposures.
The Group’s use of financial instruments to manage its financial risks is controlled by formally approved delegations of authority
and appropriate segregation of duties.
28.1 Capital risk management
The Group manages its available capital to ensure that it is able to continue as a going concern and to maximise the returns to
shareholders. Capital risk management is primarily undertaken by ensuring that the Group has access to adequate borrowing
facilities, by optimising the amount, tenor, serviceability and type of debt that is drawn upon and the ratio of debt to equity capital
that is employed by it.
The capital structure of the Group consists of net debt (borrowings as detailed in note 17, offset by cash and bank balances)
and equity (comprising issued capital, reserves and retained earnings as disclosed in notes 19, 20 and 21).
The Group is subject to externally imposed minimum equity capital restrictions and borrowing related covenants as conditions
of its bank debt financing facilities.
The Board and senior management review the capital structure of the Group on a regular basis and consider the relative cost
of each form of capital, the risks associated with each class of capital as well as any restrictions or limitations that exist on the
mix of capital.
The Group’s target levels of debt and equity are determined after considering the various covenants and undertakings applicable
under its bank debt facility arrangements, the certainty of future earnings to service that debt, as well as its forecast of capital
required to fund future growth.
28.1.1 Gearing ratio
The gearing ratio at end of the reporting period was as follows:
Debt1
Bank overdraft
Cash at bank
Net debt
Equity2
Net debt to net debt plus equity ratio
1 Debt is defined as long- and short-term borrowings, as detailed in note 17.
2 Equity includes all capital and reserves.
2011
$’000
2010
$’000
47,304
58,648
–
(9,171)
38,133
691
–
59,339
254,133
235,918
13.0%
20.1%
28.2 Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement,
and the basis for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are
disclosed in note 2.
70
Service Stream Limited Annual Report 2011
For personal use only 28.3 Categories of financial instruments
Financial assets
Cash and bank balances
Loans and receivables
Financial liabilities
Amortised costs
Finance lease/hire purchase liabilities
2011
$’000
2010
$’000
9,171
–
105,428
72,003
117,456
108,664
9,304
9,648
28.4 Financial risk management objectives
The Group’s centralised treasury function manages all Group borrowings and the provision of financial security undertakings.
The treasury function provides specialist financial advice and transactional banking and merchant payment services to the Group
as well as monitoring and managing financial and operational risks relating to its market operations.
The financial risks of the Group include market (including interest rate and currency), liquidity and bank counterparty credit risk.
Only the treasury function is authorised to use financial and derivative financial instruments for the management of the Group’s
financial risk exposures but is prohibited from using such instruments for speculative purposes.
Compliance with financial risk management policies and financial exposures is reviewed by senior management regularly with
reporting on risk treatment strategy and policy compliance undertaken to the Company’s Audit and Risk Management Committee
as well as to its Board of Directors.
28.5 Market risk
Market risk is the risk that the fair value of future cash flows arising from the Group’s borrowings or financial instrument
positions will fluctuate due to changes in market interest rates or security prices.
The Group’s funding activities expose it to financial risk arising from changes in market interest rates (refer note 28.6).
The Group currently has only limited currency risk exposure as the majority of its activities are conducted within Australia
and the small amount of foreign materials sourced from abroad are typically contracted in Australian dollars (“AUD”).
28.6 Interest rate risk management
The Group is exposed to interest rate risk through its term borrowings and short term investment activities.
Interest rate risk is managed by the use a mix of fixed rate and floating rate borrowings and as required, by the hedging
of residual risk exposure through the use of derivative financial instruments.
The sensitivity analyses below have been determined based on the Group’s exposure to interest rate risk on its borrowings
as at the end of the reporting period.
Based upon a 100 basis point parallel increase in prevailing market interest rates, the Group’s sensitivity to interest rate risk
at 30 June 2011 was equivalent to a net profit before tax decrease of $123,290 (2010: $325,000).
This sensitivity is attributable to the Group’s exposure to market interest rates on its variable rate borrowings and has decreased
from the prior period due to the decrease in net borrowings.
