2013 Annual Report
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Annual General Meeting
The Annual General Meeting of
Service Stream will be held at the
InterContinental Melbourne The Rialto
495 Collins Street, Melbourne
23 October 2013, 10.30am
Service Stream Limited
ABN 46 072 369 870
Annual financial report for the financial year ended
30 June 2013
Annual financial report
for the financial year ended
30 June 2013
Corporate governance statement
Directors’ report
Auditor’s independence declaration
Independent auditor’s report to the members of Service Stream Limited
Directors’ declaration
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
ASX Additional Information
Corporate Directory
Page
1
7
28
29
31
32
33
34
35
36-87
88
90
These financial statements are the consolidated financial statements of the consolidated entity consisting of Service
Stream Limited and its subsidiaries. The financial statements are presented in the Australian currency.
Service Stream Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office
and principal place of business is:
Level 4, 357 Collins Street Melbourne VIC 3000.
A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of
operations and activities on pages 10 to 16, which is not part of these financial statements.
The financial statements were authorised for issue by the directors on 30 August 2013. The directors have the power
to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press
releases, financial reports and other information are available on our website: www.servicestream.com.au
Service Stream Limited
Corporate governance statement
Corporate governance statement
This corporate governance statement summarises the main corporate governance practices of Service Stream
Limited and its subsidiaries for the financial year ended 30 June 2013 (“FY13”).
The Board is committed to achieving and maintaining high standards of corporate governance, in line with the ASX’s
Corporate Governance Principles.
Principle 1 – Lay solid foundations for management and oversight
The Board Charter sets out the Board’s structure, along with its key roles and responsibilities.
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 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 performance. Matters specifically referred to the Board for approval include Group strategy,
financial plans, major policies, issues of equity, major capital expenditure, appointment and replacement of external
auditor, ASX disclosures and matters involving amounts over specified limits or with potential to have a material
impact on the financial position or reputation of the Group.
Responsibility for the Group’s day-to-day operations, administration and management is delegated by the Board to the
Executive Director (on 8 April 2013, the Managing Director, Mr Graeme Sumner, resigned from his role and Mr Brett
Gallagher, a non-executive Director was appointed Executive Director on an interim basis).
The Board has approved a Delegation of Authorities Manual setting out the delegation of the Executive Director’s
authorities to members of the Senior Executive Team and other levels of management throughout the Group as
appropriate.
The Board receives comprehensive Board papers in advance of each monthly Board meeting which contain standing
agenda items such as safety, financial performance, operational issues and legal issues. Members of the Senior
Executive Team are regularly invited to attend Board meetings to report directly to the Board on key business issues.
Performance and accountability of the Executive Director and Senior Executive Team
Upon appointment, each member of the Senior Executive Team signs a letter of engagement and is provided with an
Induction Manual containing key information about the Group and its 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 was formally reviewed by the Board (facilitated by the Chairman) during the reporting period against key
performance indicators recommended by the Remuneration and Nomination Committee and approved by the Board.
The Executive Director formally assessed the performance of each Senior Executive Team member during the
reporting period against key performance indicators and other performance criteria. Each Senior Executive Team
member is also provided with regular, informal feedback by the Executive 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, along with individual goals
(that are specific, measurable, achievable, realistic and timely). The long-term incentive plan contains incentive
targets for the financial years to which each offer made under the plan applies.
The Board Charter is available on the Company’s website.
1
Service Stream Limited
Corporate governance statement
Principle 2 – Structure the Board to add value
The Board is comprised of a Non-Executive Chairman (Peter Dempsey), two Non-Executive Directors (Stephe Wilks
and Deborah Page) and the Executive Director (Brett Gallagher). An Alternate Director (Mr. Robert Grant, Chief
Financial Officer) is appointed to represent the Executive Director in his absence.
The Board believes that the current mix of Directors bring a broad range of complementary skills and experience to
their responsibility of governing the Company. Further information about the Board (and the Company Secretaries) is
set out in the Directors’ Report on pages 7-27.
Director’s independence
The Board regularly assesses whether a Director is independent and uses the independence and materiality tests as
set out in the ASX Principles to assess independence. The Board has a policy of separating the role of Chairman and
Executive Director and this policy is reflected in the Board’s current practice with Peter Dempsey in the role of
Chairman and Brett Gallagher in the role of Executive Director. The Chairman is independent and his role and
responsibilities are independent from those of the Executive Director.
Committees
The Board has established three key Committees to assist in the execution of its duties and functions:
•
•
•
Sustainability, Safety, Health and Environment Committee;
Audit and Risk Management Committee; and
Remuneration and Nomination Committee.
Each of the above Committees has their own Charters approved by the Board. For details of membership of and
attendance at Committee Meetings please refer to page 17 of the Directors’ Report.
The Committee Charters are available on the Company’s website.
Appointment of Directors
The Board actively and regularly considers the composition of the Board, taking into account the duration of each
Director’s tenure and the competencies required by the Company.
When nominating and appointing Directors, the Board takes into account its diversity objectives and seeks a balanced
mix of qualifications, age, skill, gender and experience to achieve the most favourable outcome for the Company and
its shareholders. Conditions relating to appointment are provided to all Directors, in writing, prior to appointment. The
Company’s Remuneration and Nomination Committee deals with the nomination and appointment of Directors and
Board succession planning.
Apart from the role of Managing Director and any Alternate Director, all Directors are subject to re-election by rotation
at least every three years in accordance with the Company’s constitution.
Directors have a right of access to all relevant Group information and the Senior Executive Team. In addition, the
Board Charter sets out the circumstances in which Directors may obtain independent professional advice.
At the end of each financial year, the Board assesses its performance and that of its Committees and individual
members, to ensure its effectiveness in meeting shareholder expectations. This is undertaken by either a formal
internal process, or in the instance of some Committees time is set aside at one of its meetings to consider how
effective it had been during the year. The Board and all Committees were satisfied that they had been effective in
performing their responsibilities during the year under their respective Charters.
Principle 3 – Promote ethical and responsible decision-making
The Company is committed to being a socially responsible corporate citizen. All Directors, employees and sub-
contractors are expected to comply with the law and act at all times with integrity.
The Board has ultimate responsibility for resolving all matters concerning ethical and responsible decision-making,
with policies and practices designed to ensure the integrity of the Company is maintained and investor confidence is
enhanced.
2
Service Stream Limited
Corporate governance statement
The Company has a Standards of Behaviour Policy which contains a Code of Conduct that sets out the Group’s
expectations in relation to matters such as honesty, protecting the environment, relations with customers, prevention
of fraud, conflicts of interest, sexual harassment and discrimination, disputes with fellow employees and the protection
of information. The Board and the Senior Executive Team, through their own actions, promote and foster an ethical
corporate culture for the entire Group.
A Whistleblower Policy which is supported by the Company’s Whistleblower Protection Program has also been
established to encourage a culture of reporting matters that may cause the Group financial loss or damage to its
reputation. The program is compliant with AS:8004 “a Whistleblower Protection Programs for Entities”.
Directors must keep the Board advised, on an on-going basis, of any interest that could potentially conflict with that of
the Group. Where the Board believes that a significant conflict exists, the Director concerned does not receive the
relevant Board papers and does not participate when the relevant item is considered or voted on.
Dealing in Company shares by Directors, other officers and employees
The Directors have established a Securities Trading Policy which governs dealings in securities to ensure the highest
standards of corporate conduct and governance.
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 Company has
a Diversity Committee which formally reports to the Remuneration and Nomination Committee on an annual basis.
During FY13, the Board established the following measurable objectives for achieving diversity within the Group:
1 The Group will continue to build a culture of inclusion. By June 2013, the Group will commence diversity
panel workshops on various topics (including gender, cultural, disability and age).
Progress to date: In November 2012 two diversity panel sessions were conducted on gender diversity and 81
employees attended the panel sessions.
2 The Group will continue to implement initiatives to increase the number of women in leadership positions.
By June 2013, the Group will develop succession plans to increase female representation in key
leadership positions.
Progress to date: The Group continues to enhance its talent management processes to increase representation of
women in leadership. In FY13, succession plans for business critical roles were undertaken with additional
metrics developed to assess the proportion of women identified as successors. These metrics have been applied
in the Group’s talent review process and are supporting development planning for women across the Group - with
the aim of deepening the pool of potential female successors for critical roles.
3 The Group will ensure equity in remuneration principles. By June 2013, the Group will undertake an audit
in relation to gender pay parity.
Progress to date: In FY13, the Group undertook an audit in relation to gender pay parity and developed and
implemented strategies to address areas of difference.
4 The Group will support the specific needs of our employees with families and provide them with helpful
advice at critical times of their lives. By June 2013, the Group will develop a family support program to
offer assistance and advice to employees in relation to aged care, child care and retirement.
Progress to date: In FY13 the Company partnered with SeventeenHundred to offer employees a family support
program to provide employees with practical support and services to all employees about child care, aged care
and retirement including the various government and company related benefits.
Having met the objectives set for the FY13, the Board will set new objectives for the year commencing 1 July 2013.
As at 15 August 2013, women constituted 21% of the Group’s employees, 25% of the Board and 20% of the Senior
Executive Team. The Group’s annual public report which was lodged with the Workplace Gender Equality Agency on
29 May 2013 can be found on the Company’s website.
The Company also requires senior managers including the Senior Executive Team to attend corporate governance
training on an annual basis which includes a focus on diversity and the need for flexible work practices and inclusive
behaviours to counteract unconscious bias in recruitment and progression.
3
Service Stream Limited
Corporate governance statement
The Diversity Policy, Code of Conduct, Securities Trading Policy and Whistleblower Policy can be found on the
Company’s website.
Principle 4 – Safeguard integrity in financial reporting
The Audit and Risk Management Committee has been established to assist the Board in providing shareholders and
regulatory authorities with timely and reliable financial reports of the Company. The Committee is currently comprised
of three independent non-executive Directors. The Committee is chaired by Deborah Page who is an independent
non-executive Director and not Chairman of the Board.
Among other things, the Committee reviews audit scopes, assesses the performance of and fees paid to the external
auditor, liaises with the external auditor 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 external auditor, PriceWaterhouseCoopers, was appointed in October 2012 following a competitive audit tender
process. The Company’s policy on the procedure for the selection and appointment of external auditors and rotation of
the external audit engagement partner can be found on the Company’s website.
The Executive 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 page 17.
Principle 5 – Make timely and balanced disclosure
The Company is committed to providing timely and accurate disclosure to the market of all material matters
concerning the Company. The Company Secretaries are responsible for liaison with the ASX in respect to the
Company’s disclosure obligations.
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 ASX Listing Rules are disclosed to the ASX;
The Directors, Executive Director, Chief Financial Officer and the Company Secretaries (“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 ASX 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;
ASX and media releases must be approved by all Directors to ensure the disclosure is factual, includes all
material information and is expressed clearly and objectively. All Senior Management are trained in respect to
disclosure obligations including confidential information; and
The Securities Trading Policy contains guidance on the disclosure obligations of employees and Senior
Managers of the Company.
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.
4
Service Stream Limited
Corporate governance statement
The Company requires the external auditor 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 in pages 29 and 30).
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 ask questions about and comment
on the performance and operations of the Company and its subsidiaries and to vote on other items of business.
The Company also recorded the 2012 Annual General Meeting enabling shareholders to view the meeting
online where they were unable to attend in person;
responding to communications from shareholders in a timely and responsive manner; and
periodic investor presentations and briefings.
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 Group’s risk management policies and make recommendations to the Board from time to time to
enhance the Group’s risk management framework; and
review the appropriateness and effectiveness of the Group’s internal control procedures.
The Executive 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 that 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 to:
•
•
•
•
•
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 Group has in place various processes and internal controls
designed to safeguard the Group’s assets, minimise its liabilities and to ensure the integrity of its reporting.
The identification, assessment, monitoring and management of business risks and the internal controls environment is
undertaken by the Senior Executive Team and reported to the Board on an on-going basis.
The Board has received an assurance from the Executive 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 risk
management and internal control and that the system is operating effectively in all material respects in relation to
financial reporting risks.
The Risk Management Policy can be found on the Company’s website.
5
Service Stream Limited
Corporate governance statement
Principle 8 – Remunerate fairly and responsibly
The Company has established a Remuneration and Nomination Committee (chaired by Peter Dempsey - independent
Director and Chairman of the Board). The Committee has four members with all of its members being independent
Directors, except since 8 April 2013 when Brett Gallagher’s status changed to Executive 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.
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 Executive Director is paid his
pre-existing Director’s fee and a fixed ‘higher duties allowance’ for the term of his current executive appointment. The
Senior Executive Team (including Mr Grant) is remunerated by way of fixed salary, long-term and short-term
incentives and superannuation. The remuneration report (at pages 19-26 of this annual financial report) details the
remuneration of Directors and Senior Management.
Documents referred to in this Statement, are published in the Corporate Governance section of the Company’s
website, www.servicestream.com.au.
6
Service Stream Limited
Directors’ report
Directors’ report
Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Service
Stream Limited and entities it controlled at the end of, or during, the year ended 30 June 2013, and 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 Group during or since the end of the financial year are:
Name
Peter Dempsey
B. Tech. (Civil Eng.) (Adel)
Grad. Diploma (Bus. Admin.)
SAIT, FIEAust, MAICD.
Chairman
Brett Gallagher
FAICD
Executive Director
(appointed 8 April 2013)
Deborah Page AM
B Ec (Syd), FCA, MAICD
Non-Executive Director
Particulars
Term of Office: Chairman since November 2010
Peter Dempsey was appointed Chairman of Service Stream Limited on 1 November
2010. Peter has extensive construction and development experience and has been
involved in these industries 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, with operations in all Australian mainland
states, Papua New Guinea, Indonesia and Vietnam.
Peter is Chair 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, as well as holding
other Board roles with private construction and charitable organisations. Peter was a
Non-Executive Director of Becton Property Group Limited from July 2008 until resigning
on 26 February 2013.
Peter has no other listed company directorships and has held no other listed company
directorships in the last 4 years.
Term of Office: Executive Director since 8 April 2013. Non-Executive Director since
April 2010 until his appointment as Executive Director.
Brett Gallagher has over 20 years experience across the utility and facilities
management industries, and was Managing Director and a major shareholder of the
AMRS Group of companies (“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.
Brett is Chair of the Safety and Environment Committee and was a member of the Audit
and Risk Management Committee until his appointment as Executive Director.
Brett also holds directorships and interests in a number of private businesses that
operate predominately in the utilities sector.
Brett has no other listed company directorships, and has held no other listed company
directorships in the last 4 years.
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.
7
Stephe Wilks
BSc (Macq) LLM (Syd)
Non-Executive Director
Service Stream Limited
Directors’ report
Deborah is currently Chairman of Investa Listed Funds Management Limited, the
responsible entity of the ASX-listed Investa Office Fund; and is a Non-Executive
Director of Australian Renewable Fuels Limited. She is also a Non-Executive Director of
The Colonial Mutual Life Assurance Society Limited and Commonwealth Insurance
Limited, wholly owned subsidiaries of the Commonwealth Bank.
Deborah has held no other listed company directorships in the last 4 years.
Term of Office: Non-Executive Director since September 2005
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 Chair of Eftel Limited, 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.
Robert Grant
BCom (Qld), FCPA
Term of Office: Alternate Director since December 2010 and Chief Financial Officer
since June 2010
Chief Financial Officer
and Alternate Director for Graeme
Sumner (until 8 April 2013) and
Brett Gallagher (from 8 April 2013)
Robert (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.
Graeme Sumner
B Com (Auckland),
MBA (Massey), MAICD
Managing Director
(resigned 8 April 2013)
Bob is an Alternate Director for Brett Gallagher, ensuring continuity of executive
representation at Board discussions and meetings where Brett 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 4 years.
Term of Office: Managing Director until his resignation on 8 April 2013.
technology,
Graeme Sumner has broad experience
telecommunications, electricity, engineering and mining services sectors. Prior to
joining the Company he served as the Chief Executive of Transfield Services New
Zealand and Chairman of Transfield Worley NZ and Inser Transfield Services Chile.
information
the
in
Graeme had no other listed company directorships and held no other listed company
directorships in the last 3 years.
8
Service Stream Limited
Directors’ report
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.
Service Stream Limited
Fully paid ordinary
shares
Performance Rights
Number
Number
Directors
P Dempsey
D Page
B Gallagher
S Wilks
R Grant
Remuneration of key management personnel
Information about the remuneration of key management personnel is set out in the remuneration report of this Directors’
report, on pages 19 to 26. The term ‘key management personnel’ refers to those persons having authority and
responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, including
any director (whether executive or otherwise) of the consolidated entity.
570,000
129,400
8,792,113
500,000
144,166
-
-
-
-
1,579,319
Performance rights granted to Directors and senior management
During and since the end of the financial year, an aggregate of 2,441,011 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
R Grant 1
C Orr
L Mackender
D Hill
G Sumner 2
S Ellich 3
Number of rights
granted
522,297
205,458
164,438
173,868
1,124,796
250,154
Issuing entity
Service Stream Limited
Service Stream Limited
Service Stream Limited
Service Stream Limited
Service Stream Limited
Service Stream Limited
Number of ordinary
shares under rights
522,297
205,458
164,438
173,868
1,124,796
250,154
1. R Grant was an Alternate Director for G Sumner until 8 April 2013 and for B Gallagher since that date.
2. G Sumner resigned from the position of Managing Director on 8 April 2013.
3. S Ellich resigned from the position of Executive General Manager – Fixed Communications on 28 May 2013.
Company secretary
Jessica Lyons joined Service Stream in September 2010 as Legal Counsel and was appointed Group Company
Secretary in November 2010. Jessica has extensive experience within the legal profession, most recently as the in-
house Regional Counsel for Nyrstar, the world’s largest zinc producer. Jessica has a Bachelor of Laws and Bachelor of
Arts from Monash University, and is also a member of Chartered Secretaries Australia.
Vicki Letcher joined Service Stream in June 2010 and was appointed as Service Stream co-Company Secretary in
August 2012. Vicki holds a Bachelor of Laws and a Bachelor of Commerce and is a member of the Institute of Chartered
Accountants.
Jessica and Vicki are jointly responsible for corporate administration within the Group, and assist the Board fulfill their
corporate governance obligations.
Principal activities
The Service Stream Group is a provider of essential network services, including access, design, build, installation and
maintenance. These services are provided to copper, fibre and wireless telecommunications networks as well as to a
range of private and public energy and water entities nationally.
9
Service Stream Limited
Directors’ report
Review of Operations and Financial Performance
Financial Overview
Service Stream had a particularly poor FY13 with a number of issues contributing to the material underperformance of
the Group’s Fixed Communications segment. Operational difficulties arising from a substantial change in the mix of work
during the year and the recognition of material losses arising from the Group’s 50% interest in the Syntheo Joint Venture
resulted in Fixed Communications recording an EBITDA loss of ($32.0 million) and impairing goodwill by ($89.8 million).
On a positive note, the Group’s two other segments, Mobile Communications and Energy & Water performed well in
delivering a combined EBITDA of $24.3 million being $2.8 million or 13.2% favourable to the prior year.
