More annual reports from Service Stream:
2023 ReportAnnual
Report
Annual General Meeting
The Annual General Meeting of
Service Stream Limited will be held at
RACV City Club
Level 2, 501 Bourke Street, Melbourne
24 October 2018, 10.00am
Service Stream Limited
ABN 46 072 369 870
Annual report for the financial year ended
30 June 2018
Service Stream Limited ABN 46 072 369 870
Consolidated financial statements
for the year ended 30 June 2018
Contents
Directors’ report
Auditor’s independence declaration
Consolidated statement of profit or loss and other comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report to the members
Page 1
Page 25
Page 26
Page 27
Page 28
Page 29
Page 30
Page 64
Page 65
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 financial performance on pages 4 to 12, which is not part of these financial statements.
The financial statements were authorised for issue by the Directors on 15 August 2018. 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 media releases,
financial reports and other information are available on our website: www.servicestream.com.au.
Directors' report
Your Directors present their report on the consolidated entity (the Group) consisting of Service Stream Limited and
entities it controlled at the end of, or during, the year ended 30 June 2018, and in order to comply with the provisions of
the Corporations Act 2001, the Directors report as follows:
Information about the Directors
The names and particulars of the Directors of the Group during or since the end of the financial year are:
Service Stream Limited
Directors' report
Brett Gallagher
Chairman
Term of Office: Non-Executive Director from April 2010 to April 2013 and from November 2013 to May 2014, Managing
Director from April 2013 to November 2013, Executive Director from May 2014 to February 2015, Chairman since 1
March 2015.
Qualification: FAICD.
Brett Gallagher has over 20 years’ experience across the utility and facilities management industries, and was
Managing Director and a shareholder of AMRS (now Energy & Water) from 2003 until 2008 when that Group was
acquired by Service Stream.
Brett is a member of the Sustainability, Safety, Health & Environment Committee and 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 three
years.
Leigh Mackender
Managing Director
Term of Office: Managing Director since May 2014.
Qualification: MBA (VU).
Leigh Mackender joined Service Stream Limited when it acquired AMRS (now Energy & Water) in February 2008, prior
to which he held various management roles with the AMRS business since joining in 2005.
Prior to being appointed Managing Director, Leigh was responsible for overseeing the Energy & Water division’s
national operations.
Leigh has over 15 years of extensive experience working within the industrial services sector and held various roles in
private and public businesses specialising in the development and implementation of business strategy, operational
management, financial analysis, business development and commercial negotiations.
Leigh is a member of the Sustainability, Safety, Health & Environment Committee.
Leigh has no other listed company directorships and has held no other listed company directorships in the last three
years.
Peter Dempsey
Non-Executive Director
Term of Office: Chairman from November 2010 to February 2015, Non-Executive Director since March 2015.
Qualifications: B. Tech. (Civil Eng.) (Adel), Grad. Diploma (Bus. Admin.), SAIT, FIEAust, MAICD.
Peter Dempsey was appointed as Non-Executive Director of Service Stream Limited on 1 November 2010 and held the
role of Chairman until February 2015. 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 $1.5 billion 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.
1
Peter is Chairman of the Remuneration and Nomination Committee, a member of the Audit and Risk Committee and
the Sustainability, Safety, Health and Environment Committee and is the lead Independent Director.
Peter is currently a Non-Executive Director of Monadelphous Limited.
Peter has held no other listed company directorships in the last three years.
Service Stream Limited
Directors' report
Greg Adcock
Non-Executive Director
Term of Office: Non-Executive Director since June 2016.
Qualifications: MAICD, MAIPM.
Greg Adcock was appointed as Non-Executive Director of Service Stream Limited on 1 June 2016. Greg brings
commercial and operational expertise developed from senior executive roles at Telstra Corporation where his career
spanned more than 20 years, and more recently at nbn co where he was the Chief Operating Officer responsible for the
key operational and commercial elements of Australia’s largest infrastructure project.
Greg brings to Service Stream a broad telecommunications and operational management background with a strong
focus on commercial and project discipline.
Greg’s roles at Telstra included overseeing business and capital planning, contract establishment, operational process
optimisation, regulatory compliance, strategic projects and the group’s productivity initiative program. His experience
includes developing and implementing construction contracting strategies as well as having been the Superintendent
on major construction contracts.
Greg is Chair of the Sustainability, Safety, Health & Environment Committee and is a member of the Remuneration and
Nomination Committee.
Greg has no other listed company directorships and has held no other listed company directorships in the last three
years.
Raelene Murphy
Non-Executive Director
Term of Office: Non-Executive Director since November 2015.
Qualifications: BBus (FUA), FCA, GAICD.
Raelene Murphy has a proven track record in financial and operational performance improvement both as an advisor
and in CFO and CEO roles across a number of industry sectors in the private and public arena.
Her industry experience includes senior roles locally and internationally with Mars Inc., one of
the largest food
manufacturers globally (turnover in excess of $30 billion), in planning, finance and supply chain management and as
CEO of the Delta Group, a leading diversified recycling and construction industry service provider employing over 1,000
people Australia-wide. Raelene's advisory career has been with PwC and as a partner in a national accounting firm
where she led financial and operational advisory. In that capacity, she was a lead partner on the Federal Government's
strategic review of the nbn.
Raelene is a member of the Audit and Risk Committee and Remuneration and Nomination Committee.
Raelene is a Non-Executive Director of Bega Cheese Limited, Altium Limited, Integral Diagnostics Limited, Clean Seas
Seafood Limited and Ross House Investments Pty Ltd (Stillwell Motor Group). During the last three years, Raelene held
listed company directorships with EVZ Limited (resigned March 2016) and Tassal Group Limited (retired March 2018).
2
Service Stream Limited
Directors' report
Deborah Page AM
Non-Executive Director
Term of Office: Non-Executive Director since September 2010.
Qualifications: B Ec (Syd), FCA, FAICD.
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 Committee and is a member of the Remuneration and Nomination
Committee. Deborah is currently a Non-Executive Director of Brickworks Limited, Pendal Group Limited and GBST
Holdings Limited.
During the last three years, Deborah held listed company directorship with Australian Renewable Fuels Limited (retired
October 2015) and Investa Listed Fund Management Limited, responsible entity of Investa Office Fund (resigned April
2016).
Directors' shareholdings
The following table sets out each Director’s relevant interest in shares and rights in shares of the Company or related
body corporate as at the date of this report.
Service Stream Limited
Directors
Fully paid ordinary shares
Number
Performance rights
Number
B Gallagher
P Dempsey
G Adcock
R Murphy
D Page
L Mackender
5,376,126
1,441,775
50,000
20,000
409,268
1,450,000
-
-
-
-
-
1,000,000
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 14 to 23. 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.
Performance rights granted to Directors and senior management
During and since the end of the financial year, the following performance rights were granted to Directors and to the five
highest remunerated officers of the Group as part of their remuneration:
Director and senior
executives
Number of rights
granted
Number of ordinary
shares under rights
Service Stream Limited
L Mackender
R Grant
J Ash
P McCann
K Smith
1,000,000
1,000,000
700,000
90,299
650,000
650,000
700,000
90,299
650,000
650,000
3,090,299
3,090,299
3
Service Stream Limited
Directors' report
Company secretaries
Vicki Letcher
Vicki Letcher joined Service Stream Limited in June 2010 and was appointed Company Secretary in August 2012. Vicki
holds a Bachelor of Laws and a Bachelor of Commerce and is also a fellow of Chartered Accountants Australia and
New Zealand and of the Governance Institute. Vicki is responsible for the corporate administration, governance and risk
management of the Group, along with having the responsibility for the Internal Audit department of the Group.
Vicki has broad experience across a number of industries, including manufacturing, consumer goods and professional
services having previously held a range of senior finance positions with Deloitte and Foster’s Group Limited.
Nicole Goding
Nicole Goding joined Service Stream in May 2010 and holds the role of Group General Manager Finance and Treasury.
Nicole was appointed co-Company Secretary in December 2016, holds a Bachelor of Economics and is also a member
of Chartered Accountants Australia and New Zealand.
Principal activities
The Service Stream Group is a provider of essential network services, including access, design, build, installation and
maintenance. These services are provided across copper, fibre, HFC and wireless telecommunications networks as
well as to a range of private and public energy and water entities nationally.
Review of operations and financial performance
Financial overview
Service Stream has delivered another year of growth with significant improvements recorded for the financial year
ended 30 June 2018 (FY18) across all key profitability measures. In addition, the Group further improved its Net Cash
position during the year notwithstanding further increases in dividends and the operation of an on-market share
buy-back scheme.
Key financial measures
1.000
$ million
Profitability:
Revenue
EBITDA
EBITDA %
EBIT
EBIT %
Net profit after tax
1.000
Cashflow & Capital Management:
Operating Cashflow
Net Cash
Earnings per share (cents)
Dividends declared per share (cents)
1.000
Adjusted Profitability:
NPAT1
Adjusted EPS (cents)
1.000FY18
1.000FY17
1.000
Change
632.9
67.3
10.6%
57.9
9.2%
41.1
79.7
73.0
11.29
7.50
41.5
11.39
501.8
48.4
9.6%
40.9
8.1%
28.4
50.7
49.9
7.78
4.50
29.1
7.97
131.1
18.9
1.0%
17.0
1.0%
12.7
29.0
23.2
3.51
3.00
12.4
3.42
26% ▲
39% ▲
▲
42% ▲
▲
45% ▲
57% ▲
46% ▲
45% ▲
67% ▲
43% ▲
43% ▲
1.000
1
Adjusted for amortisation of TechSafe customer contracts and writeback of TechSafe contingent consideration
(tax-effected).
1
All financial measures and period-on-period changes thereto, are rounded to the displayed number of decimal places.
4
Service Stream Limited
Directors' report
Group results
Group revenue improved to $632.0 million from $501.8 million with the 26% year-on-year increase attributable to
growth in each of the three reporting segments of Fixed Communications (+40%), Network Construction (+19%) and
Energy & Water (+11%).
Group earnings before interest, tax, depreciation and amortisation (EBITDA) improved to $67.3 million from $48.4
million with the 39% year-on-year increase following growth in the same metric in FY17 and FY16 of 35% and 41%
respectively. As with revenue, EBITDA growth was achieved by each of Fixed Communications (+50%), Network
Construction (+17%) and Energy & Water (+28%).
Group earnings before interest and tax (EBIT) improved to $57.9 million from $40.9 million with the 42% year-on-year
increase attributable to the increase in EBITDA slightly offset by the impact of a full-year charge for the amortisation of
TechSafe customer contracts (compared to two months in the prior year).
Group net profit after tax (NPAT) improved to $41.1 million from $28.4 million with the 45% increase attributable to the
aforementioned improvement in EBIT combined with higher interest revenue earned on increased cash balances.
Basic earnings per share (EPS) improved to 11.29 cents from 7.78 cents with the increase primarily attributable to the
significant increase in NPAT.
Group operating cashflow before interest and tax (OCFBIT) of $100.0 million represents a 76% increase on FY17. The
Group achieved an EBITDA to OCFBIT conversion of 149% for the period due to the impact of non-cash items in the
P&L and further reductions in net working capital.
Operating cashflow of $79.7 million was similarly strong after factoring in tax payments of $20.6 million (FY17: $6.1
million).
A final dividend of 4.5 cents (fully-franked) has been declared in respect of FY18, taking total dividends in respect of the
year to 7.5 cents (fully-franked) compared to 4.5 cents (fully-franked) in respect of FY17.
Other cash outflows for the year included $8.0 million in respect of shares purchased under the on-market share
buy-back which operated in the latter part of the financial year, $7.5 million associated with capital expenditure net of
proceeds from the sale of assets, $0.7 million associated with the post-completion Purchase Price Adjustment for the
TechSafe acquisition and $18.6 million associated with the purchase of shares in relation to share-based incentive
scheme obligations.
The Group concluded the year with Net Cash of $73.0 million. This is an increase of $23.2 million over the previous
year-end Net Cash of $49.9 million notwithstanding distributions paid to shareholders during the year in the form of
dividends totalling $21.7 million and the impact of the on-market share buy-back.
5
Segment results
1.000
$ million
Fixed Communications
Network Construction
Energy & Water
Eliminations, interest & other revenue
Total Revenue
1.000
Fixed Communications
Network Construction
Energy & Water
Unallocated corporate costs
Total EBITDA
1.000
Fixed Communications
Network Construction
Energy & Water
Unallocated corporate costs
EBIT
1.000
Net financing costs
Income tax expense
Service Stream Limited
Directors' report
1.000
FY18
1.000
FY17
1.000
Change
301.3
234.9
104.7
(7.9)
632.9
38.7
24.4
9.8
(5.5)
67.3
34.7
22.4
6.3
(5.5)
57.9
0.4
(17.2)
12.8%
10.4%
9.3%
(0.9%)
10.6%
11.5%
9.5%
6.0%
(0.9%)
9.2%
215.6
196.8
94.6
(5.2)
501.8
25.8
20.9
7.6
(5.9)
48.4
22.1
19.1
5.6
(5.9)
40.9
(0.2)
(12.3)
11.9%
10.6%
8.0%
(1.2%)
9.6%
10.3%
9.7%
5.9%
(1.2%)
8.1%
85.7
38.0
10.1
(2.7)
131.1
12.9
3.5
2.2
0.4
18.9
12.6
3.3
0.7
0.4
17.0
0.6
(4.9)
12.7
0.9%
(0.2%)
1.3%
0.3%
1.0%
1.2%
(0.2%)
0.1%
0.3%
1.0%
0.9%
Net profit after tax
1.000
All financial measures and period-on-period changes thereto, are rounded to the displayed number of decimal places.
41.1
6.5%
5.7%
28.4
Revenue
Revenue increased by $130.2 million compared to the prior corresponding period driven primarily by:
•
•
Fixed Communications revenue was up (+$85.7 million) with a breakdown of revenue from the key business
activities detailed in the table below. The increase in revenue was primarily due to a significantly higher number of
customer connections and related services being performed for nbn co under the Operations & Maintenance
Master Agreement (OMMA) ticket-of-work contract. Other customers include Telstra and PIPE Networks (part of
the TPG group).
1.000
$ million
nbn Activations & Assurance
nbn Minor Projects
Other customers
Total Revenue: Fixed Communications
1.000FY18
1.000FY17
1.000Change
218.1
34.9
48.3
301.3
146.3
13.3
55.9
215.6
71.8
21.6
(7.6)
85.7
Network Construction revenue was up (+$38.0 million) with a breakdown of revenue from the key business
activities detailed in the table below. The increase in revenue was primarily due to a significant increase in
predominantly fibre-to-the-curb (FTTC) construction activity for nbn co under the Design and Construction Master
Agreement (DMCA). Elsewhere, works undertaken for wireless carriers increased while work completed under the
nbn Multi-Technology Integrated Master Agreement remained in line with the previous year. Due to expiry of the
nbn New Developments contract in the prior financial year, revenue contribution from this activity ceased.
6
Service Stream Limited
Directors' report
1.000
$ million
nbn MIMA
nbn DCMA
nbn New Developments
Wireless
Other & Eliminations
Total Revenue: Network Construction
1.000FY18
1.000FY17
1.000Change
39.8
65.9
0.6
127.6
1.0
234.9
39.5
1.6
34.1
120.5
1.1
196.8
0.3
64.3
(33.5)
7.1
(0.1)
38.1
•
Energy and Water revenue was up (+$10.1 million) with a breakdown of revenue from the key business activities
detailed in the table below. The increase in revenue was primarily due to the inclusion of a full-year of TechSafe
revenue following its acquisition in April 2017. Metering services revenue reduced primarily due to a decrease in
the number of smart meter installations undertaken for Active Stream while an increase in commercial solar
installations resulted in improved revenue for New Energy.
1.000
$ million
Metering services
New energy
TechSafe
Other & Eliminations
Total Revenue: Energy & Water
1.000FY18
1.000FY17
1.000Change
65.3
13.8
14.9
10.7
104.7
72.5
9.9
2.8
9.4
94.6
(7.2)
3.9
12.1
1.3
10.1
Earnings before interest, tax, depreciation and amortisation
The Group’s EBITDA of $67.3 million for the year was an increase over the prior year by $18.9 million.
