More annual reports from Service Stream:
2023 ReportSERVICE STREAM LIMITED 2019 ANNUAL REPORTSERVICE STREAM LIMITED 2019 ANNUAL 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
23 October 2019, 10.00am
Service Stream Limited
ABN 46 072 369 870
Annual report for the financial year ended
30 June 2019
Service Stream Limited ABN 46 072 369 870
Consolidated financial statements
for the year ended 30 June 2019
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 69
Page 70
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 5 to 12, which is not part of these financial statements.
The financial statements were authorised for issue by the Directors on 20 August 2019. 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 2019, 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 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 within the 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 experience working within the industrial services sector and held various roles in private
and public organisations, specialising in the development and implementation of business strategy, operational and
financial management, commercial negotiations and business development.
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.
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.
1
Greg currently has no other listed company directorships and has held no other listed company directorships in the
last three years, however Greg is a director of OptiComm Ltd, a non-listed public company that operates in the
telecommunications sector and which is expected to list on the Australian Securities Exchange on or about 22 August
2019.
Service Stream Limited
Directors' report
Tom Coen
Non-Executive Director
Term of Office: Non-Executive Director since February 2019.
Tom Coen was appointed as a Non-Executive Director of Service Stream Limited on 1 February 2019. Tom was a
founding member of Comdain Infrastructure and led the business as Managing Director for 20 years and then
Chairman for the following 8 years.
Tom has over 35 years’ experience in the Australian utility sector. He brings to Service Stream an intimate knowledge
of both the water and gas sectors and provides unique insight
into civil construction, procurement, program
coordination, scheduling, operations management and contract management.
Tom brings to the Board a demonstrated ability to form productive and collaborative partnerships evident in the
numerous Joint Ventures he has successfully crafted.
Tom has no other listed company directorships and has held no other listed company directorships in the last three
years.
Peter Dempsey
Non-Executive Director
Qualifications: B. Tech. (Civil Eng.) (Adel), Grad. Diploma (Bus. Admin.), SAIT, FIEAust, MAICD.
Term of Office: Chairman from November 2010 to February 2015, Non-Executive Director since March 2015.
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.
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.
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.
Raelene's industry experience includes senior roles locally and internationally with Mars Inc., one of the largest food
manufacturers globally, 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. Her
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 the Remuneration and Nomination Committee.
Raelene is a Non-Executive Director of Bega Cheese Limited, Altium Limited, Integral Diagnostics Limited and Clean
Seas Seafood Limited. During the last three years, Raelene held a listed company directorship with 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.
Deborah has held no other listed company directorships in the last three years.
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
Fully paid ordinary shares
Performance rights
Directors
Number
Number
B Gallagher
G Adcock
T Coen1
P Dempsey
R Murphy
D Page
L Mackender
3,150,986
50,000
38,444,918
1,000,000
20,000
409,268
1,050,000
-
-
-
-
-
-
1,000,000
1Comdain Nominees Pty Ltd, a company in which Tom Coen has a beneficial interest, received 38,444,918 shares as part of the consideration for
the Comdain Infrastructure acquisition.
Remuneration of key management personnel
is set out in the remuneration report of this
Information about the remuneration of key management personnel
Directors’ report, on pages 15 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.
3
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:
Service Stream Limited
Directors' report
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
81,140
650,000
650,000
700,000
81,140
650,000
650,000
3,081,140
3,081,140
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 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.
Vicki commenced maternity leave with effect from 31 May 2019.
Chris Chapman
Chris Chapman was appointed General Counsel for the Service Stream Group in August 2015. Chris has significant
in-house experience having held senior legal positions at large private and listed construction and infrastructure
businesses. Chris was appointed Co-Company Secretary in February 2019 and holds a Bachelor of Laws and
Bachelor of Arts and is a graduate of the Australian Institute of Company Directors.
Nicole Goding
Nicole Goding held the role of Co-Company Secretary from December 2016 until her resignation from the company
on 22 February 2019.
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 fixed-line and wireless telecommunications networks as well as to a
range of water, gas and electricity network owners and operators nationally.
4
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 2019 (FY19) across key profitability measures. The year was highlighted by the acquisition of
Comdain Infrastructure on 2 January 2019, and its contribution to Group earnings for the second-half of the financial
year.
Service Stream Limited
Directors' report
Key financial measures
1.000
$'000
Profitability:
Revenue
EBITDA1
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 Profitability2:
EBITDA from Operations
NPATA3
Adjusted EPS (cents)
1.000FY19
1.000FY18
1.000
Change
852,178
632,946
219,232
89,543
10.5%
73,317
8.6%
67,296
10.6%
57,851
9.1%
49,859
41,107
22,247
(0.1%)
15,466
(0.5%)
8,752
35% ▲
33% ▲
▼
27% ▲
▼
21% ▲
59,523
10,521
13.09
9.00
79,677
73,041
11.29
7.50
(20,154)
(62,520)
1.80
1.50
(25%) ▼
(86%) ▼
16% ▲
20% ▲
93,266
57,663
15.14
66,296
41,459
11.39
26,970
16,204
3.75
41% ▲
39% ▲
33% ▲
1.000
1
Earnings before interest, tax, depreciation and amortisation.
22
Adjusted as relevant for one-off non-operational
Refer to the reconciliation between IFRS and non-IFRS financial information for further details on page 9.
23
Adjusted net profit after tax.
1
All financial measures and period-on-period changes thereto, are rounded to the displayed number of decimal places.
items and amortisation of customer contracts and customer relationships.
Changes to the Group's reportable segments
Following the acquisition of Comdain Infrastructure during the year, the Group has reviewed its operating segments,
cash generating units and reportable segments. That review concluded that:
•
•
•
the Group’s existing operating segments and cash generating units remain the same (Fixed Communications,
Network Construction, and Energy & Water) with the addition of Comdain Infrastructure;
Fixed Communications and Network Construction have been assessed as having similar economic
characteristics and being similar in terms of each of the other aggregation criteria set out in AASB 8 Operating
Segments including the nature of services, the type of customers and the methods by which services are
provided, such that they have been aggregated into a single Telecommunications reportable segment; and
Energy & Water and Comdain Infrastructure have been assessed as having similar economic characteristics and
being similar in terms of each of the other aggregation criteria set out in AASB 8 Operating Segments including
the nature of services, the type of customers and the methods by which services are provided, such that they
have been aggregated into a single Utilities reportable segment.
Group results
Group revenue improved to $852.2 million from $632.9 million with the 35% year-on-year increase attributable to
growth in each of
the two reporting segments of Telecommunications (+10%) and Utilities (+156%) with the
acquisition of Comdain Infrastructure contributing $160.2 million (+150%) of the latter.
5
Service Stream Limited
Directors' report
Group earnings before interest, tax, depreciation and amortisation (EBITDA) improved to $89.5 million from $67.3
million with the 33% year-on-year increase following average annual growth in the same metric of 38% over the
preceding three financial years. As with revenue, EBITDA growth was achieved by each of Telecommunications
(+22%) and Utilities (+127%) with the acquisition of Comdain Infrastructure contributing $11.1 million (+106%) of the
latter.
Group earnings before interest and tax (EBIT) improved to $73.3 million from $57.9 million with the 27% year-on-year
increase attributable to the increase in EBITDA offset by the impact of additional depreciation and amortisation
charges (including the amortisation of customer contracts and customer relationships) associated with Comdain
Infrastructure.
Group net profit after tax (NPAT) improved to $49.9 million from $41.1 million with the 21% increase attributable to the
aforementioned improvement in EBIT offset by higher net financing costs associated with an increase in the size and
utilisation of the Group’s financing facilities arising from the acquisition of Comdain Infrastructure.
Basic earnings per share (EPS) improved to 13.09 cents from 11.29 cents with the increase primarily attributable to
the increase in NPAT despite the impact of higher average shares on issue during the period including that arising
from the issue of 40.189 million shares as part consideration for the acquisition of Comdain Infrastructure.
Group operating cashflow before interest and tax (OCFBIT) of $79.7 million represents a 20% decrease on FY18. The
Group achieved an EBITDA to OCFBIT conversion of 89% for the period.
Operating cashflow was $59.5 million after factoring in tax payments of $18.8 million (FY18: $20.6 million) and net
financing payments of $1.4 million (FY18: $0.4 million receipt).
A final dividend of 5.5 cents (fully-franked) has been declared in respect of FY19, taking total dividends in respect of
the year to 9.0 cents (fully-franked) compared to 7.5 cents (fully-franked) in respect of FY18.
Other cash outflows for the year included $82.8 million for cash consideration associated with the acquisition of
Comdain Infrastructure, $9.4 million associated with capital expenditure net of proceeds from the sale of assets and
$0.1 million associated with share issue costs.
The Group concluded the year with Net Cash of $10.5 million (FY18: $73.0 million).