• Group revenue: down 11.1% to $526.6 million
• Group earnings before interest, tax, depreciation and amortisation (EBITDA): down 135.2% to ($13.4 million) loss
• Group net profit after tax (NPAT): down 671.9% to ($107.1 million) loss
• Group cashflow from operating activities: down 80.0% to $3.2 million
Fixed Communications
Mobile Communications
Energy & Water
Inter-company revenue
Interest received
Total Revenue
Fixed Communications
Mobile Communications
Energy & Water
Write-off FX reserve1
Unallocated Corporate Services
Total EBITDA
Depreciation / Amortisation
Goodwill impairment
EBIT
Net interest expense
Income tax expense
NPAT
Jun
2013
EBITDA
%
Jun
2012
EBITDA
%
Net
change
Change
%
227.1
124.7
174.2
(0.8)
1.4
526.6
(32.0)
10.0
14.3
(0.6)
(5.1)
(13.4)
(8.3)
(89.8)
(111.5)
(2.0)
6.5
(107.1)
-14.1%
8.0%
8.2%
-2.5%
300.2
124.7
169.1
(2.2)
0.4
592.2
21.7
8.5
12.9
(0.7)
(4.4)
38.0
(7.5)
0.0
30.6
(3.9)
(7.9)
18.7
7.2%
6.8%
7.6%
6.4%
(73.1)
(0.0)
5.1
1.4
1.0
(65.6)
(53.7)
1.4
1.4
0.1
(0.7)
(51.4)
(0.9)
(89.8)
(142.1)
1.9
14.5
(125.8)
(11.1%)
(135.2%)
(465.0%)
(671.9%)
1 The investment in Total Comm Infra Services Pvt Ltd (India) was sold during the current period. Upon sale, the cumulative amount of
the exchange differences relating to this investment has been reclassified from equity to profit and loss. During the 2012 financial year,
the Group recognised an impairment loss of $700,000 in relation to the investment held in Total Comm Infra Services Pvt Ltd (India).
This amount was derived after taking the expected proceeds from the sale of this investment into consideration.
Revenue
Revenue of $526.6 million decreased by $65.6 million compared to prior comparative period driven primarily by:
•
Fixed Communications revenue was down (-$73.1 million) due to:
o Cessation of Telstra A&AS and Payphones contracts (-$165.9 million); partially offset by:
o Syntheo Joint Venture additional volumes (+$22.3 million);
o New Estates (Fujitsu and NBN Direct) additional volumes (+$39.2 million);
o Commencement of Telstra Remediation (+$16.7 million) and NBN Field Service Delivery and Network
Augmentation & Restoration Activities (+$6.7 million) contracts; and
o All other minor contracts (+$7.9 million)
• Mobile Communications revenue was consistent with prior year although reflected a shift between large carrier
programs:
o Higher revenue from works undertaken for Telstra (+$32.8 million) was offset by reduced revenue from work
undertaken for Vodafone (-$35.3 million);
o Changes in the mix of work was also experienced with the proportion of revenue from construction activity
being higher than the prior year when compared to revenue from site acquisition and design services.
• Energy and Water revenue was up $5.1 million due to:
o Stronger year on year revenue from meter reading and replacement services (+$5.0 million).
o Additional revenue from in-home services programs such as solar PV system installations being offset by
the cessation of the installation of energy saving devices in residences in connection with the Queensland
10
Service Stream Limited
Directors’ report
Climate Smart and Victorian Energy Efficiency Target schemes and a minor decline in revenues from
Customer Care.
9,552 residential solar PV installations were completed in FY13 compared to 5,355 in the prior year.
o
Earnings before interest, tax, depreciation and amortisation
The Group’s EBITDA loss of ($13.4 million) for the year was unfavourable to the prior year by $51.4 million.
•
Fixed Communications recorded an EBITDA loss of ($32.0 million) compared to an EBITDA profit of $21.7 million in
the prior year.
• Within this segment, the Syntheo Joint Venture (“Syntheo”) in which the Group has a 50% interest, has recognised
material losses in the current financial year as it has determined that the unavoidable costs of meeting the obligations
under its contracts with NBN Co Limited exceed the economic benefits expected to be received under it. In March
2013, Syntheo and NBN Co entered into an Agreement under which Syntheo would complete certain design and
construction works that were in progress in respect of the Northern Territory but that no further work would be
instructed by NBN Co under the relevant contract for that region. Subsequent to year-end, in August 2013, Syntheo
and NBN Co entered into an Agreement under which Syntheo would complete certain construction works that were in
progress in respect of Western Australia and South Australia but that no further work would be instructed by NBN Co
under the relevant contract for those states. In both cases, the Agreements required Syntheo to repay to NBN Co
certain amounts that had been advanced to Syntheo for overhead expenses. As a result, the contracts have been
determined to be onerous, and the losses forecast to be incurred in the delivery of the contracts have been brought to
account in the current financial year. Service Stream has agreed for its joint venture partner to assume control of
Syntheo and of the delivery of Syntheo’s remaining obligations to NBN Co. In light of this, and subject to certain
conditions, Service Stream’s share of any losses incurred by Syntheo shall be ($19.5 million). The loss shown in the
Group’s financial statements for the year ended 30 June 2013 is ($19.9 million) which brings its life to date loss for
this project to the aforementioned ($19.5 million).
•
In addition, operational difficulties arising from a substantial change in the mix of work during the year has resulted in
further losses of ($12.1 million) being recognised in this segment. During the year, Fixed Communications has
incurred significant cost in connection with the demobilisation and financial close of the Telstra AAS and New Estates
(Fujitsu) contracts concurrently with managing the complexity associated with mobilising and dealing with volume
ramp-up volatility on several new contracts with Telstra and NBN Co. In addition, the business was impacted in May
and June 2013 by the nation-wide temporary cessation of activities on Telstra’s pit and pipe remediation program as
a result of concerns regarding standardised procedures for the safe handling of potentially asbestos containing
material. An incident on this program involving the handling of potentially asbestos containing material by a Service
Stream subcontractor occurred during May 2013 in the Sydney suburb of Penrith. All known costs associated with
that incident have been taken to account in FY13.
• Mobile Communications recorded EBITDA of $10.0 million for FY13. This result was impacted by charges totaling
($3.8 million) relating to the final settlement of a long standing litigated contractual dispute with Ericsson and the write-
off of a Foreign Currency Translation Reserve following the sale of an investment in a wireless infrastructure operation
in India. After adjusting for these non-recurring items, the EBITDA margin of 11.0% reflects the impact of price
competitiveness on margins available from major carriers and the greater proportion of lower-margin construction
activity that was undertaken during the year. The EBITDA result for the year was a 16.6% improvement over the prior
year which was impacted by the initial settlement of the Ericsson dispute.
• Energy & Water recorded EBITDA of $14.3 million for FY13 being a 11.0% improvement over the prior year and in line
with its increase in revenue.
Interest
•
Interest expense of $3.4 million was $0.9 million lower than the prior period as a result of lower effective borrowing
rates.
Tax
• An income tax benefit of $6.5 million was recorded for the period which accords with an effective tax rate of 27.4%
after adjusting Profit Before Tax for the non-deductible goodwill impairment charge. This compares to an income tax
expense of $7.9 million and an effective tax rate of 29.8% in the prior period.
Depreciation and amortisation
• A depreciation and amortisation charge of $8.3 million was recorded for the period. This was slightly higher than the
prior year‘s charge of $7.5 million due an increase in capital expenditure.
Goodwill impairment
•
In light of the Syntheo Agreements, and having reviewed and reassessed growth assumptions, forward business
plans, weighted average cost of capital and discounted cash flow calculations, the carrying value of goodwill within the
11
Service Stream Limited
Directors’ report
Fixed Communications segment was reduced by $89.8 million.
Cashflow
Key movements in cashflow compared to the prior period are as follows:
• Net cashflow from operations decreased by $12.8 million to $3.2 million mainly due to:
o Unfavourable working capital changes during the year resulted in an operating cash outflow before interest
and tax of ($12.1 million) in Syntheo compared to an inflow of $13.5 million in the prior period.
o The Group’s other business activities generated an operating cash inflow before interest and tax of $5.6
million compared to $14.1 million in the prior year.
o A net tax refund of $12.0 million was received during the year as a result of a change to the tax treatment of
accrued revenue.
• Net investing cashflow increased by $6.9 million to $15.7 million mainly due to investments made by the Group in
relation to both property fit-outs and core information technology systems.
• Dividends totaling $5.7 million were paid to shareholders during the year, comprising a 1 cent per share final dividend
for FY12 and a 1 cent per share interim dividend for FY13.
Financial Position
The financial position of the Group has deteriorated as a consequence of the losses sustained by Syntheo on the
Northern Territory, Western Australia and South Australia NBN contracts, together with the impact of operational
difficulties experienced in Fixed Communications.
Net Assets reduced by ($112.6 million) over the financial year ended 30 June 2013, reflecting goodwill impairment of
($89.8 million), other net losses after tax of ($17.1 million) and dividends paid during the year of ($5.7 million). At 30 June
2013, Net Assets totalled $158.0 million, with Current Assets exceeding Current Liabilities by $39.6 million.
Debt and Financing Facilities
• Net debt increased by ($18.2 million) over FY13. The Group had net debt of ($52.0 million) at 30 June 2013
•
•
•
compared to ($33.9 million) at June 2012.
The net debt at June 2013 comprised ($65.4 million) of borrowings offset by $13.4 million of cash on hand.
The borrowings of ($65.4 million) have been classified as a current liability since the Group’s banking facilities had
less than 12 months of remaining term at balance date.
The Group breached a number of covenants under its banking facilities at 31 March 2013 and 30 June 2013 as a
consequence of the impact of the business’ operating performance on its 12 month rolling EBITDA and EBIT financial
metrics and the impairment charge relating to Fixed Communications’ goodwill.
• Since balance date the Group has received credit approved term sheets from its financiers, Australia & New Zealand
Banking Group Ltd and Westpac Banking Corporation for the renewal of its banking facilities out to 31 August 2014.
The Board considers the terms of the offer from the Group’s financiers to be commercially acceptable under the
current circumstances and proposes to accept the offer and proceed to documentation.
•
• Under the terms of the offer all breaches of covenants during FY13 will be waived by the financiers upon execution of
final lending documentation and several of the historical covenants are amended going forward or replaced with more
relevant measures relating to performance against forecast.
Other Balance Sheet
Other key balance sheet movements during the year included:
• Syntheo working capital at 30 June 2013 was a net liability of ($21.1 million) compared to ($13.3 million) at June 2012.
The bulk of the movement over the financial year reflects the raising of a liability for onerous contracts. The Group’s
50% interest in Syntheo is accounted for on a proportionate consolidation basis, with 50% of each line of Syntheo’s
balance sheet taken into the respective line of the Group’s balance sheet.
• Service Stream (excluding Syntheo) working capital at 30 June 2013 was a net asset position of $96.4 million and
reflected a minor increase over the prior year’s closing balance of $94.5 million.
• Accrued revenue of $84.8 million was ($11.7 million) down on prior year.
o Fixed Communications accounted for $40.7 million of accrued revenue at year-end, down ($3.5 million) on prior
year. The vast majority of the prior year balance related to Telstra AAS and New Estates (Fujitsu), whereas the
current year’s balance relating to predominately NBN programs reflects the change of work mix that has
occurred during the year.
o Mobile Communications accounted for $32.5 milion of the balance, down ($10.9 million) reflecting
improvements made to the billing process during the year.
o Energy & Water accounted for $11.6 million of the balance, up $2.7 million due to higher volumes of meter
replacement services being undertaken in the latter part of the year.
•
Lease Incentive of ($5.4 million) has been recognised on the balance sheet with $Nil for prior year. This relates to the
12
Service Stream Limited
Directors’ report
•
property lease for the Group’s head office in Melbourne.
The only other material year-on-year change to note is a $17.9 million reduction in Trade & Other Payables reflecting
the lower levels of activity in May/June relative to the prior year, particularly in Fixed Communications.
• Property, plant & equipment at 30 June 2013 was $15.3 million compared to $10.1 million at June 2012 and reflects
•
investments made during the year in the fit-out of properties.
Intangible assets at 30 June 2013 was $123.9 million compared to $211.7 million at June 2012 with the change largely
attributable to the Fixed Communications goodwill impairment charge of ($89.8 million).
Business Activities and Outlook
Fixed Communications
Fixed Communications provides a wide range of design, construction and maintenance services to the owners of copper
and fibre optic telecommunications infrastructure assets. This segment also includes the Group’s 50% interest in the
Syntheo Joint Venture for the design and construction of the National Broadband Network in Western Australia, South
Australia and Northern Territory.
•
Telstra Programs
o For the last several years, the vast majority of Fixed Communications’ revenues have come from the Access
and Associated Services (AAS) and Payphones contracts with Telstra. These contracts have now effectively
ceased and relatively minor revenues can be expected going forward from this type of activity relative to the
$68.8 million that was recognised in FY13.
o During FY13, Fixed Communications was successful in winning a contract with Telstra for the remediation of pit
and pipe assets in connection with making Telstra infrastructure available for use by the National Broadband
Network. The contract, which commenced in December 2012, has an initial term of three years with two x two-
year extensions, and covers New South Wales, Western Australia, South Australia and Northern Territory.
Revenues of $16.7 million were recognised on this new contract in FY13. This program was temporarily
suspended across the country in May 2013 as a result of concerns regarding standardised procedures for the
safe handling of potentially asbestos containing material. The customer authorised a staged recommencement
of this program in late August 2013.
• NBN Co Programs
o During the year, Fixed Communications concluded activities on its contract with Fujitsu for the design and
construction of in-estate and backhaul National Broadband Network infrastructure for New Estates. Revenues
of $39.4 million were recognised on this contract in FY13, following revenues of $26.6 million in the prior year.
o During the year, Fixed Communications was successful in winning a contract directly with NBN Co for the
design and construction of in-estate and backhaul National Broadband Network infrastructure for New Estates,
effectively the replacement for the Fujitsu contract. The contract, which commenced in July 2012, has an initial
term of 18 months, and covers New South Wales, Western Australia, South Australia and Northern Territory.
Revenues of $26.4 million were recognised on this new contract in FY13.
o During the year, Fixed Communications was successful in winning contracts with NBN Co for Field Service
Delivery (FSD) comprising customer connection lead-ins and in-home equipment installations; and customer
and network call-outs and emergency response; as well as Network Augmentation and Restoration Activities
(NARA) comprising asset augmentations and relocations; and asset repairs and maintenance. The contracts,
which commenced in August 2012, have initial terms of two years with two x one-year extensions, and cover
Victoria, Western Australia, South Australia and Northern Territory. Revenues of $6.7 million were recognised
on these new contracts in FY13.
• Syntheo Joint Venture
o As previously mentioned, Syntheo and NBN Co have entered into Agreements under which Syntheo will only
complete certain in-progress works in Northern Territory, Western Australia and South Australia and that no
further work will be instructed by NBN Co in those regions.
o Syntheo has determined that the project will be materially loss making and in light of the Joint Venture partner
assuming control of Syntheo and subject to certain conditions, Service Stream’s share of any losses incurred
by Syntheo shall be ($19.5 million) and Service Stream’s contribution to any such losses shall be made in
accordance with a prescribed schedule of payments. Service Stream’s exposure has been fully provided for at
30 June 2013.
• Other
o Fixed Communications also includes a number of other streams of work including that relating to Recoverable
Works (RWs) and South East Queensland Under-road Drilling (SEQUD).
Fixed Communications’ performance in FY13 was unacceptable and a number of leadership changes have been made as
13
Service Stream Limited
Directors’ report
a consequence. The business won a number of significant contracts with NBN Co and Telstra in FY13 that provide it with
a sound platform to generate substantial earnings going forward. The nature of the work that Fixed Communications
undertakes for NBN Co is smaller in scale and lower in complexity compared to that which was being undertaken for NBN
Co by Syntheo, and is contracted directly with the client as opposed to being contracted through a joint venture
arrangement. The focus in FY14 is to ensure that these new contracts are operating effectively and profitability.
Mobile Communications
Mobile Communications provides turnkey and project management services for site acquisition, design and construction
of wireless telecommunications infrastructure across Australia. The major customers of Mobile Communications are
currently Telstra and Vodafone-Hutchinson.
• Mobile Communications’ financial performance in FY13 was solid with EBITDA of $10.0 million on revenue of $124.7
million (8.0% margin) compared with EBITDA of $8.5 million on revenue of $124.7 million (6.8% margin) in the prior
year.
• Both FY13 and FY12 financial results for this segment were affected by material charges arising from a litigated
contractual dispute with Ericsson. This matter was finally concluded during FY13 and all settlement amounts have
been paid.
• During the year, Mobile Communications was successful in securing a two-year extension of its contract with Telstra
for the provision of Site Acquisition, Environmental and Design (SAED) services.
• Mobile Communications immediate outlook is excellent with the opportunity to provide an increased volume of design
and construction services to its existing customers on the back of their continued investment in 4G wireless
infrastructure, as well as new opportunities that may present with customers such as Huawei, Optus and NBN Co.
Energy & Water
Energy & Water provides a range of specialist metering and environmental services to utilities and government
authorities nationally, and through the Customer Care business, provides contact centre services and end-to-end
customer support for key contracts.
• Energy & Water’s financial performance in FY13 was solid with EBITDA of $14.3 million on revenue of $174.2 million
(8.2% margin) compared with EBITDA of $12.9 million on revenue of $169.1 million (7.6%) in the prior year.
• During the year, Energy & Water was successful in winning a contract with EDS Electrix. This is the company’s first
contract in the Electrical Distribution Services space, and delivers on a strategic diversification goal.
• During the year, the business was successful in renewing six meter reading contracts and two meter replacement
contracts, although the Sydney Water metering contract ceased. The business is well progressed on discussions
pertaining to its contract with Origin Energy for a range of in-home services including solar PV and hot water
installations and a future extension to the current term.
Overall Group strategy, prospects and risks
The performance of the Fixed Communications segment and the Group overall in FY13 was disappointing. In April 2013,
the Board announced the resignation of Graeme Sumner as Managing Director and that Non-Executive Board member
Brett Gallagher would become Executive Director on an interim basis whilst the Company undertook an executive search
process. In May 2013, further senior executive changes occurred in the Fixed Communications segment and over recent
months a number of other senior management changes have been made to improve the operational and cost
effectiveness of the Group’s support service functions. The executive search process for a replacement Managing
Director is progressing well.
•
•
Service Stream believes that demand for essential network services will remain strong in the medium term.
•
The Australian government’s investment in the National Broadband Network will continue to drive opportunities for
Fixed Communications particularly in the areas of its proven competence such as New Estates and Customer
Connections.
In Mobile Communications, increasing demand for mobile data will continue to drive the development and
augmentation of the necessary supporting infrastructure.
In Energy & Water, network investment profiles remain positive as transmission and distribution networks upgrade
ageing asset bases and work to deliver better demand side management solutions. The business is working with a
number of partners on new opportunities in smart metering, energy efficiency in the home, hot water, heating
solutions and solar PV installation and maintenance. As a result of continued upward pressure on energy prices to
consumers, the business is very positive on the outlook for this sector as customers look to manage their energy
consumption more effectively.
The Board is pleased to have secured a refinance of its banking facilities and the focus of the Group in FY14 will be on
14
Service Stream Limited
Directors’ report
delivering its profit and cash flow targets now that the material risks associated with the Group’s participation in the
Syntheo Joint Venture have been removed.
The achievement of the Group’s business objectives in the near term may be impacted by the following risks:
Availability of
funding
The recent refinance of the Group’s banking facilities involves operating the business within
reduced facility limits and with a profile for the amortisation of debt that has been agreed with the
Group’s financiers. Whilst Management and the Board have reviewed the Group’s cashflow
forecasts and are confident that they can be delivered to the extent required, there is a risk that
cashflow underperformance may require concessions to be sought from the financiers or access to
additional funding by way of subordinated debt or equity.
Fixed
Communications
Whilst the Board is confident that the necessary leadership changes have been made in Fixed
Communications, and process improvements are being implemented, there is a risk that this
operating segment may take longer than anticipated to return to the targeted levels of profitability.