•
•
•
•
Fixed Communications achieved an EBITDA of $38.7 million for FY18 which represents an improvement of $12.9
million over the prior year. The higher EBITDA resulted from the increase in revenue detailed above coupled with a
0.9 percentage point increase in margin on the back of scale efficiencies and improved productivity.
Network Construction recorded EBITDA of $24.4 million for FY18. This represents an improvement of $3.5 million
over the prior year. The higher EBITDA resulted from the increase in revenue detailed above whilst margin
remained broadly in line with the previous year.
Energy & Water reported an EBITDA of $9.8 million for FY18, an increase of $2.2 million over the prior year. The
higher EBITDA resulted from the increase in revenue detailed above coupled with a 1.3 percentage point increase
in margin on the back of scale efficiencies and improved productivity in metering services and a more favourable
mix of work arising from the inclusion of higher margin revenue from TechSafe.
Unallocated Corporate Costs were $5.5 million for FY18, a decrease of $0.4 million over the prior year due in part
to the write-back to profit of the $1.0 million allowance for contingent consideration that was booked in the prior
year in relation to the TechSafe acquisition.
Depreciation and amortisation
•
•
•
A depreciation charge of $3.4 million was recorded for the period in relation to the Group’s plant and equipment.
This was $0.4 million lower than the charge in the prior year.
An amortisation charge of $4.1 million was recorded for the period in relation to the Group's acquired and
internally-developed IT systems. This was in line with the prior year.
A charge of $1.9 million was recorded for the period in relation to the amortisation of customer contracts acquired
as part of the TechSafe acquisition. This was $0.5 million in the prior year, being the charge for the two months
post acquisition.
7
Service Stream Limited
Directors' report
Net financing costs
•
The Group earned interest income of $0.9 million for the year, which was offset by line fees of $0.5 million
associated with the Group’s banking facilities for a net financing benefit of $0.4 million. This compared to a $0.2
million net financing benefit in the previous year.
Tax
•
An income tax expense of $17.2 million was recorded for the period, representing an effective tax rate for the year
of 29.5% which was in line with expectations.
Cashflow
Key movements in cashflow compared to the prior period are as follows:
•
Net cashflow from operations was $79.7 million compared to $50.7 million in the prior period. The $29.0 million
increase can be attributed to:
○
○
○
Service Stream operations generated $100.0 million in operating cashflow before interest and tax
(OCFBIT) for the year compared to $56.9 million in the prior period. Both periods produced greater
OCFBIT than EBITDA due to the favourable impact of non-cash items in the P&L and year-on-year
reductions in net working capital;
Cash flows associated with financing for the year were a net cash inflow of $0.3 million compared to the
previous year which saw this measure net to nil; and
Tax payments totalling $20.6 million were made during the year, compared to only $6.1 million due to
the Group’s tax instalment rate being adjusted in the current financial year in line with increased prior
year profit.
•
Net investing cash outflows for the year decreased to $8.2 million compared to $25.9 million in the previous year
and comprised:
○
○
○
$0.7 million associated with the post-completion Purchase Price Adjustment
acquisition compared to $17.1 million of initial consideration paid in the prior year;
for
the TechSafe
$7.7 million of capital expenditure investment in technology and plant & equipment compared to $8.8
million in the previous year; net of
$0.2 million of proceeds from the sale of assets compared to $0.1 million in the previous year.
•
Net financing outflows for the year included:
○
○
○
$21.7 million paid in dividends, an increase of $10.7 million over the previous year;
$18.6 million expended to acquire shares in Service Stream Limited to satisfy the Group’s obligations
under certain share-based incentive arrangements; and
$8.0 million expended to acquire shares as part of the on-market share buy-back that operated during
the latter part of the year.
Financial position
The financial position of the Group remained in line with the previous year, with Net Assets of $206.9 million. At 30
June 2018 Current Assets exceeded Current Liabilities by $71.2 million (30 June 2017: $68.1 million).
Net cash and financing facilities
•
•
•
•
The Group ended the year with Net Cash of $73.0 million, an increase of $23.1 million over the $49.9 million
balance at the prior period end. Net Cash at 30 June 2018 comprised cash of $73.7 million less the outstanding
balance under the IT Infrastructure finance lease of $0.7 million.
Bank guarantee utilisation at year-end of $19.3 million was significantly lower than the prior year-end’s $25.0
million due primarily to the expiry of bank guarantees relating to ceased contracts.
The Group’s finance facilities at 30 June 2018 comprised cash advance lines totalling $25.0 million (drawn: Nil),
bank guarantee facilities totalling $30.0 million (drawn: $19.3 million) and overdraft facilities totalling $5.0 million
(drawn: Nil).
The Group was in compliance with, and had substantial headroom on each of the financial covenants that applied
during the year under the Syndicated Facilities Agreement with its bankers Australia & New Zealand Banking
Group and HSBC Bank Australia Limited.
8
Service Stream Limited
Directors' report
Other Balance Sheet items / movements
Other key balance sheet movements during the year included:
• Working capital (comprising the net of trade & other receivables, inventories, accrued revenue, trade & other
payables, income in advance, provisions and lease incentives) at 30 June 2018 was a net liability position of $3.6
million reflecting strong conversion of accrued revenue and debtors to cash and an increase in both income
received in advance and trade and other payables. The closing balance represents a decrease of $25.3 million
from the prior year’s closing balance of $21.7 million.
•
•
Plant and equipment at 30 June 2018 was $3.9 million compared to $5.8 million at 30 June 2018 and reflects the
annual depreciation charge (-$3.4 million) exceeding the net of additions (+$1.5 million) and disposals (-$0.3
million) for the year.
Intangibles of $148.8 million were in line with the prior period-end with software additions (+$6.5 million) and
disposals (-$0.4 million) being offset by the aggregate amortisation charge for the year (-$6.1 million).
Business activities
Fixed Communications
Fixed Communications provides a wide range of operations and maintenance and minor works services to the owners
of fixed-line telecommunications networks in Australia. Service capability includes customer connections, service and
network assurance as well as minor projects for asset remediation, augmentation and relocation. Principal customers
include nbn co and Telstra.
•
•
•
•
Fixed Communications’ financial performance in FY18 improved over the prior year, delivering an EBITDA of $38.7
million and revenue of $301.3 million (12.8% margin), compared with EBITDA of $25.8 million and revenue of
$215.6 million (11.9% margin) in the prior year.
During the year, Fixed Communications continued to deliver services to nbn co under the OMMA and Network
MACs and Restoration Activities (NMRA) contracts, to Telstra under the Asset Relocation & Commercial Works
(ARCW) contract, and to Telstra and PIPE Networks (part of the TPG Group) under various minor works contracts.
Operation of the separate Field Service Delivery (FSD) contract with nbn co ceased in the prior year, with
fibre-to-the-premise (FTTP) activations now being performed under the technology-agnostic OMMA contract.
During the year, Fixed Communications completed the activation of 786,000 new customers for nbn co under the
OMMA contract compared to 545,000 under the FSD and OMMA contracts in the previous year.
Network Construction
Network Construction provides turnkey services associated with the engineering, design and construction of
infrastructure projects across Australia, principally in the telecommunications sector. Service capability includes
program management, site acquisition, town planning, design, engineering and construction management for projects
in wireless and fixed-line telecommunications, signalling and power. Principal customers include nbn co and wireless
carriers.
•
•
Network Construction’s financial performance in FY18 also saw improvement with EBITDA of $24.4 million and
revenue of $234.9 million (10.4% margin) compared with EBITDA of $20.9 million and revenue of $196.8 million
(10.6% margin) in the prior year.
During the year, Network Construction continued its delivery of predominantly fibre-to-the-node (FTTN)
construction activity to nbn co under the MIMA contract, expanded delivery of predominantly fibre-to-the-curb
(FTTC) design and construction activity to nbn co under the DCMA contract, and continued its delivery of site
acquisition, engineering, design and construction services to wireless customers including Telstra, Vodafone
Hutchison Australia (VHA), Nokia Solutions and Networks Australia Pty Ltd on the Optus wireless network and
NSW Telco Authority.
•
The nbn New Developments contract ceased during the prior year.
Energy & Water
Energy & Water provides a range of specialist metering, in-home and new energy services to electricity, gas, and water
networks across Australia; through the TechSafe business, provides inspection, auditing and compliance services to
electricity network owners and regulators, government entities and electrical contractors nationally; and through the
Customer Care business, provides contact centre services and workforce management support for key contracts.
•
Energy & Water’s financial performance in FY18 also saw improvement with EBITDA of $9.8 million and revenue of
$104.7 million (9.3% margin) compared with EBITDA of $7.6 million and revenue of $94.6 million (8.0% margin) in
the prior year.
9
Service Stream Limited
Directors' report
•
•
•
TechSafe, the acquisition of which was completed on 28 April 2017, contributed a full 12 months revenue ($14.9
million) to Energy & Water’s financial performance for FY18 compared with only two months revenue ($2.8 million)
in the prior year.
During the year, Energy and Water completed the installation of 50,000 new electricity smart meters for AGL and
other electricity retailers under its contract with Active Stream Pty Ltd, compared to 106,000 in the previous year.
During the year Energy & Water completed 135 (FY17: 222) commercial solar PV installations with an average size
of 69.6kw (FY17: 27.3kw) representing total installed capacity of 9.4 megawatts (FY17: 6.1 megawatts) as well as
569 (FY17: 896) residential solar PV installations at an average size of 4.3kw (FY17: 4.0kw) representing total
installed capacity of 2.4 megawatts (FY17: 3.6 megawatts).
Overall Group strategy, prospects and risks
The financial performance of the Group further improved during the year, and the Group delivered on its strategic plan
in line with the Board’s expectation.
The Board is particularly pleased with the consistency of service delivery and growth in market share under Fixed
Communications' various contracts with nbn co,
the Wireless business within Network
Construction in respect of 5G design and construction opportunities, and improvements that the Group continues to
make in working capital management and cash generation.
the future prospects of
The Board believes that the Group remains well placed to continue to take advantage of organic growth opportunities
as they present, and that demand for essential network services is expected to remain strong in the medium term.
•
•
•
The Australian government’s investment in the National Broadband Network will continue to provide growth
opportunities for Fixed Communications.
Increasing demand for mobile data and advances in technology, including the potential roll-out of 5G technology,
will continue to drive investment in the development and augmentation of wireless infrastructure and provide
growth opportunities to Network Construction.
Energy network owners, retailers and governments will continue to pursue better demand-side management, use
of consumption data and distributed generation presenting significant opportunities in smart metering, in-home
services such as solar PV and battery storage, and asset maintenance for Energy & Water.
Given the Group’s strong financial position and in particular its Net Cash balance of $73.0 million as at 30 June 2018,
the Board continues to review the Group’s capital management strategy to ensure it remains effective at maximising
shareholder value. In this context, the Board:
•
•
•
has declared an increased final dividend of 4.5 cents per share (fully-franked) taking total dividends in respect of
FY18 to 7.5 cents per share (fully-franked) in line with the Group’s progressive dividend policy approach;
has authorised management to continue to work through a disciplined process of identifying and evaluating further
business expansion opportunities including potential acquisitions; and
has the intention of maintaining operation of the on market share buy-back that it approved and announced in
February 2018, absent an emerging alternate use of the Group’s surplus cash.
The achievement of the Group’s business objectives in the near term may be impacted by the following risks:
Customer
concentration
Management and the Board are conscious of the Group’s exposure to a small number of key
customers and infrastructure programs across the telecommunications and utility sectors as a
source of revenue and profitability, but accepts that concentration to customers such as nbn co,
Telstra and VHA is a natural consequence of operating across these markets in Australia.
In that context, Management and the Board remain alert to factors that could disrupt or delay the
flow of work from its major customers, and implement strategies to actively pursue the diversification
of income streams both within and separate to those customers by developing and offering a broad
range of services and geographic coverage.
In April 2017, the Group acquired TechSafe, the market leading independent electrical inspection
and auditing business in Australia. Whilst relatively modest in size, the acquisition does support
Management’s objective of diversifying the Group’s revenue stream.
The Energy & Water segment continues to win new (albeit relatively small) contracts in the
“disruptive energy” sector, related to the installation of commercial solar, battery storage technology
and electrical vehicle charging infrastructure.
10
Service Stream Limited
Directors' report
Customer
demand
Many of the Group’s customer contracts do not contain volume commitments and are therefore
dependent on the customer’s demand requirements which can change at any time. Whilst
Management and the Board take a balanced view on the level of customer demand that is expected
to arise under each of these contracts when forecasting financial performance, there is a risk that
the level of customer demand may change over time.
In addition, the potential variability in that customer demand presents operational challenges to the
Group. In this regard, Management and the Board are conscious of the need to maximise the
variability of the business’ cost-base and structures through the use of subcontractors wherever
possible. Processes are therefore established and maintained to attract, mobilise and retain key
subcontractor resources to ensure that they are available at the right time and right place to match
customer’s forecasts of volume as they change over time.
Contract
management
Given that Service Stream’s operating model is premised on the provision of infrastructure-related
services to customers under periodically renewed contracts, Management and the Board are
conscious of the risks that can arise through the acceptance of sub-optimal conditions in customer
contracts and through the ineffective commercial administration of these contracts over their term.
In addition, it has become evident in recent times that large customers are attempting to impose
higher liability regimes onto contractors such as Service Stream, and that emerging risks around
data security and privacy are gaining greater contractual attention.
Management and the Board therefore remain focused on ensuring that appropriate contract
management disciplines are effectively embedded in the organisation to manage contract risks and
to maximise contract entitlements.
In that context, a now well-established Group Commercial function is in place, reporting directly to
the Managing Director. Group Commercial is responsible for the development and maintenance of a
Bid Management Framework in respect of winning new business and a Commercial Health-Check
Program in respect of existing business, and generally for ensuring that sound contract
management disciplines are embedded across the Group.
Renewal of
customer
contracts
in renewing and extending the majority of all customer
Whilst the Group has been successful
contracts that have recently expired, the renewal of contracts remains a risk that Management and
the Board continues to actively monitor and manage.
Service Stream operates in a limited number of market segments in which there are relatively few
competitors. Management and the Board are therefore particularly conscious of the risks related to
the loss of business to competitors either through their ability to potentially leverage more
cost-effective business platforms or as a consequence of their potential adoption of loss-leading
strategies to maintain or increase market share.
During FY18, the Group did not lose any major contracts and was successful
in securing an
extension of its NMRA contract with nbn co and in winning a number of new meter reading and
meter replacement contracts in Energy & Water.
Retention of key
personnel and
sourcing of
subcontractors
The talents of a growing, yet relatively small number of key personnel contribute significantly to the
Group’s operational effectiveness. Management and the Board have implemented strategies to
including participation in appropriate incentive arrangements and
retain those personnel,
participation in the Group’s employee development, talent identification and succession programs.
The Board is alert to the fact that the share-based incentive scheme (ESBIP) that was established in
2014 to operate for a five-year period from FY15 to FY19 and that was offered to the Managing
Director and a small number of other key executives, is scheduled to conclude at the end of the next
financial year. The Board is also alert to the retention risks that may naturally arise in respect of
these Executives from conclusion of that scheme, and is therefore in the process of working with
external remuneration advisers to develop an appropriate remuneration structure to take effect from
FY20.
Access to an appropriately skilled and resourced pool of subcontractors across Australia is also
critical to Service Stream’s ability to successfully secure and complete field-based work for its
customers. Throughout FY18, Management continued to focus on mobilising large numbers of
subcontractors to undertake an increased volume of work for clients such as nbn co. The business
continues to make appropriate capital
investments in IT-related platforms which assist with the
engagement, deployment, daily management and retention of the business’ growing subcontractor
base.
Working with
potential safety
hazards
In undertaking work and delivering programs for its customers, Service Stream’s employees and
subcontractors can operate in potentially hazardous environments and perform potentially
hazardous tasks.
11
Service Stream Limited
Directors' report
Management and the Board remain alert to the safety risks posed to employees and subcontractors,
devote significant time to monitoring the effectiveness of the Group’s safety framework, and have
implemented a wide range of controls and proactive programs to increase awareness of significant
hazards and prevent injuries to employees and subcontractors.