The Group’s exposure to interest rates on financial assets and liabilities are detailed in the liquidity risk management section
of this note.
Service Stream Limited Annual Report 2011 71
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
28. Financial instruments continued
28.7 Credit risk management
Credit risk refers to the risk that the counterparty will default on its contractual obligations, resulting in a financial loss to the Group.
The Group transacts wholesale financial market transactions only with entities that have a minimum of a long term investment
grade credit rating. The Company’s wholesale financial market credit risk is calculated based upon the summation of any
investments plus accrued interest held with the counterparty, together with the net positive mark to market fair valuation
of any derivative financial instruments also held with that counterparty.
The Group has adopted a retail and business-to-business credit policy of only dealing with creditworthy counterparties
and where appropriate, obtaining sufficient collateral as a means of mitigating the risk of financial loss from credit defaults.
Credit information is supplied by independent rating agencies where available and the Group uses publicly available financial
information and its own internal trading history to internally rate its major customers. Credit exposures and credit ratings of
counter-parties are monitored regularly.
As stated in note 10, a significant portion of revenue is derived from major telecommunications companies such as Telstra
Corporation Ltd, Vodafone Hutchison Group, and SingTel Optus Group. These are large entities with solid credit ratings and
a good trading history and therefore the credit risk associated with these receivables is classified as low. The remaining trade
receivables balance consists of a large number of customers, spread across the telecommunications and utilities sectors.
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents
the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained.
28.8 Currency risk management
Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency
that is not the entity’s functional currency, as well as from the translation of net investments in foreign operations.
The Group operates predominantly within Australia and receives revenues denominated in AUD. Minor currency risk exposures
arise due to a small annual volume of non-AUD denominated imports of materials, as well from the translation risk on the Indian
Rupee arising from an investment in an associate.
Currency risk is managed predominantly through the use of AUD denominated contracts on the low volume of foreign
sourced materials.
28.9 Liquidity risk management
Management of the Group’s liquidity risk exposure is undertaken by the Group’s treasury and finance functions via the daily
monitoring of the Group’s cash flows and the regular forecasting of its payable and receivable profiles.
In order to maintain adequate and cost-effective liquidity, the Group maintains a daily cash reserve buffer, has committed
bank facilities with two financial institutions as well as maintaining a reserve overdraft borrowing capacity.
Included in note 28.9.1 and 28.9.2 is a listing of the borrowing facilities available to the Group at 30 June 2011.
28.9.1 Liquidity and interest rate risk tables
The following tables detail the Group’s maturity profile for non-derivative financial liabilities.
The table represents the undiscounted cash flows of financial liabilities based on the earliest date on which the Group
is contracted to repay principal.
Where applicable, values represent both interest and principal cash flows.
72
Service Stream Limited Annual Report 2011
For personal use only 2011
Non-derivative
financial liabilities
Trade and other payables
Finance lease liabilities
Variable interest rate
instruments
Fixed interest rate
instruments
2010
Non-derivative
financial liabilities
Trade and other payables
Finance lease liabilities
Variable interest rate
instruments
Fixed interest rate
instruments
28.9.2 Financing facilities
Secured bank guarantees:
Amount used
Amount unused
Secured bank overdraft:
Amount used
Amount unused
Weighted
average
interest rate
$’000
Carrying
amount
$’000
Contractual
cash flow
$’000
6 months
or less
$’000
6–12
months
$’000
1–2
years
$’000
2–5
years
$’000
–
9.15%
(79,456)
(9,304)
(79,456)
(10,407)
(79,456)
(2,905)
–
–
–
(2,905)
(2,364)
(2,233)
8.18%
(21,500)
(23,551)
8.19%
(16,500)
(18,077)
(879)
(676)
(126,760)
(131,491)
(83,916)
(879)
(21,793)
(676)
(4,460)
(16,725)
(40,882)
–
–
(2,233)
–
8.33%
(58,973)
(9,648)
(58,973)
(10,869)
(58,973)
(2,464)
–
–
–
(2,464)
(3,788)
(2,153)
8.14%
(32,500)
(37,791)
(1,323)
(1,323)
(2,645)
(32,500)
8.19%
(16,500)
(19,203)
(676)
(117,621)
(126,836)
(63,436)
(676)
(4,463)
(1,351)
(7,784)
(16,500)
(51,153)
2011
$’000
7,662
7,338
2010
$’000
8,624
1,376
15,000
10,000
–
5,000
5,000
47,304
32,684
79,988
691
9,309
10,000
58,648
22,626
81,274
Secured commercial bill and equipment finance facilities mature in September 2012
and may be extended by mutual agreement:
Amount used
Amount unused
The amounts included above for financial guarantees are the maximum amounts that the Group could be forced to settle under
the arrangements for the full amount if claimed by the counterparty to the guarantee. Based upon current expectations as at
30 June 2011, the Group considers that it is more likely than not that such amounts will not be payable under these arrangements.