Renewal of
customer
contracts
There are a number of key contracts that expire and are forecasted to be renewed during FY14.
These include Fixed Communications’ contract with NBN Co for the design and construction of
new estates, Mobile Communications’ contract with Telstra for the construction of wireless
infrastructure, and Energy & Water’s contracts with a number of utilities for meter reading and
meter replacement services. Whilst Management and the Board are confident that these contracts
will be renewed on appropriate terms and conditions, there is a risk that one or more of them may
not.
Customer demand Many of the Group’s customer contracts do not contain volume commitments and are therefore
dependent on the customer’s demand requirements. Whilst Management and the Board have
taken a balanced view on the level of customer demand that will arise under each of these
contracts in FY14, there is a risk that the level of customer demand may be less than forecasted.
Of particular note is the potential for further delays beyond August 2013 in the Telstra remediation
program; a major change to the scope or timing of the Federal Government’s NBN rollout; the level
of marketing and demand for solar PV installations, and client delays in investment in new or
upgraded wireless infrastructure.
Further
impairment of
goodwill
Following a review of growth assumptions, forward business plans, weighted average cost of
capital and discounted cashflow calculations, the carrying value of goodwill within the Fixed
Communications segment was written-down by $89.8 million in FY13 to leave a remaining balance
of $27.7 million as at 30 June 2013. Any subsequent downwards revision of the recoverable
amount of the Fixed Communications segment will result in a further impairment charge.
Additional information pertaining to the risks associated with further impairment charges in Fixed
Communications and other segments is provided in Note 16 of the financial statements.
Handling of
potentially
Asbestos
containing
material
Certain works undertaken by the Group for its customers may involve the handling of potentially
asbestos containing material. Whilst the Group has established detailed procedures for the safe
and regulatory-compliant handling of potentially asbestos containing material and has
implemented rigorous training, accreditation and audit protocols in relation thereto, there is a risk
of occasional non-compliance with these procedures by employees or subcontractors which may
result in adverse publicity and additional cost to the Group.
Retention of key
personnel
The talents of a relatively small number of key personnel contribute significantly to the Group’s
operational effectiveness. Whilst Management and the Board have implemented strategies to
retain those personnel, including through their participation in the Group’s short-term and long-
term incentive plans, there is a risk that one or more of them may leave the Group.
FY14 Earnings Guidance
The Board expects the Group to return to profitability in FY14 and is anticipating an EBITDA outcome of around $20.0m
with a bias to the second half.
15
Dividends
Dividends paid to shareholders during the financial year were as follows:
Final ordinary dividend for the year ended 30 June 2012 of 1 cent (2011
– nil) per fully paid share, paid on 18 October 2012
Interim ordinary dividend for the year ended 30 June 2013 of 1 cent
(2012 – 1 cent) per fully paid share, paid on 18 April 2013
Service Stream Limited
Directors’ report
2013
$’000
2012
$’000
2,834
-
2,834
2,834
5,668
2,834
No final ordinary dividend was declared with respect to the financial year ending 30 June 2013.
Significant changes in state of affairs
Except for as stated in the Review of Operations and Financial Performance, there was no significant change in the
state of affairs of the Group during the financial year.
Matters subsequent to the end of financial year
In July 2013, a variation to the Syntheo Joint Venture Agreement was executed, as a result of which Syntheo Stream’s
joint venture partner would assume control of Syntheo and of the delivery of its remaining obligations to NBN Co.
Additional comments in relation to the Syntheo Joint Venture are included in note 13 Joint Ventures.
In August 2013, the Group received credit approved term sheets from its financiers, Australia & New Zealand Banking
Group Ltd and Westpac Banking Corporation for the renewal of its banking facilities to 31 August 2014. Additional
comments are included in note 2.2 Going Concern.
Except for as stated above, there has not been any other 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.
Environmental regulation
Other than compliance with general obligations under Federal and State environmental laws and regulations, the
Group’s operations are not subject to any particular or significant environmental regulation under a Commonwealth,
State or Territory law.
Shares under option or issued on exercise of options
No unissued shares or interests under option are in existence as at the date of this report. No further share options have
been issued during or since the end of the financial year.
Shares under performance rights
Details of unissued shares under performance rights at the date of this report are:
Issuing entity
LTIP Series
Class of
shares
Exercise price
of right
Vesting date
Service Stream Limited
Service Stream Limited
Service Stream Limited
FY11 Tranche
FY12 Tranche
FY13 Tranche
Ordinary
Ordinary
Ordinary
$0.0000
$0.0000
$0.0000
30 June 2013
30 June 2014
30 June 2015
Number of
shares under
rights
1,024,702
1,866,347
3,018,425
5,909,474
The holders of these rights do not have the right, by virtue of the performance 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.
In accordance with the Employee Share Ownership Plan the shares relating to the FY11 Tranche which vested on 30
June 2013 will be issued to participants who have met the vesting criteria within 14 days from the date on which the
Company releases its results for the year end 30 June 2013.
16
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).
Service Stream Limited
Directors’ report
Board of Directors
Audit and Risk
Management
Committee
Remuneration and
Nomination
Committee
Safety and
Environment
Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
29
29
29
29
29
20
29
28
28
28
27
20
5
5
5
5
5
4
5
5
5
4 + 1*
5*
4*
4
4
4
4
4
3
4
4
4
4*
4*
3*
3
3
3
3
3
3
3*
3*
3
3
2*
3
P Dempsey
D Page
S Wilks
B Gallagher 1
R Grant 2
G Sumner 3
*Attended as Standing Invitee
1. B Gallagher has attended Board and Committee meetings in his capacity as Non-Executive Director (until 8 April 2003) and as Executive Director (from 8
April 2013).
2. R Grant is an Alternate Director for G Sumner (until 8 April 2013) and for B Gallagher (since 8 April 2013), and has only attended Board and Committee
meetings in his capacity as Chief Financial Officer.
3. G Sumner resigned as Managing Director on 8 April 2013.
Indemnification of officers and auditors
During the financial year, the Group paid a premium in respect of a contract insuring the Directors of the Company (as
named above), the Company Secretaries, and all executive officers of the Group 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 Group 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.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking
responsibility on behalf of the company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237
of the Corporations Act 2001.
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 38 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 38 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 Code of
Conduct APES 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.
•
17
Auditor’s independence declaration
The auditor’s independence declaration is included on page 28 of the annual financial report.
Rounding off of amounts
The Company is of a 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
Directors’ report
18
Service Stream Limited
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 key management personnel for the financial year ended 30 June 2013. The
term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and
controlling the activities of the consolidated entity, directly or indirectly, including any director (whether executive or
otherwise) of the consolidated entity. The prescribed details of each person covered by this report are detailed below
under the following headings:
• Director and key management personnel details;
•
•
•
•
•
•
•
•
•
remuneration policy;
use of remuneration consultants;
relationship between remuneration policy and Group performance;
non-executive Directors remuneration policy;
remuneration of Directors and key management personnel;
voting and comments made at the Company’s 2012 Annual General Meeting;
key terms of employment contracts;
share-based payments granted as compensation; and
remuneration outcomes.
Director and key management personnel details
The following persons acted as Directors of the Company during or since the end of the financial year:
P Dempsey (Chairman)
B Gallagher (Non-Executive Director – until 8 April 2013, Executive Director – appointed 8 April 2013)
G Sumner (Managing Director – until his resignation on 8 April 2013)
D Page AM (Non-Executive Director)
S Wilks (Non-Executive Director)
R Grant (Alternate Director, Chief Financial Officer)
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:
S Ellich (Executive General Manager – Fixed Communications – until his resignation on 28 May 2013)
C Orr (Executive General Manager – Fixed Communications – appointed 28 May 2013)
D Hill (Executive General Manager – Mobile Communications)
L Mackender (Executive General Manager – Energy and Water)
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 Group.
To retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the Group’s
operations, the Board seeks the advice of external advisers in connection with the structure of remuneration packages.
The Group’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.
1. Fixed remuneration
The Group’s principal remuneration strategy is to maintain equitable and affordable rates of pay for all employees, based
on their performance and the market in which the Group operates. Fixed remuneration is 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, and 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 is established by reference to the complexity of the position (determined by
19
Service Stream Limited
Directors’ report
reference to a job evaluation methodology) and general market remuneration data. From time to time, where a need
arises, other more specific market data may be used for certain positions.
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 require
significantly above average performance. STIP performance goals are also tied directly to the annual objectives of the
Group, 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 Group, as discussed below:
Performance category
Metrics
Weighting
Financial performance
Personal performance goals
Group earnings before interest, tax,
depreciation and amortisation
Divisional earnings before interest, tax,
depreciation and amortisation
Goals assessed through an internal
performance management program
based on individual performance against
individual objectives.
Group
Role
50%
n/a
50%
Divisional
Role
20%
30%
50%
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 LTIP. The LTIP operates within the 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, and to shareholders at
the Annual General Meeting in the case of Directors, for approval.
In accordance with the provision of the ESOP and consistent with the prior year, 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 2013 (“FY13 Tranche”). Each performance right converts into one ordinary share of
Service Stream Limited on vesting. No amounts are paid or payable by the participant on receipt of the performance
rights, and 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:
o The participant must be an employee at the vesting date;
o
50% of the performance rights granted will each vest where:
o The Group’s earnings 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, as detailed below:
Percentage of performance rights that vest
EPS growth per annum
0%
40%
Below 7.5%
At 7.5%
Proportional vesting
Greater than 7.5% and less than 10.0%
100%
10.0% and above
The table below details the performance period, vesting dates and EPS base for each of the LTIP tranches:
20
Performance period
Vesting date
EPS base (cents per share)
FY11 Tranche
3 years
30 June 2013
3.85
FY12 Tranche
3 years
30 June 2014
5.80
FY13 Tranche
3 years
30 June 2015
6.60
o The Group’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, as detailed below:
Service Stream Limited
Directors’ report
Percentage of performance rights that vest
0%
50%
Proportional vesting
100%
TSR ranking
Below the 50th percentile
At the 50th percentile
Above the 50th percentile but below the
75th percentile
75th percentile or above (top quartile)
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 25 for details of options in existence for the year ended 30 June 2013. No options were granted or vested
under the EOP during the financial year.
Securities Trading Policy
The trading of shares issued to participants under any of the Company’s Employee Share Plans is subject to, and
conditional upon, compliance with the Company’s Securities Trading Policy (which can be found on the Company’s
website). The Securities Trading Policy lists the prohibited conduct of Officers and Employees and includes insider
trading, margin lending, speculative trading, short selling and entering into any hedging arrangements. Any non-
compliance will be regarded as serious misconduct which may result in the termination of their employment.
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. The Group encourages recognition and reward for such behaviours, and may
choose to recognise high performance via a discretionary bonus.
Use of remuneration consultants
During the year the Remuneration and Nomination Committee engaged the services of the Hay Group to perform a
review of the remuneration of the Board and of key management personnel, and to implement a job evaluation and
classification approach within the Group. Under the terms of the engagement, the Hay Group provided remuneration
recommendations as defined in section 9B of the Corporations Act 2001 and was paid $41,250 for these services.
The Hay Group has confirmed that the above recommendations have been made free from undue influence by member
of the Group’s key management personnel.
To ensure the recommendations made were free from undue influence the following arrangements were made:
The Hay Group was engaged by, and reported directly to, the Chair of the Remuneration and Nomination Committee.
The report containing the remuneration recommendations was provided directly to the Chair of the Board Remuneration
and Nomination Committee.
Management was permitted to contact the Hay Group for scoping and undertaking of individual pieces of work, provided
that key management personnel work was delivered according to the protocols above.
As a consequence, the Board is satisfied that the recommendations were made free from undue influence from any
members of the key management personnel.
21
Service Stream Limited
Directors’ report
Relationship between remuneration policy and Group performance
Each element of the remuneration framework is linked to the Group’s financial performance. Changes to fixed
remuneration are 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, the Remuneration and Nomination Committee have regard to a number of
indices including the following:
Total Executive
Remuneration
Revenue
EBITDA 1
2013
$’000
2012
$’000
Results
2011
$’000
2010
$’000
2009
$’000
2,662
3,719
5,274
3,727
4,841
2013
%
(28.4%)
2012
%
(29.5%)
Change
2011
%
41.5%
2010
%
(23.0%)
526,593
592,216
633,290
520,781
558,216
(11.1%)
(6.5%)
21.6%
(6.7%)
(13,392)
38,041
34,584
6,401
30,147
(135.2%)
10.0%
440.3%
(78.8%)
Net profit/(loss) before tax
(113,581)
26,643
22,631
(7,315)
15,300
(526.3%)
17.7%
(409.4%)
(147.8%)
Net profit/(loss) after tax
Share price at end of year
Interim dividend 2
Final dividend 2 & 3
Basic earnings per share 4
Diluted earnings per share 4
(107,054)
0.14 5
18,716
16,452
(2,555)
11,118
(672.0%)
13.8%
(743.9%)
(123.0%)
0.35
0.49
0.23
0.41
(60.0%)
(28.6%)
113.0%
(43.9%)
1.00 cps
1.00 cps
-
1.00 cps
-
-
-
-
3.50cps
-
-
(100.0%)
n/a
n/a
-
-
(100.0%)
-
(100.0%)
-37.77 cps
6.60 cps
5.80cps
-0.99cps
5.93cps
(672.3%)
13.8%
(685.9%)
(116.7%)
-37.77 cps
6.54 cps
5.80cps
-0.99cps
5.93cps
(677.5%)
12.8%
(685.9%)
(116.7%)
(43.6%)
(40.5%)
2009
%
12.4%
23.9%
(19.1%)
(41.0%)
(38.6%)
(59.0%)
-
1. Earnings before interest, tax, depreciation and amortisation.
2. Franked to 100% at 30% corporate income tax rate.
3. Declared after the balance date and not reflected in the financial statements of that year.
4. Earnings per share for prior years have been restated to reflect the October 2009 rights issue.
5. Based on the last available share price.
The overall level of key management personnel compensation takes into account the size, complexity, financial
performance and growth prospects of the Group.
Non-executive Directors remuneration policy
On appointment to the board, all non-executive directors enter into a service agreement with the Company in the form of a
letter of appointment. The letter summarises the board policies and terms, including remuneration. Non-Executive Directors
are remunerated by way of fees and statutory superannuation (where applicable). The Executive Director is paid his pre-
existing fixed Directors salary and a fixed higher duties allowance. The Non-Executive Directors and the Executive Director
(Mr Gallagher) do not receive performance-based pay.
Fees are reviewed annually taking into account comparable roles and market data provided by the Board’s independent
remuneration adviser. The current base fees were reviewed in June 2013 with the Director’s agreeing that a fee increase
was not warranted given the current circumstances of the Company. The Directors have not had a fee increase in the past
three years; as such there has been no requirement to seek shareholder approval of an increase to the aggregate Directors’
22
fee pool. The Remuneration Report (at pages 19-26 of this annual financial report) details the remuneration of Directors.
The maximum annual aggregate directors’ fee pool limit is $500,000 as per the Company’s Constitution. The following fees
have applied:
Service Stream Limited
Directors’ report
From 1 July 2013
From 1 July 2011
to 30 June 2013
$
$
Base fees
Chair
Other non-executive directors
138,975
111,725
138,975
111,725
Additional fees
Audit and risk committee - Chair
5,450
5,450
Remuneration of Directors and key management personnel
Short-term employee benefits
Post-
employment
benefits
Long-term
employee
benefits
Share-based
payment
Total
Salary &
fees
Short term
incentives 6
Non-
monetary
Superannu-
ation
Long Service
Leave
Performance
rights 7
2013
$
Non-executive directors
P Dempsey
S Wilks 1
D Page
127,500
111,725
107,500
Executives
B Gallagher 2
G Sumner 3
R Grant
D Hill
L Mackender
C Orr 4
S Ellich 5
152,298
552,251
417,392
270,642
262,530
28,143
319,376
$
-
-
-
-
-
-
-
(2,146)
-
24,311
$
-
-
-
-
38,471
-
-
6,698
374
46,875
$
11,475
-
9,675
13,334
40,198
25,695
24,358
16,470
1,721
23,342
$
-
-
-
-
13,485
8,355
14,577
12,152
656
9,104
$
-
-
-
-
(82,388)
60,923
18,228
18,610
3,907
(45,500)
$
138,975
111,725
117,175
165,632
562,017
512,365
327,805
314,314
34,801
377,508
1. S Wilks’ remuneration is paid to High Expectations Pty Ltd, a company in which Stephe has a beneficial interest.
2. B Gallagher was a non-executive director until 8 April 2013 at which time he become Executive Director.
3. G Sumner held the position of Managing Director until 8 April 2013 and left the employment of the Group on 1 July 2013. Due to Graeme's cessation of
employment his performance rights were forfeited, effective as at his date of resignation. Remuneration shown in the above table relates only to the period of
time which Graeme was considered to be key management personnel.
4. C Orr was appointed to the position of Executive General Manager - Fixed Communications on 28 May 2013. Remuneration shown in the above table
relates only to the period of time which Chad was considered to be key management personnel.
5. S Ellich held the position of Executive General Manager - Fixed Communications until 28 May 2013 and left the employment of the Group on 1 July 2013.
Due to Stephen's cessation of employment his performance rights were forfeited, effective as at his date of resignation. Remuneration shown in the above
table relates only to the period of time which Stephen was considered to be key management personnel.
6. Due to the failure of the Group to meet the required performance targets, there are no short term incentives payable for the year ended 30 June 2013. The
amounts included above represent variances between the 30 June 2012 estimation as included in the remuneration report for the year ended 30 June 2012
and the amount subsequently paid.
7. The fair value of performance rights issued under the Long Term Incentive Plan, allocated on a pro-rata basis, to the current financial year. Where rights
have been forfeited due to resignation or non-achievement of performance targets the relevant remuneration disclosure will be negative.
23
Short-term employee benefits
Post-
employment
benefits
Long-term
employee
benefits
Share-based
payment
Total
Salary &
fees
Short term
incentives 4
Non-
monetary
Superannu-
ation
Long Service
Leave
Performance
rights 5
Service Stream Limited
Directors’ report
2012
$
Non-executive directors
P Dempsey
S Wilks 3
B Gallagher
D Page
127,500
102,500
102,500
107,500
Key management personnel
G Sumner
R Grant 6
R Stanton 1
D Hill 2
S Ellich
L Mackender
650,642
364,500
271,066
81,563
338,395
234,225
$
-
-
-
-
235,448
151,051
70,359
8,151
107,550
71,246
$
-
-
-
-
63,230
-
30,529
-
49,390
-
$
11,475
9,225
9,225
9,675
63,750
47,500
16,986
7,341
24,598
15,775
$
-
-
-
-
1,874
1,117
9,077
4,073
11,369
5,734
$
-
-
-
-
$
138,975
111,725
111,725
117,175
106,637
1,121,581
7,444
63,970
8,097
87,493
29,219
571,612
461,987
109,225
618,795
356,199
1. R Stanton held the position of Executive General Manager – Mobile Communications until 5 March 2012 and left the employment of the Group on 1 July
2012. Due to Rod’s cessation of employment the performance rights, the value of which are shown in the above table, were forfeited, effective 1 July 2012.
2. D Hill was appointed to the position of Executive General Manager – Mobile Communications on 7 March 2012. The remuneration shown in the table above
reflects the period 7 March 2012 to 30 June 2012.
3. S Wilks’ remuneration is paid to High Expectations Pty Ltd, a company in which Stephe has a beneficial interest.
4. This amount represents cash short term incentives payable for the year ended 30 June 2012, which are scheduled to be paid in September 2012. Included in
these amounts are any variances between the 30 June 2011 estimation as included in the remuneration report for the year ended 30 June 2011 and the actual
amount subsequently paid.