During FY18, safety performance continued to improve with the Group’s Lost Time Injury Frequency
Rate (LTIFR) and Total Reportable Incident Frequency Rate (TRIFR) at 30 June 2018 both being
lower than at the end of the previous year.
Digital disruption As technology continues to change and evolve at a rapid pace, it is possible that such advances
may cause disruptions to certain elements of the markets in which Service Stream operates, or to
services that Service Steam provides.
Management and the Board spend time each year during a planning cycle to update the Group
Strategic Plan which extends across a four-year horizon. This planning process includes a detailed
assessment of relevant external factors, including digital disruption or technological changes, which
may have a bearing on the Group’s current markets and service offerings.
Information
technology
systems and
cyber security
Service Stream’s operational agility, overall cost effectiveness and ability to convert works to cash in
a timely manner are becoming increasingly reliant on a number of business-critical systems and in
turn, the appropriate management of data and information and risks associated with cyber security
and malicious emails.
Management and the Board remain alert to ensuring that sufficient funds are made available to
maintain fit-for-purpose system applications and infrastructure, and that
IT investments are
appropriately prioritised as part of
the Group’s annual strategic planning process and are
undertaken effectively.
During FY18, the Group has further expanded the scope of its core ERP application, enhanced its IT
infrastructure redundancy, implemented and tested disaster recovery capability, and invested in
improved email scanning and firewall protections.
Dividends
Dividends paid or declared by the Company during and since the end of the year are set out in note 17 to the financial
statements and further set out below:
Per share (cents)
Total amount ($'000)
Franked
Payment date
Final
2018
Interim
2018
Final
2017
4.50
16,209
100%
3.00
10,820
100%
3.00
10,904
100%
27 September 2018
29 March 2018
27 September 2017
Significant changes in the 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
Other than elsewhere disclosed in the financial statements, 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.
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.
12
Service Stream Limited
Directors' report
Shares under performance rights
Details of unissued shares under performance rights at the date of this report are:
Series
Class of shares
Exercise price of
right
FY16 LTIP Tranche
FY17 LTIP Tranche
FY18 LTIP Tranche
Ordinary
Ordinary
Ordinary
FY18 ESBIP Tranche
Ordinary
$0.00
$0.00
$0.00
$0.00
Vesting date
September 2018
September 2019
September 2020
August 2018
Number of shares
under rights
1,548,419
890,322
691,756
4,500,000
7,630,497
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 performance rights have
been issued since the end of the financial year.
In accordance with the Employee Share Ownership Plan the shares relating to the Long Term Incentive Plan (LTIP)
and Executive Share-based Incentive Plan (ESBIP) tranches will be issued to participants after release of the financial
statements in the relevant financial year, to the extent that the vesting criteria has been satisfied.
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).
Meetings of Committees
Board
meetings
Audit and
Risk
Remuneration
and
Nomination
Sustainability,
Safety,
Health &
Environment
Term of
Directorship
13
13
12
13
12
13
10**
4
4*
4
4
4
4*
4*
4
4*
4
4
4
4
4*
4
4
4
4*
4*
4
4
8 years
8 years
8 years
3 years
2 years
4 years
NO OF MEETINGS HELD
No of meetings attended by
B Gallagher
P Dempsey
D Page
R Murphy
G Adcock
L Mackender
* Attended as Standing invitee.
** Was not invited to 3 meetings due to a perceived conflict of interest
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 officers of the Group and any related body corporate against a liability
necessarily incurred as such a Director, Secretary or officer to the extent permitted under the Corporations Act 2001.
The contract of insurance prohibits the general disclosure of the terms and conditions, nature of the liability insured or
the amount of the deductible or premium paid for the contract.
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 necessarily incurred as such an officer or auditor.
13
Service Stream Limited
Directors' report
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 29 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 29 to the financial statements do not compromise
the external auditor’s independence, based on advice received from the Audit and Risk 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
including reviewing or auditing the auditor’s own work, acting in a management or
Standards Board,
decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks
and rewards.
Auditor's independence declaration
The auditor’s independence declaration is included on page 25 of the annual financial report.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial / Directors' Reports) Instrument
2016/191, issued by the Australian Securities and Investments Commission, relating to the rounding-off of amounts in
the Directors' report and the financial report. Amounts in the Directors' report and the financial report have been
rounded-off to the nearest thousand dollars, in accordance with that Instrument.
Corporate governance statement
Service Stream Limited and the Board are committed to achieving and demonstrating the highest standards of
corporate governance. Service Stream Limited has reviewed its corporate governance practices against the 3rd edition
ASX Corporate Governance Principles and Recommendations. Service Steam is compliant with all ASX Corporate
Governance Principles and Recommendations.
A description of the Group’s current corporate governance practices is set out in the Group’s corporate governance
statement which can be viewed at http://www.servicestream.com.au/investors/corporate-governance. The corporate
governance statement is accurate and up to date as at 15 August 2018 and has been approved by the Board.
Remuneration report
1 Introduction and scope
The Service Stream Limited remuneration report sets out information about the remuneration of Service Stream
Limited's key management personnel (KMP) for the year ended 30 June 2018 (FY18). The term KMP 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 following table depicts the Directors and Senior Executives of the Group who were classified as KMP for the entire
financial year unless otherwise indicated.
14
Non-Executive Directors
Brett Gallagher
Peter Dempsey
Greg Adcock
Raelene Murphy
Deborah Page
Executive Director
Leigh Mackender
Senior Executives
Robert Grant
John Ash
Paul McCann
Kevin Smith
Service Stream Limited
Directors' report
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director
Chief Financial Officer
Executive General Manager, Network Construction
Executive General Manager, Energy & Water
Executive General Manager, Fixed Communications
2 Role of the Remuneration and Nomination Committee
The Board’s Remuneration and Nomination Committee (RNC)
reviewing and making
recommendations to the Board on the remuneration arrangements for the Non-Executive Directors, the Managing
Director and the executive management team including the Senior Executives. Information on the RNC’s role and
responsibilities is contained in its charter, which is available on the Group’s website at www.servicestream.com.au.
is responsible for
Whilst the RNC periodically seeks independent advice from external consultants on various remuneration-related
matters, no external consultants were engaged by the Group during the financial year.
3 Executive remuneration policy and framework
Remuneration policy and principles
The Board, through the RNC, reviews the remuneration packages of all KMP on an annual basis. Remuneration
packages are set and reviewed with due regard to current market rates and are benchmarked, where relevant, against
comparable industry salaries.
The objectives of the Group's remuneration policy are to ensure that the Group:
•
•
•
Attracts, retains and motivates talented employees;
Aligns employee activities to the achievement of business objectives;
Creates a high performance culture that delivers shareholder value;
• Maintains fair, equitable and affordable rates of pay for all employees, based on their performance and the markets
in which the Group operates;
•
•
Encourages, recognises and rewards individual, team and group performance on the basis of ability-to-pay and
alignment with shareholder returns; and
Operates a remuneration system that is transparent, accountable, scalable, flexible and consistent, enabling
comparison with the external market.
To retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the Group’s
operations, the Board may seek the advice of external advisers in connection with the structure of remuneration
packages as the Board considers necessary.
Overview of remuneration components
The table below depicts the components of the executive remuneration framework that apply to the Managing Director
and Senior Executives. Further details on each of the components are set out in section 5 of this remuneration report.
15
Fixed remuneration
Incentive remuneration
FY18: Average 34% of total remuneration
FY18: Average 66% of total remuneration 1
> Fixed salary set by reference to appropriate benchmark
information and individual performance
> Fixed number of performance rights issued under an
Executive Share-based Incentive Plan (ESBIP)
Service Stream Limited
Directors' report
Includes
>
non-monetary benefits
superannuation
and
salary-sacrificed
> Performance hurdle linked to annual EPS growth
> No cash bonuses
Or 2
> Variable number of performance rights issued under a
Long Term Incentive Plan (LTIP)
> Performance hurdle linked to annual EPS growth and
Relative Total Shareholder Return
> Cash bonus paid under the Short Term Incentive Plan
(STIP)
1 The percentage allocation of remuneration between Fixed and Incentive is based on a fair value for each performance right issued under the
FY18 ESBIP and the FY16, FY17 and FY18 LTIPs.
2 Executives not eligible to participate in the ESBIP as detailed on page 16 may be eligible to participate in the LTIP and the STIP.
4 Linking performance to executive remuneration
The above elements of
the executive remuneration framework are linked to the Group’s financial performance.
Changes to fixed remuneration are determined by an individual's performance and by the Group’s capacity to fund any
changes. Vesting of performance rights issued under the ESBIP and LTIP is directly linked to the satisfaction of
relevant Group financial measures and cash paid under the STIP is linked to the satisfaction of relevant Group financial
measures as well as relevant individual measures.
The RNC reviews the remuneration packages of all Directors and Senior Executives on an annual basis and makes
recommendations to the Board in respect to any changes thereto. Remuneration packages are reviewed with due
regard to performance, the relativity of remuneration to comparable companies and the level of remuneration required
to attract and compensate Directors and Senior Executives, given the nature of their work and responsibilities.
In considering the Group’s financial performance, the RNC has regard to a number of measures including the following:
Key Indicators
Revenue ($'000)
EBITDA1 ($'000)
Net profit after tax ($'000)
Earnings per share (cents)
Dividends per share2 (cents)
Share price 30 June (cents)
2014
2015
2016
2017
2018
389,574
411,270
438,940
501,810
632,946
16,560
2,309
0.76
n/a
18.6
25,389
11,720
3.03
1.50
29.7
35,818
19,983
5.20
2.50
78.5
48,352
28,370
7.78
4.50
132.0
67,296
41,107
11.29
7.50
151.0
1 Earnings before interest, tax, depreciation and amortisation.
2 Franked to 100% at 30% corporate income tax rate.
The overall
performance and growth prospects of the Group.
level of key management personnel compensation takes into account the size, complexity, financial
5 Managing Director and Senior Executive remuneration
Fixed remuneration
Fixed remuneration consists of base compensation and statutory superannuation contributions. Executives may also
elect to have other benefits provided out of their fixed remuneration, including additional superannuation and the
provision of a motor vehicle.
Incentive remuneration
Incentive remuneration consists of participation in either the Group’s Executive Share-Based Incentive Plan (ESBIP), or
the Long-Term Incentive Plan (LTIP), and Short-Term Incentive Plan (STIP).
16
Service Stream Limited
Directors' report
ESBIP
What is the ESBIP and who participates?
The ESBIP is a share-based incentive plan that was established by the Board in 2014 to operate for a five-year period
from FY15 to FY19 and offered to the Managing Director and to a small number of other key executives of the time. In
establishing the ESBIP, the Board’s aims were to recognise the efforts and loyalty of those individuals during the
immediately preceding period of operating challenges and financial instability, provide a retention incentive for those
executives identified as being key to leading the Group's return to sustainable profitability, and link their reward with the
creation of shareholder value. Participation in ESBIP was conditional on each invited executive agreeing to forego
participation in the Short-Term Incentive Plan (STIP) and the Long-Term Incentive Plan (LTIP) applicable to that
five-year period.
The Managing Director and several of the Senior Executives listed in section 1 of this remuneration report are
participants in the ESBIP. The Board does not propose to offer ESBIP participation to any additional employees,
including those Senior Executives appointed on or after FY15.
How does the ESBIP operate?
The ESBIP operates via the allocation of performance rights that are subject to satisfaction of EPS performance
conditions. Upon admission to the ESBIP, each participating executive is provided with an ESBIP invitation that sets out
the rules and mechanics of the plan, and provides details regarding the number of rights that will be offered to that
executive on an annual basis (by way of an annual offer letter) over the plan’s term. Each performance right converts
into one ordinary share of Service Stream Limited upon 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 offered to the Managing Director and relevant Senior Executives under the ESBIP
have been endorsed by the RNC and approved by the Board and by shareholders in the case of the Managing Director.
What is the performance period?
ESBIP performance rights are issued in respect of a particular financial year and are subject to the satisfaction of
performance hurdles over an initial one-year performance period. Any performance rights which do not vest at the end
of the initial performance period will be tested again at the end of year two, and if necessary the end of year three
(Aggregate Period). Any rights which have not vested at the end of the Aggregate Period will lapse.
What are the performance hurdles?
The performance hurdles for each ESBIP grant are based on the following:
•
•
•
The participant must be an employee at the latter of the date on which the Group releases its results for the
financial year to which the ESBIP grant applies or otherwise determines that the vesting conditions have been
satisfied during the Aggregate Period; and
at least 10% growth in earnings per share (EPS) for the initial performance period is achieved; or
an average of at least 10% compound growth in EPS per annum for the Aggregate Period is achieved.
Why was this performance condition chosen?
The Board considers the EPS hurdle to be an appropriate measure on the basis that it is a relevant measure of
increase in shareholder value, it is a financial outcome that is highly correlated with the effectiveness of ESBIP
participants, and it is a financial metric the calculation of which is independently verified by virtue of the audit of the
financial statements.
How has the ESBIP performed since it was established?
As depicted in the following table, performance rights issued in respect each of the FY15, FY16, FY17 and FY18
tranches of ESBIP have vested in full with annual EPS growth over that period ranging from 45% to 299% relative to
the 10% per annum performance hurdle. Over this four-year period, the Group’s share price has increased by 712%
from a base of $0.186 per share on 30 June 2014 to a closing price of $1.510 on 30 June 2018. Over this same period,
dividends per share have increased from Nil
in respect of FY14 to 7.5 cents in respect of FY18, with an average
dividend yield based on year-end share prices averaging 4.2% (full-franked).
17
Service Stream Limited
Directors' report
ESBIP Vesting & Shareholder Returns
Reported earnings per share (EPS) (cents)
Growth in Reported EPS
Adjusted1 earnings per share (EPS) (cents)
FY14
0.76
0.76
Growth in Adjusted EPS
Growth in EPS - ESBIP hurdle
ESBIP vesting
Shareholder Returns
Share price as at 30 June (cents)
18.6
Growth in share price
Dividends per share (cents)
Dividend yield based on share price as at 30 June
FY15
3.03
299%
3.03
299%
10%
Yes
29.7
60%
1.5
5.1%
FY16
5.20
72%
5.20
72%
10%
Yes
78.5
164%
2.5
3.2%
FY17
7.78
50%
7.97
53%
10%
Yes
132.0
68%
4.5
3.4%
FY18
11.29
45%
11.39
43%
10%
Yes
151.0
14%
7.5
5.0%
1 Adjusted for the tax-effected impact of amortisation of TechSafe customer contracts, TechSafe transaction costs, and write-back of TechSafe
contingent consideration.
LTIP
What is the LTIP and who participates?
From time to time employees in senior management roles 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
individual participation and the
associated number of performance rights offered is recommended by the Managing Director and reviewed by the
Remuneration and Nomination Committee, which will then make recommendations to the Board for approval.
the Remuneration and Nomination Committee. The extent of
How does the LTIP operate?
In accordance with the provisions of the ESOP, certain employees in senior management roles may be invited to
participate in the LTIP which entitles them to receive a number of performance rights. 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 total fixed remuneration (TFR), and the volume-weighted average
market price of the Group’s shares over a prescribed period of time or other issue price as deemed appropriate by the
Board.
What is the performance period?
LTIP performance rights are subject to the satisfaction of performance hurdles over a three-year performance period.
Any rights which have not vested at the end of the Performance Period will lapse.
What are the performance hurdles?
Performance rights for each of the LTIP tranches are subject to service and performance criteria being:
A
B
The participant must be an employee at the conclusion of the performance period; and
50% of the performance rights granted will each vest where:
(i)
The Group’s earnings per share (EPS) achieves annual growth of 10% or more over the performance
period, commencing with growth from an agreed base EPS, subject to proportioned vesting which
commences at annual growth of 7.5%.
(ii) 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.
Performance rights will vest to the extent that the participant remains employed by the Group on the vesting date and to
the extent that the Group’s performance over the relevant period satisfies the vesting conditions.
18
Why was this performance condition chosen?
The Board considers the EPS and TSR hurdles to be appropriate measures on the basis that they are relevant
measures of
increase in shareholder value and they are both outcomes which are highly correlated with the
effectiveness of LTIP participants. In addition, EPS is a financial metric the calculation of which is independently verified
by virtue of the audit of the financial statements, whilst TSR performance is independently assessed by third-party
experts.