Segment Results
Information on the Group's reportable segment results is summarised below:
1.000
$'000
1.000
FY19
1.000
FY18
1.000
Change
Telecommunications
Utilities
587,815
273,417
Eliminations, interest & other revenue
(9,054)
Total Revenue
1.000
Telecommunications
Utilities
Unallocated corporate costs
One-off non-operational costs
Total EBITDA
1.000
852,178
75,852
23,782
(6,368)
(3,723)
89,543
535,182
106,734
(8,970)
632,946
52,633
166,683
(84)
219,232
12.9%
8.7%
(0.7%)
(0.4%)
10.5%
62,326
10,471
11.6%
9.8%
(6,501)
(1.0%)
13,526
13,311
133
1,000
0.2%
(4,723)
67,296
10.6%
22,247
Depreciation & amortisation
Amort. of cust. contracts / relationships
(8,801)
(7,425)
(1.0%)
(0.9%)
(7,513)
(1,932)
(1.2%)
(0.3%)
(1,288)
(5,493)
EBIT
1.000
Net financing costs
Income tax expense
73,317
8.6%
57,851
9.1%
15,466
(1,202)
421
(22,256)
49,859
(17,165)
41,107
(1,623)
(5,091)
8,752
Net profit after tax
1.000
All financial measures and period-on-period changes thereto, are rounded to the displayed number of decimal places.
6.5%
5.9%
1.3%
(1.1%)
0.3%
(0.6%)
(0.1%)
0.2%
(0.6%)
(0.5%)
(0.6%)
6
Revenue
Revenue increased by $219.2 million compared to the prior corresponding period driven primarily by:
Service Stream Limited
Directors' report
•
•
Telecommunications revenue was up (+$52.6 million) with a breakdown of revenue from the key business
activities detailed in the table below. The increase in revenue was related to customer connections and related
services being performed for nbn co under the various Activation & Assurance, Minor Projects and Design &
Construction contracts, offset by a volume-related decline in fixed-line activities for other customers and in
Wireless operations.
1.000
$'000
1.000FY19
1.000FY18
1.000Change
nbn Activations & Assurance
276,059
218,048
nbn Minor Projects
Other fixed-line customers
nbn Design & Construction
Wireless
Total Revenue: Telecommunications
59,569
36,932
127,678
87,577
587,815
34,940
48,315
106,284
127,595
535,182
58,011
24,629
(11,383)
21,394
(40,018)
52,633
Utilities revenue was up (+$166.7 million) with a breakdown of revenue from the key business activities detailed in
the table below. The increase in revenue was primarily due to the inclusion of revenue from Comdain
Infrastructure following its acquisition in January 2019. Increases in revenue, albeit of more modest quantum, also
arose in each of metering services, new energy and inspection services.
1.000
$'000
Metering services
New energy
Inspection services
Comdain Infrastructure
Other
Total Revenue: Utilities
1.000FY19
1.000FY18
1.000Change
71,143
15,649
17,303
160,222
65,293
13,775
16,974
5,850
1,874
329
-
160,222
9,100
10,692
(1,592)
273,417
106,734
166,683
Earnings before interest, tax, depreciation and amortisation
The Group’s EBITDA of $89.5 million for the year was an increase over the prior year by $22.2 million.
•
•
•
•
Telecommunications achieved an EBITDA of $75.9 million for FY19 which represents an improvement of $13.5
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 improved productivity and a greater proportion of
revenue from nbn activities under a free issue materials commercial framework.
Utilities reported an EBITDA of $23.8 million for FY19, an increase of $13.3 million over the prior year. The higher
EBITDA resulted from the increase in revenue detailed above offset by a 1.1 percentage point decrease in margin
arising from the inclusion of lower margin revenue from Comdain Infrastructure.
Unallocated corporate costs were $6.4 million for FY19, a decrease of $0.1 million over the prior year.
One-off non-operational costs were $3.7 million for FY19, including transaction and integration costs associated
with the acquisition of Comdain Infrastructure. This compares to a one-off non-operational benefit in FY18 arising
from 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
•
•
•
Depreciation and amortisation charges totalling $8.8 million were recorded for the period in relation to the Group’s
plant and equipment and acquired/internally-developed IT systems. This was $1.3 million higher than the charge
in the prior year largely due to the depreciation and amortisation charges applicable to the acquired Comdain
Infrastructure assets.
A charge of $1.8 million was recorded for the period in relation to the amortisation of customer contracts acquired
as part of the TechSafe acquisition in May 2017. This was $1.9 million in the prior year.
A first-time charge of $5.7 million was recorded for the period in relation to the amortisation of customer contracts
and customer relationships acquired as part of the Comdain Infrastructure acquisition in January 2019.
7
Service Stream Limited
Directors' report
Net financing costs
•
The Group incurred line fees, interest expense and other financing costs totalling $1.9 million for the year, offset
by interest income of $0.7 million. This compared to a $0.4 million net financing benefit in the previous year.
Tax
•
An income tax expense of $22.3 million was recorded for the period, representing an effective tax rate for the year
of 30.9% which was in line with expectations and prior years.
Cashflow
Key movements in cashflow compared to the prior period are as follows:
•
Net cashflow from operations was $59.5 million compared to $79.7 million in the prior period. The $20.2 million
decrease can be attributed to:
○
○
○
Service Stream operations generated $79.7 million in operating cashflow before interest and tax
(OCFBIT) for the year compared to $99.9 million in the prior period due to the impact of an increase in
net working capital, particularly that associated with the nbn design and construction contracts as they
near physical completion;
Cash flows associated with financing for the year were a net cash outflow of $1.4 million compared to
a net cash inflow of $0.4 million in the previous year; and
Tax payments totalling $18.8 million were made during the year in accordance with the Group’s tax
instalment regime, compared to $20.6 million in the prior year.
•
Net investing cash outflows for the year increased to $92.2 million compared to $8.2 million in the previous year
and comprised:
○
○
○
$82.8 million associated with the cash consideration paid during the year
the Comdain
Infrastructure acquisition, compared to $0.7 million associated with the post-completion Purchase
Price Adjustment for the TechSafe acquisition in the prior year;
for
$9.9 million of capital expenditure investment in technology and plant & equipment compared to $7.7
million in the previous year; net of
$0.5 million of proceeds from the sale of assets compared to $0.2 million in the previous year.
•
Net financing outflows for the year included:
○
○
○
○
○
$29.8 million paid in dividends, an increase of $8.1 million over the previous year;
Nil expended to acquire shares in Service Stream Limited to satisfy the Group’s obligations under
certain share-based incentive arrangements compared to $18.6 million in the prior period;
Nil expended to acquire shares as part of the Group’s on-market share buy-back compared to $8.0
million in the prior period;
$60.0 million of new borrowings to partly fund the cash consideration of the Comdain Acquisition
compared to Nil in the prior period; and
$0.4 million paid in respect of finance lease repayments consistent with the prior period.
Financial position
The financial position of the Group improved during the year, with Net Assets at 30 June 2019 of $307.8 million
compared to $206.9 million at 30 June 2018. $70.4 million of the increase was due to the issuance of 40.189 million
shares as part consideration for the acquisition of Comdain Infrastructure. At 30 June 2019, Current Assets exceeded
Current Liabilities by $53.4 million (30 June 2018: $71.2 million).
Net cash and financing facilities
•
•
•
•
The Group ended the year with Net Cash of $10.5 million, a decrease of $62.5 million over the $73.0 million
balance at the prior period end. Net Cash at 30 June 2019 comprised cash of $70.8 million less borrowings of
$60.0 million and the outstanding balance under the IT Infrastructure finance lease of $0.3 million.
Bank guarantee utilisation at year-end of $42.5 million was significantly higher than the prior year-end’s $19.3
million due to the bank guarantee requirements of Comdain Infrastructure.
The Group’s finance facilities at 30 June 2019 comprised a Term Loan of $60.0 million (drawn: $60.0 million),
cash advance lines totalling $30.0 million (drawn: Nil) and overdraft facilities totalling $40.0 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 2019 was a net liability position of $3.8
million. The closing balance represents an increase of $0.2 million from the prior year’s closing net liability
balance of $3.6 million.
•
•
Plant and equipment at 30 June 2019 was $20.1 million compared to $3.9 million at 30 June 2018 with the bulk of
the increase attributable to plant & equipment acquired as part of the Comdain Infrastructure acquisition.
Intangibles at 30 June 2019 were $319.5 million compared to $148.8 million with the increase primarily
attributable to customer contracts, customer relationships and goodwill arising from the Comdain Infrastructure
acquisition.
Reconciliations between IFRS and non-IFRS financial information
1.000
$'000
Reported EBITDA
Add-back adjustments:
- Write-back of deferred consideration (TechSafe)
- Acquisition costs (Comdain)
- Integration costs (Comdain)
EBITDA1 from Operations
1.000
Statutory NPAT
Add-back adjustments:
- As above for EBITDA
- Amort. of cust. contracts / relationships
- Tax effect of above (as relevant)
Adjusted NPAT (NPATA)2
1.000
1.000FY19
1.000FY18
89,543
67,296
-
2,473
1,250
(1,000)
-
-
93,266
66,296
49,859
41,107
3,723
7,425
(3,344)
57,663
(1,000)
1,932
(580)
41,459
Avg number of shares on issue (millions)
380.877
363.952
1.000
Statutory EPS (cents)
Adjusted EPS (cents)
1.000
1
Earnings before interest, tax, depreciation and amortisation.
22
Adjusted net profit after tax.