5. The fair value of performance rights issued under the Long Term Incentive Plan in the current and prior reporting periods, allocated on a pro-rata basis, to the
current financial year.
6. In the remuneration report for the year ended 30 June 2011, the amount shown for Robert Grant’s performance rights was estimated based on a grant date of
18 February 2011. The issue of these rights was however subject to shareholder approval. This approval was obtained at the Company’s Annual General
Meeting on 26 October 2011 and the performance rights have subsequently been revalued based on this revised grant date. Included in the amount shown
above is a downwards reduction of $87,774 in relation to this revaluation.
No Director or members of the key management personnel who were appointed during the period received a payment as
part of his or her consideration for agreeing to hold the position.
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
Fixed Remuneration
At risk - STI
At risk - LTI
Non-executive directors
2013
2012
2013
2012
2013
2012
P Dempsey
S Wilks
D Page
Executives
B Gallagher
G Sumner
R Grant
D Hill
L Mackender
C Orr
S Ellich
R Stanton
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
50.0%
64.5%
64.5%
57.1%
64.5%
n/a
40.0%
50.0%
64.5%
64.5%
57.1%
64.5%
64.5%
0.0%
0.0%
0.0%
0.0%
25.0%
25.0%
19.4%
19.4%
28.6%
19.4%
n/a
0.0%
0.0%
0.0%
0.0%
20.0%
25.0%
19.4%
19.4%
28.6%
19.4%
19.4%
0.0%
0.0%
0.0%
0.0%
25.0%
25.0%
16.1%
16.1%
14.3%
16.1%
n/a
0.0%
0.0%
0.0%
0.0%
40.0%
25.0%
16.1%
16.1%
14.3%
16.1%
16.1%
Voting and comments made at the Company’s 2012 Annual General Meeting
The Company received more than 94% of “yes” votes on its Remuneration Report for the 2012 financial year. The company
did not receive any specific feedback at the AGM or throughout the year on its remuneration practices.
24
Service Stream Limited
Directors’ report
Key terms of employment contracts
Except as detailed below, the employment contracts for key management personnel listed in the remuneration table provide
for the following elements:
•
base remuneration allocated between salary, 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.
Robert Grant
Robert (Bob) Grant’s contract specifies his eligibility to be invited to participate in the LTIP.
Brett Gallagher
In addition to his directors fees of $111,725, Brett Gallagher has received a Higher Responsibilities allowance of $287,496
for the period in which he holds the position of Executive Director.
As a member of the Board, Brett is not eligible to accrue entitlements such as annual leave, sick leave and long service leave
and during planned absences the higher responsibilities allowance referred above does not apply.
Furthermore, Brett is ineligible to participate in either the STIP or LTIP schemes.
Graeme Sumner
Graeme Sumner resigned from his position as Managing Director on 8 April 2013 and took no part in management of the
Company from that date. Graeme’s contract stipulates a six months’ notice period post his resignation date. The Board
agreed a waiver of this notice period and Graeme’s employment with the Company ceased on 1 July 2013. Graeme’s LTIP
eligibility expires on the date of his resignation and the forfeiture of Graeme’s LTIP has been taken into account in these
financial statements.
Share-based payments granted as compensation
Executive Option Plan
In previous years, the Group operated an option-based scheme for its executives and senior employees.
During the financial year, the following arrangements remained in existence:
Option Series
Series 18
Grant date
23 October 2007
Expiry date
1 March 2013
Grant date fair value
0.1423
Vesting date
Vested 23 October 2007
During the year, no options were granted to or exercised by Directors and key management personnel as part of their
remuneration. All options issued under the Executive Option Plan have now expired.
Long Term Incentive Plan (“LTIP”)
The Group operates a LTIP whereby employees in senior management roles are granted performance rights subject to
service and performance criteria. As at balance date, the following LTIP arrangements were in existence:
LTIP Series
Number
Grant date
FY11 tranche 1
711,222
18 February 2011
FY11 tranche (R. Grant) 1,3
313,480
18 February 2011
FY12 tranche 2
FY13 tranche 4
1,866,347
25 November 2011
3,018,425
30 November 2012
Grant date weighted average
fair value
Vesting date
Relative TSR hurdle - $0.720
EPS hurdle - $0.750
Relative TSR hurdle - $0.315
EPS hurdle - $0.315
Relative TSR hurdle - $0.160
EPS hurdle - $0.250
Relative TSR hurdle - $0.190
EPS hurdle - $0.290
30 June 2013
30 June 2013
30 June 2014
30 June 2015
1. The performance period for the FY11 tranche of LTIP performance rights commenced 1 July 2010.
2. The performance period for the FY12 tranche of LTIP performance rights commenced 1 July 2011.
3. Although the grant date for Bob Grant’s performance rights was 18 February 2011, the issue of these rights was not approved until the Company’s Annual
General Meeting on 26 October 2011.
4. The performance period for the FY12 tranche of LTIP performance rights commenced 1 July 2012.
25
Remuneration outcomes
The FY11 Tranche LTIP vested during the current financial year (vesting date: 30 June 2013). The table below details the
vesting of the performance rights under this tranche. The achievement of the EPS and TSR targets are measured each
year and performance rights can vest if the targets are met in any individual year. Performance is also measured over the 3
year period:
FY11 Tranche
EPS growth hurdle (base 3.85 cps)
Relative TSR hurdle
Service Stream Limited
Directors’ report
Year 1
Year 2
Year 3
Year 1-3
Measure
Achievement
Measure
Achievement
50.8%
13.8%
-648.2%
-194.5%
Yes
Yes
No
No
1st Quartile
4th Quartile
TBA
TBA
Yes
No
TBA1
TBA1
1. TSR hurdle not expected to be achieved however the measurement of the TSR will not be completed until after the release of FY13 results.
On vesting, each right converts to one ordinary share in Service Stream Limited.
The following table outlines the performance rights issued under the LTIP to Directors and key management personnel in
the current financial year:
Name
G Sumner 1
R Grant 2
D Hill
S Ellich 3
C Orr 4
L Mackender
Number of rights granted
during the year
Number of rights vested
during the year
Number of rights lapsed
during the year
1,124,796
522,297
173,868
250,154
205,458
164,438
-
313,480
43,894
149,882
128,135
41,003
2,685,339
313,480
43,894
605,660
128,135
41,003
1. G Sumner held the position of Managing Director until 8 April 2013. Due to G Sumner’s cessation of employment his performance rights were forfeited.
2. R Grant is an Alternate Director for G Sumner (until 8 April 2013) and for B Gallagher (since 8 April 2013).
3. S Ellich held the position of Executive General Manager – Fixed Communications until 28 May 2013. Due to S Ellich’s cessation of employment all non-
vested performance rights were forfeited.
4. C Orr was appointed Executive General Manager – Fixed Communications on 28 May 2013.
For each cash bonus and grant of performance rights included in the tables on pages 23-26, the percentage of the available
bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because either the
service or performance criteria was not met, are set out below:
Name
STIP
LTIP
Awarded
%
Forfeited
%
Year granted
Vested
Forfeited
Financial years
in which rights
vests
G Sumner
R Grant
D Hill
S Ellich
C Orr
L Mackender
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
100%
2013
2012
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
0.0%
0.0%
0.0%
0.0%
50.0%
0.0%
0.0%
50.0%
0.0%
0.0%
50.0%
0.0%
0.0%
50.0%
0.0%
0.0%
50.0%
100.0%
100.0%
0.0%
0.0%
50.0%
0.0%
0.0%
50.0%
100.0%
100.0%
50.0%
0.0%
0.0%
50.0%
0.0%
0.0%
50.0%
2015
2014
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
26
The Directors’ report is signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the
Corporations Act 2001.
Service Stream Limited
Directors’ report
On behalf of the Directors
P Dempsey
Chairman
Melbourne, 30 August 2013
B Gallagher
Executive Director
Melbourne, 30 August 2013
27
Auditor’s Independence Declaration
As lead auditor for the audit of Service Stream Limited for the year ended 30 June 2013, I declare that
to the best of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Service Stream Limited and the entities it controlled during the period.
Andrew Cronin
Partner
PricewaterhouseCoopers
Melbourne
30 August 2013
PricewaterhouseCoopers, ABN 52 780 433 757
Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Independent auditor’s report to the members of Service
Stream Limited
Report on the financial report
We have audited the accompanying financial report of Service Stream Limited (the company), which
comprises the balance sheet as at 30 June 2013, the statement of comprehensive income, statement of
changes in equity and statement of cash flows for the year ended on that date, a summary of significant
accounting policies, other explanatory notes and the directors’ declaration for the Service Stream
Limited Group (the consolidated entity). The consolidated entity comprises the company and the
entities it controlled at year's end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 2.1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Auditor’s opinion
In our opinion:
(a)
the financial report of Service Stream Limited is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 30 June
2013 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001; and
(b)
the financial report and notes also comply with International Financial Reporting Standards
as disclosed in Note 2.1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 19 to 26 of the directors’ report for the
year ended 30 June 2013. The directors of the company are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of Service Stream Limited for the year ended 30 June 2013,
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Andrew Cronin
Partner
Melbourne
30 August 2013
Service Stream Limited
Directors’ declaration
Directors’ declaration
In the directors’ opinion:
(a)
the financial statements and notes thereto are in accordance with the Corporations Act 2001, including:
i.
ii.
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements, and
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its
performance for the financial year ended on that date, and
(b)
(c)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable;
at the date of this declaration, there are reasonable grounds to believe that the members of the extended
closed group identified in note 31 will be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the deed of cross guarantee described in note 31.
Note 2 confirms that the financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The directors have been given the declarations by the chief executive officer and chief financial officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
P Dempsey
Chairman
Melbourne, 30 August 2013
B Gallagher
Executive Director
Melbourne, 30 August 2013
31
Service Stream Limited
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
for the financial year ended 30 June 2013
Revenue from continuing operations
Revenue from the rendering of services
Other income
Expenses
Employee salaries and benefits
Subcontractor fees
Site and construction costs
Raw materials and consumables used
Consulting and temporary staff fees
Company administration and insurance expenses
Occupancy expenses
Technology and communication services
Motor vehicle expenses
Other expenses
Loss on onerous contracts
Write back of currency translation differences
Impairment losses of investment in associate
Share of losses of investment in associate
Depreciation and amortisation
Goodwill impairment
Interest expense and other finance costs
(Loss) / profit before tax
Income tax benefit / (expense)
(Loss) / profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translating foreign investment
Cash flow hedges
Total comprehensive income for the year
Note
5
6
12
12
8.1
16
7
9
25
21
2013
$’000
2012
$’000
526,600
(7)
592,190
26
526,593
592,216
(163,222)
(153,083)
(91,752)
(57,980)
(12,065)
(11,305)
(10,702)
(7,852)
(10,768)
(6,167)
(12,824)
(576)
-
(48)
(8,345)
(89,800)
(3,685)
(113,581)
6,527
(148,991)
(227,778)
(77,635)
(45,312)
(11,334)
(11,536)
(9,135)
(8,964)
(8,158)
(3,535)
-
-
(700)
(36)
(7,486)
-
(4,973)
26,643
(7,927)
(107,054)
18,716
576
(203)
(114)
-
(106,681)
18,602
(Loss) / profit attributable to the equity holders of the parent
(107,054)
18,716
Total comprehensive income attributable to equity holders of the parent
(106,681)
18,602
Earnings per share
Basic (cents per share)
Diluted (cents per share)
27
27
(37.77)
(37.77)
6.60
6.54
Notes to the financial statements are included on pages 36 to 87.
32
Service Stream Limited
Consolidated balance sheet
Consolidated balance sheet as at 30 June 2013
Note
2013
$’000
2012
$’000
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Accrued revenue
Other
Assets classified as held for sale
Total current assets
Non-current assets
Property, 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
Other
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Provisions
Deferred tax liability
Other
Derivatives
Total non-current liabilities
Total liabilities
Net assets
Equity
Capital and reserves
Issued Capital
Reserves
Retained earnings / (accumulated losses)
Total equity
Notes to the financial statements are included on pages 36 to 87.
33.1
11
14
17
10
15
9.3
16
19
20
9.2
22
23
19
20
22
9.3
23
21
24
25
26
13,398
61,888
17,545
88,338
5,170
186,339
-
186,339
15,291
-
123,869
139,160
20,916
63,943
12,096
97,831
2,374
197,160
330
197,490
10,052
6,177
211,677
227,906
325,499
425,396
69,518
65,414
-
10,483
1,339
146,754
9,500
-
2,731
4,177
4,094
203
20,705
81,095
988
4,891
11,332
-
98,306
-
53,780
2,643
-
-
-
56,423
167,459
154,729
158,040
270,667
228,416
2,527
(72,903)
228,416
2,372
39,879
158,040
270,667
33
Service Stream Limited
Consolidated statement of changes in equity
Consolidated statement of changes in equity
for the financial year ended 30 June 2013
Note
Share
capital
Employee
equity-
settled
benefits
reserve
Hedging
reserve
Foreign
currency
translation
reserve
Retained
earnings /
(accumulat
ed losses)
Total
$’000
$’000
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
-
(522)
23,997
254,133
-
(114)
18,716
-
18,716
(114)
(114)
18,716
18,602
-
-
-
(2,834)
766
(2,834)
(636)
39,879
270,667
-
636
(107,054)
(60)
(107,054)
576
(203)
(203)
-
-
(203)
636
(107,114)
(106,681)
Balance at 1 July 2011
228,416
2,242
Profit for the period
Other comprehensive income
Total comprehensive income for the
year
Equity settled share based payment
Dividends paid
28
-
-
-
-
-
-
-
766
-
Balance at 30 June 2012
228,416
3,008
Loss for the period
Write back of currency translation reserve
on sale of investment
Other comprehensive income
Total comprehensive income for the
year
Equity settled share based payment
Dividends paid
28
-
-
-
-
-
-
-
-
-
-
(278)
-
-
-
Balance at 30 June 2013
228,416
2,730
(203)
Notes to the financial statements are included on pages 36 to 87.
-
-
-
-
(5,668)
(278)
(5,668)
(72,903)
158,040
34
Consolidated statement of cash flows
for the financial year ended 30 June 2013
Service Stream Limited
Consolidated statement of cash flows
Cash flows from operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Cash generated from / (used in) operations before interest and tax
Interest received
Interest paid
Income taxes paid / (refunded)
Note
2013
$’000
2012
$’000
598,987
(605,531)
663,595
(636,030)
(6,544)
1,394
(3,655)
11,991
27,565
382
(3,989)
(7,998)
Net cash provided by operating activities
33.2
3,186
15,960
Cash flows from investing activities
Payments for plant and equipment
Proceeds from sale of plant and equipment
Payment for intangible assets
Proceeds from sale of investment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash provided by financing activities
(10,821)
175
(5,317)
282
(5,216)
144
(3,755)
-
(15,681)
(8,827)
42,327
(36,652)
(5,668)
15,336
(7,890)
(2,834)
7
4,612
Net (decrease) / increase in cash and cash equivalents
(12,488)
11,745
Cash and cash equivalents at the beginning of the financial year
20,916
9,171
Cash and cash equivalents at the end of the financial year
33.1
8,428
20,916
Notes to the financial statements are included on pages 36 to 87.
35
Service Stream Limited
Notes to the financial statements
Notes to the financial statements
for the financial year ended 30 June 2013
1.
General information
Service Stream Limited (“the Company”) is a limited company incorporated in Australia and listed on the
Australian Securities Exchange (ASX: SSM).
Service Stream Limited’s registered office and its principal place of business are as follows:
Level 4, 357 Collins Street
Melbourne, Victoria 3000
The principal activities of the Company and its subsidiaries (“the Group”) are described in note 4.
2.
Significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are
set out below. These policies have been consistently applied to all the years presented, unless otherwise
stated. The financial statements are for the consolidated entity consisting of Service Stream Limited and its
subsidiaries.
2.1
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act
2001. Service Stream Limited is a for-profit entity for the purpose of preparing the financial statements.
The financial statements were authorised for issue by the Directors on 30 August 2013.
Compliance with IFRS
The consolidated financial statements of the Group also comply with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
New and amended standards adopted by the Group
None of the new standards and amendments to standards that are mandatory for the first time for the financial
year beginning 1 July 2012 affected any of the amounts recognised in the current period or any prior period and
are not likely to affect future periods. However, amendments made to AASB 101 Presentation of Financial
Statements effective 1 July 2012 now require the statement of comprehensive income to show the items of
comprehensive income grouped into those that are not permitted to be reclassified to profit or loss in a future
period and those that may have to be reclassified if certain conditions are met.
Early adoption of standards
The Group have not elected to early adopt the Standards and Interpretations issued but not yet effective. Refer
to note 2.31.
Historical cost convention
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.
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.
The following significant accounting policies have been adopted in the preparation and presentation of the
annual financial report:
36
2.
Significant accounting policies (continued)
2.2
Going concern
Service Stream Limited
Notes to the financial statements
The Group breached a number of covenants under its banking facilities at 31 March 2013 and 30 June 2013
as a consequence of the impact of the business’ operating performance on its 12 month rolling EBITDA and
EBIT metrics and the impairment charge relating to Fixed Communications’ goodwill.
Since balance date, the Group has received credit approved term sheets from its financiers, Australia & New
Zealand Banking Group Ltd and Westpac Banking Corporation for the renewal of its banking facilities out to
31 August 2014. The facilities being offered under the credit approved term sheets include a cash advance
facility with an initial limit of $60 million, an overdraft facility of $5 million and a bank guarantee facility of $37
million. In addition to the payment of an establishment fee, the revised facilities will attract line fees and
margins that will result in an increase in costs of between 200 and 250 bps compared to FY13. The credit
approved term sheets define a number of conditions precedent and conditions subsequent.
The Board is confident the conditions precedent and subsequent will be satisfied. The Board also considered
the terms of the offer to be commercially acceptable and proposes to accept the offer and to proceed to
documentation.
The revised banking facilities will require the business to operate within reduced facility limits and to commit
to the repayment of a total of $13 million from the cash advance facility over the course of FY14.
Under the terms of the offer, the breaches of covenants at 31 March 2013 and 30 June 2013 will be waived
by the financiers upon execution of the final lending documentation. In addition, several of the former facility
covenants are suspended, amended or replaced with more relevant measures. The former earnings-based
covenants have been suspended and replaced with a covenant relating to performance against budgeted
EBITDA. The asset-based covenants of Shareholder Funds and Net Tangible Assets will be reset in line with
the actual metrics as at 30 June 2013.
Management and the Board have reviewed the Group’s cashflow forecasts in the context of the Group’s
obligations under the revised facilities, and are of the view that there are reasonable grounds on which to
conclude that the Group can continue to operate as a going concern.
Accordingly, the consolidated financial statements have been prepared on a going concern basis in the belief
that the Company will realise its assets and settle its liabilities and commitments in the normal course of
business.
2.3
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries).
Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern
the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting
rights. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-
consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Joint ventures
The proportionate interests in the assets, liabilities and expenses of a joint venture operation have been
incorporated in the financial statements under the appropriate headings. Details of the joint venture are set out
in note 13.
37
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.4
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 and then 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.
2.5
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker is responsible for allocating resources and assessing
performance of the operating segments. Details of the Group’s segment reporting is set out in note 4.
2.6
Investments in associates
An associate is an entity over which the Group has significant influence and one that is neither a subsidiary nor an
interest in a joint venture. Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity
method of accounting, except when the investment is classified as held for sale, in which case it is accounted for
in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations. 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.
2.7
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use. This condition is only satisfied when
the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of classification.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and
liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless
of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous
carrying amount and fair value less costs to sell.