Service Stream Limited
Directors' report
STIP
What is the STIP and who participates?
Eligible employees invited to participate in the STIP have the opportunity to earn an annual lump sum cash-based
incentive payment through the achievement of pre-determined goals established with both the Remuneration and
Nomination Committee (RNC) and relevant line managers at the beginning of each financial year.
How does the STIP operate?
The employee’s maximum STIP entitlement is based on the employees’ short-term incentive participation rate, which is
expressed as a percentage of the employee’s total fixed remuneration (TFR).
What are the performance period?
STIP payments are subject to the satisfaction of group and individual goals in respect of a particular financial year.
What is the performance hurdles?
Payment of STIP-related bonuses are subject to the achievement of at least 90% of the Group’s EBITDA target for the
financial year for all participants, regardless of their personal performance. Once this criteria is satisfied, bonus
payments are based equally on Group performance and achievement of individual goals as illustrated below.
50% Group Financial Performance1
Performance
to Budget
Percentage paid out
50% Individual Performance
KPI Quadrant-individual
goals
Example percentage
allocation
90 - 100% Pro-rata between 50% and 100% and at RNC discretion
Financial
100%
100%
Market & Customer
Safety & People
Risk & Governance
50%
20%
20%
10%
1 Additionally, the Managing Director has the discretion to withhold or pro-rate the Group Financial Performance component if individual financial
KPIs are not met.
Individual goals are tied directly to the annual objectives of the Group, which are linked directly to the overall Group
strategy categorised into the four quadrants of Financial, Market & Customer, Safety & People and Risk & Governance.
The weighting applied to each of these quadrants varies depending on the role and responsibilities of each individual
employee.
19
Summary of grants under ESBIP and LTIP
Balance as at 1
Granted as
Balance as
at 30 June
July 2017
Number
compensation
Vested
Forfeited
2018
Number
Number
Number
Number
Service Stream Limited
Directors' report
Fair value
when
granted 2
$
Value of
shares at
vesting
$
L Mackender
FY17 ESBIP
FY18 ESBIP1
Total
R Grant
FY17 ESBIP
FY18 ESBIP1
Total
J Ash
FY15 LTIP
FY16 LTIP1
FY17 LTIP
FY18 LTIP
Total
P McCann
FY17 ESBIP
FY18 ESBIP1
Total
K Smith
FY17 ESBIP
FY18 ESBIP1
Total
Plan
FY15 LTIP
FY16 LTIP
FY17 LTIP
FY18 LTIP
FY17 ESBIP
FY18 ESBIP
1,000,000
-
(1,000,000)
-
1,000,000
-
1,000,000
1,000,000
(1,000,000)
700,000
-
700,000
292,986
296,989
123,411
-
713,386
650,000
-
650,000
650,000
-
650,000
-
(700,000)
700,000
-
700,000
(700,000)
-
-
-
90,299
(292,986)
-
-
-
90,299
(292,986)
-
(650,000)
650,000
-
650,000
(650,000)
-
(650,000)
650,000
-
650,000
(650,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
824,600
1,468,552
1,000,000
1,326,200
n/a
1,000,000
-
700,000
700,000
-
296,989
123,411
90,299
510,699
-
650,000
650,000
-
650,000
650,000
577,220
928,340
1,027,986
n/a
47,317
72,020
76,774
98,530
426,676
n/a
n/a
n/a
535,990
862,030
954,559
n/a
535,990
862,030
954,559
n/a
Grant dates
Vesting dates
28 February 2015
22 September 2017
11 September 2015
September 2018
14 September 2016
September 2019
14 September 2017
September 2020
17 August 2016
16 August 2017
31 October 2017
15 August 2018
1 The relevant number of shares will be issued to the participants after the release of these FY18 financial statements, to the extent that the
vesting criteria has been satisfied.
2 The grant date fair value of all rights on issue to KMP has been expensed as at 30 June 2018 in line with each of the tranche's performance
periods.
20
Service Stream Limited
Directors' report
Performance outcomes
The table below sets out the details of the percentage performance achieved against the applicable share plans, where
the rights under the plan either vested or the assessment of the achievement of the relevant performance hurdles were
assessed in the current financial year.
Plan
FY15 LTIP 1
FY16 LTIP 2
FY17 ESBIP 1
FY18 ESBIP 3
Grant date
Vesting date
28 February 2015
22 September 2017
11 September 2015
September 2018
17 August 2016
16 August 2017
Fair value of each
performance right at
grant date
16.2 cents
24.3 cents
82.5 cents
31 October 2017
15 August 2018
132.6 cents
% of performance
hurdles achieved % of rights vested
100%
100%
To be determined
To be determined
100%
100%
100%
100%
1 Rights have vested and shares have been delivered to plan participants.
2 Measurement of the Relative TSR for year three and the three-year period will not be completed until after the release of FY18 results.
3 Both the service and performance criteria have been assessed as met. The relevant number of shares will be delivered to the participants after
the release of the FY18 results.
Service agreements
The table below sets out the main terms and conditions of the employment contracts of the Managing Director and
Senior Executives.
Title
Notice periods and termination payments
Managing Director and Chief Financial Officer
> 6 months either party (or payment in lieu)
> Immediate for serious misconduct or breach of contract
> Statutory requirements only for termination with cause
Other Senior Executives
> 3 months either party (or payment in lieu)
> Immediate for serious misconduct or breach of contract
> Statutory requirements only for termination with cause
Executive remuneration table
Short-term employee benefits
Post-
employment
benefits
Long-term
employee
benefits
Salary and
fees
Short-term
incentive 1
Non-
monetary
Year
Super
LSL
Share- based
payments
Performance
rights
Total
Fixed At Risk
L Mackender 2018
509,959
2017
500,000
R Grant
2018
455,276
2017
446,389
P McCann
2018
275,672
2017
270,306
K Smith
2018
358,122
2017
340,547
-
-
-
-
-
-
-
-
J Ash 2
2018
358,020
81,380
M Saloyedoff 22017
345,604
-
-
-
-
-
20,049
12,679
1,326,200
1,868,887
29%
71%
19,616
14,160
824,600
1,358,376
39%
61%
20,049
19,616
27,001
20,049
27,864
19,616
9,852
7,009
5,821
8,610
928,340
1,413,517
34%
66%
577,220
1,050,234
45%
55%
862,030
1,190,573
28%
72%
535,990
862,386
38%
62%
-
-
-
-
20,049
12,873
862,030
1,253,074
31%
69%
19,616
13,282
535,990
909,435
41%
59%
20,049
19,616
6,659
7,129
82,441
548,549
70%
30%
535,990
908,339
41%
59%
Total
2018
1,957,049
81,380
27,001
100,245
47,884
4,061,041
6,274,600
34%
66%
2017
1,902,846
-
27,864
98,080
50,190
3,009,790
5,088,770
41%
59%
1 This amount represents cash short-term incentives payable for the year ended 30 June 2018, which are scheduled to be paid in September 2018.
2 Due to the change in the reportable segments during the year (refer to note 2), John Ash was appointed as Executive General Manager, Network
Construction with effect from 1 July 2017. At this date, Max Saloyedoff stepped down from his role.
21
Service Stream Limited
Directors' report
6 Non-Executive remuneration
Overview
Aggregate fees approved by shareholders
The current maximum aggregate fee pool for the Non-Executive Directors is $750,000 as approved by shareholders.
Board and committee fees (inclusive of superannuation where applicable) are included in the aggregate pool.
Promote independence and objectivity
Non-Executive Directors are remunerated only by way of fixed fees (inclusive of superannuation where applicable). To
receive any performance related
preserve independence and impartiality, Non-Executive Directors do not
compensation.
Regular reviews of remuneration
Fees are reviewed annually taking into account comparable roles and market data provided by the Board’s independent
remuneration advisor.
Non-Executive Directors' remuneration
B Gallagher
P Dempsey
G Adcock
R Murphy 1
D Page
Total
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Board and
Committee fees
Super
Total
141,552
13,447
154,999
123,288
11,712
135,000
105,023
95,890
105,023
95,890
115,000
105,000
9,977
9,110
9,977
9,110
-
-
115,000
105,000
115,000
105,000
115,000
105,000
109,589
10,411
120,000
100,457
9,543
110,000
576,187
43,812
619,999
520,525
39,475
560,000
1 R Murphy's remuneration is paid to Wealth For Toil Pty Ltd, a company in which Mrs Murphy has a beneficial interest.
22
7 Shareholdings of key management personnel
Received on
vesting of
performance
rights
(Disposed)/
acquired
during the
year
Balance as
at 1 July
Balance as at
date of
appointment
Balance as at
date of
resignation
Impact of
share
consolidation
Balance as at
30 June
No.
No.
No.
No.
No.
No.
No.
Service Stream Limited
Directors' report
2018
Non-Executives
B Gallagher
P Dempsey
G Adcock
R Murphy
D Page
Executives
L Mackender
R Grant
J Ash1
P McCann
K Smith
1.000
2017
Non-Executives
B Gallagher
P Dempsey
G Adcock
R Murphy
D Page
Executives
L Mackender
R Grant
P McCann
M Saloyedoff1
K Smith
5,376,126
1,441,775
50,000
-
409,268
-
-
-
-
-
-
-
-
20,000
-
1,749,499
1,000,000
(1,299,499)
2,124,719
700,000
(1,215,960)
-
838,522
292,986
650,000
(189,730)
(500,000)
1,500,752
650,000
(349,314)
9,682,035
1,186,775
-
-
364,268
-
-
-
-
-
(4,305,909)
255,000
50,000
-
45,000
1,136,221
1,413,278
(800,000)
1,533,146
1,891,573
(1,300,000)
608,522
650,000
(420,000)
5,913
1,043,280
(1,045,349)
763,957
885,859
(149,064)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,376,126
1,441,775
50,000
20,000
409,268
1,450,000
1,608,759
103,256
988,522
1,801,438
5,376,126
1,441,775
50,000
-
409,268
1,749,499
2,124,719
838,522
3,844
1,500,752
1 Due to the change in the reportable segments during the year (refer to note 2), John Ash was appointed as Executive General Manager, Network
Construction with effect from 1 July 2017. At this date, Max Saloyedoff stepped down from his role.
8 Voting and comments made at the Company's 2017 Annual General Meeting
The Company received 97% of “yes” votes on its Remuneration Report for the 2017 financial year.
23
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
Brett Gallagher
Chairman
15 August 2018
Leigh Mackender
Managing Director
15 August 2018
24
Auditor’s Independence Declaration
As lead auditor for the audit of Service Stream Limited for the year ended 30 June 2018, 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.
Trevor Johnston
Partner
PricewaterhouseCoopers
Melbourne
15 August 2018
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, 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.
Consolidated statement of profit or loss and other comprehensive
income
for the financial year ended 30 June 2018
Service Stream Limited
Revenue from continuing operations
Revenue from the rendering of services
Other income
Expenses
Employee salaries and benefits
Subcontractor fees
Raw materials and consumables used
Consulting and temporary staff fees
Company administration and insurance expenses
Occupancy expenses
Technology and communication services
Motor vehicle expenses
Depreciation and amortisation
Interest expense and other finance costs
Other expenses
Profit before tax
Income tax expense
Profit for the year
Notes
2018
$'000
2017
$'000
3
4
6
5
7
630,509
2,437
632,946
(148,592)
(360,253)
(11,138)
(5,416)
(4,082)
(7,898)
(12,298)
(9,476)
(9,445)
(504)
(5,572)
58,272
(17,165)
41,107
501,543
267
501,810
(132,493)
(265,260)
(16,488)
(6,259)
(3,612)
(6,884)
(9,582)
(8,344)
(7,479)
(838)
(3,869)
40,702
(12,332)
28,370
Total comprehensive income for the year
Blank
0
Profit attributable to the equity holders of the parent
0
Total comprehensive income attributable to equity holders of the parent
41,107
28,370
41,107
41,107
28,370
28,370
Earnings per share
Basic (cents per share)
Diluted (per share)
8
8
11.29
11.10
7.78
7.62
Notes to the financial statements are included on pages 30 to 63
26
Consolidated balance sheet
as at 30 June 2018
ASSETS
1
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Accrued revenue
Other assets
Total current assets
Non-current assets
Plant and equipment
Intangible assets
Total non-current assets
Total assets
LIABILITIES
1
Current liabilities
Trade and other payables
Current tax liabilities
Finance lease
Provisions
Lease incentives
Total current liabilities
Non-current liabilities
Provisions
Deferred tax liability (net)
Lease incentives
Finance lease
Total non-current liabilities
Total liabilities
Net assets
EQUITY
1
Capital and reserves
Contributed equity
Reserves
Accumulated losses
Total equity
Service Stream Limited
Notes
2018
$'000
2017
$'000
19
9
10
13
11
12
14
15
15
7
16
73,698
43,321
3,045
82,373
2,769
205,206
3,948
148,831
152,779
50,897
48,921
3,566
70,845
3,004
177,233
5,857
148,683
154,540
357,985
331,773
110,474
3,197
369
19,111
847
133,998
4,393
12,111
301
288
17,093
83,416
10,211
353
14,401
781
109,162
4,927
9,605
1,102
657
16,291
151,091
125,453
206,894
206,320
217,281
1,651
(12,038)
206,894
233,151
4,590
(31,421)
206,320
Notes to the financial statements are included on pages 30 to 63
27
Consolidated statement of changes in equity
for the financial year ended 30 June 2018
Service Stream Limited
Contributed
equity
Employee
equity-
settled
benefits
reserve
Accumulated
losses
Total
$'000
$'000
$'000
$'000
Balance at 1 July 2016
Profit for the period
Total comprehensive income for the year
Equity-settled share-based payments, inclusive of tax adjustments
Issue of treasury shares to employees
Issue of shares (net of transaction costs)
Acquisition of treasury shares
Dividends paid
Balance at 30 June 2017
Profit for the period
Total comprehensive income for the year
Equity-settled share-based payments, inclusive of tax adjustments
Issue of treasury shares to employees
Buy-back of shares (net of tax)
Acquisition of treasury shares
Dividends paid
Balance at 30 June 2018
228,001
6,191
(48,841)
28,370
185,351
28,370
-
-
-
9,086
4,892
(8,828)
-
-
-
7,485
(9,086)
-
-
-
28,370
28,370
-
-
-
-
(10,950)
7,485
-
4,892
(8,828)
(10,950)
233,151
4,590
(31,421)
206,320
-
-
-
10,734
(8,007)
(18,597)
-
-
-
41,107
41,107
41,107
41,107
7,795
(10,734)
-
-
-
-
-
-
-
(21,724)
7,795
-
(8,007)
(18,597)
(21,724)
217,281
1,651
(12,038)
206,894
Notes to the financial statements are included on pages 30 to 63
28
Consolidated statement of cash flows
for the financial year ended 30 June 2018
Service Stream Limited
Notes
2018
$'000
2017
$'000
Cash flows from operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Cash generated from operations before interest and tax
Interest received
Interest and facility costs paid
Income taxes paid
Net cash provided by operating activities
19
Cash flows from investing activities
Payments for plant and equipment
Proceeds from sale of plant and equipment
Payments for intangible assets
Payments for businesses
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Repayment of finance lease
Purchase of shares (net of transaction costs)
On market share buy-back
Net cash used by financing activities
Net increase in cash and cash equivalents
706,810
548,583
(606,899)
(491,720)
99,911
56,863
925
(526)
(20,633)
79,677
(1,574)
238
(6,166)
(690)
(8,192)
702
(724)
(6,096)
50,745
(1,431)
113
(7,412)
(17,141)
(25,871)
(21,724)
(10,950)
(353)
(18,594)
(8,013)
(48,684)
(175)
(3,938)
-
(15,063)
22,801
9,811
Cash and cash equivalents at the beginning of the financial year
50,897
41,086
Cash and cash equivalents at end of the financial year
19
73,698
50,897
Notes to the financial statements are included on pages 30 to 63
29
Service Stream Limited
Notes to the consolidated financial statements
for the year ended 30 June 2018
Notes to the consolidated financial statements
1 General information
Section A: Business performance
Section B: Operating assets & liabilities
2 Segment information
Page 31
9 Trade and other receivables
3 Revenue from the rendering of services
Page 33
10 Accrued revenue
4 Other income
5 Finance costs
Page 33
11 Plant and equipment
Page 34
12
Intangible assets
6 Other expense items
Page 34
13 Other assets
7
Income tax expense
Page 34
14 Trade and other payables
8 Earnings per share
Page 37
15 Provisions
Section C: Capital and financing
Section D: Group structure
24 Deed of cross guarantee
25 Related party transactions
26 Parent entity information
16 Contributed equity
17 Dividends
18 Lease arrangements
19 Notes to the statement of cash flow
20 Financial instruments
21 Capital risk management
22 Share-based payments
23 Subsidiaries
Page 42
Page 43
Page 43
Page 44
Page 45
Page 47
Page 47
Page 51
Section E: Unrecognised items
Section F: Other
27 Contingent assets and liabilities
Page 53
29 Remuneration of auditors
28 Events after the reporting period
Page 53
30 Significant accounting policies
31 Critical accounting judgements
Page 31
Page 37
Page 38
Page 38
Page 39
Page 40
Page 40
Page 41
Page 51
Page 51
Page 52
Page 53
Page 53
Page 63
30
Service Stream Limited
Notes to the consolidated financial statements
Notes to the financial statements
for the financial year ended 30 June 2018
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 is Level 4, 357 Collins Street, Melbourne,
Victoria 3000.