13.09
15.14
11.29
11.39
Business activities
Telecommunications
Through the Group’s Fixed Communications and Network Construction businesses, Telecommunications provides a
wide range of operations, maintenance, installation, design and construction services to the owners of fixed-line and
wireless telecommunication networks in Australia. Principal customers include nbn co, Telstra and Vodafone
Hutchison Australia (VHA).
•
•
Telecommunications’ financial performance in FY19 improved over the prior year, delivering an EBITDA of $75.9
million and revenue of $587.8 million (12.9% margin), compared with EBITDA of $62.3 million and revenue of
$535.2 million (11.6% margin) in the prior year.
During the year, Fixed Communications continued to deliver services to nbn co under the Operations and
Maintenance Master Agreement (OMMA) and Network MACs and Restoration Activities (NMRA) contracts to
Telstra under the Asset Relocation & Commercial Works (ARCW) contract and to Telstra, nbn co and other
customers under various minor works contracts. The business completed the activation of 727,000 new
customers for nbn co under the OMMA contract compared to 787,000 in the previous year, and commenced
activities during the year for nbn co under the new Business Deployment on Demand (BDoD) contract.
9
Service Stream Limited
Directors' report
•
During the year, Network Construction continued its delivery of predominantly fibre-to-the-node (FTTN)
construction activity to nbn co under the Multi-Technology Integrated Master Agreement (MIMA) contract, and
predominantly fibre-to-the-curb (FTTC) design and construction activity to nbn co under the Design and
Construction Master Agreement (DCMA) contract, and continued its delivery of site acquisition, engineering,
design and construction services to wireless customers including Telstra, VHA and Nokia Solutions and Networks
Australia Pty Ltd on the Optus wireless network.
Utilities
Through the Group’s Energy & Water and Comdain Infrastructure businesses, Utilities provides a wide range of
specialist metering, new energy, inspection & compliance, operations, maintenance, design & construction services to
utility network owners and operators and to other customers in Australia.
•
•
•
•
Utilities’ financial performance in FY19 also saw improvement with EBITDA of $23.8 million and revenue of
$273.4 million (8.7% margin) compared with EBITDA of $10.5 million and revenue of $106.7 million (9.8%
margin) in the prior year.
During the year Energy & Water completed 89 (FY18: 135) commercial solar PV installations with an average
size of 108.1kw (FY18: 69.6kw) representing total installed capacity of 9.6 megawatts (FY18: 9.4 megawatts) as
well as 437 (FY18: 569) residential solar PV installations at an average size of 5.6kw (FY18: 4.3kw) representing
total installed capacity of 2.5 megawatts (FY18: 2.4 megawatts).
Comdain Infrastructure, the acquisition of which was completed on 2 January 2019, contributed six months
revenue ($160.2 million) and EBITDA ($11.1 million) to Utilities' financial performance for the year.
During the year, Comdain Infrastructure undertook operations and maintenance work in Victoria by its Asset
Management Services and Multinet Gas business units, small gas and water infrastructure projects in Victoria by
its Land Development business unit, specialist activities nationally by its Electrical and Mechanical
Instrumentation business unit, and gas and water-related projects nationally by its Victorian Engineering, New
South Wales, Queensland and Regional business units. During the year, Comdain Infrastructure substantially
completed one of its largest projects to date, being the approximately $18.0 million Nimmie-Caira wetlands
restoration project which is part of the Murray Darling Basin Plan.
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 to have completed the acquisition of Comdain Infrastructure on 2 January 2019 and
for the Company’s admission to the S&P ASX200 Index with effect from 24 June 2019.
The Board also notes the continued consistency of service delivery under Telecommunications’ various contracts with
nbn co during the year, the winning of the nbn BDoD contract during the year, the future prospects of the Wireless
business in respect of 5G design and construction opportunities, and the future prospects of
the Comdain
Infrastructure business.
The Board believes that demand for essential network services is expected to remain strong in the medium term, and
that the Group remains well placed to continue to take advantage of both organic and acquisitive growth opportunities
as they present.
Given the Group’s strong financial position, 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 5.5 cents per share (fully-franked) taking total dividends in respect of FY19 to 9.0 cents per share
(fully-franked) in line with the Group’s progressive dividend policy approach.
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 particularly within the telecommunications sector 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 in this market 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 January 2019, the Group acquired Comdain Infrastructure which provides a wide range of
operations, maintenance, design and construction services to gas and water network owners and
operators in Australia. The Board believes that this acquisition will add significant diversification to
the Group’s revenue stream and will lessen the risk posed by customer concentration.
The Board supports Management’s continued identification and assessment of further acquisition
opportunities within strict criteria, which may further improve the diversification of the Group’s
revenue streams.
10
Customer
demand
Many of the Group’s customer contracts, including those of Comdain Infrastructure, 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.
Service Stream Limited
Directors' report
Contract
management
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 by maintaining an appropriate balance
between a self-perform workforce and the use of subcontractors. Processes are therefore
established and maintained to attract, mobilise and retain key resources to ensure that they are
available at the right time and right place to match customers' forecasts of volume as they change
over time.
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.
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.
Management’s current focus is on embedding the Group’s bidding and contract management
disciplines into the recently acquired Comdain Infrastructure business.
Renewal of
customer
contracts
Whilst the Group has been successful
in renewing and extending the majority of all customer
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.
the Group did not
During FY19,
in securing
extensions of its wireless contracts with both Telstra and VHA. The Group was also successful in
winning a number of new meter reading and meter replacement contracts in Energy & Water and
the Business Deployment on Demand contract with nbn co.
lose any major contracts and was successful
During FY20, the Group’s OMMA and NMRA contracts with nbn co come up for renewal. The
Board expects that the Group’s superior performance and consistency of service delivery will
underpin extension of those contracts.
Project
management
Management and the Board are conscious that the acquisition of Comdain Infrastructure increases
the Group’s exposure to risks arising from undertaking a portion of project works which are
fixed-price / lump-sum in nature.
In that context, the Group has engaged an independent expert to assess the effectiveness of
Comdain Infrastructure’s project management controls and systems, and is currently working with
Comdain Infrastructure to implement a number of recommendations coming out of that review.
Planning is progressing to transition Comdain Infrastructure onto the Group’s core business
to enhance the systemisation and
system and project management platform during FY20,
scalability of project management controls.
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
retain those personnel,
including participation in appropriate incentive arrangements and
participation in the Group’s employee development, talent identification and succession programs.
The Board notes that the Executive Share-based Incentive Plan (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, has now concluded. In consultation with
external remuneration advisers, the Board has developed and implemented revised remuneration
arrangements for the Managing Director and executives to apply from FY20, and believes those
arrangements will be effective in retaining and incentivising those key personnel.
11
Service Stream Limited
Directors' report
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 FY19, 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.
to the safety risks posed to employees and
Management and the Board remain alert
subcontractors, devote significant
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.
time to monitoring the effectiveness of
In that context, the Group has engaged an independent expert to assess the effectiveness of
Comdain Infrastructure’s safety management systems, and is currently working with Comdain
Infrastructure to implement a number of recommendations coming out of that review.
During FY19,
Reportable Incident Frequency Rate (TRIFR) at industry-leading levels.
the Group maintained its Lost Time Injury Frequency Rate (LTIFR) and Total
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
The Group'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
IT investments are
maintain fit-for-purpose system applications and infrastructure, and that
appropriately prioritised as part of
the Group’s annual strategic planning process and are
undertaken effectively.
During FY19, the Group has further expanded the scope of its core ERP application, and has
continued to enhance 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 18 to the financial
statements and further set out below:
Per share (cents)
Total amount ($'000)
Franked
Payment date
Final
2019
Interim
2019
Final
2018
5.50
22,089
100%
3.50
14,049
100%
4.50
16,242
100%
2 October 2019
21 March 2019
27 September 2018
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
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.
12
Environmental regulation
laws and regulations, the
Other than compliance with general obligations under Federal and State environmental
Group's operations are not subject to any particular or significant environmental regulation under a Commonwealth,
State or Territory law.
Shares under performance rights
Details of unissued shares under performance rights at the date of this report are:
Service Stream Limited
Directors' report
Series
Class of shares
Exercise price of
right
FY17 LTIP Tranche
FY18 LTIP Tranche
FY19 LTIP Tranche
Ordinary
Ordinary
Ordinary
FY19 ESBIP Tranche
Ordinary
$0.00
$0.00
$0.00
$0.00
Vesting date
September 2019
September 2020
September 2021
August 2019
Number of shares
under rights
853,073
665,889
812,893
4,500,000
6,831,855
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).
NO OF MEETINGS HELD
No of meetings attended by
B Gallagher
G Adcock
T Coen
P Dempsey
R Murphy
D Page
L Mackender
Meetings of Committees
Remuneration
and
Nomination
Sustainability,
Safety,
Health &
Environment
Audit and
Risk
Term of
Directorship
4
4*
3*
2*
4
4
4
4*
3
3*
3
2*
3
3
3
3*
3
3
3
1*
3
1*
3*
3
9 years
3 years
5 months
9 years
4 years
9 years
5 years
Board
meetings
192
18
19
71
19
19
17
19
* Attended as Standing Invitee.
1 T Coen was appointed on 1 February 2019 and did not participate in one Board meeting since date of appointment due to a conflict of interest.