Service Stream Limited Annual Report 2011 73
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
28. Financial instruments continued
28.10 Fair value of financial instruments
Except as detailed in the following table, the Directors consider that the carrying amounts of financial assets and financial liabilities
recognised at amortised cost in the financial statements approximate their fair values.
Financial assets
Cash
Trade and other receivables
Financial liabilities
Trade and other payables
Bank overdraft
Commercial bills – variable
Commercial bills – fixed
Finance lease/hire purchase liabilities
2011
2010
Carrying
amount
$’000
Fair
value
$’000
Carrying
amount
$’000
Fair
value
$’000
9,171
9,171
–
–
105,428
105,428
72,003
72,003
79,456
79,456
58,973
58,973
–
21,500
16,500
9,304
–
21,500
13,708
8,252
691
32,500
16,500
9,648
691
32,500
14,710
8,189
The fair values and net fair values of financial assets and financial liabilities are determined as follows:
•
•
•
The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets
are determined with reference to quoted market prices (includes listed redeemable notes, bills of exchange, debentures and
perpetual notes);
The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance
with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market
transactions and dealer quotes for similar instruments;
The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted
cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives,
and option pricing models for optional derivatives. Foreign currency forward contracts are measured using quoted forward
exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. Interest rate swaps
are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived
from quoted interest rates.
74
Service Stream Limited Annual Report 2011
For personal use only 29. Share-based payments
29.1 Executive option plan
The Group previously operated an ownership-based compensation scheme for executives and senior employees. In accordance
with the terms of the plan executives and senior employees with more than five years service with the Group may be granted
options to purchase ordinary shares in the Company.
The number of options granted was calculated in accordance with the performance-based formula approved by shareholders
at a previous Annual General Meeting and was subject to approval by the Remuneration and Nomination Committee.
Executive share options carry no rights to dividends and no voting rights. In accordance with the terms of the executive option
scheme all options have vested.
The Directors can, at their discretion, issue share options to key management personnel as part of the Group’s remuneration policy.
The following share-based payment arrangements were in existence during the current and comparative reporting periods:
Option series
Number
Grant date
Expiry date
Series 2
Series 3
Series 4
Series 5
Series 6
Series 7
Series 9
Series 10
Series 11
Series 12
Series 13
Series 14
Series 15
Series 16
Series 17
Series 18
2,320,000
640,000
640,000
96,000
32,000
32,000
80,000
200,000
20,000
2,020,000
2,020,000
2,020,000
500,000
730,000
40,000
40,000
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
04/01/07
23/10/07
23/10/07
31/10/09
31/10/09
31/10/09
01/01/10
01/01/10
01/01/10
07/03/10
31/10/09
31/10/09
01/01/11
01/01/11
01/01/11
31/10/11
31/10/11
01/03/12
01/03/13
Exercise
price
$
0.5761
0.8886
1.2011
0.5761
0.8886
1.2011
0.6011
0.9261
0.5761
0.9411
1.0311
1.1511
1.0761
1.6311
0.9611
1.7111
Fair value at
grant date
$
–
0.0063
–
0.1067
0.0063
–
0.1235
0.0373
0.3197
0.2833
0.2355
0.1815
0.0767
0.1006
0.0823
0.1423
Options were priced using a Black Scholes model. Where relevant, the expected life used in the model was adjusted based on
management’s best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. Expected
volatility was based on the historical share price volatility over the previous two years. To allow for the effects of early exercise,
it was assumed that employees would exercise the options after vesting date when the share price was two and half times the
exercise price.