The principal activities of the Company and its subsidiaries (the Group) are described in note 2.
2 Segment information
(a) Products and services from which reportable segments derive their revenues
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision
maker, being the Chief Executive Officer who provides the strategic direction and management oversight of the
company in terms of monitoring results and approving strategic planning for the business.
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 services of the Group's reporting segments are as follows:
Fixed Communications1.000
Network Construction
Energy & Water
Fixed Communications provides a wide range of operations, maintenance and minor
works services to the owners of fixed-line telecommunication networks in Australia.
Service capability includes customer connections, service assurance as well as minor
projects for asset remediation, augmentation and relocation. Principal customers
include nbn co and Telstra.
Network Construction provides turnkey services associated with the engineering,
design and construction of infrastructure projects across Australia, principally in the
telecommunications sector. Service capability includes program management, site
acquisition, town planning, engineering, design and construction management for
projects in wireless and fixed-line telecommunications, signalling and power. Principal
customers include nbn co and wireless carriers.
Energy & Water provides a range of specialist metering, in-home and new energy
services to electricity, gas and water network owners across Australia; through the
TechSafe business, provides inspection, auditing and compliance services to
electricity network owners and regulators, government entities and electrical
contractors nationally; and through the Customer Care business, provides contact
centre services and workforce management support for key contracts.
Information regarding these segments is presented below:
31
2 Segment information (continued)
(b) Segment revenues and results
Fixed Communications
Network Construction
Energy & Water
Total of all segments
Other income
Eliminations
Unallocated
EBITDA 1
Depreciation
Amortisation
Amortisation of customer contracts
EBIT 2
Interest revenue
Net financing costs
Total revenue
Profit before tax
Income tax expense
Profit for the year
1 Earnings before interest, tax, depreciation and amortisation.
2 Earnings before interest and tax.
(c) Segment assets and liabilities
Fixed Communications
Network Construction
Energy & Water
Total of all segments
Unallocated
Consolidated
Service Stream Limited
Notes to the consolidated financial statements
Segment revenue
Segment EBITDA
Four
2018
$'000
301,304
234,853
104,677
640,834
2,437
2017
$'000
215,591
196,822
94,621
507,034
267
(11,250)
(6,158)
925
667
632,946
501,810
2018
$'000
2017
$'000
38,667
24,358
9,772
72,797
(5,501)
67,296
(3,427)
(4,086)
(1,932)
25,762
20,877
7,609
54,248
(5,896)
48,352
(3,026)
(3,998)
(455)
57,851
40,873
421
(171)
58,272
40,702
(17,165)
(12,332)
41,107
28,370
Four
Segment assets
Segment liabilities
2018
$'000
60,388
126,466
78,619
265,473
92,512
357,985
2017
$'000
62,868
122,170
80,300
265,338
66,435
331,773
2018
$'000
29,249
78,128
13,895
121,272
29,819
151,091
2017
$'000
33,189
43,924
16,055
93,168
32,285
125,453
32
2 Segment information (continued)
(d) Other segment information
Fixed Communications
Network Construction
Energy & Water
Total of all segments
Unallocated
Consolidated
Service Stream Limited
Notes to the consolidated financial statements
Four
Depreciation and
amortisation
Additions to non-current
assets
2018
$'000
2017
$'000
2018
$'000
2017
$'000
806
1,092
2,790
4,688
4,757
9,445
892
664
1,337
2,893
4,586
7,479
334
478
433
1,245
6,496
7,741
827
681
245
1,753
8,189
9,942
(e)
Information about major customers
In the current reporting period there were two customers (2017: two customers) which each contributed more than 10%
of the Group’s revenue. The relevant revenue by segment is shown below:
Largest customer
1.000
Second largest customer
2018: Fixed Communications and Network Construction $359.3 million (2017:
Fixed Communications and Network Construction $234.8 million).
2018: Fixed Communications and Network Construction $136.4 million (2017:
Fixed Communications and Network Construction $122.7 million).
No other single customer contributed 10% or more of the Group’s total revenue in 2018 and 2017.
3 Revenue from the rendering of services
Revenue from operations
Interest revenue
4 Other income
Gain on disposal of assets
R&D tax incentives
Insurance claim 1
Write-back of contingent consideration 2
2018
$'000
629,584
925
630,509
2017
$'000
500,876
667
501,543
2018
$'000
2017
$'000
181
165
1,091
1,000
2,437
98
169
-
-
267
1 The insurance claim relates to a warehouse incident that occurred in January 2018. The claim is to recover the loss of stock, damage repair and
associated costs, the expense of which is recognised as at 30 June 2018. The claim has been settled in July 2018.
2 In the financial year ending 30 June 2017, the Group acquired 100% of the issued shares capital of TechSafe Australia Pty Ltd and TechSafe
Management Pty Ltd and recognised a contingent consideration of $1,000,000. Based on the FY18 audited result, the contingent consideration
was not earned and was written back to other income. There are no other contingent consideration as at 30 June 2018.
33
5 Finance costs
Interest expense: finance lease
Other interest expense
Facility fees: bank overdraft and loans
Facility fees: bank guarantees
Total interest expense and facility fees
Facility establishment costs
Interest expenses and other finance costs
6 Other expense items
(a) Depreciation and amortisation expense
Depreciation of plant and equipment
Amortisation of intangible assets
Amortisation of customer contracts
(b) Operating lease rental expenses
Minimum lease payments
(c) Employee benefit expense
Post-employment benefits plans
Equity-settled share-based payments
7 Income tax expense
(a)
Income tax recognised in profit or loss
Tax expense comprises:
Current tax expense in respect of the current year
Deferred tax
Income tax expense
Service Stream Limited
Notes to the consolidated financial statements
2018
$'000
2017
$'000
40
5
218
217
480
24
504
8
22
255
169
454
384
838
Notes
2018
$'000
2017
$'000
11
12
12
3,427
4,086
1,932
9,445
9,909
9,909
3,026
3,998
455
7,479
8,109
8,109
10,842
6,932
17,774
9,611
4,977
14,588
2018
$'000
2017
$'000
14,094
3,071
17,165
9,528
2,804
12,332
34
Service Stream Limited
Notes to the consolidated financial statements
7 Income tax expense (continued)
(b) Reconciliation of income tax expense to tax payable
1.000
Profit from continuing operations
Tax at the Australian tax rate of 30%
1.000
Tax effect of amounts which are not deductible (taxable) in calculating taxable income
R&D tax incentives
Write back of earn out
Other non-deductible expenses
Income tax expense as per statement of comprehensive income
1.000
Movement through deferred tax (note: 7c)
Tax payable prior to the utilisation of losses and offsets
1.000
Less current year tax instalments paid during the year
Net income tax payable
1.000
Effective tax rate
2018
$'000
2017
$'000
58,272
17,482
40,702
12,211
(49)
(297)
29
(51)
-
172
17,165
12,332
(3,071)
14,094
(10,897)
3,197
(2,804)
9,528
-
9,528
29.46%
30.30%
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.
(c) Deferred tax balances
Deferred tax balances arise from the following:
Opening
balance
Charged to
income
Charged to
equity
Timing
difference
related to
prior periods
DTL (net)
acquired
through
business
combination
Closing
balance
2018
$'000
$'000
$'000
$'000
$'000
$'000
Temporary differences
Trade and other receivables
Accrued revenue
Trade, other payables and provisions
Share issue costs
Employee benefits
Property, plant and equipment
Customer contracts
Other
119
(79)
(20,213)
(2,874)
4,101
95
8,155
(595)
(1,933)
666
1,566
(79)
(2,891)
494
580
212
-
-
-
10
864
-
-
-
-
-
-
-
-
(309)
-
-
(9,605)
(3,071)
874
(309)
-
-
-
-
-
-
-
-
-
40
(23,087)
5,667
26
6,128
(410)
(1,353)
878
(12,111)
35
Service Stream Limited
Notes to the consolidated financial statements
7 Income tax expense (continued)
(c) Deferred tax balances (continued)
Opening
balance
Charged to
income
Charged to
equity
Timing
difference
related to
prior
periods
DTL (net)
acquired
through
business
combination
Closing
balance
2017
$'000
$'000
$'000
$'000
$'000
$'000
Temporary differences
Trade and other receivables
Accrued revenue
Trade, other payables and provisions
Share issue costs
Employee benefits
Property, plant and equipment
Customer contracts
Other
95
24
(16,554)
(3,659)
3,341
151
5,977
(538)
-
534
677
(56)
(510)
451
137
132
-
-
-
-
2,507
-
-
(6,994)
(2,804)
2,507
-
-
-
-
-
(508)
-
(508)
-
-
83
-
181
-
(2,070)
-
(1,806)
119
(20,213)
4,101
95
8,155
(595)
(1,933)
666
(9,605)
Deferred tax assets and liabilities have been set-off by the Company and are presented in the statement of financial
position as a deferred tax liability.
(d) 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 23. A tax funding arrangement and a tax sharing agreement have 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 has been performed (except for unrealised profits, distributions made and received and capital
gains and losses and similar items arising on transactions within the tax-consolidated group which are treated as
having no tax consequences). Current tax liabilities and assets and deferred tax assets arising from unused tax losses
and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax
consolidated group).
Nature of tax funding arrangements and tax sharing agreements
Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement
with the head entity. Under the terms of the tax funding arrangement, Service Stream Limited and each of the other
entities in the tax-consolidated group have agreed to pay or receive a tax-equivalent payment to or from the head
entity, based on the current tax liability or current tax asset of the entity.
(e) Significant estimates
Judgement is required in determining the Group's provision for income taxes. The Group estimates its tax liabilities
based on its current understanding of the income 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.
36
8 Earnings per share
Basic earnings per share:
Total basic earnings per share
Diluted earnings per share:
Total diluted earnings per share
Basic and diluted earnings per share
Service Stream Limited
Notes to the consolidated financial statements
2018
2017
Cents per
share
Cents per
share
11.29
11.29
11.10
11.10
7.78
7.78
7.62
7.62
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are
as follows:
Profit for the year attributable to owners of the Company
Earnings used in the calculation of basic EPS
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
Shares deemed to be issued for no consideration in respect of
employee share schemes
Weighted average number of ordinary shares for the purposes of
diluted earnings per share
9 Trade and other receivables
2018
$'000
41,107
41,107
1
2017
$'000
28,370
28,370
2018
No.'000
2017
No.'000
363,952
364,512
6,324
7,748
370,276
372,260
Current
1 month
2 months
3 months
Over 3 months
Insurance claim1
Other receivables
Trade
receivables
Allowance for
doubtful debt
2018
$'000
2018
$'000
Total
2018
$'000
Trade
receivables
Allowance for
doubtful debt
2017
$'000
2017
$'000
Total
2017
$'000
40,723
1,108
229
180
47
42,287
-
-
-
(89)
(47)
(136)
40,723
1,108
229
91
-
42,151
1,091
79
43,321
45,850
1,959
703
169
564
49,245
(50)
(24)
-
(71)
(254)
(399)
45,800
1,935
703
98
310
48,846
-
75
48,921
1 The insurance claim relates to a warehouse incident that occurred in January 2018. The claim is to recover the loss of stock, damage repair and
associated costs, the expense of which is recognised as at 30 June 2018. The claim has been settled in July 2018.
All new customers are subject to credit checks using external credit reporting agency information to ascertain their risk
profile against both internal and industry benchmarks and are used in determination of appropriate credit limits.
37
10 Accrued revenue
Accrued revenue
Service Stream Limited
Notes to the consolidated financial statements
2018
$'000
82,373
82,373
2017
$'000
70,845
70,845
The accrued revenue balance 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 an accrual, historically it does result in a high level of recoverability of amounts invoiced.
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 30(e) revenue recognition and 30(f) construction contracts.
11 Plant and equipment
Leasehold
improvements
$'000
Plant and
equipment
$'000
Motor vehicles
$'000
Total
$'000
Year Ended 30 June 2017
Opening net book value
Acquisition through business combination
Reclassification
Additions
Disposals 1
Depreciation charge
Closing net book value
1.000
At 30 June 2017
Cost
Accumulated depreciation
Net book value
1.000
Year Ended 30 June 2018
Opening net book value
Additions
Disposals 1
Depreciation charge
Closing net book value
1.000
At 30 June 2018
Cost
Accumulated depreciation
Net book value
1 Disposals are net of accumulated depreciation.
3,928
31
23
-
-
(1,394)
2,588
10,097
(7,509)
2,588
2,588
279
-
(1,588)
1,279
10,376
(9,097)
1,279
1,788
38
(23)
2,063
(14)
(1,528)
2,324
17,751
(15,427)
2,324
2,324
1,296
(4)
(1,389)
2,227
18,832
(16,605)
2,227
528
425
-
96
-
(104)
945
2,971
(2,026)
945
945
-
(53)
(450)
442
2,626
(2,184)
442
6,244
494
-
2,159
(14)
(3,026)
5,857
30,819
(24,962)
5,857
5,857
1,575
(57)
(3,427)
3,948
31,834
(27,886)
3,948
38
12 Intangible assets
Year Ended 30 June 2017
Opening net book value
Acquisition through business combination
Additions
Amortisation charge
Closing net book value
At 30 June 2017
Cost 1
Accumulated amortisation
Net book value
1.000
Year Ended 30 June 2018
Opening net book value
Additions
Amortisation charge
Closing net book value
1.000
At 30 June 2018
Cost 1
Accumulated amortisation
Net book value
Service Stream Limited
Notes to the consolidated financial statements
Software
$'000
Customer
Contracts
$'000
Goodwill
$'000
Total
$'000
8,756
-
7,783
(3,998)
12,541
30,533
(17,992)
12,541
12,541
6,166
(4,086)
14,621
36,697
(22,076)
14,621
-
6,899
-
(455)
6,444
6,899
(455)
6,444
6,444
-
(1,932)
4,512
6,899
(2,387)
4,512
115,562
14,136
-
-
124,318
21,035
7,783
(4,453)
129,698
148,683
129,698
-
167,130
(18,447)
129,698
148,683
129,698
-
-
148,683
6,166
(6,018)
129,698
148,831
129,698
-
173,294
(24,463)
129,698
148,831
1 The cost of goodwill represents the net carrying value at balance date.
(a)
Impairment tests for goodwill
Goodwill is monitored by management at an operating segment level. A segment level summary of goodwill allocation
is presented below.
Fixed Communications
Network Construction1
Energy & Water1
2018
$'000
2017
$'000
27,691
43,759
58,248
27,691
45,825
56,182
129,698
129,698
1 As a consequence of changes made to reporting lines undertaken during the year, a carrying amount of $2.1m of goodwill has been transferred
from Network Construction to Energy & Water.
(b) Significant estimates
The Group tests whether goodwill is subject to any impairment on an annual basis. The recoverable amount of a cash
generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. For key
assumptions used in the value-in-use calculations refer to note 12(c).