2 The number of board meetings held during the year comprised ten regular monthly meetings, two general meetings of shareholders and seven
unscheduled meetings that related to the Comdain Infrastructure acquisition or large contract tender submissions.
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 incurred as 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
and the amount of the deductible or premium paid for the contract.
13
Service Stream Limited
Directors' report
The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law,
indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a
liability incurred as an officer or auditor.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking
responsibility on behalf of the Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section
237 of the Corporations Act 2001.
Non-audit services
Details of any amounts paid or payable to the auditor for non-audit services provided during the year by the auditor
are outlined in note 31 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 31 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
Standards Board,
including reviewing or auditing the auditor’s own work, acting in a management or
decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks
and rewards.
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 Stream 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 20 August 2019 and has been approved by the Board.
Sustainability report
Service Stream Limited and the Board recognise the importance of driving long-term sustainable practices which
support and enhance the environment, social and economic performance for both the Company and our wider
stakeholders.
The Group’s current sustainability report can be viewed at
http://www.servicestream.com.au/investors/corporate-governance. The sustainability report is accurate and up to date
as at 20 August 2019 and has been approved by the Board.
14
Service Stream Limited
Directors' report
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 2019 (FY19). 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.
Non-Executive Directors
Brett Gallagher
Greg Adcock
Tom Coen (appointed on 1 February 2019)
Peter Dempsey
Raelene Murphy
Deborah Page AM
Executive Director
Leigh Mackender
Senior Executives
Robert Grant
John Ash
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director
Chief Financial Officer
Executive General Manager, Network Construction
Peter Coen (appointed on 2 January 2019)
Executive General Manager, Comdain Infrastructure
Paul McCann
Kevin Smith
Executive General Manager, Energy & Water
Executive General Manager, Fixed Communications
2 Role of the Remuneration and Nomination Committee
reviewing and making
The Board’s Remuneration and Nomination Committee (RNC)
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
To assist in performing its duties and making recommendations to the Board, the RNC periodically seeks independent
advice from external consultants on various remuneration-related matters. In such cases, the RNC follows protocols
around the engagement and use of external remuneration consultants to ensure compliance with the relevant
executive remuneration legislation. All remuneration recommendations are provided by the external consultant directly
to the RNC.
During FY19, the RNC engaged Korn Ferry to provide benchmarking data for salaried roles across the Group.
Recommendations for salary adjustments arising from the benchmarking data were considered by the RNC and
submitted to the Board for approval where appropriate. Korn Ferry was paid $63,000 for these services.
Also during FY19, the RNC engaged PricewaterhouseCoopers (PwC) to review the Executive’s long-term incentive
plan design. PwC was paid $60,180 for these services. PwC was not engaged to provide direct remuneration
recommendations, but to provide insight to current executive remuneration and incentive practices, prevalent in the
market. As a result of this engagement, the RNC has recommended the adoption of the STIP and LTIP to replace the
ESBIP for the relevant Executives with effect from FY20.
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;
15
Service Stream Limited
Directors' report
• 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.
Fixed remuneration
Incentive remuneration
FY19: Average 35% of total remuneration 1
FY19: Average 65% 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)
Includes
>
non-monetary benefits
superannuation
and
salary-sacrificed
> Performance hurdle linked to annual EPS growth
>Discretionary cash bonuses 2
Or 3
> 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
FY19 ESBIP and the FY17, FY18 and FY19 LTIPs.
2 Discretionary cash bonuses would only be approved by the Board in one-off circumstances for recognition of exceptional outcomes and effort
by the relevant Executive.
3 Executives not eligible to participate in the ESBIP as detailed on page 17 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 ($)
2015
2016
2017
2018
2019
411,270
438,940
501,810
632,946
852,178
25,389
11,720
3.03
1.50
0.30
35,818
19,983
5.20
2.50
0.79
48,352
28,370
7.78
4.50
1.32
67,296
41,107
11.29
7.50
1.51
89,543
49,859
13.09
9.00
2.81
1 Earnings before interest, tax, depreciation and amortisation.
2 Franked to 100% at 30% corporate income tax rate.
16
Service Stream Limited
Directors' report
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
During the financial year ended 30 June 2019, Managing Director and Senior Executive incentive remuneration
consisted of participation in either the Group’s Executive Share-Based Incentive Plan (ESBIP), Long-Term Incentive
Plan (LTIP) or Short-Term Incentive Plan (STIP) as set out in the table below.
Summary of incentive plan participation
L Mackender
R Grant
J Ash
P Coen1
P McCann
K Smith
ESBIP
Yes
Yes
-
-
Yes
Yes
2019
LTIP
-
-
Yes
-
-
-
STIP
ESBIP
-
-
Yes
Yes
-
-
Yes
Yes
-
n/a
Yes
Yes
2018
LTIP
-
-
Yes
n/a
-
-
STIP
Yes
n/a
-
-
1 Peter Coen was appointed as Executive General Manager - Comdain Infrastructure with effect from 2 January 2019 following the completion of
Service Stream's acquisition of Comdain Infrastructure, and participated in the FY19 STIP on a pro-rata basis from that date.
ESBIP
What was the ESBIP and who participated?
The ESBIP was a share-based incentive plan 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 the Senior Executives listed in the table above were participants in the ESBIP.
How did the ESBIP operate?
The ESBIP operated via the allocation of performance rights that were subject to satisfaction of earnings per share
(EPS) performance conditions. Upon admission to the ESBIP, each participating executive was provided with an
ESBIP invitation that set out the rules and mechanics of the plan, and provided details regarding the number of rights
that would be offered to that executive on an annual basis (by way of an annual offer letter) over the plan’s term. Each
performance right converted into one ordinary share of Service Stream Limited upon vesting. No amounts were paid
or payable by the participant on receipt of the performance rights, and the performance rights carried neither rights to
dividends nor voting rights.
The number of performance rights offered to the Managing Director and relevant Senior Executives under the ESBIP
were endorsed by the RNC and approved by the Board and by shareholders in the case of the Managing Director.
What was the performance period?
ESBIP performance rights were issued in respect of a particular financial year and were subject to the satisfaction of
performance hurdles over an initial one-year performance period. Any performance rights which did not vest at the
end of the initial performance period would be tested again at the end of year two, and if necessary the end of year
three (Aggregate Period). Any rights which did not vested at the end of the Aggregate Period would lapse.
17
Service Stream Limited
Directors' report
What were the performance hurdles?
The performance hurdles for each ESBIP grant were based on the following:
•
•
•
The participant must have been an employee at the latter of the date on which the Group released its results for
the financial year to which the ESBIP grant applied or otherwise determined that the vesting conditions have been
satisfied during the Aggregate Period; and
at least 10% growth in EPS for the initial performance period was achieved; or
an average of at least 10% compound growth in EPS per annum for the Aggregate Period was achieved.
Why was this performance condition chosen?
The Board considered the EPS hurdle to be an appropriate measure on the basis that it was a relevant measure of
increase in shareholder value, it was a financial outcome that was highly correlated with the effectiveness of ESBIP
participants, and it was a financial metric the calculation of which was 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, FY18 and
FY19 tranches of ESBIP have vested in full with annual Reported EPS growth over that period ranging from 16% to
299% relative to the 10% per annum performance hurdle. Over this five-year period, the Group’s share price has
increased by approximately 1400% from a base of $0.186 per share on 30 June 2014 to a closing price of $2.810 on
30 June 2019. Over this same period, dividends per share have increased from Nil in respect of FY14 to 9.0 cents in
respect of FY19, with an average dividend yield based on year-end share prices averaging 4.0% (full-franked).
ESBIP Vesting & Shareholder Returns
Reported earnings per share (EPS) (cents)
Growth in Reported EPS
Adjusted1 earnings per share (EPS) (cents)
Growth in Adjusted EPS
Growth in EPS - ESBIP hurdle
ESBIP vesting
Shareholder Returns
Share price as at 30 June ($)
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
0.30
60%
1.5
5.1%
FY16
5.20
72%
5.20
72%
10%
Yes
0.79
164%
2.5
3.2%
FY17
7.78
50%
7.97
53%
10%
Yes
1.32
68%
4.5
3.4%
FY18
11.29
45%
11.39
43%
10%
Yes
1.51
14%
7.5
5.0%
FY19
13.09
16%
15.14
33%
10%
Yes
2.81
86%
9.0
3.2%
1 Adjusted for the tax-effected impact of the amortisation of customer contracts and customer relationships arising from the TechSafe and
Comdain Infrastructure acquisitions, transaction and integration costs associated with those acquisitions, and the 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 the Remuneration and Nomination Committee (RNC). The extent of individual participation and the
associated number of performance rights offered is recommended by the Managing Director and reviewed by the
RNC, which will then make recommendations to the Board for approval.
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.
18
Service Stream Limited
Directors' report
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 relevant to FY19 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 proportional 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.
Why was this performance condition chosen?
The Board considered the EPS and TSR hurdles to be appropriate measures on the basis that they were relevant
measures of increase in shareholder value and they were both outcomes which are highly correlated with the
effectiveness of LTIP participants. In addition, EPS was a financial metric the calculation of which was independently
verified by virtue of the audit of the financial statements, whilst TSR performance was independently assessed by
third-party experts.