2.8
Investment in joint venture
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic
activity that is subject to joint control (i.e. when the strategic financial and operating policy decisions relating to
the activities of the joint venture require the unanimous consent of the parties sharing control).
The proportionate interest in the assets, liabilities, revenue and expenses of the joint venture activity have been
incorporated in the financial statements under the appropriate headings. Details of the joint venture are set out
in note 13.
38
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.9
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as
revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future
economic benefits will flow to the entity and specific criteria have been met for each of the group’s activities as
described below. The group bases its estimates on historical results, taking into consideration the type of
customer, the type of transaction and the specifics of each arrangement.
Revenue is recognised for the major business activities as follows:
Rendering of services
Revenue from a contract to provide services is recognised when probable and measurable, as labour hours or
contracted services are delivered.
Revenue from construction contracts is recognised in accordance with the accounting policy set out in note
2.10.
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.
2.10 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 normally
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. Where
this is the case, stage of completion is measured on a time basis. 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.
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 within accrued income. 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 within income in advance. Amounts
received before the related work is performed are included in the consolidated statement of financial position, as
a liability, as income in advance. 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.
2.11 Leases
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.
Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the
present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are
included in other short-term and long-term payables.
39
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.11 Leases (continued)
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.
2.12 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 the Group and the currency used 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.
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).
2.13 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 short-term 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 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.
Termination benefits are payable when employment is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either terminating the employment of current employees
according to a detailed formal plan without possibility of withdrawal or to providing termination benefits as a
result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the
end of the reporting period are discounted to present value.
40
Significant accounting policies (continued)
2.
2.14 Share-based payments
Executive Option Plan
Service Stream Limited
Notes to the financial statements
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 35.
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 Group’s estimate of shares that will eventually vest.
Executive Option Plan (continued)
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.
No expense amount has been recognised in profit and loss for the year ended 30 June 2013 (2012: Nil) in
respect of the EOP.
Long Term Incentive Plan
Equity-settled share-based payments to employees under the Long Term Incentive Plan (“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 35.
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, other than to take into account the impact of
participants who will not meet the service period criteria.
An expense amount of (-$277,253) has been recognised in profit and loss for the year ended 30 June 2013 (2012:
$765,732) in respect of the LTIP.
2.15 Taxation
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.
41
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.15 Taxation (continued)
Deferred tax (continued)
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 9.4.
2.16 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, estimated useful
lives and residual values are reviewed at the end of each annual accounting period, with the effect of any
changes recognised on a prospective basis.
Plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property,
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
Motor vehicles
2 - 10 years
2 - 10 years
3 – 7 years
2.17
Intangible assets
Internally-generated intangible assets – research and development expenditure
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
42
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.17
Intangible assets (continued)
Internally-generated intangible assets – research and development expenditure (continued)
period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired
separately.
Intangible assets acquired separately
Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation
and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated
useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with
indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
Software
Software is carried at cost less accumulated amortisation and accumulated impairment. Amortisation is
recognised on a straight line basis over the estimated useful life. 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 2 and 5 years.
De-recognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is
de-recognised.
2.18
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 (or 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 (or 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 increase.
43
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.19
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. The inventory balance is comprised of purchase inventory, the cost of which is determined after
deducting rebates and discounts. Net realisable value represents the estimated selling price for inventories less
all estimated costs of completion and costs necessary to make the sale.
2.20 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 (where the effect of the time value of money is
material).
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.
Warranties
Provisions for the expected cost of warranty obligations are recognised at the date of installation of the relevant
products, at management’s best estimate of the expenditure required to settle the Group’s obligation.
2.21 Financial instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual
provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately
in profit or loss.
2.21.1 Financial assets
All financial assets are recognised and de-recognised 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) over the expected life of the debt instrument
or, (where appropriate) a shorter period, to the net carrying amount on initial recognition.
44
2.
Significant accounting policies (continued)
2.21 Financial instruments (continued)
2.21.1 Financial assets (continued)
Effective interest method (continued)
Service Stream Limited
Notes to the financial statements
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.
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 uncollectable, 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.
For financial assets measured at amortised cost, 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.
2.21.2 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 Group are recognised at the proceeds received, net of direct
issue costs.
Financial guarantee liabilities
A financial guarantee is a contract that requires the issuer of the guarantee to make a specified payment/s to
the holder of the guarantee in the event that they suffer a loss due to the guarantee drawer’s failure to make
payment or otherwise satisfy their contractual obligations under an agreement with the holder. The drawer of the
guarantee is required to reimburse the issuer for any loss suffered in satisfaction of the guarantee obligation to
the holder.
Financial guarantee liabilities are initially measured at their fair values and are subsequently measured at the
higher of:
•
the amount of the obligation under the contract, as determined in accordance with AASB 137 Provisions,
Contingent Liabilities and Contingent Assets; and
45
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.21 Financial instruments (continued)
2.21.2 Financial liabilities and equity instruments (continued)
Financial guarantee liabilities (continued)
•
the amount initially recognised, less where appropriate, cumulative amortisation recognised in accordance
with the revenue recognition policies.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ (“FVTPL”) or
‘other financial liabilities’.
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.
De-recognition of financial liabilities
The Group de-recognises financial liabilities only when the Group’s obligations are fully discharged, cancelled or
otherwise expire. The difference between the carrying amount of the financial liability de-recognised and the
consideration paid or payable is then recognised in profit or loss.
2.22 Derivative financial instrument
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at the end of each reporting period. The accounting treatment for
subsequent changes in fair value will be dependent upon whether the derivative was designated as a hedging
instrument at its inception and the type of hedge.
The Group designates hedge accounted derivatives as either a:
•
•
hedge of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or
hedge of a particular risk associated with the cash flows of recognised assets and liabilities and highly
probable forecast transactions (cash flow hedges).
In accordance with the requirements of AASB 139 Financial Instruments: Recognition and Measurement, the
Group documents at the inception of the hedge transaction the relationship between the hedging instrument and
the hedged item, as well as the risk being hedged and the risk management objective for undertaking the hedge
transaction. The Group documents both at hedge inception and on an ongoing basis its assessment of whether
the hedge transaction is expected to be and continues to be highly effective in offsetting changes in fair values
or cash flows of the hedged item.
The current fair values of derivative financial instruments used for hedging purposes are disclosed in note 21.
Changes in fair values taken to the hedging reserve are shown as adjustments to shareholders’ equity in note
25.
The fair value of a hedging instrument is classified as a non-current asset or liability where it’s remaining
maturity is more than 12 months and classified as a current asset or liability where its remaining maturity is less
than 12 months, as required.
Derivative financial instruments designated as held for trading are classified within the Balance Sheet as a
current asset or liability, as required.
Fair value hedge
Changes in the fair value of derivatives that are designated as fair value hedges are recorded in profit or loss,
together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The gain or loss relating to the ineffective portion is recognised in profit or loss within other income or other
expenses.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a
hedged item for which the effective interest method is used is amortised to profit or loss over the period to
maturity using a recalculated effective interest rate.
46
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.22 Derivative financial instrument (continued)
Cash flow hedge
The portion of the gain or loss on the hedging instrument that is determined to be hedge effective is recognised
within comprehensive income within the equity reserve. The gain or loss relating to the hedge ineffective portion is
recognised immediately in profit or loss.
Amounts accumulated within the equity reserve are reclassified to profit or loss in the periods when the hedged
item affects profit or loss. When a hedging instrument is de-designated, expires, is sold, terminated, or when a
hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity relating to
the period where the hedge was effective may remain in equity and is then recognised when the forecast
transaction occurs.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss reported in equity is
immediately reclassified to profit or loss.
2.23
Trade receivables
Trade receivables are recognised initially at fair value and subsequently adjusted for provision for impairment.
Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless
collection is not expected for more than 12 months after the reporting date.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are
written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade
receivables) is used when there is objective evidence that the group will not be able to collect all amounts due
according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the
debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered
indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between
the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original
effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting
is immaterial.
The amount of the impairment loss is recognised in profit or loss within other expenses. When a trade receivable
for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is
written off against the allowance account. Subsequent recoveries of amounts previously written off are credited
against other expenses in profit or loss.
2.24
Trade and other payables
These amounts represent liabilities for goods and services provided to the group prior to the end of financial year
which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other
payables are presented as current liabilities unless payment is not due within 12 months from the reporting date.
They are recognised initially at their fair value and are not discounted if the effect of discounting is immaterial.
2.25 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.
47
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.26 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.
2.27 Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases
the company’s equity instruments, for example as the result of a share buy-back or a share-based payment plan,
the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from
equity attributable to the owners of Service Stream Limited as treasury shares until the shares are cancelled or
reissued.
Where such ordinary shares are subsequently reissued, any consideration received, net of any directly
attributable incremental transaction costs and the related income tax effects, is included in equity attributable to
the owners of Service Stream Limited.
2.28 Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the
discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting
period.
2.29 Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing:
•
•
the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary
shares
by the weighted average number of ordinary shares outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during the year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to
take into account:
•
•
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares, and
the weighted average number of additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
2.30 Rounding of amounts
The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial
statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in
certain cases, the nearest dollar.
2.31 New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June
2013 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set
out below.
• AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising
from AASB 9, AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9
(December 2010) and AASB 2012-6 Amendments to Australian Accounting Standard – Mandatory Effective
Date of AASB 9 and Transition Disclosures (effective from 1 January 2015).
48
2.
Significant accounting policies (continued)
2.31 New accounting standards and interpretations (continued)
Service Stream Limited
Notes to the financial statements
AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial
assets and financial liabilities. The standard is not applicable until 1 January 2015 but is available for early
adoption. There will be no impact on the group's accounting for financial liabilities, as the new requirements
only affect the accounting for financial liabilities that are designated as at fair value through profit or loss
and the group does not have any such liabilities. The derecognition rules have been transferred from
AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The group
has not yet decided when to adopt AASB 9.
• AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of
Interests in Other Entities, revised AASB 127 Separate Financial Statements, AASB 128 Investments in
Associates and Joint Ventures, AASB 2011-7 Amendments to Australian Accounting Standards arising
from the Consolidation and Joint Arrangements Standards and AASB 2012-10 Amendments to Australian
Accounting Standards – Transition Guidance and Other Amendments (effective 1 January 2013).
In August 2011, the AASB issued a suite of five new and amended standards which address the accounting
for joint arrangements, consolidated financial statements and associated disclosures.
AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate
Financial Statements, and Interpretation 12 Consolidation – Special Purpose Entities. The core principle
that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity
remains unchanged, as do the mechanics of consolidation. However the standard introduces a single
definition of control that applies to all entities. It focuses on the need to have both power and rights or
exposure to variable returns before control is present. Power is the current ability to direct the activities that
significantly influence returns. Returns must vary and can be positive, negative or both. There is also new
guidance on participating and protective rights and on agent/principal relationships. Management has
assessed the impact of AASB 10 and do not believe it changes our assessment of control over any entities.
AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no
longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by
the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement
will be classified as either a joint operation or joint venture. Joint ventures are accounted for using the
equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint
operation will account their share of revenues, expenses, assets and liabilities in much the same way as
under the previous standard. AASB 11 also provides guidance for parties that participate in joint
arrangements but do not share joint control. The Group’s investment in the Syntheo Joint Venture will be
classified as a joint arrangement under the new rules. As the Group already applies the proportionate
consolidation method in accounting for this investment, AASB 11 will not have a material impact on the
amounts recognised in its financial statements.
AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and
AASB 11, and replaces the disclosure requirements currently found in AASB 128. Application of this
standard by the group will not affect any of the amounts recognised in the financial statements, but will
impact the type of information disclosed in relation to the group's investments.
Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and
does not remeasure its retained interest as part of ownership changes where a joint venture becomes an
associate, and vice versa. The amendments also introduce a “partial disposal” concept. The group is still
assessing the impact of these amendments.
The Group does not expect to adopt the new standards before their operative dates.
• AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards
arising from AASB 13 (effective 1 January 2013).
AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair
value disclosures. The group does not use fair value measurements extensively so it is therefore unlikely
that the new rules will have a significant impact on any of the amounts recognised in the financial
statements. However, application of the new standard will impact the type of information disclosed in the
notes to the financial statements. The group will adopt the new standard from its operative date, which
means that it will be applied in the annual reporting period ending 30 June 2014.
• AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management
Personnel Disclosure Requirements (effective 1 July 2013).
In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure
49
Service Stream Limited
Notes to the financial statements
2.
Significant accounting policies (continued)
2.31 New accounting standards and interpretations (continued)
requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international
equivalent standard and remove a duplication of the requirements with the Corporations Act 2001. While
this will reduce the disclosures that are currently required in the notes to the financial statements, it will not
affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013
and cannot be adopted early. The Corporations Act requirements in relation to remuneration reports will
remain unchanged for now, but these requirements are currently subject to review and may also be revised
in the near future.
• AASB 2012-3 Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets
(effective 1 January 2014).
The AASB has made small changes to some of the disclosures that are required under AASB 136
Impairment of Assets. These may result in additional disclosures if the group recognises an impairment loss
or the reversal of an impairment loss during the period. They will not affect any of the amounts recognised in
the financial statements. The group intends to apply the amendment from 1 July 2014.
3.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’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.
3.1
Critical judgements in applying accounting polices
The following is the critical judgement that, apart from those involving estimations (see 3.2 below), the Directors
have made in the process of applying the Group’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.
50
Service Stream Limited
Notes to the financial statements
3.
Critical accounting judgements and key sources of estimation uncertainty
(continued)
3.2
Key sources of estimation uncertainty
Income tax expense
Judgement is required in determining the Group provision for income taxes. The Group estimates its tax liabilities
based on its current understanding of the tax law. Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will impact the current and deferred income tax assets
and liabilities in the future period in which such determination is made.
Research and development tax concessions available to the business are estimated in the accounts because a
full assessment of the position cannot be made by the year end.
Please refer to note 9 for further details on the Group’s income tax balances.
4.
4.1
Segment information
Products and services from which reportable segments derive their revenues
The Group has identified its segments based on the internal reports that are used and reviewed by the chief
operating decision maker in assessing performance and determining the allocation of resources.
The Group’s operating segments are determined based on the nature of the business activities undertaken by
the Group. Unallocated costs include the costs of certain head office functions that are not considered
appropriate to be allocated to the Group’s operating businesses.
The principal products and services of each of these segments are as follows:
Fixed Communications
Mobile Communications
Energy & Water
to
Fixed Communications provides a wide range of design, construction and
maintenance services
fibre optic
telecommunications infrastructure assets. This segment also includes
the Group’s 50% interest in Syntheo, a Joint Venture with Lend Lease for
the design and construction of the National Broadband Network in
Western Australia, South Australia and Northern Territory.
the owners of copper and
Mobile Communications provides turnkey and project management
services
for site acquisition, design and construction of wireless
telecommunications infrastructure across Australia. The major customers
of Mobile Communications are currently Telstra and Vodafone-
Hutchinson.
Energy & Water provides a
range of specialist metering and
environmental services to utilities and government authorities nationally,
and through the Customer Care business, provides contact centre
services and end-to-end customer support for key contracts.
The accounting policies of the reportable segments are the same as the Group’s accounting policies.
Information regarding these segments is presented below:
51
4.
4.2
Segment information (continued)
Segment revenues and results
Fixed Communications
Mobile Communications
Energy & Water
Total of all segments
Eliminations
Investment in associate (i) (ii)
Unallocated
Earnings before interest, tax, depreciation and
amortisation
Net Interest received/(paid)
Depreciation/Amortisation
Goodwill impairment
Total revenue
(Loss) / profit before income tax expense
Income tax expense
(Loss) / profit for the period
Service Stream Limited
Notes to the financial statements
Segment revenue
Segment result
2013
$’000
2012
$’000
2013
$’000
2012
$’000
227,138
300,202
(31,970)
124,729
124,732
174,157
169,083
526,024
594,017
(825)
(2,183)
1,394
382
526,593
592,216
9,954
14,276
(7,740)
-
(576)
(5,076)
(13,392)
(2,044)
(8,345)
(89,800)
21,734
8,536
12,866
43,137
-
(700)
(4,396)
38,041
(3,912)
(7,486)
-
(113,581)
6,527
26,643
(7,927)
(107,054)
18,716
(i) The investment in Total Comm Infra Services Pvt Ltd (India) was sold during the current period. Upon sale,
the cumulative amount of the exchange differences relating to this investment has been reclassified from
equity to profit and loss.
(ii) During the 2012 financial year, the Group recognised an impairment loss of $700,000 in relation to the
investment held in Total Comm Infra Services Pvt Ltd (India). This amount was derived after taking the
expected proceeds from the sale of this investment into consideration.
4.3
Segment assets and liabilities
Fixed Communications
Mobile Communications
Energy & Water
Total of all segments
Unallocated
Consolidated
Segment assets
Segment liabilities
2013
$’000
2012
$’000
120,650
201,398
99,150
75,200
108,298
86,222
295,000
395,918
30,499
29,478
2013
$’000
2012
$’000
52,018
19,783
15,708
87,509
79,950
35,542
26,913
22,675
85,130
69,599
325,499
425,396
167,459
154,729
52
4.
4.4
Segment information (continued)
Other segment information
Fixed Communications
Mobile Communications
Energy & Water
Total of all segments
Unallocated
Consolidated
Service Stream Limited
Notes to the financial statements
Depreciation and
amortisation
Additions to non-
current assets
2013
$’000
2012
$’000
2013
$’000
2012
$’000
2,690
497
2,778
5,965
2,380
8,345
2,775
297
2,746
5,818
1,668
7,486
3,547
975
871
5,393
10,366
15,759
2,227
1,390
2,596
6,213
2,624
8,837
4.5
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. This investment was sold during the current period.
4.6
Information about major customers
In the current reporting period there were three customers (2012: two customers) which each contributed more than
10% of the Group’s revenue. The relevant revenue by segment is shown below:
Largest customer
2013: Fixed and Mobile Communications $198.5 million (2012: Fixed and
Mobile Communications $313.8 million).
Second largest customer
2013: Energy & Water $65.2 million (2012: Mobile Communications $63.7
million).
Third largest customer
2013: Fixed Communications $59.7 million.
No other single customer contributed 10% or more of the Group’s total revenue in 2013 and 2012.
53
5. Revenue
Revenue from the rendering of services
Interest revenue
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
Other interest expense
Total interest expense
Facility costs
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 non current assets
Amortisation of intangible 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
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
525,206
1,394
591,808
382
526,600
592,190
(7)
(7)
26
26
2,341
45
1,052
3,438
247
3,685
4,502
3,843
8,345
5,178
5,178
2,874
777
643
4,294
679
4,973
4,435
3,051
7,486
5,665
5,665
11,358
10,004
(278)
11,080
766
10,770
54
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 relating to continuing operations
The tax expense for the year can be reconciled to accounting profit as follows:
Profit from continuing activities
Income tax expense calculated at 30%
Effect of expenses that are not deductible in determining taxable profit:
Goodwill impairment
Other
Items deducted for tax purposes only
Adjustments recognised in the current year in relation to the
current tax of prior years
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
(1,510)
7,023
175
(1,335)
(5,192)
(5,192)
(6,527)
(171)
6,852
1,075
1,075
7,927
(113,581)
(34,074)
26,643
7,993
26,940
432
-
(6,702)
175
(6,527)
-
290
(185)
8,098
(171)
7,927
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 Current tax assets and liabilities
Current tax liabilities
Income tax payable attributable to:
Parent entity
Entities in the tax-consolidated group
9.3 Deferred tax balances
2013
$’000
2012
$’000
-
-
-
-
4,891
4,891
2013
$’000
2012
$’000
Deferred tax balances expected to be recovered within 12 months
Deferred tax balances expected to be recovered after more than 12 months
7,534
(11,711)
5,978
199
(4,177)
6,177
55
Service Stream Limited
Notes to the financial statements
9.