39
Service Stream Limited
Notes to the consolidated financial statements
12 Intangible assets (continued)
(c) Key assumptions used for value-in-use calculations
The recoverable amount of each CGU is determined based on a value-in-use calculation which uses cash flow
projections based on financial
forecasts covering a four-year period. These forecasts are based on historical
performance combined with management’s expectations of future performance based on prevailing and anticipated
market factors.
Cash flows beyond the next four-year period have been extrapolated where relevant using a 0% per annum real growth
rate. A pre-tax discount rate of 12.9% (FY17: 12.9%) has been applied in order to discount expected future cash flows
into present-day values.
Forecast compound average annual nominal revenue growth over the four-year period from a base of FY18 is 1% for
Fixed Communications, 18% for Network Construction (other than nbn design and construction activities which have an
assumed finite life) and 9% for Energy & Water.
The cash flow assumptions that are significant to the determination of the recoverable amounts for each CGU are as
follows:
(i)
Fixed Communications
The critical cash flow assumption in Fixed Communications is that Service Stream continues to undertake significant
work with its major customers. This assumes existing contracts are extended, new contracts are awarded and margins
remain stable as fixed-line telecommunications networks are connected and maintained.
(ii)
Network Construction
The critical cash flow assumption for the wireless component of Network Construction is that Service Stream continues
to undertake significant work for or on behalf of the major mobile telecommunication carriers in Australia. This assumes
existing contracts are extended, new contracts are awarded and margins remain stable. No cash flows have been
included for nbn design and construction activities beyond the existing MIMA & DCMA programs.
(iii)
Energy & Water
The critical cash flow assumption in Energy & Water is that Service Stream continues to undertake significant work with
its existing and new customers to pursue improved demand-side management, creating opportunities in smart
metering, new energy products and services including residential & commercial solar and battery storage, and asset
maintenance, and achieving growth in the electrical inspections / audit sector.
13 Other assets
Work in progress
Prepayments
Other
14 Trade and other payables
Trade creditors1
Sundry creditors and accruals
Goods and services tax payable
Income in advance
2018
$'000
2017
$'000
139
2,468
162
2,769
260
2,252
492
3,004
2018
$'000
2017
$'000
20,521
53,742
2,777
33,434
110,474
17,511
47,278
2,786
15,841
83,416
1 Typically no interest is charged by trade creditors. The Group has financial risk management policies in place to ensure that all payables are paid
within the credit timeframe.
40
15 Provisions
Current
Employee benefits1
Provision for contractual obligations2
Non-current
Contingent consideration for TechSafe acquisition
Employee benefits1
Service Stream Limited
Notes to the consolidated financial statements
2018
$'000
2017
$'000
9,266
9,845
19,111
-
4,393
4,393
8,153
6,248
14,401
1,000
3,927
4,927
23,504
19,328
1 The provision for employee benefits represents annual leave, RDO and long service leave entitlements.
2 The provision for contractual obligations represents the present value of an estimate for the future outflow of economic benefits that may be
required under the Group’s obligations for warranties, rectification and rework, and data and artefact quality, with its various customers under
various contracts.
(a) Movement in provision
1.000
Carrying amount at start of year
Charged / (credited) to profit or loss
Additional provisions recognised
Unused amounts reversed
Carrying amount at end of year
(b) Significant estimates
Provision for contractual obligations
2018
$'000
2017
$'000
6,248
5,638
6,985
(3,388)
9,845
3,304
(2,694)
6,248
Management estimates the provision for future claims based on the value of work historically performed. Actual claim
amounts in the next reporting period are likely to vary from management's estimates. Amounts may be reversed if it is
determined they are no longer required.
41
16 Contributed equity
Fully paid ordinary shares
Treasury shares
1.000
(a) Fully paid ordinary shares
Balance at 1 July 2016
Issue of shares
Transaction costs relating to capital return
Balance at 30 June 2017
Shares bought back on-market and cancelled 1
Buy-back transaction costs
Current tax credit recognised directly in equity
Balance at 30 June 2018
Service Stream Limited
Notes to the consolidated financial statements
Number of shares
Share capital
2018
No.'000
2017
No.'000
2018
$'000
2017
$'000
360,210
(5,322)
354,888
365,189
-
365,189
225,144
(7,863)
217,281
233,151
-
233,151
Number of
shares
'000
360,039
5,150
-
Share
capital
$'000
228,258
4,899
(6)
365,189
233,151
(4,979)
-
-
(7,995)
(18)
6
360,210
225,144
1 During FY18 the company purchased and cancelled 4,979,231 ordinary shares on-market as part of the company's on-going capital management.
The shares were acquired at an average price of $1.61 per share, with prices ranging from $1.50 to $1.69.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(b) Employee share schemes
Information relating to the employee share schemes is set out in note 22.
(c) Treasury shares
Treasury shares are shares in Service Stream Limited that are held by the Service Stream Employee Share Trust for
the purpose of issuing shares under various share-based incentives plans. Shares issued to employees are recognised
on the first-in-first-out basis.
Balance at 1 July 2016
Acquisition of treasury shares (average price: $0.98 per share)
Shares issued under employee share schemes
Balance at 30 June 2017
Acquisition of treasury shares (average price: $1.47 per share)
Shares issued under employee share schemes
Balance at 30 June 2018
Number of
shares
'000
Share
capital
$'000
(426)
(9,024)
9,450
-
(12,690)
7,368
(5,322)
(257)
(8,829)
9,086
-
(18,597)
10,734
(7,863)
42
17 Dividends
Recognised amounts
Fully paid ordinary shares
Interim dividend
Unrecognised amounts
Fully paid ordinary shares
Final dividend
Service Stream Limited
Notes to the consolidated financial statements
2018
Cents per
share
2017
Cents per
share
2018
$'000
2017
$'000
3.00
3.00
1.50
1.50
10,820
10,820
5,478
5,478
2018
Cents per
share
2017
Cents per
share
2018
$'000
2017
$'000
4.50
4.50
3.00
3.00
16,290
16,290
10,904
10,904
1 The FY17 final fully-franked dividend was paid on 29 September 2017.
In respect of current year's earnings, an interim dividend of 3.00 cent per share franked to 100% at 30% corporate
income tax rate was paid to the holders of fully paid ordinary shares on 29 March 2018. In addition, on 15 August 2018,
the Directors declared a fully-franked final dividend of 4.50 cents per share to the holders of fully paid ordinary shares in
respect of the financial year ended 30 June 2018, to be paid to shareholders on 27 September 2018. This dividend has
not been included as a liability in these consolidated financial statements. The dividend will be paid to all shareholders
on the Register of Members on 12 September 2018 and the total dividend estimated to be paid in respect of the current
shares on issue is $16,290,460.
Adjusted franking account balance as at 30 June
18 Lease arrangements
(a) Finance lease commitments
Company
2018
$'000
2017
$'000
13,718
2,397
The Group leases various plant and equipment and software with a carrying amount of $657,000 (2017: $1,010,000)
under a finance lease expiring within two years. Under the terms of the lease, the ownership of the assets transfers to
the Group at no cost at the conclusion of the lease term.
2018
$'000
2017
$'000
Commitments in relation to finance lease are payable as follows:
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Minimum lease payments
Future finance charges
Recognised as finance lease liability
The present value of finance lease liabilities is as follows:
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Minimum lease payments
391
293
684
(27)
657
369
288
657
391
684
1,075
(65)
1,010
353
657
1,010
43
Service Stream Limited
Notes to the consolidated financial statements
18 Lease arrangements (continued)
(b) Operating lease commitments
The Group leases a number of motor vehicles and premises throughout Australia. During the year, the Group extended
the lease on its head office premise at 357 Collins Street, Melbourne until December 2024. The remaining rental period
of each individual lease agreement varies between one and seven years with the renewal options ranging from one to
five years. The lease agreements are non-cancellable and the majority of these agreements are subject to rental
adjustments in line with movements in the Consumer Price Index or market rentals.
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
19 Notes to the statement of cash flow
(a) Reconciliation of cash and cash equivalents
Cash and cash equivalents
Balance per consolidated statement of cash flows
(b) Reconciliation of profit for the year to net cash flows from operating activities
Profit for the year
Gain on sale of non-current assets
R&D tax incentives
Depreciation and amortisation
Equity-settled share-based payments
(Decrease) / increase in tax balances & other tax adjustments
1
Movement in working capital:
Decrease / (increase) in trade and other receivables
(Increase) in accrued revenue
Decrease / (increase) in other assets
Decrease in inventories
Increase in trade and other payables
Increase in provisions
(Decrease) in lease incentives
Acquired working capital balances
Net cash inflow from operating activities
(c) Debt reconciliation
Lease liabilities
Debt as at 30 June
2018
$'000
2017
$'000
8,851
18,113
5,818
32,782
7,770
7,778
-
15,548
2018
$'000
73,698
73,698
2017
$'000
50,897
50,897
41,107
(181)
(165)
9,445
6,932
(3,478)
5,600
(11,529)
235
521
27,748
4,176
(734)
-
79,677
28,370
(98)
-
7,479
4,977
6,062
(9,584)
(11,823)
(577)
2,292
22,698
3,710
(936)
(1,825)
50,745
2017
$'000
1,010
1,010
Cash flows
2018
$'000
(353)
(353)
657
657
44
Service Stream Limited
Notes to the consolidated financial statements
20 Financial instruments
(a) Overview
The Group’s activities expose it to a variety of financial risks including interest rate, credit and liquidity risk exposures.
The Group’s risk management program looks to identify and quantify these exposures and where relevant reduce the
sensitivity to potential adverse impacts on its financial performance. The Group operates a centralised treasury function
which manages all financing facilities and external payments on behalf of the Group. Compliance with financial risk
management policies, financial exposures and compliance with risk management strategy are reviewed by senior
management and reported to the Group’s Audit and Risk Committee and the Board on a regular basis.
(b) Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Finance lease
Trade and other payables
2018
$'000
2017
$'000
73,698
43,321
117,019
657
110,474
111,131
50,897
48,921
99,818
1,010
83,416
84,426
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.
(c) Market risk - Interest rate risk management
During the year, the Group's exposure to the risk of change in market interest rates related primarily to the Group's
holding of cash.
The Group has managed its interest rate risk during the year by maximising the interest earned from available funds
balanced against its working capital needs.
Based upon a 100 basis point decrease in prevailing market interest rates as applied to the Group’s cash balance at 30
June 2018, the Group’s sensitivity to interest rate risk would be equivalent to a $736,975 per annum unfavourable
impact to profit before tax (2017: $508,965 unfavourable).
(d) Credit risk management
Credit risk of the Group arises predominately from outstanding receivables from its customers.
Receivable balances are monitored on an ongoing basis and the Group has a policy of only dealing with creditworthy
counterparties and where appropriate, obtaining collateral or other forms of credit support as means of mitigating the
risk of financial loss from credit defaults.
Credit reporting information is supplied by independent credit rating agencies where available and the Group uses
publicly available financial information and its own internal trading history to credit-assess customers.
A significant portion of the Group’s revenue is derived from highly credit rated companies including nbn co and Telstra
Corporation Ltd as well as various state utilities and Commonwealth agencies.
(e) Liquidity risk management
Management of the Group’s liquidity risk exposure is undertaken daily by the Group’s treasury and finance functions via
monitoring of the Group’s actual cash flows and regularly updated forecasting of payable and receivable profiles.
In order to maintain adequate liquidity, the Group typically maintains an at-call cash buffer as well as having access to
additional overdraft facilities and syndicated funding lines.
Included in note 20(e)(ii) are details of the financing facilities available to the Group at 30 June 2018.
45
Service Stream Limited
Notes to the consolidated financial statements
20 Financial instruments (continued)
(e) Liquidity risk management (continued)
(i) Liquidity and interest rate risk tables
The following table detail the Group’s maturity profile for financial liabilities.
The amounts disclosed in the table represent the undiscounted cash flows of financial liabilities based on the earliest
date on which the Group is contracted to repay principal. Where applicable, these amounts represent both interest and
principal cash flows.
Weighted
average
interest rate
Carrying
amount
Contractual
cash flow
6 months
or less
6-12
months
1-2 years 2-5 years
$'000
$'000
$'000
$'000
$'000
$'000
2018
Financial liabilities
Finance lease
Trade and other payables
1.000
2017
Financial liabilities
Finance lease
Trade and other payables
(ii) Financing facilities
Amount used
Amount unused
Balance at 30 June 2018
1.000
Amount used
Amount unused
Balance at 30 June 2017
-
-
-
-
-
-
(657)
(110,474)
(657)
(110,474)
(183)
(110,474)
(111,131)
(111,131)
(110,657)
(186)
-
(186)
(288)
-
(288)
-
-
-
(1,010)
(83,416)
(84,426)
(1,010)
(83,416)
(175)
(83,416)
(84,426)
(83,591)
(178)
-
(178)
(369)
-
(369)
(288)
-
(288)
Bank guarantees
Bank overdraft
Cash advance
$'000
$'000
$'000
19,319
10,681
30,000
25,041
4,959
30,000
-
5,000
5,000
-
5,000
5,000
-
25,000
25,000
-
25,000
25,000
The Group's financing facilities are due to expire on 30 September 2019.
Financial guarantees provided in the normal course of business are shown above. Based upon current expectations as
at 30 June 2018, the Group considers that it is more likely than not that such amounts will not be payable under these
arrangements.
46
Service Stream Limited
Notes to the consolidated financial statements
21 Capital risk management
The Group manages its capital to ensure that it is able to continue as a going concern and to maximise returns to
shareholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends and
return capital paid to shareholders or issue new shares. Capital is managed in order to maintain a strong financial
position and ensure that the Group’s funding needs can be optimised at all times in a cost-efficient manner to support
the goal of maximising shareholder wealth.
The Board and senior management review the capital structure of the Group at least annually considering any
restrictions or limitations that may exist under current financing arrangements with regard to mix of capital.
On 14 February 2018, the Company announced that it proposed to undertake a share buy-back of up to 27,400,000
shares, given the extent of surplus cash on hand. Since that announcement, the Company has bought-back and
cancelled 4,979,231 shares at a cost of $8.0 million.
The Group is subject to various financial debt covenants on its Syndicated Facilities Agreement in regards to minimum
levels of equity, earnings, gearing and borrowing base, all of which are regularly monitored and reported upon.
22 Share-based payments
(a) Long Term Incentive Plan (LTIP)
From time to time employees in senior management roles 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
individual participation and the
associated number of performance rights offered is recommended by the Managing Director and reviewed by the
Remuneration and Nomination Committee, which will then make recommendations to the Board for approval.
the Remuneration and Nomination Committee. The extent of
In accordance with the provisions of the ESOP, certain employees in senior management roles were invited to
participate in the LTIP which entitles them to receive a number of performance rights in respect of the year ending 30
June 2018 (FY18). 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 total fixed remuneration (TFR),
and the volume-weighted average market price of the Company’s shares over a prescribed period of time or other issue
price as deemed appropriate by the Board.
Performance rights for each of the LTIP tranches are subject to service and performance criteria being:
A
B
(i)
The participant must be an employee at the conclusion of the performance period;
50% of the performance rights granted will each vest where:
The Group’s earnings per share (EPS) achieves annual growth of 10% or more over the performance period,
commencing with growth from an agreed base EPS, as detailed below.
LTIP tranches
Performance period
Vesting date
FY16 1
3 years
FY17 2
3 years
FY18 3
3 years
September 2018
September 2019
September 2020
1 The FY16 LTIP targets, from base of 3.03 cps are: Year 1: 3.33cps, Year 2: 5.72 cps, Year 3: 8.56 cps.
2 The FY17 LTIP targets, from base of 5.20 cps are: Year 1: 5.72 cps, Year 2: 8.56 cps, Year 3: 12.42 cps.
3 The FY18 LTIP targets, from base of 7.78 cps are: Year 1: 8.56 cps, Year 2: 12.42 cps, Year 3: not yet determined.
Subject to the following proportional vesting:
Percentage of performance rights that vest
0%
40%
EPS target
Below 75%
At 75%
Proportional vesting
Greater than 75% and less than 100%
100%
100% and above
47
Service Stream Limited
Notes to the consolidated financial statements
22 Share-based payments (continued)
(a) Long Term Incentive Plan (LTIP) (continued)
(ii)
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
TSR ranking
0%
50%
Proportional vesting
Below the 50th percentile
At the 50th percentile
Above the 50th percentile but below the 75th
percentile
100%
75th percentile or above (top quartile)
Performance rights will vest to the extent that the participant remains employed by the Company on the vesting date
and to the extent that the Company’s performance over the relevant period satisfies the vesting conditions.