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 is the performance period?
STIP payments are subject to the satisfaction of group and individual goals in respect of a particular financial year.
What are 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 criterion is satisfied, bonus
payments are based equally on Group performance and achievement of individual goals as illustrated below.
50% Group Financial Performance1
50% Individual Performance
Performance to
Budget
90 - 100%
100%
Percentage paid out
KPI Quadrant-individual
goals
Example percentage
allocation
Pro-rata between 50% and 100% and at RNC
discretion
Financial
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 2018
Number
compensation
Vested
Forfeited
2019
Number
Number
Number
Number
Service Stream Limited
Directors' report
Fair value
when
granted 2
$
Value of
shares at
vesting
$
L Mackender
FY18 ESBIP
FY19 ESBIP1
Total
R Grant
FY18 ESBIP
FY19 ESBIP1
Total
J Ash
FY16 LTIP
FY17 LTIP1
FY18 LTIP
FY19 LTIP
Total
K Smith
FY18 ESBIP
FY19 ESBIP1
Total
P McCann
FY18 ESBIP
FY19 ESBIP1
Total
Plan
FY16 LTIP
FY17 LTIP
FY18 LTIP
FY19 LTIP
FY18 ESBIP
FY19 ESBIP
1,000,000
-
(1,000,000)
-
1,000,000
-
1,000,000
1,000,000
(1,000,000)
700,000
-
700,000
296,989
123,411
90,299
-
510,699
650,000
-
650,000
650,000
-
650,000
-
(700,000)
700,000
-
700,000
(700,000)
-
-
-
81,140
(296,989)
-
-
-
81,140
(296,989)
-
(650,000)
650,000
-
650,000
(650,000)
-
(650,000)
650,000
-
650,000
(650,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
1,326,200
1,591,900
1,000,000
1,487,100
n/a
1,000,000
-
928,340
1,114,330
700,000
1,040,970
n/a
700,000
-
123,411
90,299
81,140
294,850
-
650,000
650,000
-
650,000
650,000
72,020
76,774
98,530
89,618
518,127
n/a
n/a
n/a
862,030
966,615
1,034,735
n/a
862,030
966,615
1,034,735
n/a
Grant dates
Vesting dates
11 September 2015 11 September 2018
14 September 2016
September 2019
14 September 2017
September 2020
21 September 2018
September 2021
31 October 2017
15 August 2018
31 August 2018
20 August 2019
1 The relevant number of shares will be issued to the participants after the release of these FY19 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 2019 in line with each of the tranche's performance
periods.
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
FY16 LTIP 1
FY17 LTIP 2
Grant date
Vesting date
Fair value of each
performance right at
grant date
% of performance
hurdles achieved % of rights vested
11 September 2015
11 September 2018
24.3 cents
100%
100%
14 September 2016
September 2019
62.2 cents
To be determined
To be determined
FY18 ESBIP 1
31 October 2017
15 August 2018
FY19 ESBIP 3
31 August 2018
20 August 2019
132.6 cents
148.7 cents
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 FY19 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 FY19 results.
20
Service Stream Limited
Directors' report
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
Non-
monetary
Year
Super
LSL
Share- based
payments
Performance
rights
Total
Fixed At Risk
L Mackender
2019
529,469
50,000 1
2018
509,959
-
R Grant
2019
464,300
50,000 1
2018
455,276
-
J Ash
2019
365,415
84,117 2
2018
358,020
81,380
P McCann
2019
298,847
2018
275,672
K Smith
2019
376,548
2018
358,122
-
-
-
-
P Coen 3
2019
262,816
20,625 2
-
-
-
-
-
-
20,531
18,228
1,487,100
2,105,328
27%
73%
20,049
12,679
1,326,200
1,868,887
29%
71%
20,531
14,078
1,040,970
1,589,879
31%
69%
20,049
9,852
928,340
1,413,517
34%
66%
20,531
10,272
88,307
568,642
70%
30%
20,049
6,659
82,441
548,549
70%
30%
24,384
20,531
15,602
966,615
1,325,979
27%
73%
27,001
20,049
5,821
862,030
1,190,573
28%
72%
-
-
-
20,531
12,823
966,615
1,376,517
30%
70%
20,049
12,873
862,030
1,253,074
31%
69%
10,191
227
-
293,859
93%
7%
Total
2019 2,297,395
204,742
24,384
112,846
71,230
4,549,607
7,260,204
35%
65%
2018 1,957,049
81,380
27,001
100,245
47,884
4,061,041
6,274,600
34%
66%
1 These amounts represent one-off discretionary cash bonuses approved by the Board in respect of Service Stream's acquisition of Comdain
Infrastructure.
2 These amounts represent cash short-term incentives payable for the year ended 30 June 2019, which are scheduled to be paid in September
2019.
3 Peter Coen was appointed as Executive General Manager, Comdain Infrastructure with effect from 2 January 2019 following completion of
Service Stream's acquisition of Comdain Infrastructure.
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
preserve independence and impartiality, Non-Executive Directors do not
receive any performance related
compensation.
21
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
Service Stream Limited
Directors' report
B Gallagher
G Adcock
T Coen 2
P Dempsey
R Murphy 3
D Page
Total
Year
2019
2018
2019
2018
2019
2019
2018
2019
2018
2019
2018
2019
2018
Board and
Committee fees
Super
Total
146,119
13,881
160,000
141,552
13,447
154,999
113,734 1
105,023
44,901
4,266
9,977
4,266
118,000
115,000
49,167
107,763
10,237
118,000
105,023
118,000
115,000
9,977
115,000
-
-
118,000
115,000
114,155
10,845
125,000
109,589
10,411
120,000
644,672
43,495
688,167
576,187
43,812
619,999
1 G Adcock's remuneration for 7 months of the year was paid to Ausadcock Pty Ltd, a company in which Mr Adcock has a beneficial interest.
2 T Coen was appointed to the position of Non-Executive Director on 1 February 2019.
3 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
Service Stream Limited
Directors' report
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
Balance as at
30 June
No.
No.
No.
No.
No.
No.
2019
Non-Executives
B Gallagher
G Adcock
T Coen
P Dempsey
R Murphy
D Page
Executives
L Mackender
R Grant
J Ash
P McCann
K Smith
1.000
2018
Non-Executives
B Gallagher
G Adcock
P Dempsey
R Murphy
D Page
Executives
L Mackender
R Grant
J Ash
P McCann
K Smith
5,376,126
50,000
-
1,441,775
20,000
409,268
-
-
-
-
-
-
(2,225,140)
-
-
(441,775)
-
1,450,000
1,000,000
(1,400,000)
1,608,759
700,000
(1,308,759)
103,256
988,522
296,989
650,000
(400,245)
(500,000)
1,801,438
650,000
(414,440)
5,376,126
50,000
1,441,775
-
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)
-
-
38,444,918
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,150,986
50,000
38,444,918
1,000,000
20,000
409,268
1,050,000
1,000,000
-
1,138,522
2,036,998
5,376,126
50,000
1,441,775
20,000
409,268
1,450,000
1,608,759
103,256
988,522
1,801,438
8 Voting and comments made at the Company's 2018 Annual General Meeting
The Company received 96% of “yes” votes on its Remuneration Report for the 2018 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
20 August 2019
Leigh Mackender
Managing Director
20 August 2019
24
Auditor’s Independence Declaration
As lead auditor for the audit of Service Stream Limited for the year ended 30 June 2019, I declare that
to the best of my knowledge and belief, there have been:
(a)
(b)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
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
20 August 2019
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 2019
Service Stream Limited
Revenue from continuing operations
Revenue from contracts with customers
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
2019
$'000
2018
$'000
3
4
6
5
7
850,959
1,219
852,178
(193,567)
(474,919)
(37,196)
(8,860)
(5,631)
(8,897)
(14,639)
(12,669)
(16,226)
(1,899)
(5,560)
72,115
(22,256)
49,859
629,584
3,362
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
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
49,859
41,107
49,859
49,859
41,107
41,107
Earnings per share
Basic (cents per share)
Diluted (cents per share)
8
8
13.09
12.89
11.29
11.10
Notes to the financial statements are included on pages 30 to 68
26
Consolidated balance sheet
as at 30 June 2019
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
Provisions
Borrowings
Finance lease
Lease incentives
Total current liabilities
Non-current liabilities
Deferred tax liability (net)
Provisions
Borrowings
Finance lease
Lease incentives
Total non-current liabilities
Total liabilities
Net assets
EQUITY
1
Capital and reserves
Contributed equity
Reserves
Retained earnings / (accumulated losses)
Total equity
Service Stream Limited
Notes
2019
$'000
2018
$'000
21
9
10
11
12
13
14
15
16
22
19
7
16
22
19
17
70,809
54,385
8,868
125,988
7,490
267,540
20,119
319,512
339,631
73,698
43,321
3,045
82,373
2,769
205,206
3,948
148,831
152,779
607,171
357,985
161,737
10,136
32,594
9,000
288
394
214,149
28,450
5,785
51,000
-
23
85,258
110,474
3,197
19,111
-
369
847
133,998
12,111
4,393
-
288
301
17,093
299,407
151,091
307,764
206,894
297,757
2,475
7,532
217,281
1,651
(12,038)
307,764
206,894
Notes to the financial statements are included on pages 30 to 68
27
Consolidated statement of changes in equity
for the financial year ended 30 June 2019
Service Stream Limited
Contributed
equity
Employee
equity-
settled
benefits
reserve
Retained
earnings
Total
$'000
$'000
$'000
$'000
Balance at 1 July 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
Profit for the period
Total comprehensive income for the year
Equity-settled share-based payments, inclusive of tax adjustments
Issue of shares as consideration for business combination (net of
transaction costs)
Issue of shares (net of transaction costs)
Acquisition of treasury shares
Issue of treasury shares to employees
Dividends paid
Balance at 30 June 2019