On 16 September 2009 the exercise prices of existing options were amended as a result of the new issue of shares under the
renounceable rights offer announced to the market on 14 September 2009. The table above reflects the new exercise price.
Service Stream Limited Annual Report 2011 75
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
29. Share-based payments continued
29.1.1 Movements in share options during the year
The following reconciles the outstanding share options granted under the executive option plan at the beginning
and end of the financial year:
2011
2010
Weighted
average
exercise
price
$
Number
of options
Weighted
average
exercise
price
$
Number
of options
Balance at beginning of the financial year
7,370,000
1.1051
11,430,000
0.995
Expired during the financial year
Balance at end of the financial year
Exercisable at end of the financial year
(6,060,000)
1,310,000
1,310,000
–
(4,060,000)
1.4012
7,370,000
1.4012
4,350,000
–
1.1051
1.1111
29.1.2 Exercised during the financial year
No share options granted under the executive option plan were exercised during the current financial year.
29.1.3 Share options outstanding at the end of the year
The share options outstanding at the end of the year had a weighted average exercise price of $1.4012 (2010: $1.1051)
and a weighted average remaining contractual life of 142 days (2010: 491 days).
29.2 Long Term Incentive Plan (“LTIP”)
From time to time employees in senior management roles and/or Directors may be invited, with approval from the Board, to
participate in the Long Term Incentive Plan (“LTIP”). The LTIP operates within the Service Stream shareholder approved Employee
Share Ownership Plan (“ESOP”), under the administration of the Remuneration and Nomination Committee. The extent of individual
participation and the associated number of performance rights offered is recommended by the Managing Director and reviewed
by the Remuneration and Nomination Committee, which will then make recommendations to the Board for approval.
In accordance with the provision of the ESOP, Directors and employees in senior management roles were invited to participate
in the LTIP, which entitled them to receive a number of performance rights in respect of the year ending 30 June 2011 (“FY11
Tranche”). Each performance right converts into one Service Stream Limited ordinary share on vesting. No amounts are paid or
payable by the recipient on receipt of the performance right. The performance rights carry neither rights to dividends nor voting
rights. The number of performance rights granted is based on the employee’s long term incentive participation rate, which is
expressed as a percentage of the participant’s TFR, and the volume-weighted average market price of the Company’s shares over
a prescribed period of time. The performance rights are subject to service and performance criteria, being:
•
•
The participant must be an employee at the vesting date;
50% of the performance rights granted will each vest where:
–
Service Stream’s earning per share (EPS) achieves annual growth of 10% or more (full achievement) or 7.5% (pro-rata
achievement) over the performance period from an agreed base EPS. The performance rights issued in the year ending
30 June 2011 have a three year performance period to 30 June 2013 and a base EPS of 3.85 cents per share;
Service Stream’s total shareholder return (TSR) over the performance period is such that it would rank at or above
the 75th percentile (full achievement) or the 50th percentile (pro-rata achievement) of a relevant peer group of companies
being those comprising the ASX 200 Industrials index.
–
The following LTIP performance right arrangements were in existence during the current period:
LTIP series
FY11 Tranche
Number
Grant date1
Grant date fair value
Vesting date
2,864,212
18 February 2011
Relative TSR hurdle – $0.72
EPS hurdle – $0.75
30 June 2013
1 The performance period for the FY11 tranche of LTIP performance rights commenced 1 July 2010. At least one employee had a grant date different
to the grant date above.
76
Service Stream Limited Annual Report 2011
For personal use only 29.2.1 Fair value of performance rights via the LTIP granted in the year
The performance rights with the relative TSR hurdle vesting condition have been valued using a Monte-Carlo simulation. The
performance rights with the EPS hurdle vesting condition have been valued using a Binomial tree methodology. Both valuation
methodologies are underpinned by a ‘risk neutral’ probability framework with lognormal share prices. Key assumptions of the
framework that underpin the valuations performed are: arbitrage free markets, complete and liquid markets, stationary lognormal
share price return distributions, no trading costs or taxes, risk neutral probability framework, short selling is possible, continuous
trading and perfectly divisible securities.