The following LTIP performance rights arrangements were in existence at the end of the current period:
Series
Number
Grant date
Grant date fair value
Vesting date
Performance
period
FY16 LTIP
1,548,419
11 September 2015
FY17 LTIP
890,322
14 September 2016
FY18 LTIP
691,756
14 September 2017
Relative TSR hurdle - 21.7 cps September 2018 1 July 2015 -
30 June 2018
EPS hurdle - 26.8 cps
Relative TSR hurdle - 45.2 cps September 2019 1 July 2016 -
30 June 2019
EPS hurdle - 79.3 cps
Relative TSR hurdle - 92.5 cps September 2020 1 July 2017 -
30 June 2020
EPS hurdle - 125.8 cps
Fair value of performance rights
The FY18 LTIP performance rights with the relative TSR hurdle vesting condition have been valued by an independent
expert using a Monte-Carlo simulation. The FY18 LTIP 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.
Key inputs into the model
The table below details the key inputs to the valuation models.
Tranche
FY16 LTIP
FY17 LTIP
FY18 LTIP
Share price at
grant date
Expected
life
Volatility
Risk-free
interest rate
Dividend yield
Vesting date
$0.302
$0.850
$1.480
2.89 years
2.87 years
2.87 years
55%
50%
45%
1.94%
1.37%
1.91%
6.00%
4.00%
4.80%
September 2018
September 2019
September 2020
48
Service Stream Limited
Notes to the consolidated financial statements
22 Share-based payments (continued)
(a) Long Term Incentive Plan (LTIP) (continued)
Movements in the LTIP performance rights during the year
The following table reconciles the outstanding performance rights granted under the LTIP at the beginning and end of
the financial year:
Balance at start of the financial year
Granted during the year
Vested during the year
Forfeited during the year
Balance at end of the financial year
2018
2017
Number of
rights
Grant date
weighted avg FV
$
Number of
rights
Grant date
weighted avg FV
$
4,562,526
767,765
(1,930,951)
(268,843)
3,130,497
0.290
1.091
0.162
0.609
0.835
7,961,899
1,235,400
(3,964,523)
(670,250)
4,562,526
0.188
0.567
0.180
0.241
0.290
Included in the balance at the end of the financial year are rights which have reached their vesting date but where the
performance vesting criteria is yet to be calculated.
In accordance with the Employee Share Ownership Plan the shares relating to the FY16 Tranche will be issued to the
extent that vesting criteria have been satisfied following final calculations of the Relative TSR measure after release of
the FY18 financial statements.
As at 30 June 2018, 1,548,419 performance rights granted under the FY16 Tranche remain unforfeited and subject to
vesting criteria.
The balance of performance rights outstanding at the end of the year have a remaining contractual life of two years
(FY18 Tranche) and one year (FY17 Tranche).
(b) Executive Share-based Incentive Plan (ESBIP)
The ESBIP is a share-based incentive plan that was established by the Board in 2014 to operate for a five year period
from FY15 to FY19 and offered to the Managing Director and to a small number of other key executives of the time. By
accepting the offer to participate in the ESBIP, these executives have forfeited their entitlement to participate in both the
LTIP and the Short Term Incentive Plan (STIP). ESBIP operates within the shareholder-approved Employee Share
Ownership Plan (ESOP), under the administration of the Remuneration and Nomination Committee. The number of
performance rights offered to participating executives has been endorsed by the Remuneration and Nomination
Committee and approved by the Board and by shareholders in the case of the Managing Director.
The ESBIP invitation letter provided to participants sets out their rights and obligation under the plan, and provides
details regarding the number of rights that will be offered to them on an annual basis (by way of an annual offer letter)
over a period of up to five years. 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 FY18 ESBIP performance rights are subject to service and performance criteria being:
A
B(i)
B(ii)
The participant must be an employee at the latter of the date on which the Company releases its results for the
financial year ending 30 June 2018 or otherwise determines that the vesting conditions have been satisfied;
and
at least 10% growth in earnings per share (EPS) for the performance period is achieved; or
an average of at least 10% compound growth in EPS per annum for the aggregate period is achieved.
ESBIP tranche
Performance period
Vesting date
Aggregate period end date
EPS base (cents per share)
FY18
1 year to 30 June 2018
15 August 2018
30 June 2020
7.78
49
Service Stream Limited
Notes to the consolidated financial statements
22 Share-based payments (continued)
(b) Executive Share-based Incentive Plan (ESBIP) (continued)
Performance rights will vest to the extent that the participant remains employed by the Company on the vesting date
and to the extent that the Company’s performance over the relevant period satisfies the vesting conditions.
The following ESBIP performance rights arrangements were in existence at the end of the current period.
Series
Number
Grant date
Grant date fair value
Vesting date
Performance
period start date
FY18 ESBIP
4,500,000
31 October 2017
132.6 cps
15 August 2018
1 July 2017
Fair value of ESBIP performance rights
The FY18 ESBIP performance rights with the EPS hurdle vesting condition have been valued by an independent expert
using a Binomial tree methodology. This methodology is 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.
Key inputs into the ESBIP valuation model
The table below details the key inputs to the valuation models.
Series
FY18 ESBIP
Share price at
grant date
Expected
life
Volatility
Risk-free
interest rate
Dividend yield
Vesting date
$1.400
0.87 years
45%
1.55%
4.40%
15 August 2018
Movements in the ESBIP performance rights during the year
The following table reconciles the outstanding performance rights granted under the ESBIP at the beginning and end of
the financial year:
Balance at beginning of the financial year
Granted during the year
Vested during the year
Balance at end of the financial year
2018
2017
Number of
rights
Grant date
weighted avg FV
Number of
rights
Grant date
weighted avg FV
5,150,000
4,500,000
(5,150,000)
4,500,000
0.825
1.326
0.825
1.326
5,150,000
5,150,000
(5,150,000)
5,150,000
0.284
0.825
0.284
0.825
Included in the balance as at 30 June 2018 are rights which have reached their vesting date and both the service and
performance criterias have been met (number of rights 4,500,000). The relevant number of shares will be delivered to
the participants after the release of the FY18 financial statements.
50
23 Subsidiaries
Details of the Company’s subsidiaries at 30 June 2018 are as follows:
Service Stream Limited
Notes to the consolidated financial statements
Name of entity
Parent entity
Service Stream Limited (i)
Subsidiaries
Service Stream Holdings Pty Ltd (ii) (iv)
Service Stream Fixed Communications Pty Ltd (ii) (iii) (iv)
Service Stream Mobile Communications Pty Ltd (ii) (iii) (iv)
Service Stream Customer Care Pty Ltd (ii) (iii) (iv)
Radhaz Consulting Pty Ltd (ii) (iv)
Service Stream Infrastructure Services Pty Ltd (ii) (iii) (iv)
Service Stream Energy & Water Pty Ltd (ii) (iii) (iv)
TechSafe Australia Pty Ltd (ii) (iii) (iv)
TechSafe Management Pty Ltd (ii) (iii) (iv)
Service Stream Nominees Pty Ltd (ii) (iii) (iv)
Service Stream Operations Pty Ltd (ii) (iii)
Country of
incorporation
Ownership interest
2018
%
2017
%
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
(i)
(ii)
(iii)
(iv)
Service Stream Limited is the head entity within the tax-consolidated Group.
These companies are members of the tax-consolidated Group.
These companies are wholly owned subsidiaries of Service Stream Holdings Pty Ltd.
These wholly-owned subsidiaries have entered into a deed of cross guarantee with Service Stream Limited
pursuant to ASIC Corporations (wholly-owned companies) Instrument 2016/785 (Instrument) and are relieved
of the requirement to prepare and lodge an audited financial and Directors' report.
24 Deed of cross guarantee
The parties to a deed of cross guarantees for the Group as listed in note 23 represent a ‘closed group’ for the purposes
of the Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by Service
Stream Limited, they also represent the ‘extended closed group'. A separate consolidated statement of comprehensive
income and consolidated balance sheet of the parties to the deed of cross guarantees have not been disclosed
separately as it is not materially different to those of the Group.
25 Related party transactions
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.
(a) Transactions with key management personnel
The aggregate compensation made to key management personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments1
2018
$
2017
$
2,641,617
2,451,235
144,057
47,884
4,061,041
6,894,599
137,555
50,190
3,009,790
5,648,770
1 The fair value of performance rights issued under the ESBIP and LTIP, allocated on a pro-rata basis to the current financial year.
51
Service Stream Limited
Notes to the consolidated financial statements
25 Related party transactions (continued)
(a) Transactions with key management personnel (continued)
The compensation of each member of the key management personnel of the Group is set out in the remuneration
report.
(b) Transactions between Service Stream Limited and its related parties
During the financial year, the following transactions occurred between the Company and its related parties:
•
The Company recognised tax balances in respect of the tax liabilities of its wholly-owned subsidiaries. Payments to
/ from the Company were made in accordance with the terms of the tax funding arrangement.
The following balances arising from transactions between the Company and its related parties are outstanding at the
reporting date:
•
Loans receivable totalling $183,283,885 are receivable from subsidiaries (2017: $131,872,335).
All amounts advanced to or payable to related parties are unsecured and are subordinated to other liabilities.
The amounts outstanding will be settled in cash. No guarantees have been given or received. No expense has been
recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.
Transactions and balances between the Company and its controlled entities were eliminated in the preparation of the
consolidated financial statements of the Group.
26 Parent entity information
The accounting policies of the parent entity, which have been applied in determining the financial information of the
parent entity shown below, are the same as those applied in the consolidated financial statements. Refer to note 30 for
a summary of the significant accounting policies relating to the Group.
(a) Financial position
Current assets
Non-current assets
Total assets
1.000
Current liabilities
Total liabilities
1.000
Net assets
1.000
Issued capital
Reserves – equity-settled employee benefits
Accumulated losses
Equity
(b) Financial performance
Profit for the year
Total comprehensive profit
2018
$'000
49
169,821
169,870
2017
$'000
49
172,260
172,309
3,415
3,415
9,135
9,135
166,455
163,174
203,609
(6,212)
(30,942)
166,455
211,614
4,589
(53,029)
163,174
2018
$'000
43,814
43,814
2017
$'000
19,897
19,897
(c) Guarantees entered into by the parent entity
The parent entity is party to the Group’s financing facilities as a security provider under the Security Trust Deed. In
addition, the parent entity provides cross guarantees as described in notes 23 and 24 and parent company guarantees
to certain clients in relation to subsidiary contract performance obligations.
52
Service Stream Limited
Notes to the consolidated financial statements
27 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.
28 Events after the reporting period
Other than elsewhere disclosed in the financial statements, 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.
29 Remuneration of auditors
Audit or review of the financial report
Review of income tax return
Employee share trust advice
Tax advice and other services
2018
$
315,000
27,000
-
59,640
401,640
2017
$
298,000
21,000
15,300
55,590
389,890
The auditor of Service Stream Limited is PricewaterhouseCoopers.
30 Significant accounting policies
This note provides a list of significant accounting policies adopted in the preparation of these consolidated financial
statements. 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.
(a) 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 15 August 2018.
Compliance with IFRS
The consolidated financial statements of the Group also comply with International Financial Reporting Standards as
issued by the International Accounting Standard Board.
New and amended standards adopted by the Group
The Group has applied the following standard and amendment for the first time for their annual reporting period
commencing 1 July 2018:
•
AASB 2014-1 Amendments to Australian Accounting Standards (including Part A: Annual
2012-2014 Cycles).
Improvements
As the amendments merely clarify the existing requirements, the adoption of the above improvements did not have an
impact on the current period nor any prior period and is not likely to affect future periods.
Early adoption of standards
The Group has not elected to early adopt the Standards and Interpretations issued but not yet effective. Refer to note
30(z).
53
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(a) Basis of preparation (continued)
Historical cost convention
The consolidated financial statements have been prepared on the basis of historical cost, except for certain assets and
liabilities 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.
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 31.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company (its subsidiaries).
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed
to, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control
is
transferred to the Group. They are deconsolidated 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 asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Group.
the impairment of
When the Group ceases to consolidate an entity, any retained interest in the entity is remeasured to its fair value with
the change in carrying amount recognised in profit or loss. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related
assets or liabilities. This means that amounts previously recognised in other comprehensive income are reclassified to
profit or loss.
(c) 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
is recognised
generating unit (or groups of cash generating units). An impairment
immediately in the profit or loss and is not reversed in a subsequent accounting period.
loss recognised for goodwill
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.
(d) 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 2.
54
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(e) 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:
Revenue from operations
Revenue from a contract to provide services is recognised when probable and measurable, as contracted services are
delivered.
Revenue from construction contracts is recognised in accordance with the accounting policy set out in note 30(f).
Interest revenue
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.
(f) Construction contracts
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 the end of 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 milestone 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 recognised revenues exceed progress billings, the surplus is shown as accrued revenue. For contracts where
progress billings exceed recognised revenues, the surplus is shown as income in advance. Amounts received before
the related work is performed are included in the consolidated balance sheet, as a liability, as income in advance under
trade and other payables. Amounts billed for work performed but not yet paid by the customer are included in the
consolidated balance sheet, as an asset, under trade and other receivables.
Judgements made in the application of AASB 111 include:
•
•
•
determination of stage of completion;
estimation of total contract revenue and contract costs; and
assessment of the probability of customer approval of variations and acceptance of claims.
It is reasonably possible on the basis of existing knowledge that outcomes within the next financial year are different
from the estimates and assumptions listed above.
55
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(g) Leases
Leases of plant and equipment where the group, as lessee, has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the asset, 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. Each lease payment is allocated between the liability and
finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period. The plant and equipment acquired under
finance leases is depreciated over the asset’s useful life.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee
are classified as operating leases. Payments made under operating leases (net of any incentives received from the
lessor) are charged to the profit or loss on a straight-line basis over the period of the lease.
(h) 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. Expected future payments
falling due more than 12 months after the end of the reporting period are discounted using corporate bonds market
yields. Remeasurements as a result of employment status and changes in actuarial assumptions are recognised in
profit or loss.
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 where applicable.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right
to defer settlement for at least 12 months after the reporting period, regardless of when the actual settlement is
expected to occur.
(i) Share-based payments
the equity
Equity-settled share-based payments to executives and Directors are measured at
instrument at the grant date. Details regarding the determination of the fair value of the equity instruments are set out in
note 22.
the fair value of
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period. 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.
(j) Taxation
Current tax
The income tax expense for the period is the tax payable on the current period's taxable income based on the
applicable income tax rate for each jurisdiction adjusted by any changes in the deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted by the end of
the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in
which applicable tax regulations are subject to interpretation. It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
56
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(j) Taxation (continued)
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.
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.
R&D tax incentive
R&D tax incentives are accounted for in accordance with AASB 120 Accounting for Government Grants and Disclosure
of Government Assistance whereby the additional 8.5% incentive from the Government to invest in specific R&D
activities is classified as revenue. Where R&D relates to capital items, the incremental 8.5% incentive is recognised as
revenue over the period that the asset is amortised.
(k) Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred is the sum of
the acquisition-date fair values of assets transferred,
liabilities incurred and any equity instruments issued. The
consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of
any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair value at the acquisition date.
On the acquisition of a business,
the Group assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's
operating and accounting policies and other pertinent conditions in existence at the acquisition date.
Goodwill
is initially measured at cost, being the excess of the aggregate of the consideration transferred and the
amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the
consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in
profit or loss.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to the
present value as at the date of exchange. Contingent consideration is classified as a financial
liability. Amounts
classified as financial liability are subsequently remeasured to fair value with changes to fair value recognised in profit
or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for
within equity.
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 (where in other comprehensive income or directly in equity), in which case 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.
57
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(k) Business combinations (continued)
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those
provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised to
reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the amounts recognised as of that date.