233,151
4,590
(31,421)
41,107
206,320
41,107
-
-
-
-
-
7,795
10,734
(10,734)
41,107
41,107
-
-
-
-
(21,724)
7,795
-
(8,007)
(18,597)
(21,724)
-
-
-
1,651
(12,038)
206,894
-
-
10,464
-
-
-
(9,640)
49,859
49,859
49,859
49,859
-
-
-
-
-
10,464
70,363
1,777
(1,777)
-
-
(30,289)
(29,816)
(8,007)
(18,597)
-
217,281
-
-
-
70,363
1,777
(1,777)
9,640
473
297,757
2,475
7,532
307,764
Notes to the financial statements are included on pages 30 to 68
28
Consolidated statement of cash flows
for the financial year ended 30 June 2019
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
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
Proceeds from borrowings
Dividends paid
Repayment of finance lease
Purchase of shares (net of transaction costs)
On market share buy-back
Payment for share issue costs
Service Stream Limited
Notes
2019
$'000
2018
$'000
942,053
706,810
(862,350)
(606,899)
79,703
99,911
21
20
697
(2,063)
(18,814)
59,523
(3,581)
452
(6,287)
(82,752)
(92,168)
60,000
(29,816)
(369)
-
-
(59)
925
(526)
(20,633)
79,677
(1,574)
238
(6,166)
(690)
(8,192)
-
(21,724)
(353)
(18,594)
(8,013)
-
Net cash provided / (used) by financing activities
29,756
(48,684)
Net (decrease) / increase in cash and cash equivalents
(2,889)
22,801
Cash and cash equivalents at the beginning of the financial year
73,698
50,897
Cash and cash equivalents at end of the financial year
21
70,809
73,698
Notes to the financial statements are included on pages 30 to 68
29
Service Stream Limited
Notes to the consolidated financial statements
for the year ended 30 June 2019
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 contracts with customers
Page 33
10
Inventories
4 Other income
5 Finance costs
6 Other expense items
7
Income tax expense
8 Earnings per share
Page 34
Page 34
Page 35
Page 35
Page 37
11 Accrued revenue
12 Other assets
13 Plant and equipment
14
Intangible assets
15 Trade and other payables
16 Provisions
Section C: Capital and financing
Section D: Group structure
17 Contributed equity
18 Dividends
19 Lease arrangements
Page 42
Page 43
Page 44
25 Subsidiaries
26 Deed of cross guarantee
27 Related party transactions
20 Business combinations
Page 44
28 Parent entity information
21 Notes to the statement of cash flow
22 Financial instruments
23 Capital risk management
24 Share-based payments
Page 46
Page 47
Page 50
Page 50
Section E: Unrecognised items
Section F: Other
29 Contingent assets and liabilities
Page 56
31 Remuneration of auditors
30 Events after the reporting period
Page 56
32 Significant accounting policies
33 Critical accounting judgements
Page 31
Page 38
Page 38
Page 38
Page 39
Page 39
Page 40
Page 41
Page 42
Page 54
Page 54
Page 55
Page 55
Page 56
Page 56
Page 68
30
Service Stream Limited
Notes to the consolidated financial statements
Notes to the financial statements
for the financial year ended 30 June 2019
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
Following the acquisition of Comdain Infrastructure during the year, the Group has reviewed its operating segments,
cash generating units and reportable segments. That review concluded that the Group’s existing operating segments
and cash generating units remain the same (Fixed Communications, Network Construction, and Energy & Water) with
the addition of Comdain Infrastructure.
The Group’s operating segments have been determined based on the nature of the business activities undertaken by
the Group and by reference to the structure of internal reporting that is prepared and 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 principal services of the Group's four operating segments are as follows:
Fixed Communications1.000
Network Construction
Energy & Water
Comdain Infrastructure
Fixed Communications provides a wide range of operations, maintenance,
installation, design and construction services to the owners of
fixed-line
telecommunication networks in Australia. Service capability includes customer
connections; service and network assurance; design, construction and installation of
broadband services, as well as minor projects for asset remediation, augmentation
and relocation. Principal customers include nbn co and Telstra.
Network Construction provides a wide range of design, construction and associated
services to the owners of fixed-line and wireless telecommunications networks in
Australia. Service capability includes site acquisition, engineering, design and
construction of wireless and fixed-line projects. Principal customers include nbn co,
Telstra and other wireless carriers.
Energy & Water provides a wide range of specialist metering, new energy and
inspection services to gas, water and electricity network owners and other
customers in Australia. Service capability include meter
reading and asset
replacement; engineering, design and construction of energy-related products; as
well as specialist inspection, auditing and compliance services.
Comdain Infrastructure provides a wide range of operations, maintenance, design
and construction services to gas and water network owners and operators in
Australia. Service capability includes network assurance; asset upgrades and
replacement; engineering, design and construction of network assets; as well as
specialist electrical and mechanical instrumentation services.
Fixed Communications and Network Construction have been assessed as having similar economic characteristics
and being similar in terms of each of the other aggregation criteria set out in AASB 8 Operating Segments including
the nature of services, the type of customers and the methods by which services are provided, such that they have
been aggregated into a single Telecommunications reportable segment.
Energy & Water and Comdain Infrastructure have been assessed as having similar economic characteristics and
being similar in terms of each of the other aggregation criteria set out in AASB 8 Operating Segments including the
nature of services, the type of customers and the methods by which services are provided, such that they have been
aggregated into a single Utilities reportable segment.
Unallocated costs, unallocated assets and liabilities, and unallocated depreciation, amortisation and additions to
non-current assets relate to certain head office functions and commonly used resources that are not considered
appropriate to be allocated to the Group’s reportable segments.
31
Service Stream Limited
Notes to the consolidated financial statements
2 Segment information (continued)
(a) Products and services from which reportable segments derive their revenues
Information regarding the Telecommunications and Utilities reportable segments is presented below:
(b) Segment revenues and results
Segment revenue
Segment EBITDA
Telecommunications 2
Utilities 2
Total of all segments
Other income
Eliminations 2
Unallocated
EBITDA 1
Depreciation
Amortisation of software
Amortisation of customer contracts / relationships
EBIT
Interest revenue
Net financing costs
Total revenue
Profit before tax
Income tax expense
Profit for the year
2019
$'000
587,815
273,417
861,232
2018
$'000
535,182
106,734
641,916
522
2,437
(10,273)
(12,332)
697
925
852,178
632,946
2019
$'000
75,852
23,782
99,634
(10,091)
89,543
(4,547)
(4,254)
(7,425)
2018
$'000
62,326
10,471
72,797
(5,501)
67,296
(3,427)
(4,086)
(1,932)
73,317
57,851
(1,202)
421
72,115
58,272
(22,256)
(17,165)
49,859
41,107
1 Earnings before interest, tax, depreciation and amortisation.
2 The prior year comparatives have been restated to reflect the change in reportable segments including eliminations of intra / inter-segment
transactions.
(c) Segment assets and liabilities
Telecommunications
Utilities
Total of all segments
Unallocated
Consolidated
(d) Other segment information
Telecommunications
Utilities
Total of all segments
Unallocated
Consolidated
Segment assets
Segment liabilities
2019
$'000
192,483
331,058
523,541
83,630
607,171
2018
$'000
186,854
78,619
265,473
92,512
357,985
2019
$'000
113,087
108,206
221,293
78,114
299,407
2018
$'000
107,377
13,895
121,272
29,819
151,091
Depreciation and
amortisation
Additions to non-current
assets
2019
$'000
1,804
9,701
11,505
4,721
16,226
2018
$'000
1,898
2,790
4,688
4,757
9,445
2019
$'000
1,173
2,266
3,439
6,429
9,868
2018
$'000
812
433
1,245
6,496
7,741
32
2 Segment information (continued)
(e)
Information about major customers
In the current reporting period, there were two customers (2018: two customers) which each contributed more than
10% of the Group’s revenue. The relevant revenue by segment is shown below:
Service Stream Limited
Notes to the consolidated financial statements
Largest customer
Second largest customer
No other single customer contributed 10% or more of the Group’s total revenue in 2019 and 2018.
2019: Telecommunications $96.9 million (2018: Telecommunications $136.4 million).
1.0002019: Telecommunications $463.3 million (2018: Telecommunications $359.3 million).
3 Revenue from contracts with customers
(a) Revenue from contracts with customers
Revenue
2019
$'000
850,959
850,959
2018
$'000
629,584
629,584
(b) Disaggregation of segment revenue
The Group derives revenue from the transfer of goods and services over time and at a point in time. The table below
provides a disaggregation of operating segment revenues from contracts with customers.