29.2.2 Key inputs into the model
Grant date
Award type
Vesting conditions
Vesting date
Share price at the grant date
Expected life
Volatility
Risk free interest rate
Dividend yield
Performance rights
Relative TSR hurdle
30 June 2013
$0.77
2.4 years
60%
5.04%
1%
18 February 2011
Performance rights
EPS hurdle
30 June 2013
$0.77
2.4 years
60%
5.04%
1%
29.2.3 Movements in the LTIP performance rights during the year
The following reconciles the outstanding performance rights granted under the LTIP at the beginning and end of the financial year:
Balance at beginning of the financial year
Granted during the year
Balance at end of the financial year
Exercisable at end of the financial year
2011
2010
Number of
performance
rights
–
2,864,212
2,864,212
–
Grant date
weighted
average fair
value
$
Number of
performance
rights
$
–
0.735
0.735
–
–
–
–
–
Grant date
weighted
average
fair value
$
–
–
–
–
The grant date weighted average fair value of $0.735 is the result of the separate criteria below:
•
50% of the performance rights granted will each vest where:
–
Service Stream’s earning per share (EPS) achieves annual growth of 10% or more (full achievement) or 7.5% (pro-rata
achievement) over the performance period from an agreed base EPS. The performance rights issued in the year ending
30 June 2011 have a three year performance period to 30 June 2013 and a base EPS of 3.85 cents per share;
Service Stream’s total shareholder return (TSR) over the performance period is such that it would rank at or above the
75th percentile (full achievement) or the 50th percentile (pro-rata achievement) of a relevant peer group of companies
being those comprising the ASX 200 Industrials index.
–
No performance rights granted under the LTIP vested during the current financial year. The performance rights outstanding
at the end of the year had a weighted average fair value of $0.735 and a remaining contractual life of two years.
Service Stream Limited Annual Report 2011 77
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
30. Key management personnel compensation
Details of key management personnel
The Directors of the Company and other members of key management personnel of the Group during the year were:
•
•
•
•
•
•
•
•
•
•
•
•
Mr P Dempsey (Chairman – appointed 1 November 2010)
Mr S Wilks (Non-Executive Director; resigned as Chairman 1 November 2010)
Mr G Sumner (Managing Director)
Mr R Small (Non-Executive Director – resigned 7 October 2010)
Mr B Gallagher (Non-Executive Director)
Mrs D Page AM (Non-Executive Director – appointed 21 September 2010)
Mr R Grant (Alternate Director, Chief Financial Officer – appointed as Alternate Director 23 December 2010)
Mr R Stanton (Executive General Manager – TCI)
Mr S Ellich (Executive General Manager – Service Stream Communications)
Mr R Blinko (Executive General Manager – Customer Care – resigned 30 June 2011)
Mr A Haynes (Executive General Manager – AMRS – resigned 18 March 2011)
Mr L Mackender (Executive General Manager – AMRS – appointed 21 March 2011)
Key management personnel compensation
The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
2011
$
2010
$
4,647,616
3,483,725
258,866
163,093
44,832
12,012
311,100
83,331
685,208
–
5,274,426
4,415,357
The compensation of each member of the key management personnel of the Group is set out in the Remuneration Report.
The remuneration of Directors and key executives is determined by the Remuneration and Nomination Committee, having
regard to the performance of individuals and market trends.
31. Related party disclosures
31.1 Equity interests in related parties
Equity interests in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 26 to the financial statements.
Equity interests in associates and joint ventures
Details of interests in associates and joint ventures are disclosed in note 11 to the financial statements.
31.2 Transactions with key management personnel
31.2.1 Key management personnel compensation
Details of key management personnel compensation are disclosed in note 30 to the financial statements.
31.2.2 Loans to key management personnel
There are no outstanding loan balances with key management personnel of the Group or to their related parties.
These balances do not include loans that are in-substance options and are non-recourse to the Group.