(l) 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 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: 2 - 7 years
Plant and equipment: 1 - 10 years
•
•
• Motor vehicles: 5 - 10 years
(m) Intangible assets
Costs incurred in developing products or systems and costs incurred in acquiring software and licences that will
contribute to future period financial benefits through revenue generation or cost reduction are capitalised to software
and systems. Any costs associated with maintaining software and systems are recognised as an expense as incurred.
IT development costs include only those costs directly attributable to the development phase and are only recognised
following completion of technical feasibility and where the Group has an intention and ability to use the asset. The
amount initially recognised includes direct costs of materials and service and direct payroll and other payroll-related
costs of employees’ time spent on the project.
Customer contracts acquired in a business combination are initially recognised at their fair value at the acquisition date,
which is regarded as their cost.
Software and customer contracts have finite lives and are carried at cost less any accumulated amortisation and any
impairment losses.
Amortisation is recognised on a straight-line basis over each asset’s 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 3 to 8 years for software and
from 3 to 5 years for customer contracts.
(n) 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.
58
30 Significant accounting policies (continued)
(n) Impairment of tangible and intangible assets excluding goodwill (continued)
Service Stream Limited
Notes to the consolidated financial statements
The recoverable amount
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.
the fair value less costs of disposal and value-in-use.
is the higher of
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.
(o) 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 purchased inventory, the cost of which is determined after deducting rebates and
discounts.
(p) 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.
(q) Financial instruments
Financial assets and financial
provisions of the instrument.
liabilities are recognised when a Group entity becomes a party to the contractual
Financial assets and financial
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.
liabilities are initially measured at
(i) 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.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as
at FVTPL.
59
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(q) Financial instruments (continued)
(i) Financial assets
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.
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.
(ii) 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 to the holder
of the guarantee in the event that it suffers a loss due to the guarantee drawer’s failure to make payment or otherwise
satisfy its 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 obligation under the contract, as determined in accordance with AASB 137 Provisions,
the amount of
Contingent Liabilities and Contingent Assets; and
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
otherwise expire. The difference between the carrying amount of
consideration paid or payable is then recognised in profit or loss.
liabilities only when the Group’s obligations are fully discharged, cancelled or
liability de-recognised and the
the financial
60
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(r) Trade receivables
Trade receivables are recognised initially at fair value and subsequently adjusted for provision for impairment. 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.
(s) Trade and other payables
Trade and other payables 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.
(t) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority is included with other receivables or other payables in the
consolidated balance sheet as applicable.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows.
(u) Cash and cash equivalents
Cash comprises cash on hand and outstanding deposits less any unpresented cheques. 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 Groups's consolidated balance sheet.
(v) 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 incentive scheme, 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.
Shares held by the Service Stream Employee Share Trust are disclosed as treasury shares and deducted from
contributed equity.
(w) 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.
61
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(x) 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.
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.
(y) Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial / Directors' Reports) Instrument
2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in
the Directors' report and the financial report. Amounts in the Directors' report and the financial report have been
rounded off to the nearest thousand dollars, in accordance with that Instrument.
(z) New accounting standards and interpretations
•
•
•
•
•
AASB 9 Financial Instruments (effective from annual reporting period beginning on or after 1 January 2018).
The standard simplifies the model for classifying and recognising financial
instruments and introduces a new
impairment model. The new impairment model is a move away from the previous incurred credit loss approach and
earlier recognition of impairment losses on financial
instruments is likely to result. The Group does not expect
AASB 9 to have a significant impact on current financial instrument classification and measurement practice.
AASB 15 Revenue from Contracts with Customers (effective from annual reporting period beginning on or after 1
January 2018).
The AASB has issued a new standard for the recognition of revenue. The new standard is based on the principle
that revenue is recognised when control of a good or service transfers to a customer. The Group plans to adopt the
new standard on 1 July 2018, using the modified retrospective approach where transitional adjustments are
recognised in retained earnings at the date of initial application without adjustment of the comparative period.
During the current year, management undertook a detailed review of AASB 15 together with a detailed review of all
material revenue contracts. This review included assessing all contract types for the entire revenue base in Fixed
Communications, Network Construction and Energy & Water against the 5-step model for recognising revenue
outlined in AASB 15. The review considered potential changes in; the timing of revenue recognition, measurement
of the amount of revenue and note disclosure changes between the current standard, AASB 118, and AASB 15.
The key contract types that were assessed under AASB 15 were as follows:
(i)
Fixed Communications provides services to owners of fixed line telecommunication networks. The
revenue types within this segment include ticket of work, minor projects and overhead allowances.
(ii) Network Construction provides turnkey services associated with engineering, design and construction
mainly in the telecommunication sector. Key revenue components include design, construction and
overhead allowances.
(iii) Energy and Water provides a range of new energy services, meter reading, inspection and compliance
services to electricity networks owners and regulators. Key revenue components include ticket of work
and minor projects.
• Management has completed its assessment and has concluded that no material adjustment to profit or retained
financial statement
It has also been determined that
earnings will arise from the adoption of AASB 15.
reclassification will not be required.
•
AASB 16 Leases (effective from annual reporting period beginning on or after 1 January 2019).
62
Service Stream Limited
Notes to the consolidated financial statements
30 Significant accounting policies (continued)
(z) New accounting standards and interpretations (continued)
•
•
AASB 16 modifies accounting for leases by removing the current distinction between operating and financing
leases. The standard requires recognition of an asset and a financial liability for all leases, with exemptions for
short term and low value leases. The standard will primarily affect the accounting for the Group’s operating leases
in respect of motor vehicles and premises. As at 30 June 2018, the Group had non-cancellable operating lease
commitments of $32.8 million (see note 18).
On transition to AASB 16 and moving forward, for operating leases for which payments are currently required to be
expensed, the Group will recognise right of use assets and corresponding liabilities for the principal amount of
lease payments, which will then result in amortisation and interest expenses being recognised in the income
statement (replacing operating lease expenses). Certain performance metrics and ratios may be impacted as a
result of the above changes, including EBITDA and to lesser extent EPS which are measures used to assess
senior executive performance as part of the Group’s remuneration framework.
Management estimates that, had AASB 16 been applicable for FY18:
•
•
EBITDA would have increased by approximately $10.3 million due to lower lease charges to motor
vehicle expense and occupancy expense, whilst Depreciation would have increased by approximately
$9.4 million and Interest Expense would have increased by $0.9 million, resulting in little to no impact
on net profit before tax and earnings per share; and
Leasehold assets on the balance sheet as at 30 June 2018 would have increased by approximately
$29.7 million representing the present value of the Group’s motor vehicle and property leases, with
lease liabilities increasing by the same amount.
31 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal
the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies as
described in note 30.
The areas involving a higher degree of judgement or complexity are:
•
•
•
•
Estimation of current tax payable and deferred tax balances - note 7(e)
Testing of goodwill for impairment - note 12(b)
Estimation of provision for contractual obligations - note 15(b)
Recognition of revenue on construction contracts - note 30(f)
Estimates and judgements are continually evaluated. They are based on historical experience and other factors,
including expectations of future events that may have a financial
impact on the entity and that are believed to be
reasonable under the circumstances.
63
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,
professional reporting requirements, and
the Corporations Regulations 2001 and other mandatory
giving a true and fair view of the consolidated entity's financial position as at 30 June 2018 and of its
performance for the 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, and
at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed
Group identified in note 23 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 24.
Note 30 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.
Brett Gallagher
Chairman
15 August 2018
Leigh Mackender
Managing Director
15 August 2018
64
Independent auditor’s report to the members of Service Stream
Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Service Stream Limited (the Company) and its controlled entities (together
the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial
performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated balance sheet as at 30 June 2018
the consolidated statement of profit or loss and other comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant accounting
policies
the Directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110
Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial report as a whole, taking into account the geographic and management structure of the Group, its
accounting processes and controls and the industry in which it operates.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, 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.
Materiality
Audit scope
Key audit matters
Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
and Risk Committee:
Goodwill impairment
assessment
Revenue recognition
Recoverability of accrued
revenue
These are further described in
the Key audit matters section of
our report.
For the purposes of our audit,
The Group operates across
Australia in its key segments
being Fixed Communications,
Network Construction and
Energy & Water, and has a
corporate accounting function
based in Melbourne. Our work
is performed predominantly in
Melbourne and we perform site
visits to the Group’s warehouse
locations annually, on a
rotational basis, to attend an
inventory count based on our
risk assessment. As part of the
current year audit we attended
inventory counts in Victoria,
New South Wales and South
Australia.
Our audit focused on where the
Group made subjective
judgements; for example,
significant accounting estimates
involving assumptions and
inherently uncertain future
events. One of the key areas in
this respect is the Group’s
annual goodwill impairment
assessment.
we used overall Group
materiality of $1.6 million,
which was based on
approximately 2.5% of the
Group’s earnings before
interest, taxation, depreciation
and amortisation (EBITDA) for
the year ended 30 June 2018.
We applied this threshold,
together with qualitative
considerations, to determine
the scope of our audit and the
nature, timing and extent of our
audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
We selected EBITDA as the
primary benchmark because in
our view, it is the key metric
upon which the Group’s
performance is assessed.
We determined the 2.5%
threshold based on our
professional judgement, noting
that it is within the range of
commonly accepted EBITDA
related benchmarks.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial report for the current period. The key audit matters were addressed in the context of our audit of the
financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Goodwill impairment assessment
Refer to notes 12 and 30(c) in the financial report
Goodwill is allocated to the Group’s three
segments; Fixed Communications ($27.7 million),
Network Construction ($43.8 million) and Energy
& Water ($58.2 million).
This is a key audit matter as assessing the carrying
value of goodwill inherently requires making
estimates of uncertain future cash flows. For
example, the Group is subject to customer
concentration risk and the volume of work is
uncertain as many of the Group’s contracts do not
contain volume commitments, therefore are
dependent on the customer’s future demand. In
addition, there is uncertainty relating to the
extension, renewal or replacement of key
contracts.
A discounted cash flow model is used by the Group
to assess potential impairment (the model). The
recoverable amount is estimated using a four year
forecast based on the Board approved business
plan for Fixed Communications, Network
Construction and Energy & Water. The significant
estimates relate to the underlying revenue and
EBITDA growth assumptions along with the
discount rate applied to the forecast cash flows
within the model.
We evaluated the Group’s cash flow forecasts in the model for
each of the business segments and the process by which they
were developed for all key customers. We compared the
previous year’s forecasts for FY18 with the actual results for
FY18 to assess the accuracy of forecasting. Where there were
any deviations from forecast, we considered how the causes
of significant variations from forecast in FY18 were
incorporated into future forecasts.
We checked that the four year forecast used in the model was
based on the Board approved business plan for each of the
business segments and that the significant estimates were
subject to oversight from the Directors.
We assessed the assumptions and methodology used for the
impairment test, in particular, those relating to the revenue
and EBITDA growth and discount rates. To do this we:
assessed the discount rate adopted with the assistance
of PwC valuation experts
evaluated the underlying cash flow assumptions in the
model for all key customer contracts with reference to
current year results and expected project pipelines, and
considered external industry information and market
data
tested the calculations in the model for mathematical
accuracy
considered the sensitivity of the calculations by varying
key assumptions in the model and applying other
values within a reasonably possible range for the Fixed
Communications, Network Construction and Energy &
Water businesses.
As indicated in note 12 of the financial statements, the
impairment assessment assumes that the Group continues to
undertake work with its existing customers and win new
contracts.
Revenue recognition
Refer to notes 3, 30(e) and 30(f) in the financial
report
The Group has two distinct categories of revenue,
being revenue from contracts to provide services
and revenue from construction contracts.
For revenue from contracts to provide services, we:
tested a sample of transactions by sighting evidence
of completed subcontractor claims and/or work
orders and compared the revenue amount recognised
to the contracted rate with the customer for the type
of service.
Revenue from contracts to provide services
involves a high volume of transactions and is
recognised as the services are delivered.
Revenue recognition in relation to construction
contracts is complex because it is based on the
Group’s estimates of:
the stage of completion of the contract
activity;
total contract revenue and costs;
For revenue from construction contracts, we:
assessed the Group’s estimates of total contract
revenue and contract costs and evaluated the stage of
completion based on actual costs incurred to date for
a sample of transactions
tested a sample of transactions by sighting evidence
of milestone completion
performed retrospective analysis of a selection of
incomplete projects at year end to assess the
Key audit matter
How our audit addressed the key audit matter
the probability of customer approval of
variations and claims; and
project completion dates.
allocation of revenue between periods
assessed the Group’s estimate of income in advance,
including testing a sample of transactions
This is a key audit matter because of its
significance to profit, the high volume of revenue
transactions associated with services revenue and
the judgement required in recognising revenue
from construction contracts.
Recoverability of accrued revenue
Refer to note 10 in the financial report
Several of the Group’s customers require payment
claims to be submitted and approved prior to
invoices being issued. This process can extend the
time that revenue is classified as accrued. The total
accrued revenue balance at 30 June 2018 is $82.4
million.
Payment claims on customers may be rejected for
a variety of reasons, for example, the claim’s
adherence to contractual obligations. Rejected
claims are commonly revised, resubmitted and
subsequently approved for payment. However,
there is a risk that not all claims will be recovered
in full, particularly those that have significantly
aged since the original services were provided.
The recoverability of aged accrued revenue is a key
audit matter because judgement was required to
evaluate whether any allowance should be made to
reflect the commercial risk that some claims may
not be recovered in full.
For both categories of revenue, our procedures included,
amongst others, performing testing over a sample of manual
journals.
We evaluated the aging of accrued revenue to identify areas
of higher risk. Whilst each segment has aged accrued revenue
balances, the Fixed Communications and Network
Construction segments had the most significant balances. We
therefore directed the majority of our audit effort on these
segments.
We performed the following procedures in relation to the
recoverability of accrued revenue:
assessed the reliability of accrued revenue aging
reports by testing that the aging profile was accurate
evaluated the consistency of the Group’s approach to
estimating recoverability of accrued revenue with
those used in prior periods
checked that allowances were established to reflect
those categories of aged accrued revenue items that
had an increased risk of non-recoverability
assessed key assumptions such as the long term
average claim rejection rate which we compared to
actual experience, including recent trends
evaluated the findings of Internal Audit’s review over
the accrued revenue process and independently
tested the operating effectiveness of a sample of key
controls
We also performed sample testing over individual accrued
revenue balances to test the Group’s entitlement to the
accrued revenue balances.
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the annual report for the year ended 30 June 2018, including the Directors’ Report, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the financial report
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 Corporations Act 2001 and for such internal control
as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair
view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the ability of the Group to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 14 to 24 of the Directors’ report for the year ended 30
June 2018.
In our opinion, the remuneration report of Service Stream Limited for the year ended 30 June 2018 complies with
section 300A of the Corporations Act 2001.
Responsibilities
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.
PricewaterhouseCoopers
Trevor Johnston
Partner
Melbourne
15 August 2018
Service Stream Limited
ASX Additional Information
ASX Additional Information
for the financial year ended 30 June 2018
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 17 August 2018
Category (size of holding)
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001+
Holders
716
1326
885
1,482
177
4,586
B. There are 4,586 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 173.
D. The names of the substantial shareholders listed in the holding company’s
register, and their shareholdings (including shareholdings of their
associates), as at 17 August 2018 are:
Shareholder
Thorney International Pty Ltd (1)
Thorney Opportunities Ltd (1)
Ordinary
%
49,627,450
20,924,173
13.78%
5.81%
(1)
The Company treats Thorney International Pty Ltd and Thorney Opportunities Ltd as associated entities as defined in the Corporations Act.
E. Voting Rights
The voting rights attached to each class of equity security are as follows:
Ordinary shares
Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or
by proxy has one vote on a show of hands.
Options
These securities have no voting rights.
F. Net Tangible Assets
The net tangible assets per security is $0.1612 (2017: $0.1578).
Service Stream Limited
ASX Additional Information
G. 20 Largest Shareholders as at 17 August 2018 - Ordinary Shares
Name of 20 largest shareholders in each class of share
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
UBS Nominees Pty Ltd
Citicorp Nominees Pty Limited
Rubi Holdings Pty Ltd
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