Income taxes (continued)
9.3 Deferred tax balances (continued)
Deferred tax balances arise from the following:
Opening
balance
Charged
to
income
2013
$’000
$’000
Timing
difference
related to
prior
periods
$’000
Carried
forward
losses
Closing
balance
$’000
$’000
Temporary differences
Tax Losses
Trade and other receivables
Accrued revenue
Trade, other payables and provisions
Share issue costs
Employee Benefits
Property, plant and equipment
Other
-
27
(2,106)
3,440
199
4,699
(82)
(0)
6,177
-
11
(279)
3,394
125
314
168
1,459
5,192
4,808
1,510
-
(20,640)
662
-
(968)
(918)
-
-
-
-
-
-
-
-
6,318
38
(23,025)
7,496
324
4,045
(832)
1,459
(17,056)
1,510
(4,177)
Deferred tax balances are presented in the statement of financial position as follows:
Deferred tax liability
(4,177)
(4,177)
Opening
balance
Charged
to
income
2012
$’000
$’000
Timing
difference
related to
prior
periods
$’000
Charged
to equity
Closing
balance
$’000
$’000
Temporary differences
Trade and other receivables
Trade, other payables and provisions
Share issue costs
(548)
7,782
355
7,589
(1,837)
918
(156)
(1,075)
-
(337)
-
(337)
-
-
-
-
Deferred tax balances are presented in the statement of financial position as follows:
Deferred tax assets
(2,385)
8,363
199
6,177
6,177
6,177
Deferred tax assets and liabilities have been set off by the Company.
9.4 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 30. 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).
56
Service Stream Limited
Notes to the financial statements
9.
Income tax (continued)
9.4 Tax consolidation (continued)
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 other 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.
10. Assets classified as held for sale
During the year the Group disposed of its 40% investment in Total Comm Infra Services Pvt Ltd. Total Comm Infra
Services Pvt Ltd is 40% owned by Total Communications Infrastructure (Singapore) Pte Ltd, a wholly owned
subsidiary of the Group.
Upon sale of investment, the cumulative amount of the exchange differences relating to this investment has been
reclassified from equity to profit and loss (refer to note 12).
The assets classified as held for sale at the end of the reporting period are as
follows:
Investment in Total Comm Infra Services Pvt Ltd
11. Trade and other receivables
Trade receivables
Allowance for doubtful debts
Other
Disclosed in the financial statements as:
Current trade and other receivables
Non-current trade and other receivables
2013
$’000
2012
$’000
-
-
330
330
2013
$’000
2012
$’000
60,626
(132)
60,494
1,394
61,888
61,888
-
61,888
60,615
(91)
60,524
3,419
63,943
63,943
-
63,943
57
11. Trade and other receivables (continued)
The ageing of trade receivables as at 30 June 2013 and 30 June 2012 respectively are detailed below:
Service Stream Limited
Notes to the financial statements
Not past due
Past due 0–30 days
Past due 31–60 days
Past due 61–90 days
Past 90 days
2013
2012
Gross
$’000
Allowance
$’000
Gross
$’000
Allowance
$’000
46,054
12,036
1,287
109
1,140
60,626
-
-
-
-
(132)
(132)
48,742
9,005
1,678
136
1,054
60,615
-
-
-
-
(91)
(91)
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
2013
$’000
2012
$’000
(91)
(80)
39
-
(132)
(998)
(65)
536
436
(91)
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 $14.4 million (2012: $11.8 million) which are past due at the reporting date for which the Group has not
provided. Based on the credit history of these trade receivables, they are considered to be recoverable.
Of the trade receivables balance at the end of the year, $22 million (2012: $26 million) is due from Telstra
Corporation Ltd, $7 million (2012: nil) is due from Fujitsu Australia Ltd, $5 million (2012: $7 million) is due from
Jemena Asset Management Pty Ltd, $4 million (2012: $9 million) is due from the Vodafone Hutchison Pty Ltd, $4
million is due from Origin Energy Limited (2012: $2 million), and $2 million (2012: $2 million) is due from Powercor
Australia Ltd. Of the balance, 90% is held with large ASX, government entities or multinational companies.
58
12.
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
Impairment losses recognised in the profit and loss
Loss on sale of investment
Proceeds from sale of investment
Balance at 30 June
Name of entity
Country of incorporation
Total Comm Infra Services Pvt Ltd
India
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
-
-
330
(23)
(2)
305
-
(23)
(282)
-
1,180
(36)
(114)
1,030
(700)
-
-
330
Ownership interest
2013
%
-
2012
%
40
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%)
2013
$’000
2012
$’000
-
-
-
-
77
(135)
(58)
(23)
3,265
(690)
2,575
1,030
444
(534)
(90)
(36)
Dividends received from associates
During the year, the Group received no dividends (2012: nil) from the investment in the associate.
Capital commitments
The Group’s share of capital commitments and other expenditure commitments of associates is nil.
59
13. Joint ventures
Service Stream Limited
Notes to the financial statements
The Syntheo Joint Venture (“Syntheo”) is an unincorporated joint venture entity between Service Stream Limited
and Lend Lease Project Management & Construction (Australia) Pty Ltd (the “Parties”) established on 25 January
2011 for the purposes of tendering for and subsequently undertaking certain works for NBN Co Limited (“NBN Co”)
in connection with the design and construction of the National Broadband Network. In September 2011, Syntheo
entered into a two year contract with NBN Co to design and construct the National Broadband Network in Western
Australia. In November 2011, Syntheo entered into a separate two year contract with NBN Co to design and
construct the National Broadband Network in South Australia and the Northern Territory.
Under the terms of the Syntheo Joint Venture Agreement, each of the Parties have a 50% interest in Syntheo and
have equal representation on the Syntheo Joint Venture Board. There was no change in the Group’s ownership or
voting interests in Syntheo during the financial year ended 30 June 2013.
In March 2013, Syntheo and NBN Co entered into an Agreement under which Syntheo would complete certain
design and construction works that were in progress in respect of the Northern Territory but that no further work
would be instructed by NBN Co under the relevant contract for that region. In August 2013, Syntheo and NBN Co
entered into an Agreement under which Syntheo would complete certain construction works that were in progress
in respect of Western Australia and South Australia but that no further work would be instructed by NBN Co under
the contracts for those states. In both cases, the Agreements required Syntheo to repay to NBN Co certain
amounts that had been advanced to Syntheo for overhead expenses. In July 2013, the Parties executed a
variation to the Syntheo Joint Venture Agreement under which Lend Lease would assume control of Syntheo and
of the delivery of its remaining obligations to NBN Co.
Syntheo has recognised material losses in the current financial year. Syntheo has determined that the
unavoidable costs of meeting the obligations under its contracts with NBN Co exceed the economic benefits
expected to be received under it. As a result, the contracts have been determined to be onerous, and the losses
forecast to be incurred in the delivery of the contracts have been brought to account in the current financial year.
In light of Lend Lease assuming control of Syntheo and subject to certain conditions, the Parties have agreed that
Service Stream’s share of any losses incurred by Syntheo shall be $19.5 million and that Service Stream’s
contribution to any such losses shall be made in accordance with a prescribed schedule of payments. The loss
shown in the Group’s financial statements for the year ended 30 June 2013 therefore is $19.9 million which brings
its life to date loss in relation to Syntheo to $19.5 million.
In accordance with AASB 131 Interests in Joint Ventures, the Group has accounted for its interest in Syntheo for
the financial year ended 30 June 2013 using proportionate consolidation. Under this method, the Group has
accounted for its relevant share in the assets and liabilities, and the income and expenses of Syntheo on a line-by-
line basis within the Group’s financial statements. The following amounts are included in the Group’s consolidated
financial statements as a result of the proportionate consolidation of Syntheo:
Financial position:
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
Net assets
Financial performance:
Income
Expenses
Profit/(loss) for the year
2013
$’000
2012
$’000
11,341
586
11,927
31,427
31,427
15,713
-
15,713
15,357
15,357
(19,500)
356
26,741
(46,597)
(19,856)
4,407
(4,051)
356
60
14. Accrued revenue
Accrued revenue
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
88,338
88,338
97,831
97,831
The accrued revenue balance of $88.3 million (2012 $97.8 million) represents revenue which has yet to be
invoiced to customers at year end, due to either the invoicing process not being finalised or work not yet reaching a
stage where it can be invoiced. Many of the Group’s customers require payment claims to be submitted and
approved prior to invoices being issued. Although this extends the time revenue is held as accrued, it does result
in a high level of recoverability of trade debtors. Where work has not yet reached a stage where it can be invoiced,
revenue is accrued in line with the Group’s accounting policies as outlined at notes 2.9 revenue recognition and
2.10 construction contracts.
15. Plant and equipment
Leasehold
improve-
ments at
cost
Plant and
equipment
at cost
Equipment
under
finance
lease at
cost
Motor
Vehicles at
cost
Total
Motor
Vehicles
under
finance
lease at
cost
$’000
$’000
$’000
$’000
$’000
$’000
Gross carrying amount
Balance at 1 July 2011
Additions
Transfers 1
Disposals
Balance at 1 July 2012
Additions
Transfers
Disposals
4,378
1,478
784
(29)
6,611
5,293
(78)
(477)
9,699
3,441
3,838
(314)
16,664
4,592
1,049
(548)
Balance at 30 June 2013
11,349
21,757
Accumulated depreciation and impairment
Balance at 1 July 2011
Transfers 1
Disposals
Depreciation expense
(3,008)
(508)
22
(955)
(6,449)
(3,965)
309
(1,182)
Balance at 1 July 2012
Transfers 1
Disposals
Depreciation expense
(4,449)
(11,287)
(34)
454
(925)
(238)
436
(2,780)
Balance at 30 June 2013
(4,954)
(13,869)
Net book value
As at 30 June 2012
As at 30 June 2013
2,162
6,395
5,377
7,888
7,951
-
(7,010)
(258)
683
-
(683)
-
-
(6,055)
6,908
182
(1,273)
(238)
238
-
-
-
445
-
2,667
163
2,359
(402)
4,787
151
2,407
(640)
6,705
(1,707)
(2,654)
381
(243)
(4,223)
(1,269)
592
(797)
(5,697)
3,059
-
(266)
(20)
2,773
-
(2,773)
-
-
(1,411)
917
7
(782)
(1,269)
1,269
-
-
27,754
5,082
(295)
(1,023)
31,518
10,036
(78)
(1,665)
39,811
(18,630)
698
901
(4,435)
(21,466)
(34)
1,482
(4,502)
-
(24,520)
564
1,008
1,504
-
10,052
15,291
1. Transfers between categories primarily relate to the reclassification of assets no longer held under finance lease arrangements.
61
16.
Intangible Assets
Gross carrying amount
Balance at 1 July 2011
Additions
Transfers 1
Balance at 1 July 2012
Additions
Disposals
Transfers
Balance at 30 June 2013
Accumulated amortisation
Balance at 1 July 2011
Transfers 1
Amortisation expense
Balance at 1 July 2012
Transfers 1
Goodwill impairment
Amortisation expense
Balance at 30 June 2013
Net book value
As at 30 June 2012
As at 30 June 2013
Service Stream Limited
Notes to the financial statements
Software
Software
under finance
lease
Goodwill
Total
$’000
$’000
$’000
$’000
5,900
3,286
2,442
11,628
5,723
-
78
17,429
(2,001)
(2,750)
(1,623)
(6,374)
(312)
-
(2,960)
(9,646)
4,327
469
(2,147)
2,649
-
-
-
205,362
-
-
205,362
-
-
-
215,589
3,755
295
219,639
5,723
-
78
2,649
205,362
225,440
(2,211)
2,051
(1,428)
(1,588)
346
-
(883)
(2,125)
-
-
-
-
-
(89,800)
-
(89,800)
(4,212)
(699)
(3,051)
(7,962)
34
(89,800)
(3,843)
(101,571)
5,254
7,783
1,061
524
205,362
115,562
211,677
123,869
1. Transfers between categories primarily relate to the reclassification of assets no longer held under finance lease arrangements.
(a) Impairment tests for goodwill
Goodwill is monitored by management at the reportable segment level. Management is committed to
ensuring that any changes in its operating environment are assessed in a prudent and timely manner.
For the purpose of impairment testing, goodwill should be allocated as follows:
•
Fixed Communications – comprising activities involved in the design, construction and maintenance
of fixed line (copper and fibre) infrastructure assets relative to the telecommunications sector –
$27.7 million (FY12: $117.5 million).
• Mobile Communications – comprising activities involved in the site acquisition, design, construction
and maintenance of mobile telephony infrastructure – $45.8 million (FY12: $45.8 million).
• Energy and Water – comprising activities involved in the provision of a range of specialist metering
and environmental services to utilities and government authorities nationally. This includes the
provision of contact centre services and end-to-end customer support – $42.0 million (FY12: $42.0
million).
(b) Key assumptions used for value-in-use calculations
The recoverable amount of the cash-generating units is determined based on a value-in-use calculation
which uses cash flow projections based on financial budgets and long-term strategic plans approved by the
Board. Management determined budgeted gross margin from current and future contracts, based on past
performance and its expectations for the future. Cashflows beyond the five-year period have been
extrapolated using a 2.5% per annum growth rate. A pre-tax discount rate of 16.4% (2012: 14.4%) has been
applied in order to discount expected future cashflows into present-day values.
(c) Impairment charge
In light of the performance of the Fixed Communications CGU and in particular the Syntheo Joint Venture,
Management has reviewed and reassessed the growth assumptions, forward business plans, weighted
average cost of capital and discounted cash flow calculations for this CGU. As a result of the results of this
62
16.
Intangible assets (continued)
(c) Impairment charge (continued)
review, Management has reduced the carrying value of goodwill within the Fixed Communications segment
by $89.8 million.
Service Stream Limited
Notes to the financial statements
(d) Impact of possible changes in key assumptions
Fixed Communications
As a result of the goodwill impairment indicated above, any downwards revision of the recoverable amount
of the Fixed Communications segment will result in further impairment charges.
If the budgeted cashflows used in the value-in-use calculation for the Fixed Communications CGU had been
5% lower than management’s estimates at 30 June 2013 , the group would have recognised an impairment
against the carrying amount of goodwill of $94.8m.
If the pre-tax discount rate applied to the cash flow projections of this CGU had been 1% higher than
management’s estimates (17.4% instead of 16.4%), the group would have recognised an impairment
against goodwill of $95.5m.
Mobile Communications
Management has performed sensitivity analysis on the goodwill balances of the Mobile Communications
CGU and 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.
Energy and Water
The recoverable amount of the Energy and Water CGU is estimated to be $73.3m (2012: $84.7m). This
exceeds the carrying amount of the CGU at 30 June 2013 by $12.3m (2012: $31.5m).
If the pre-tax discount rate applied to the cash flow projections of the Energy and Water CGU was 17.6%
instead of 16.4%, the recoverable amount of the CGU would equal its carrying amount. If the budgeted
cashflows used in the value-in-use calculations of the Energy and Water CGU has been 6.5% lower than
management’s estimates at 30 June 2013, the recoverable amount of the CGU would equal its carrying
amount.
17. Other assets
Current
Work in progress
Prepayments
Other
2013
$’000
2012
$’000
2,584
2,498
88
5,170
405
1,743
226
2,374
18. Assets pledged as security
All companies of the Group, apart from a number of dormant entities, are subject to a registered deed of cross-
guarantee in relation to any debts incurred by a Group entity (refer to note 31). 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.
63
19. Trade and other payables
Current
Trade creditors1
Sundry creditors and accruals
Goods and services tax payable
Income in advance
Non-current
Sundry creditors and accruals
Disclosed in the financial statements as:
Current trade and other payables
Non-current trade and other payables
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
21,183
38,987
1,858
7,490
69,518
9,500
9,500
34,440
31,832
1,389
13,434
81,095
-
-
69,518
9,500
79,018
81,095
-
81,095
1. Typically no interest is charged by 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.
20. Borrowings
Current
Bank overdrafts
Cash Advance (i)
Finance lease liabilities (note 29.2)
Non-current
Cash Advance (i)
Finance lease liabilities (note 29.2)
Disclosed in the financial statements as:
Current borrowings
Non-current borrowings
2013
$’000
2012
$’000
4,970
60,000
444
65,414
-
-
-
65,414
65,414
-
65,414
-
-
988
988
53,336
444
53,780
54,768
988
53,780
54,768
(i) Trade finance and cash advance borrowings are drawn down from the Group’s finance facility which at
balance date was a $140.0m two-year, multi-option, multi-currency facility expiring in May 2014.
The Group breached a number of covenants under its banking facilities at 31 March 2013 and 30 June 2013.
Since balance date, the Group has received credit approved term sheets from its financiers for the renewal of its
banking facilities out to 31 August 2014. The facilities being offered under the credit approved term sheets include
a cash advance facility with an initial limit of $60 million, an overdraft facility of $5 million and a bank guarantee
facility of $37 million. Under the terms of the offer, the aforementioned breaches of covenants will be waived by
the financiers upon execution of the final lending documentation. Refer note 2.2 for further details.
64
21. Derivatives
Interest rate swap contracts designated as cash flow hedges
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
203
203
-
-
The Group is party to derivative financial instruments in the normal course of business in order to hedge its
financial exposures to fluctuations in interest rates undertaken in accordance with the Group’s Risk Management
Policy.
For the purposes of AASB 139, Financial Instruments: Recognition and Measurement, the Group elected at
transaction date to designate its interest rate swap positions as cash flow hedges. The hedges are expected to be
effective for the life of the hedge relationship due to the matched terms of the underlying exposure and the
hedging instruments.
The mark-to-market valuation of all interest rate swap positions was ($203,441) as at 30 June 2013. The mark-to-
market valuation represents the net present value of all expected future cash-flows that would be required to settle
the liabilities on the swap positions at balance date.
To the extent that the hedge is effective any gain or loss from changes in the fair value of the hedging instruments
is recognised in other comprehensive income in the hedging reserve within equity. In the year ending 30 June
2013, Service Stream has paid net swap settlement expenses of ($6,223) (2012: nil) on the swap positions which
have been taken to the profit and loss statement in the interest expense line. Interest Rate Swaps currently in
place cover approximately 50% (2012 – Nil%) of the variable loan principal outstanding at an average fixed rate of
3.16%.
22. Provisions
Current
Employee benefits (i)
Warranty provision (ii)
Non-current
Employee benefits (i)
2013
$’000
2012
$’000
9,703
780
10,483
2,731
2,731
10,504
828
11,332
2,643
2,643
13,214
13,975
(i) The provision for employee benefits represents annual leave and long service leave entitlements.
(ii) The provision for warranty claims represents the present value of the best estimate of the future outflow of
economic benefits that will be required under the Group’s obligation for warranties.
The movement in each class of provision during the financial year, other than employee benefits, is set out below:
2013
Carrying amount at start of year
Charged/(credited) to profit or loss
Additional provisions recognised
Unused amounts reversed
Carrying amount at end of year
Warranty
provisions
$’000
828
205
(253)
780
65
23. Other
Current
Lease incentives
Non-current
Lease incentives
24.
Issued capital
283,418,867 fully paid ordinary shares
(2012: 283,418,867)
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
1,339
1,339
4,094
4,094
5,433
-
-
-
-
-
2013
2012
228,416
228,416
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.