30 June 2019
Segment revenue
Intra / Inter-segment revenue
Fixed
Communications
Network
Construction
Energy &
Water
Comdain
Infrastructure Other
Total
$'000
$'000
$'000
$'000
$'000
372,631
215,255
113,308
160,222
$'000
861,416
-
(71)
-
(113)
-
(10,273)
(10,457)
Revenue from contracts with customers
372,560
215,255
113,195
160,222
(10,273)
850,959
Timing of revenue recognition
At point in time
Over time
30 June 2018
Segment revenue
Intra / Inter-segment revenue
311,832
-
98,504
19,271
(7,444)
422,163
60,728
215,255
14,691
140,951
(2,829)
428,796
372,560
215,255
113,195
160,222
(10,273)
850,959
Fixed
Communications
Network
Construction
Energy &
Water
Comdain
Infrastructure Other
Total
$'000
$'000
$'000
$'000
$'000
301,371
233,879
106,734
(68)
-
-
Revenue from contracts with customers
301,303
233,879
106,734
Timing of revenue recognition
At point in time
Over time
232,158
-
69,145
233,879
94,678
12,056
301,303
233,879
106,734
(c) Assets and liabilities related to contracts with customers
30 June 2019
Revenue recognised that was included in contract liability balance at the beginning of the period
Revenue recognised from performance obligations satisfied in previous periods
-
-
-
-
-
-
$'000
641,984
-
(12,332)
(12,400)
(12,332)
629,584
(11,251)
315,585
(1,081)
313,999
(12,332)
629,584
Total
$'000
27,726
644
33
Service Stream Limited
Notes to the consolidated financial statements
3 Revenue from contracts with customers (continued)
(d) Significant estimates
The Group’s revenue is recognised when and as the control of the goods and services are transferred to its
customers.
Ticket of work services and cost reimbursable contract
Revenue is recognised based on the transaction price as specified in the contract, net of the estimated achievements
of the variable considerations. Judgement is required in determining the Group’s total transaction price. Accumulated
experience is used to estimate and provide for the variable considerations applicable, and revenue is only recognised
to the extent that it is highly probable that a significant reversal will not occur.
Project delivery
Revenue is recognised based on the proportion of contract costs incurred for work performed to date relative to the
estimated total contract costs (percentage of completion method). Judgement is required in determining the Group’s
total progress and total contract costs, net of variable considerations on each project delivery. Accumulated
experience is used to estimate this progress and total contract costs. Revenue is only recognised to the extent that it
is highly probable that a significant reversal will not occur.
No element of financing is deemed present as sales are generally made with credit terms of 30 days, which is
consistent with market practice. The Group’s obligation to warranty claims under the standard warranty terms is
recognised as a provision, see note 16.
4 Other income
Gain on disposal of assets
R&D tax incentives
Insurance claim 1
Write back of contingent consideration 2
Interest revenue
Other
2019
$'000
422
81
-
-
697
19
1,219
2018
$'000
181
165
1,091
1,000
925
-
3,362
1 The insurance claim related to a warehouse incident that occurred in January 2018. The claim was to recover the loss of stock, damage repair
and associated costs, the expense of which was recognised as at 30 June 2018. The claim was subsequently 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 (together TechSafe) 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 was no other contingent consideration as at 30 June
2018.
5 Finance costs
Interest expense: finance lease
Interest expense: borrowings
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
2019
$'000
21
817
51
579
262
1,730
169
1,899
2018
$'000
40
-
5
218
217
480
24
504
34
Service Stream Limited
Notes to the consolidated financial statements
Notes
13
14
14
6 Other expense items
(a) Depreciation and amortisation expense
Depreciation of plant and equipment
Amortisation of software
Amortisation of customer contracts / relationships
(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
(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
Pre-acquisition costs
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
1.000
Less current year tax instalments paid during the year
Net income tax payable
1.000
Effective tax rate
2019
$'000
4,547
4,254
7,425
16,226
10,875
10,875
11,905
7,873
19,778
2019
$'000
22,855
(599)
22,256
2019
$'000
72,115
21,635
(24)
556
-
89
2018
$'000
3,427
4,086
1,932
9,445
9,909
9,909
10,842
6,932
17,774
2018
$'000
14,094
3,071
17,165
2018
$'000
58,272
17,482
(49)
-
(297)
29
22,256
17,165
599
22,855
(15,561)
7,294
(3,071)
14,094
(10,897)
3,197
30.86%
29.46%
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.
35
Service Stream Limited
Notes to the consolidated financial statements
7 Income tax expense (continued)
(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
2019
$'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 / relationships
Other
40
(23,087)
5,667
26
6,128
(410)
(1,353)
878
(12,111)
287
(2,902)
(1,450)
71
2,729
256
2,227
(619)
599
-
-
-
-
2,591
-
-
-
2,591
Opening
balance
Charged to
income
Charged to
equity
-
-
-
-
-
-
-
-
-
227
303
1,566
-
2,043
-
554
(25,686)
5,783
97
13,491
(154)
(23,962)
(23,088)
294
553
(19,529)
(28,450)
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
(9,605)
1,566
(79)
(2,891)
494
580
212
-
-
-
10
864
-
-
-
-
-
-
-
-
(309)
-
-
(3,071)
874
(309)
-
-
-
-
-
-
-
-
-
40
(23,087)
5,667
26
6,128
(410)
(1,353)
878
(12,111)
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.
36
Service Stream Limited
Notes to the consolidated financial statements
7 Income tax expense (continued)
(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 25. 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.
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
2019
Cents per
share
13.09
13.09
2018
Cents per
share
11.29
11.29
12.89
12.89
11.10
11.10
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
2019
$'000
49,859
49,859
1
2019
No.'000
2018
$'000
41,107
41,107
2018
No.'000
380,877
363,952
5,963
6,324
386,840
370,276
37
Service Stream Limited
Notes to the consolidated financial statements
9 Trade and other receivables
Current
1 month
2 months
3 months
Over 3 months
Insurance claim1
Other receivables
Trade
receivables
Expected
credit loss
Total
Trade
receivables
Allowance for
doubtful debt
Total
2019
$'000
45,121
4,058
1,876
1,070
284
52,409
2019
$'000
(27)
(25)
(48)
(88)
(26)
(214)
2019
$'000
45,094
4,033
1,828
982
258
52,195
-
2,190
54,385
2018
$'000
40,723
1,108
229
180
47
42,287
2018
$'000
-
-
-
(89)
(47)
(136)
2018
$'000
40,723
1,108
229
91
-
42,151
1,091
79
43,321
1 The insurance claim related to a warehouse incident that occurred in January 2018. The claim was to recover the loss of stock, damage repair
and associated costs, the expense of which was recognised as at 30 June 2018. The claim was subsequently settled in July 2018.
Trade receivables are amounts due from customers for good sold or services performed in the ordinary course of
business. 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. They are generally due for settlement within 30 days and therefore are all classified as current. Trade
receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant
financing components, when they are recognised at fair value. The Group holds the trade receivables with the
objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the
effective interest method. Details about the Group's impairment policies and the calculation of the loss allowance are
provided in note 22(d).
10 Inventories
Inventories
2019
$'000
8,868
8,868
2018
$'000
3,045
3,045
Inventories recognised as an expense during the year ended 30 June 2019 amounted to $37,196,000 (2018:
$11,138,000). These were included in the raw materials and consumables used line item in the consolidated
statement of profit or loss.
There were no write-downs of
inventories to net realisable value in the current period (2018: $61,000). The
write-downs in the prior period were recognised as an expense and included in the raw materials and consumables
used line in the consolidated statement of profit or loss.
11 Accrued revenue
Accrued revenue
2019
$'000
125,988
125,988
2018
$'000
82,373
82,373
Accrued revenue is defined as a contract asset under AASB 15. The accrued revenue balance represents revenue
which has yet to be invoiced to customers at year-end, due to work not yet reaching a stage where it can be invoiced
and where the Group’s customers require payment claims to be submitted and approved prior to invoices being
issued. The Group adopts the principle consistent with AASB 15 and will not recognise revenue until it is considered
to be highly probable and 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 note 32(e) revenue recognition. Details about the Group's impairment policy and assessment of the loss
allowance are provided in note 22(d).
Accrued revenue has increased by approximately $30.0 million following the acquisition of Comdain Infrastructure,
with the remainder of the increase relating to higher volume of services provided to customers.
38
Service Stream Limited
Notes to the consolidated financial statements
11 Accrued revenue (continued)
The Group is not subject to any significant financing component and the transaction price within the customer
contacts have not been adjusted. The Group has opted to apply the practical expedient available under AASB 15.121
whereby the financing component of the performance obligations are not disclosed further as they have an original
expected duration of one year or less.