78
Service Stream Limited Annual Report 2011
For personal use only 31.2.3 Key management personnel equity holdings
Fully paid ordinary shares of Service Stream Limited
The numbers of shares in the Company held during the financial year by each Director of Service Stream Limited
and other key management personnel of the Group, including their personally related parties, are set out below:
Balance
at 1 July
No.
Granted as
compensation
No.
Balance as
at date of
appointment
No.
Net other
change
No.
Balance as
at date of
resignation
No.
Balance at
30 June
No.
2011
P Dempsey
D Page
B Gallagher
G Sumner
R Grant
R Stanton
R Small2
S Ellich
R Blinko2
A Haynes2
L Mackender1
2010
B Gallagher1
G Sumner
R Grant
R Stanton
S Ellich
J Gramc2
J Ryan2
R Blinko1
A Haynes1
JL Davies 2
PJ Flannigan2
M Doery2
A Field2
R Small
–
–
9,914,661
300,000
104,166
460,000
4,406,461
367,655
50,000
241,288
–
–
–
–
460,000
356,521
105,406
101,747
–
–
341,771
1,003,052
1,242,764
5,631,555
5,791,954
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
49,434
9,914,661
–
–
–
–
–
–
–
1,134
–
–
–
–
–
200,000
27,400
(1,122,548)
50,000
40,000
(460,000)
–
–
–
–
–
–
300,000
104,166
–
11,134
–
–
–
–
–
–
(4,406,461)
200,000
27,400
8,792,113
350,000
144,166
–
–
–
367,655
(50,000)
(241,288)
–
–
–
–
–
–
–
–
49,434
9,914,661
300,000
104,166
460,000
367,655
–
–
–
–
–
–
–
–
50,000
241,288
–
(105,406)
(100,000)
(1,747)
50,000
240,154
150,380
(492,151)
–
(1,003,052)
499
(1,243,263)
1,042,685
(6,674,240)
(1,385,493)
–
4,406,461
1 The balance of securities held as at 1 July is nil as this person was not a key management person at that date.
2 The balance of securities held as at 30 June is nil as this person is no longer a key management person.
The movement in equity holdings disclosed reflects only those movements which took place during the period that persons
were regarded as key management personnel.
Service Stream Limited Annual Report 2011 79
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
31. Related party disclosures continued
The numbers of options over ordinary shares in the Company held during the financial year by each Director of the Company
and other key management personnel of the Group, including their personally related parties, are set out below:
Share options of Service Stream Limited
Balance
at 1 July
No.
Granted as
compensation
No.
Balance as
at date of
resignation
No.
Net other
change
No.
Balance at
30 June
No.
Balance
vested at
30 June
No.
Vested
but not
exercisable
No.
Vested and
exercisable
No.
Vested
during
year
No.
2011
R Stanton
2,000,000
–
– (1,500,000)
500,000
500,000
2010
PJ Flannigan
4,200,000
M Doery
3,800,000
R Stanton
2,000,000
S Ellich
J Gramc
J Ryan
120,000
80,000
160,000
– (4,200,000)
– (3,800,000)
–
–
–
(120,000)
–
–
(80,000)
–
–
(160,000)
–
–
–
–
–
–
–
–
–
–
–
500,000
–
–
2,000,000
2,000,000
1,500,000
500,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
All share options issued to key management personnel during the financial year were made in accordance with the provisions
of the Executive Option Plan.
During the financial year, no options (2010: nil) were exercised by key management personnel.
Further details of the Executive Option Plan and of share options granted during 2011 and 2010 financial years are contained
in note 29.
Performance rights of Service Stream Limited
Balance
at 1 July
No.
Granted as
compensation
No.
Balance as
at date of
resignation
No.
Net other
change
No.
Balance at
30 June
No.
Balance
vested at
30 June
No.
Vested
but not
exercisable
No.
Vested and
exercisable
No.
Vested
during
year
No.
2011
S Ellich
R Grant1
L Mackender
R Stanton
–
–
–
–
299,765
626,959
82,006
322,571
–
–
–
–
–
–
–
–
299,765
626,959
82,006
322,571
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 R Grant is an Alternate Director for G Sumner.