24.1 Fully paid ordinary shares
Balance at 1 July 2011
Balance 30 June 2012
Balance at 30 June 2013
Number of
shares
’000
Share
capital
$’000
283,419
283,419
283,419
228,416
228,416
228,416
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
24.2 Share Options
As at 30 June 2013, all options issued under the Executive Option Plan (“EOP”) have expired. Share options carry
no rights to dividends and no voting rights. Further details of the EOP are contained in notes 2.14 and 35.
24.3 Performance Rights
As at 30 June 2013, employees have 5,909,474 performance rights issued under the Long Term Incentive Plan
(“LTIP”) in respect of the FY11 Tranche, the FY12 Tranche and the FY13 Tranche (2012: 6,775,355, FY11 and
FY12 tranches). The rights for the FY11 Tranche vested on 30 June 2013, and in accordance with the Employee
Share Ownership Plan, the shares relating to this tranche will be issued to participants who have meet the vesting
criteria within 14 days from the date on which the company releases its results for the year ending 30 June 2013.
The remaining rights are due to vest on 30 June 2014 (for the FY12 Tranche) and 30 June 2015 (for the FY13
Tranche). 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 LTIP are contained in
notes 2.14 and 35.
66
25. Reserves
Employee equity-settled benefits
Hedging reserves
Foreign currency translation
Movements:
Employee equity-settled benefits reserve
Balance at beginning of financial year
Share-based payments
Balance at end of financial year
Service Stream Limited
Notes to the financial statements
2013
$’000
2012
$’000
2,730
(203)
-
2,527
3,008
(278)
2,730
3,008
-
(636)
2,372
2,242
766
3,008
The equity-settled employee benefits reserve arises on the grant of rights to executives and senior employees
under the Executive Option Plan.
Amounts are transferred out of the reserve and into issued capital if and when the rights are converted to shares.
Further information about share-based payments is disclosed in notes 2.14 and 35 to the financial statements.
Movements:
Hedging reserves
Balance at beginning of financial year
Revaluation
Balance at end of financial year
2013
$’000
2012
$’000
-
(203)
(203)
-
-
-
The hedging reserve is used to record revaluations with respect to gains and losses on a cash flow hedge
instrument that are recognised in other comprehensive income. Amounts will be reclassified to profit or loss
when the associated hedged transaction affects the profit or loss.
Foreign currency translation reserve
Balance at beginning of financial year
Translation on foreign investment - current earnings
Translation on foreign investment - retained earnings
Balance at end of financial year
(636)
576
60
-
(522)
(114)
-
(636)
Exchange differences relating to the translation from the functional currencies of the Group’s investment in
associate into Australian dollars are brought to account by entries made directly to the foreign currency
translation reserve.
26. Retained Earnings / (Accumulated Losses)
Balance at beginning of financial year
Net profit attributable to members of the parent entity
Write back of currency translation reserve on sale of investment
Dividends paid
Balance at end of financial year
2013
$’000
39,879
(107,054)
(60)
(5,668)
(72,903)
2012
$’000
23,997
18,716
-
(2,834)
39,879
67
27. Earnings per share
Basic earnings per share:
Total basic earnings per share
Diluted earnings per share:
Total diluted earnings per share 1
Basic earnings per share
Service Stream Limited
Notes to the financial statements
2013
2012
Cents per
share
Cents per
share
(37.77)
6.60
(37.77)
6.54
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per
share are as follows:
(Loss) / profit for the year attributable to owners of the Company
Earnings used in the calculation of basic EPS
Weighted average number of ordinary shares for the purposes of
basic earnings per share
Diluted earnings per share 1
2013
$’000
2012
$’000
(107,054)
(107,054)
18,716
18,716
2013
No.’000
2012
No.’000
283,419
283,419
The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per
share are as follows:
(Loss) / profit for the year attributable to owners of the Company
Earnings used in the calculation of diluted EPS
Weighted average number of ordinary shares used in the calculation of
diluted earnings per share
Weighted average number of ordinary shares for the purposes of
basic earnings per share
Shares deemed to be issued for no consideration in respect of:
- Long Term Incentive Plan (LTIP)
Weighted average number of ordinary shares used in the calculation of
diluted earnings per share
2013
$’000
2012
$’000
(107,054)
(107,054)
18,716
18,716
2013
No.’000
2012
No.’000
285,316
286,214
2013
2012
No.’000
No.’000
283,419
283,419
1,897
2,795
285,316
286,214
1 The Group's financial result for the year ended 30 June 2013 is in a loss, as such the dilutive earnings per
share equates to basic earnings per share.
68
28. Dividends
Recognised amounts
Fully paid ordinary shares
Interim dividend
Fully paid ordinary shares
Interim dividend
Unrecognised amounts
Fully paid ordinary shares
Final dividend
Fully paid ordinary shares
Final dividend
Service Stream Limited
Notes to the financial statements
2013
2012
Cents per
share
Cents per
share
1.0
1.0
1.0
1.0
2013
$’000
2012
$’000
5,668
2,834
2013
2012
Cents per
share
Cents per
share
-
-
1.0
1.0
2013
$’000
2012
$’000
-
2,834
An interim dividend of 1.0 cent per share franked to 100% at 30% corporate income tax rate was paid to the
holders of fully paid ordinary shares on 18 April 2013. No final ordinary dividend was declared with respect to
the financial year ending 30 June 2013.
Adjusted franking account balance as at 30 June
Company
2013
$’000
2012
$’000
2,480
21,793
69
29. Obligations under finance leases
29.1 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.
Service Stream Limited
Notes to the financial statements
29.2 Finance lease liabilities
Not longer than 1 year
Later than 1 year and not later than 5 years
Minimum future lease payments (i)
Less future finance charges
Present value of minimum lease payments
Included in the financial statements as: (note 19)
Current borrowings
Non-current borrowings
Minimum future lease payments
Present value of minimum future
lease payments
2013
$’000
2012
$’000
2013
$’000
2012
$’000
449
-
449
(5)
444
1,032
449
1,481
(49)
1,432
444
-
444
-
444
444
-
444
988
444
1,432
-
1,432
988
444
1,432
(i) Minimum future lease payments include the aggregate of all lease payments and any guaranteed residual.
29.3 Fair value
The fair value of the finance lease liabilities is shown at note 34.10
30. Operating lease arrangements
30.1 Leasing arrangements
The Group leases a number of motor vehicles and premises throughout Australia. The rental period of each
individual lease agreement varies between 1 and 7 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.
30.2 Non-cancellable operating lease commitments
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
2013
$’000
2012
$’000
6,031
14,260
1,680
21,971
4,839
10,565
5,858
21,262
70
Service Stream Limited
Notes to the financial statements
31. Subsidiaries
Details of the Company’s subsidiaries at 30 June 2013 are as follows:
Name of entity
Parent entity
Service Stream Limited (i)
Subsidiaries
Service Stream Holdings Pty Ltd (ii) (v)
Service Stream Communications Pty Ltd (ii) (iii) (v)
Total Communications Infrastructure Pty Ltd (ii) (iii) (v)
Service Stream Solutions Pty Ltd (ii) (iii) (v)
Radhaz Consulting Pty Ltd (ii) (v)
Service Stream Infrastructure Services Pty Ltd (ii) (iii) (v)
Milcom Communications Pty Ltd (ii) (iii) (v)
McCourt Dando Pty Ltd (ii) (iv)
McCourt Dando Civil Pty Ltd (ii) (iv)
McCourt Dando Plant Hire Pty Ltd (ii) (iv)
AMRS (Aust) Pty Ltd (ii) (iii) (v)
Service Stream Nominees Pty Ltd (ii) (iii) (vi)
Ownership interest
Country of
incorporation
2013
%
2012
%
Australia
Australia
Australia
Australia
Australia
Australia
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
(i) Service Stream Limited is the head entity within the tax-consolidated Group.
(ii) These companies are members of the tax-consolidated Group.
(iii) These companies are wholly owned subsidiaries of Service Stream Holdings Pty Ltd.
(iv) These companies are wholly owned subsidiaries of Service Stream Infrastructure Services Pty Ltd.
(v) 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.
(vi) Previously known as Service Stream Financial Services Pty Ltd
The following entities were deregistered and were removed from the deed of cross guarantee with Service
Stream Limited during the course of the financial year:
Resourcing Solutions Pty Ltd
General Purpose Group Pty Ltd
Fibercom Technology Pty Ltd
Metering Services Australasia Pty Ltd
MSA Plant Pty Ltd
In addition to the above, Total Communications Infrastructure (Singapore) Pte Ltd was sold to a third party
during the course of the year.
71
32. Deed of cross guarantee
The consolidated statement of comprehensive income of the entities party to the deed of cross guarantee
are:
Service Stream Limited
Notes to the financial statements
Statement of comprehensive income
Revenue from the rendering of services
Other income
Employee salaries and benefits
Subcontractor fees
Site and construction costs
Raw materials and consumables used
Consulting and temporary staff fees
Company administration and insurance expenses
Occupancy expenses
Technology and communication services
Motor vehicle expenses
Other expenses
Loss on onerous contracts
Write back of currency translation differences
Impairment losses of investment in associate
Depreciation and amortisation
Goodwill impairment
Interest expense and other finance costs
(Loss) / profit before tax
Income tax benefit / (expense)
(Loss) / profit for the year from continuing operations
Profit for the year from discontinued operations
(Loss) / profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translating foreign investment
Cash flow hedges
Total comprehensive income for the year
2013
$’000
2012
$’000
499,987
(135)
499,852
(154,826)
(147,033)
(79,135)
(55,348)
(12,065)
(10,105)
(9,567)
(7,768)
(9,781)
(5,115)
-
(576)
-
(8,266)
(89,800)
(3,685)
(93,218)
4,673
(88,545)
-
(88,545)
587,897
(88)
587,809
(145,452)
(227,707)
(77,635)
(45,312)
(11,325)
(11,220)
(9,127)
(8,953)
(8,152)
(3,444)
-
-
(700)
(7,486)
-
(4,973)
26,323
(7,820)
18,503
-
18,503
576
(203)
(88,172)
-
-
18,503
(Loss) / profit attributable to the equity holders of the parent
(88,545)
18,503
Total comprehensive income attributable to equity holders of the
(88,172)
18,503
parent
72
32. Deed of cross guarantee (continued)
The consolidated balance sheet of the entities party to the deed of cross guarantee are:
Service Stream Limited
Notes to the financial statements
Balance sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Accrued revenue
Other
Assets classified as held for sale
Total current assets
Non-current assets
Plant and equipment
Deferred tax assets due from Parent
Intangible assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities payable to Parent
Provisions
Other
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Deferred tax liabilities
Other
Derivatives
Total non-current liabilities
Total liabilities
Net Assets
Equity
Issued capital
Reserves
Retained earnings / (Accumulated losses)*
Total equity
* Retained earnings / (Accumulated losses)
Retained earnings as at beginning of the financial year
Net profit
Dividends provided for or paid
Retained earnings as at end of the financial year
2013
$’000
2012
$’000
13,393
61,667
11,532
84,870
4,537
175,999
-
175,999
14,705
-
123,869
138,574
314,573
45,090
65,414
-
9,633
1,339
121,476
-
2,731
10,027
4,094
203
17,055
138,531
176,042
228,416
2,527
(54,901)
176,042
39,312
(88,545)
(5,668)
(54,901)
14,728
63,927
12,096
96,572
1,623
188,946
647
189,593
10,052
6,177
211,677
227,906
417,499
73,236
988
4,784
11,332
-
90,340
53,780
2,643
-
-
-
56,423
146,763
270,736
228,416
3,008
39,312
270,736
23,643
18,503
(2,834)
39,312
73
33. Notes to the statement of cash flow
33.1 Reconciliation of cash and cash equivalents
Cash at bank
Bank overdraft (note 20)
Cash and cash equivalents
Service Stream Limited
Notes to the financial statements
2013
$’000
13,398
(4,970)
8,428
2012
$’000
20,916
-
20,916
33.2 Reconciliation of profit for the year to net cash flows from operating activities
(Loss) / profit for the year
Loss / (gain) on sale of disposal of non-current assets
Depreciation and amortisation
Goodwill impairment
Impairment losses of investment in associate
Share of investment in associates loss
Expense recognised in respect of equity-settled share-based payments
Impairment loss recognised / (reversed) on trade receivables
Increase in deferred tax balances
Decrease in current tax liability
Movement in working capital:
Decrease in receivables
Decrease/(increase) in accrued income
Increase in other assets
(Increase)/decrease in inventories
Increase in trade and other payables
Decrease in provisions
Net cash provided by operating activities
34. Financial instruments
(107,054)
7
8,345
89,800
-
23
(278)
80
10,354
(4,891)
18,716
(26)
7,486
-
700
36
766
(371)
1,412
(1,483)
1,975
9,493
(2,796)
(5,449)
4,338
(761)
3,186
37,841
(56,580)
(2,419)
2,213
8,409
(740)
15,960
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 uses derivative
financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk
exposures. Derivatives financial instruments are used only for hedging purposes.
The Group operates a centralised treasury function that is tasked with the management of its day to day
exposure to financial and currency risks. The treasury function is the only area authorised by the Board to
transact financial instruments on behalf of the Group in the management these risk exposures.
The Group’s use of financial instruments is controlled by documented Delegations of Authorities which are
approved by the Board and which also include specific segregation of duties.
34.1 Capital risk management
The Group manages its available capital and liquidity to ensure that it is able to continue as a going concern and
to maximise the potential returns to shareholders. Capital and liquidity risk management is primarily undertaken
by the on-going monitoring of daily liquidity, ensuring that the Group has access to adequate levels of funding
facilities, via optimising the amount, tenor and interest serviceability of debt drawn as well as the regular
monitoring of various key financial metrics including debt to earnings ratios etc.
The capital structure of the Group consists of net debt (borrowings as detailed in note 20 offset by cash balances
at bank) and equity (comprising issued capital, reserves and retained earnings as disclosed in notes 24, 25 and
26).
74
Service Stream Limited
Notes to the financial statements
34. Financial instruments (continued)
34.1 Capital risk management (continued)
As a condition of its bank-provided finance facilities, the Group is subject to various debt covenants including
maintenance of minimum levels of equity, gearing ratio and asset cover ratios all of which are monitored and
reported upon on a quarterly basis to its bankers. The Group breached a number of covenants under its banking
facilities at 31 March 2013 and 30 June 2013 as a consequence of the impact of the business’ operating
performance on its 12 month rolling EBITDA and EBIT metrics and the impairment charge relating to Fixed
Communications’ goodwill. Since balance date, the Group has received credit approved term sheets from its
financiers for the renewal of its banking facilities out to 31 August 2014. Under the terms of the offer, the
aforementioned breaches of covenants will be waived by the financiers upon execution of final lending
documentation. In addition, several of the former facility covenants are suspended, amended or replaced with
more relevant measures. Refer note 2.2 for further details.
The Board and senior management review the capital structure of the Group on at least an annual basis
considering the relative cost and risks associated with each class of capital, as well as any restrictions or
limitations that may exist in terms of the current mix of capital.
34.1.1 Gearing ratio
The gearing ratio at end of the reporting period was as follows.
Debt (i)
Cash at bank
Bank guarantees
Total debt
EBITDA
Gearing ratio
2013
$’000
2012
$’000
65,414
(13,398)
28,324
80,340
54,768
(20,916)
21,730
55,582
(13,392)
-6.00x
38,041
1.46x
(i) Debt is defined as long-and short-term borrowings, as detailed in note 20.
34.2 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.
34.3 Categories of financial instruments
Financial assets
Cash and bank balances
Loans and receivables
Financial liabilities
Trade and other payables
Bank overdraft
Cash advances
Derivatives
Finance lease / hire purchase liabilities
2013
$’000
2012
$’000
13,398
61,888
20,916
63,943
79,018
4,970
60,000
203
444
81,095
-
53,336
-
1,432
75
34. Financial instruments (continued)
34.4 Financial risk management objectives
Service Stream Limited
Notes to the financial statements
The types of financial risks to which the Group is typically exposed include market (interest rate and currency risks
specifically), liquidity and credit risk.
The Group’s central treasury function manages all borrowings and the provision of financial security undertakings.
Treasury is the only area within the Group that is authorised to transact financial and derivative financial
instruments for the management of the Group’s financial risk exposures.
The treasury function provides liquidity management, transactional banking, merchant payment, currency
management and markets advice and associated services to all companies in the Group. It is also responsible for
monitoring and managing the financial and operational risks relating to the Group’s banking and financial market
related operations.
The selling of naked options as well as on the use of any financial instrument for speculative purposes is
prohibited under the Group’s Financial and Treasury Risk Management Policy.
Compliance with financial risk management policies and financial exposure limitations are reviewed by senior
management on a daily basis and regular reporting on risk management strategy and policy compliance is
undertaken to the Group’s Audit & Risk Management Committee as well as to its Board of Directors.
34.5 Market risk
Market risk is the risk that the fair value of financial instruments or future cash flows will fluctuate due to changes in
market based interest rates, security prices or currency rates.
The Group’s funding activities routinely expose it to financial risks arising from changes in market interest rates
(refer note 34.6).
The Group typically has only small short-term exposure to currency risk as the majority of its activities are
conducted within Australia and priced in AUD.
Only limited amounts of stock and other material are sourced from abroad and priced in USD.
34.6 Interest rate risk management
The Group is exposed to interest rate risk through its 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
net floating rate 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 2013 was equivalent to a net profit before tax decrease of $349,704 (2012:
$324,196).The Group’s exposure to interest rates on financial assets and liabilities are detailed in the liquidity risk
management section of this note.
34.7 Credit risk management
Credit risk refers to the risk that transaction counterparties will default on their contractual obligations resulting in
a financial loss to the Group.
The Group transacts wholesale financial market transactions only with entities that have a minimum long term
Investment Grade credit rating and typically only transacts with its credit approved Banking Panel members.
The Group’s wholesale 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 counter
parties 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 11, a significant portion of revenue is derived from major companies such as Telstra Corporation
Limited, Fujitsu Australia Limited, Vodafone Hutchison Pty Ltd, Origin Energy Limited, and NBN Co Limited.
76
34. Financial instruments (continued)
34.7 Credit risk management (continued)
Service Stream Limited
Notes to the financial statements
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.
34.8 Currency risk management
Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated
in a currency other than the entity’s functional currency and from the translation of net investments in foreign
operations.
The Group operates only 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.
Currency risk on material imports is managed predominately through the use of AUD denominated contracts or by
forward foreign exchange contracts on the low volume of foreign sourced materials.
At balance date no foreign exchange contracts were held (FY12: mark to market valuation of AUD -$45,214.08).
34.9 Liquidity risk management
Management of the Group’s liquidity risk exposure is undertaken by the Group’s treasury and finance functions
daily and intraday by monitoring of the Group’s actual cash flows and via regularly updated forecasting of payable
and receivable profiles.
In order to maintain adequate liquidity, the Group typically maintains an inter-day cash buffer as well as having
access to reserve overdraft facilities and committed funding lines with two different financial institutions.
Included in note 34.9.2 are details of the borrowing facilities available to the Group at 30 June 2013.
34.9.1 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.