All performance rights issued to key management personnel during the financial year were made in accordance with
the provisions of the LTIP.
During the financial year, no performance rights (2010: nil) were exercised by key management personnel.
Further details of the LTIP and of performance rights granted during 2011 and 2010 financial years are contained in note 29
to the financial statements.
80
Service Stream Limited Annual Report 2011
For personal use only 31.2.4 Other transactions with key management personnel of the Group
Mr Gallagher is a Director of Techsafe Australia Pty Ltd (“Techsafe”), which is currently performing inspections and certifications of
residential solar panel installations for the Company. The terms under which Techsafe provides services are standard, arm's length
and of low value (approximately $20,000 per month). In addition, the Company leases an office/warehouse in which Mr Gallagher
holds an interest. The terms of the lease have been independently reviewed and are standard arm's length and at market value.
During the year, the Company provided services to Tel.Pacific Limited, a company of which Mr Wilks is a Director, in relation to the
transition of the Mobile Real Time Monitoring ("MRTM") Intelligent Network Platform, which was sold to Tel.Pacific on 30 June 2010.
The value of the services provided during the year was $686,469 of which $90,024 was outstanding at year end.
31.3 Transactions with other related parties
31.3.1 Transactions between Service Stream Limited and its related parties
During the financial year, the following transactions occurred between the Company and its other related parties:
•
Service Stream Limited recognised tax payable in respect of the tax liabilities of its wholly-owned subsidiaries.
Payments to/from the Company are made in accordance with the terms of the tax funding arrangement.
The following balances arising from transactions between the Company and its other related parties are outstanding
at the reporting date:
•
Loans receivable totalling $103,932,471 are receivable from subsidiaries (2010: $105,394,003).
All amounts advanced to or payable to related parties are unsecured and are subordinate to other liabilities.
The amounts outstanding will be settled in cash. No guarantees have been given or received. No expense has been recognised
in the period for bad or doubtful debts in respect of the amounts owed by related parties.
Transactions and balances between the Company and its subsidiaries were eliminated in the preparation of consolidated
financial statements of the Group.
31.3.2 Parent entities
The ultimate parent entity in the Group is Service Stream Limited. Service Stream Limited is incorporated in Australia.
32. Remuneration of auditors
Auditor of the parent entity
Audit or review of the financial report
Preparation of the tax return
Tax advice
Technical advice
2011
$
2010
$
362,000
359,000
23,875
20,650
21,100
–
15,000
–
427,625
374,000
The auditor of Service Stream Limited is Deloitte Touche Tohmatsu.
33. Commitments for expenditure
Lease commitments
Finance lease liabilities and non-cancellable operating lease commitments are disclosed in notes 24 and 25 to the financial
statements.
Service Stream Limited Annual Report 2011 81
For personal use only Notes to the Financial Statements
for the financial year ended 30 June 2011
34. Contingent assets and liabilities
Tax Consolidation
The Company has lodged a series of Objections with the Australian Tax Office in relation to the tax treatment of acquisitions
made in the past, following an amendment to the income tax legislation in 2010. The amount of the additional tax deductions
being claimed by the Company in respect of prior years is $40.5 million, which, if approved in full, would result in a tax refund
to the Company of $12.1 million. The amount of the tax claim relevant to current and future years’ deductions is $0.5 million.
The processing by the Australian Tax Office of Objections like Service Stream’s was temporarily suspended following a request
by the Federal Assistant Treasurer for the Board of Taxation to review the amendments to the tax consolidation legislation, and
as such the Company continues to await the outcome of its Objections.
The Group is yet to record any amounts in the consolidated entity’s financial statements in relation to this matter.
35. Subsequent events
There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected,
or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future
financial years.
2011
$’000
–
223,407
223,407
6,384
–
6,384
217,023
211,779
3,042
2,202
2010
$’000
–
215,521
215,521
632
–
632
214,889
210,346
3,042
1,501
217,023
214,889
2011
$’000
2010
$’000
–
–
–
–
–
–
36. Parent entity disclosures
36.1 Financial position
Current Assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total liabilities
Net Assets
Issued capital
Retained earnings
Reserves – Equity-settled employee benefits
Equity
36.2 Financial performance
Profit for the year
Other comprehensive income
Total comprehensive income
82
Service Stream Limited Annual Report 2011
For personal use only ASX Additional
Information
for the financial year ended 30 June 2011
Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report.
A. Distribution of Shareholders Number as at 1 September 2011
Category (size of holding)
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001+
Holders
575
1,250
721
1,587
241
4,374
B. There are 4,374 holders of fully paid ordinary shares.
The Company has no other class of shares issued.
C. The number of shareholdings held in less than marketable parcels is 578.
D. The names of the substantial shareholders listed in the holding company’s
register, and their shareholdings (including shareholdings of their associates),
as at 1 September 2011 are:
Shareholder
Thorney Investment Group Australia Pty Ltd
Maple-Brown Abbott
Gandel Springwest Pty Ltd
Ordinary
38,080,470
26,788,518
15,797,924
%
13.44
9.45
5.57
E. Voting Rights
The voting rights attached to each class of equity security are as follows:
Ordinary shares
Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy
has one vote on a show of hands.
Options
These securities have no voting rights.
F. Net Tangible Assets
The net tangible assets per security is $0.1509 (2010: $0.0999).
Service Stream Limited Annual Report 2011 83
For personal use only ASX Additional
Information
for the financial year ended 30 June 2011
G. 20 Largest Shareholders as at 1 September 2011 – Ordinary Shares
Name of 20 largest shareholders in each class of share
1 HSBC Custody Nominees (Australia) Limited
2 RBC Dexia Investor Services Australia Nominees Pty Limited
3 National Nominees Limited
4 UBS Wealth Management Australia Nominees Pty Ltd
5 Gandel Springwest Pty Ltd
6 Citicorp Nominees Pty Limited
7 RBC Dexia Investor Services Australia Nominees Pty Limited
8 UBS Nominees Pty Ltd
9 J P Morgan Nominees Australia Limited
10 Dr Roger Graham Brooke & Mrs Sally Ann Brooke
11 Blazzed Pty Ltd
12 Aust Executor Trustees NSW Ltd
13 Aust Executor Trustees Ltd
14 Miclod Holdings Pty Ltd
15 Mr Angelos Giannakopoulos & Mrs Anastasia Giannakopoulos
16 Mrs Maree Helen Theiler
17 RBC Dexia Investor Services Australia Nominees Pty Limited
18 Queensland Investment Corporation
19 HSBC Custody Nominees
20 Mr Anthony John Andreatta & Mrs Helen Marion Andreatta
Ordinary shares
Fully paid number of
shares held
48,583,188
26,084,177
22,361,310
17,976,302
15,797,924
8,103,309
5,810,564
3,943,359
3,092,727
2,766,905
1,911,881
1,801,519
1,673,224
1,241,630
1,220,177
1,117,760
1,049,024
1,003,749
1,003,130
1,000,000
% Held
17.14
9.20
7.89
6.34
5.57
2.86
2.05
1.39
1.09
0.98
0.67
0.64
0.59
0.44
0.43
0.39
0.37
0.35
0.35
0.35
167,541,859
59.11
84
Service Stream Limited Annual Report 2011
For personal use only Corporate
Directory
Directors
Peter Dempsey
Graeme Sumner
Brett Gallagher
Deborah Page AM
Stephe Wilks
Robert Grant
Company Secretary
Jessica Lyons
Registered Office
Level 1
355 Spencer Street
West Melbourne
Victoria, 3003
Tel: +61 3 9677 8888
Fax: +61 3 9677 8877
www.servicestream.com.au
Bankers
Westpac Banking
Corporation
Commonwealth Bank
of Australia
Share Registry
Computershare Investor
Services Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford, Victoria 3067
Tel: 1300 850 505
(within Australia)
+61 3 9415 4000
(outside Australia)
Fax: +61 3 9473 2500
Auditors
Deloitte Touche Tohmatsu
For personal use only www.servicestream.com.au
For personal use only