Weighted
average
interest rate
$’000
Carrying
amount
Contractu-
al cash flow
6 months or
less
6-12
months
1-2 years
2-5 years
$’000
$’000
$’000
$’000
$’000
$’000
2013
Non-derivative financial liabilities
Trade and other
payables
-
(79,018)
(79,018)
(69,518)
Finance lease liabilities
Derivatives
Cash advances -
variable
4.19%
3.16%
4.72%
(444)
(203)
(449)
(203)
(449)
(77)
(60,000)
(60,471)
(60,471)
(139,665)
(140,141)
(130,515)
2012
Non-derivative financial liabilities
Trade and other
payables
-
(81,095)
(81,095)
(81,095)
Finance lease liabilities
Cash advances -
variable
4.64%
5.28%
(1,432)
(53,336)
(1,481)
(54,451)
(516)
(1,115)
(135,863)
(137,026)
(82,725)
-
-
(84)
-
(84)
-
(516)
-
(516)
(9,500)
-
(42)
-
(9,542)
-
(449)
(53,336)
(53,785)
-
-
-
-
-
-
-
-
-
77
34. Financial instruments (continued)
Service Stream Limited
Notes to the financial statements
34.9.2 Financing facilities
Bank guarantees:
• amount used
• amount unused
Secured bank overdraft:
• amount used
• amount unused
2013
$’000
2012
$’000
28,324
16,676
45,000
21,730
28,270
50,000
4,970
5,030
10,000
-
5,000
5,000
Secured commercial bill and equipment finance lease facilities were repaid in full and cancelled in May 2012 as
part of the Group’s refinancing activities. The current year balance below relates to an unsecured finance lease
over IT licences.
• amount used
• amount unused
1,432
444
-
-
The secured cash advance and trade finance facilities were established in May 2012 and are due to mature in
May 2014:
• amount used
• amount unused
60,000
25,000
53,336
26,664
85,000
80,000
444
1,432
Financial guarantees provided in the normal course of business are shown above. Based upon current
expectations as at 30 June 2013, the Group considers that it is more likely than not that such amounts will not
be payable under these arrangements.
Since balance date, the Group has received credit approved term sheets from its financiers for the renewal of
its banking facilities out to 31 August 2014. Refer note 2.2 for further details.
78
34. Financial instruments (continued)
34.10 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.
Service Stream Limited
Notes to the financial statements
Financial assets
Cash
Trade and other receivables
Financial liabilities
Trade and other payables
Cash advances - variable
Bank overdraft
Derivatives
Finance lease/hire purchase liabilities
2013
2012
Carrying
amount
$’000
Fair value
$’000
Carrying
amount
$’000
Fair value
$’000
13,398
61,888
79,018
60,000
4,970
203
444
13,398
61,888
79,018
60,000
4,970
203
403
20,916
63,943
81,095
53,336
-
-
1,432
20,916
63,943
81,095
53,336
-
-
1,308
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following
fair value measurement hierarchy:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices) (level 2); and
• Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
The derivatives included in the above table are considered to be level 2 financial instruments.
The 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.
35. Share-based payments
35.1 Executive option plan
The Group previously operated an Executive Option Plan (“EOP”) under which 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.
The Directors can, at their discretion, issue share options to executives and senior employees as part of the Group’s
remuneration policy. The following share-based payment arrangements were in existence during the current and
comparative reporting periods:
79
35. Share-based payments (continued)
35.1 Executive option plan (continued)
Service Stream Limited
Notes to the financial statements
Options series
Number
Grant date
Expiry date
Exercise price
Series 15
Series 16
Series 17
Series 18
500,000
730,000
40,000
40,000
4 January 2007
31 October 2011
4 January 2007
31 October 2011
23 October 2007
23 October 2007
1 March 2012
1 March 2013
As at balance date, all options issued under this plan had expired.
$
1.0761
1.6311
0.9611
1.7111
Fair value at
grant date
$
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 prices.
35.1.1 Movements in share options during the year
The following reconciles the outstanding share options granted under the EOP at the beginning and end of the
financial year:
2013
2012
Number of
options
Weighted
average
exercise price
40,000
(40,000)
-
-
$
1.7111
-
-
-
.
.
.
.
.
.
Number of
options
Weighted
average
exercise price
1,310,000
(1,270,000)
40,000
40,000
$
1.4012
-
1.7111
1.7111
Balance at beginning of the financial year
Expired during the financial year
Balance at end of the financial year
Exercisable at end of the financial year
35.1.2 Share options exercised during the year
No share options granted under the EOP were exercised during the current financial year.
35.1.3 Share options outstanding at the end of the year
No share options were outstanding at the end of the year (2012: weighted average exercise price of $1.7111, and
weighted average remaining contractual life of 244 days).
35.2 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 LTIP. The LTIP operates within the 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, and to shareholders at the Annual General Meeting in the case of Directors, for approval.
In accordance with the provision of the ESOP and consistent with the prior year, 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 2013 (“FY13 Tranche”). Each performance right
converts into one Service Stream Limited ordinary share on vesting. No amounts are paid or payable by the
participant on receipt of the performance rights, and the performance rights carry neither rights to dividends nor
80
Service Stream Limited
Notes to the financial statements
35. Share-based payments (continued)
35.2 Long Term Incentive Plan (“LTIP”) (continued)
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:
o
o The Group’s earnings 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, as detailed below:
Percentage of performance rights that vest
EPS growth per annum
0%
40%
Below 7.5%
At 7.5%
Proportional vesting
Greater than 7.5% and less than 10.0%
100%
10.0% and above
The table below details the performance period, vesting dates and EPS base for each of the LTIP
tranches:
Performance period
Vesting date
EPS base (cents per share)
FY11 Tranche
3 years
30 June 2013
3.85
FY12 Tranche
3 years
30 June 2014
5.80
FY13 Tranche
3 years
30 June 2015
6.60
o The Group’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, as detailed below:
Percentage of performance rights that vest
0%
50%
Proportional vesting
100%
TSR ranking
Below the 50th percentile
At the 50th percentile
Above the 50th percentile but below the
75th percentile
75th percentile or above (top quartile)
The following LTIP performance right arrangements were in existence at the end of the period:
LTIP Series
Number
Grant date
FY11 tranche 1
711,222
18 February 2011
FY11 tranche (R. Grant) 1,3
313,480
18 February 2011
FY12 tranche 2
1,866,347
FY13 tranche 4
3,018,425
25 November
2011
30 November
2012
Grant date weighted
average fair value
Vesting date
Relative TSR hurdle - $0.720
EPS hurdle - $0.750
Relative TSR hurdle - $0.315
EPS hurdle - $0.315
Relative TSR hurdle - $0.160
30 June 2013
30 June 2013
30 June 2014
EPS hurdle - $0.250
Relative TSR hurdle - $0.190
30 June 2015
EPS hurdle - $0.290
1. The performance period for the FY11 tranche of LTIP performance rights commenced 1 July 2010.
2. The performance period for the FY12 tranche of LTIP performance rights commenced 1 July 2011.
3. Although the grant date for Bob Grant’s performance rights was 18 February 2011, the issue of these rights was not approved until the
Company’s Annual General Meeting on 26 October 2011.
4. The performance period for the FY13 tranche of LTIP performance rights commenced 1 July 2012.
81
35. Share-based payments (continued)
Service Stream Limited
Notes to the financial statements
35.2.1 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.
35.2.2 Key inputs into the model
Tranche
Share Price at
Grant Date
Expected
life
Volatility
Risk-free
interest rate
Dividend
yield
Vesting
date
FY13
$ 0.34
2.8 years
FY12
$ 0.30
2.6 years
FY11
$ 0.77
2.4 years
50%
60%
60%
2.62%
5.7%
30 June 2015
3.06%
6.7%
30 June 2014
5.04%
1.0%
30 June 2013
35.2.3 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:
2013
2012
Number of
performance
rights
Balance at beginning of the financial year
Forfeited during the year
Granted during the year
Balance at end of the financial year
Balance vested at end of the financial
year
6,775,335
(5,259,236)
4,393,375
5,909,474
1,024,702
Grant date
weighted
average fair
value
$
0.378
0.384
0.240
0.270
0.604
. Number of
performance
rights
.
.
.
.
2,864,212
(152,543)
4,063,666
6,775,335
-
Grant date
weighted
average fair
value
$
0.604
0.604
0.205
0.378
-
The grant date weighted average fair value of $0.270 is the result of the separate criteria as set out at note 35.2.
During the current financial year, 1,024,702 performance rights granted under the LTIP vested. The
performance rights outstanding at the end of the year have a weighted average fair value of $0.270 and a
remaining contractual life of two years (FY13 Tranche) and one year (FY12 Tranche).
82
Service Stream Limited
Notes to the financial statements
36. Key management personnel compensation
Details of key management personnel
The Directors of the Company and key management personnel of the Group during the year were:
• P Dempsey (Chairman)
• B Gallagher (Non-Executive Director – until 8 April 2013, Executive Director – appointed 8 April 2013)
• G Sumner (Managing Director – resigned 8 April 2013)
• D Page AM (Non-Executive Director)
• S Wilks (Non-Executive Director)
• R Grant (Alternate Director, Chief Financial Officer)
• S Ellich (Executive General Manager – Fixed Communications – until his resignation on 28 May 2013)
• C Orr (Executive General Manager – Fixed Communications – appointed 28 May 2013)
• D Hill (Executive General Manager – Mobile Communications)
• L Mackender (Executive General Manager – Energy and Water)
Key management personnel compensation
The aggregate compensation made to Directors and 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
2013
$
2,463,940
166,268
58,329
-
(26,220)
2012
$
3,167,345
215,550
33,244
-
302,860
2,662,317
3,718,999
The fair value of performance rights issued under the Long Term Incentive Plan, allocated on a pro-rata basis,
to the current financial year. Where rights have been forfeited due to resignation or non-achievement of
performance targets the relevant remuneration disclosure will be negative.
The compensation of each member of the key management personnel of the Group is set out in the
Remuneration Report.
37. Related party disclosures
The immediate parent and ultimate controlling party of the Group is Service Stream Limited.
Balances and transactions between the Company and its controlled entities, which are related parties of the
Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions
between the Group and other related parties are disclosed below.
37.1 Equity interests in related parties
37.1.1 Equity interests in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 31 to the financial
statements.
37.1.2 Equity interests in associates and joint ventures
Details of interests in associates and joint ventures are disclosed in notes 12 and 13 to the financial statements.
37.2 Transactions with key management personnel
37.2.1 Key management personnel compensation
Details of key management personnel compensation are disclosed in note 36 to the financial statements.
37.2.2 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.
83
Service Stream Limited
Notes to the financial statements
37. Related party disclosures (continued)
37.2.3 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 key management
personnel member of the Group, including their personally related parties, are set out below.
Balance at 1
July
Granted as
compen
-sation
Balance as
at date of
appointment
Net other
change
Balance as
at date of
resignation
Balance at
30 June
No.
No.
No.
No.
No.
No.
2013
P Dempsey
D Page
B Gallagher
S Wilks
G Sumner 2
R Grant
S Ellich 2
C Orr 1
D Hill
L Mackender
2012
P Dempsey
D Page
B Gallagher
S Wilks
G Sumner
R Grant
S Ellich
D Hill 1
320,000
82,900
8,792,113
255,000
350,000
144,166
367,655
-
1,134
49,434
200,000
27,400
8,792,113
-
350,000
144,166
367,655
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,134
-
-
-
-
-
-
-
-
-
1,134
250,000
46,500
-
245,000
150,000
-
-
-
-
-
120,000
55,500
-
255,000
-
-
-
-
-
-
-
-
(500,000)
570,000
129,400
8,792,113
500,000
-
-
144,166
(367,655)
-
-
-
-
-
-
-
-
-
-
-
-
1,134
1,134
49,434
320,000
82,900
8,792,113
255,000
350,000
144,166
367,655
1,134
The movement in equity holdings disclosed reflects only those movements which took place during the period that persons
were regarded as key management personnel.
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 numbers of rights and options over ordinary shares in the Company held during the financial year by
each Director and other key management personnel of the Group, including their personally related parties,
are set out below.
Share options of Service Stream Limited
During the financial year, no share options were issued to or exercised (2012: nil) by key management personnel.
84
37. Related party disclosures (continued)
37.2.3 Key management personnel equity holdings (continued)
Performance Rights of Service Stream Limited
Service Stream Limited
Notes to the financial statements
Balance at
1 July
Granted as
compen-
sation
Balance as
at date of
resignation
Net other
change
Balance at
30 June
Balance
vested at 30
June
Balance
unvested at
30 June
No.
No.
No.
No.
No.
No.
No.
1,560,543
1,124,796
(2,685,339)
-
-
-
-
1,057,022
522,297
-
-
1,579,319
313,480
1,265,839
505,389
250,154
(605,661)
-
149,882
149,882
-
2013
G Sumner 1
R Grant 2
S Ellich 1
C Orr 3
-
205,458
L Mackender
215,583
164,438
D Hill
169,824
173,868
-
-
-
432,058
637,516
128,135
509,381
-
-
380,021
41,003
339,018
343,692
43,894
299,798
1. G Sumner and S Ellich is no longer key management personnel as at 30 June.
2. R Grant is an Alternate Director for G Sumner (until 8 April 2013) and for B Gallagher (since 8 April 2013), has only attended Board and
Committee meetings in his capacity as Chief Financial Officer.
3. C Orr was appointed to the position of Executive General Manager – Fixed Communications during the year.
All performance rights issued to key management personnel during the financial year were made in accordance
with the provisions of the LTIP.
Further details of the LTIP and of performance rights granted during 2013, 2012 and 2011 financial years are
contained in notes 35 to the financial statements.
37.2.4 Other transactions with key management personnel of the Group
Brett Gallagher is a Director of Techsafe Australia Pty Ltd (“Techsafe”), which is currently performing inspections
and certifications of residential solar panel installations for the Group. The terms under which Techsafe provides
services are standard, arm’s length and of low value (approximately $20,000 per month) (2012: approximately
$24,205 per month).
In addition, the Company leases an office/warehouse in which Brett holds an interest. The terms of the lease
have been independently reviewed and are standard arm’s length and at market value. The total rent and
outgoings paid for this property was $103,247 (2012: $101,286). This lease arrangement ceased on 30 June
2013.
37.3 Transactions with other related parties
37.3.1 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:
•
•
The Company 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 Group provided design and project management services to the Syntheo Joint Venture. The
costs incurred for the provision of these services have been recouped during the year.
The following balances arising from transactions between the Company and its other related parties are
outstanding at the reporting date:
•
•
Loans receivable totaling $99,905,960 are receivable from subsidiaries (2012: $101,054,404).
Trade receivables totaling $3,378,155 being 50% of the unpaid portion of amounts the Group has
invoiced the Syntheo Joint Venture for costs incurred on its behalf during the year.
All amounts advanced to or payable to related parties are unsecured and are subordinate to other liabilities.
85
Service Stream Limited
Notes to the financial statements
37. Related party disclosures (continued)
37.3 Transactions with other related parties (continued)
37.3.1 Transactions between Service Stream Limited and its related parties (continued)
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 controlled entities were eliminated in the
preparation of consolidated financial statements of the Group.
37.3.2 Parent entities
The ultimate parent entity in the Group is Service Stream Limited. Service Stream Limited is incorporated in
Australia.
38. Remuneration of auditors
Auditor of the parent entity
Audit or review of the financial report
Additional fees in connection with audit of financial report
Preparation of the tax return
Other assurance services
Tax advice and other services
2013
$
2012
$
235,000
100,000
25,000
-
39,000
399,000
315,000
-
20,000
6,500
26,000
367,500
During the period, Service Stream Limited appointed PricewaterhouseCoopers as its auditor. The comparative
period refers to amounts paid to Deloitte Touche Tohmatsu.
39. Commitments for expenditure
Lease commitments
Finance lease liabilities and non-cancellable operating lease commitments are disclosed in notes 29 and 30
to the financial statements.
40. Contingent assets and liabilities
Contingent liabilities and claims, indeterminable in amount, exist in the ordinary course of business. All known
liabilities have been brought to account and adequate provision has been made for any known and
anticipated losses.
86
Service Stream Limited
Notes to the financial statements
41. Events after the reporting period
In July 2013, a variation to the Syntheo Joint Venture Agreement was executed, as a result of which
Syntheo Stream’s joint venture partner would assume control of Syntheo and of the delivery of its remaining
obligations to NBN Co. Additional comments in relation to the Syntheo Joint Venture are included in note 13
Joint Ventures.
In August 2013, the Group received credit approved term sheets from its financiers for the renewal of its
banking facilities out to 31 August 2014. Refer note 2.2 for further details.
Except for as stated above, 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.
42. Parent entity information
The accounting policies of the parent entity, which have been applied in determining the financial
information shown below, are the same as those applied in the consolidated financial statements. Refer to
note 2 for a summary of the significant accounting policies relating to the Group.
42.1 Financial position
Current Assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total liabilities
Net Assets
Issued capital
Retained earnings / (accumulated losses)
Reserves – Equity settled employee benefits
Equity
42.2 Financial performance
(Loss) / profit for the year
Other comprehensive income
Total comprehensive income
2013
$’000
2012
$’000
10,908
182,844
193,752
31,535
4,177
35,712
15,730
222,665
238,394
20,357
-
20,357
158,040
218,038
211,779
(56,428)
2,689
158,040
(59,719)
-
(59,719)
211,779
3,291
2,968
218,038
249
-
249
42.3 Guarantees entered into by the parent entity
The parent entity is party to the Group’s bank debt facilities as a security provider under the Security Trust Deed.
In addition, there are cross guarantees given by the parent entity as described in notes 31 and 32.
87
Service Stream Limited
ASX Additional Information
ASX Additional Information
for the financial year ended 30 June 2013
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 2 September 2013
Category (size of holding)
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001+
Holders
547
1,104
680
1,618
261
4,210
B. There are 4,210 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 1,376.
D. The names of the substantial shareholders listed in the holding company’s
register, and their shareholdings (including shareholdings of their
associates), as at 2 September 2013 are:
Shareholder
Thorney Investment Group Australia Pty Ltd
Maple-Brown Abbott
Gandel Springwest Pty Ltd
E. Voting Rights
Ordinary
53,711,859
28,038,834
15,797,924
%
18.95
9.89
5.57
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 $0.1206 (2012: $0.2081).
88
G. 20 Largest Shareholders as at 2 September 2013 - Ordinary Shares
Service Stream Limited
ASX Additional Information
Name of 20 largest shareholders in each class of share
HSBC Custody Nominees (Australia) Limited
RBC Investor Services Australia Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
Gandel Springwest Pty Ltd
Citicorp Nominees Pty Limited
Rubi Holdings Pty Ltd
National Nominees Limited
Dr Roger Graham Brooke & Mrs Sally Ann Brooke
Bond Street Custodians Limited
J P Morgan Nominees Australia Limited
Sandhurst Trustees Ltd
Global Property Services Pty Limited
Mr Darren Ronald Patterson
Mrs Maree Helen Theiler
Miclod Holdings Pty Ltd
Navigator Australia Ltd
Mr Robert Scott Minney
Mr John Carthew William Burston & Mrs Catriona Mary Burston
Brispot Nominees Pty Ltd
Serviceworks Connect Pty Ltd
Ordinary shares
Fully paid number
of shares held
57,363,161
27,335,493
18,185,428
15,797,924
11,591,927
6,900,611
3,574,966
3,107,142
2,964,906
2,316,675
2,119,939
1,498,997
1,389,600
1,317,760
1,241,630
1,138,219
994,945
993,600
898,114
895,261
% Held
20.24
9.64
6.42
5.57
4.09
2.43
1.26
1.10
1.05
0.82
0.75
0.53
0.49
0.46
0.44
0.40
0.35
0.35
0.32
0.32
161,626,298
57.03
89
Corporate Directory
Directors
Peter Dempsey
Brett Gallagher
Deborah Page AM
Stephe Wilks
Robert Grant
Company Secretary
Vicki Letcher
Jessica Lyons
Registered Office
Level 4
357 Collins Street
Melbourne Victoria 3000
Tel: +61 3 9677 8888
Fax: +61 3 9677 8877
www.servicestream.com.au
Bankers
Westpac Banking Corporation
Australia & New Zealand Banking Group
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
PricewaterhouseCoopers
Service Stream Limited
Corporate Directory
90
2013 Annual Report
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