12 Other assets
Work in progress
Prepayments
Financing facility establishment costs
Other
13 Plant and equipment
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
1.000
Year Ended 30 June 2019
Opening net book value
Acquisition through business combination
Additions
Disposals 1
Depreciation charge
Closing net book value
1.000
At 30 June 2019
Cost
Accumulated depreciation
Net book value
1 Disposals are net of accumulated depreciation.
2019
$'000
831
5,837
571
251
7,490
2018
$'000
139
2,468
-
162
2,769
Leasehold
improvements
$'000
Plant and
equipment
$'000
Motor vehicles
$'000
Total
$'000
2,588
279
-
(1,588)
1,279
10,376
(9,097)
1,279
1,279
1,075
548
(22)
(1,155)
1,725
11,633
(9,908)
1,725
2,324
1,296
(4)
(1,389)
2,227
18,832
(16,605)
2,227
2,227
8,640
2,998
(8)
(2,393)
11,464
29,854
(18,390)
11,464
945
-
(53)
(450)
442
2,626
(2,184)
442
442
7,452
35
-
(999)
6,930
9,763
(2,833)
6,930
5,857
1,575
(57)
(3,427)
3,948
31,834
(27,886)
3,948
3,948
17,167
3,581
(30)
(4,547)
20,119
51,250
(31,131)
20,119
39
14 Intangible assets
Year Ended 30 June 2018
Opening net book value
Additions
Amortisation charge
Closing net book value
At 30 June 2018
Cost 1
Accumulated amortisation
Net book value
1.000
Year Ended 30 June 2019
Opening net book value
Acquisition through business combinations
Additions
Disposals 2
Amortisation charge
Closing net book value
1.000
At 30 June 2019
Cost 1
Accumulated amortisation
Net book value
Service Stream Limited
Notes to the consolidated financial statements
Software
$'000
Customer
contracts
Customer
relationships
$'000
$'000
Goodwill
$'000
Total
$'000
12,541
6,166
(4,086)
14,621
36,697
(22,076)
14,621
14,621
-
6,287
(46)
(4,254)
16,608
42,937
(26,329)
16,608
6,444
-
(1,932)
4,512
6,899
(2,387)
4,512
4,512
25,310
-
-
(4,945)
24,877
32,209
(7,332)
24,877
-
-
-
-
-
-
-
-
54,562
-
-
(2,480)
52,082
54,562
(2,480)
52,082
129,698
148,683
-
-
6,166
(6,018)
129,698
148,831
129,698
-
173,294
(24,463)
129,698
148,831
129,698
96,247
-
-
-
148,831
176,119
6,287
(46)
(11,679)
225,945
319,512
225,945
-
355,653
(36,141)
225,945
319,512
1 The cost of goodwill represents the net carrying value at balance date.
2 Disposals are net of accumulated amortisation.
(a)
Impairment tests for goodwill
Goodwill is monitored by management at an operating segment level. The goodwill allocation is presented below.
Fixed Communications
Network Construction
Energy & Water
Comdain Infrastructure
(b) Significant estimates
2019
$'000
27,691
43,759
58,248
96,247
2018
$'000
27,691
43,759
58,248
-
225,945
129,698
The Group tests whether goodwill is subject to any impairment on an annual basis. The Group's operating segments
and cash generating unit (CGU) are one and the same. The recoverable amount of a 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 14(c).
(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
forecasts covering a four-year period. These forecasts are based on historical
projections based on financial
performance combined with management’s expectations of future performance based on prevailing and anticipated
market factors.
40
Service Stream Limited
Notes to the consolidated financial statements
14 Intangible assets (continued)
(c) Key assumptions used for value-in-use calculations (continued)
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% (FY18: 12.9%) for Fixed Communications, Network Construction and
Energy & Water and 13.6% for Comdain Infrastructure (FY18: n/a) has been applied in order to discount expected
future cash flows into present-day values.
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 and the forecast compound average annual nominal revenue growth
over the four-year period from a base of FY19 is 6%. 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 and the forecast compound average annual nominal revenue growth over the four-year period from
a base of FY19 is 26%. This assumes existing wireless 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 and the forecast compound average annual nominal revenue
growth over the four-year period from a base of FY19 is 11%. This assumes that customers continue 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.
(iv)
Comdain Infrastructure
The critical cash flow assumption in Comdain Infrastructure is that Service Stream continues to undertake
significant design, maintenance and construction services with its existing and new customers in the gas and
water sectors and the forecast compound average annual nominal revenue growth over the four-year period
from a base of FY19 is 7%. This assumes existing contracts are extended, new contracts are awarded and
margin growth is achieved in the short term with margins remaining stable thereafter.
The Directors and management have considered and assessed reasonably possible changes in the key assumptions
and have not identified any instances that could cause the carrying amount of any CGU to exceed its recoverable
amount.
15 Trade and other payables
Trade creditors1
Sundry creditors and accruals
Goods and services tax payable
Income in advance
2019
$'000
52,723
59,730
6,057
43,227
161,737
2018
$'000
20,521
53,742
2,777
33,434
110,474
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.
Income in advance is defined as contract liabilities under AASB 15. A contract liability pertains to the Group’s
obligation to transfer services to its customer for which it has already received payment. The amounts included in
income in advance reflect a significant portion of the aggregate performance obligation amounts not yet satisfied as at
the end of the reporting period. The Group has opted to apply the practical expedient available under AASB 15.121
whereby the performance obligations are not disclosed further as they have an original expected duration of one year
of less.
Income in advance has predominantly increased following the acquisition of Comdain Infrastructure.
41
16 Provisions
Current
Employee benefits1
Provision for contractual obligations2
Provision for onerous contracts3
Provision for contractual disputes4
Non-current
Employee benefits1
Service Stream Limited
Notes to the consolidated financial statements
2019
$'000
2018
$'000
16,471
11,614
1,866
2,643
32,594
5,785
5,785
9,266
9,845
-
-
19,111
4,393
4,393
38,379
23,504
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.
3 The provision for onerous contracts arises from the Group’s acquisition of Comdain Infrastructure during the year and represents best
estimation on loss-making projects where total cost is expected to exceed total revenue.
4The provision for contractual disputes includes amounts arising from the Group’s acquisition of Comdain Infrastructure during the year and
represents an allowance to settle a number of contractual matters with customers and major subcontractors.
The Group does not offer its customers the option to purchase warranties as a separate service. Warranties simply
relate to rectifications and rework performed on completed services. In line with the prior period, these assurance-type
warranties are accounted for in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets
and are disclosed within the provision for contractual obligations in the note of the financial statement.
(a) Movement in provision
Balance at 1 July 2018
Acquired through business combination
Additional provisions reclassified from sundry creditors and accruals
Charged / (credited) to profit or loss
Additional provisions recognised
Unused amounts reversed
Amounts used during the year
Balance at 30 June 2019
(b) Significant estimates
Contractual
obligations
$'000
Onerous
contracts
$'000
Contractual
disputes
$'000
9,845
823
-
2,370
(1,424)
-
11,614
-
2,542
-
-
-
(676)
1,866
-
1,225
648
770
-
-
2,643
Management estimates the provision for future claims based on the value of work historically performed and the
claims of any on-going disputes. 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.
17 Contributed equity
Fully paid ordinary shares
Treasury shares
1.000
Number of shares
Share capital
2019
No.'000
401,620
-
401,620
2018
No.'000
360,210
(5,322)
354,888
2019
$'000
297,757
-
297,757
2018
$'000
225,144
(7,863)
217,281
42
17 Contributed equity (continued)
(a) Fully paid ordinary shares
Balance at 1 July 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
Issue of shares
Dividend reinvestment plan
Consideration for business combination (net of transaction costs)
Balance at 30 June 2019
Service Stream Limited
Notes to the consolidated financial statements
Number of
shares
'000
365,189
(4,979)
-
-
Share
capital
$'000
233,151
(7,995)
(18)
6
360,210
225,144
1,006
215
40,189
1,777
473
70,363
401,620
297,757
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 24.
(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 2017
Acquisition of treasury shares (average price: $1.47 per share)
Shares issued under employee share schemes
Balance at 30 June 2018
Acquisition of treasury shares (average price: $1.77 per share)
Shares issued under employee share schemes
Balance at 30 June 2019
Number of
shares
'000
Share
capital
$'000
-
(12,690)
7,368
(5,322)
(1,006)
6,328
-
-
(18,597)
10,734
(7,863)
(1,777)
9,640
-
18 Dividends
Recognised amounts
Fully paid ordinary shares
Interim dividend
Unrecognised amounts
Fully paid ordinary shares
Final dividend 1
1 The FY18 final fully-franked dividend was paid on 27 September 2018.
2019
Cents per
share
2018
Cents per
share
3.50
3.50
3.00
3.00
2019
Cents per
share
2018
Cents per
share
2019
$'000
2018
$'000
14,049
14,049
2019
$'000
10,820
10,820
2018
$'000
5.50
5.50
4.50
4.50
22,089
22,089
16,242
16,242
43
Service Stream Limited
Notes to the consolidated financial statements
18 Dividends (continued)
In respect of current year's earnings, an interim dividend of 3.50 cent per share franked to 100% at 30% corporate
income tax rate was paid to the holders of fully paid ordinary shares on 21 March 2019. In addition, on 20 August
2019, the Directors declared a fully-franked final dividend of 5.50 cents per share to the holders of fully paid ordinary
shares in respect of the financial year ended 30 June 2019, to be paid to shareholders on 2 October 2019. 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 17 September 2019 and the total dividend estimated to be paid in
respect of the current shares on issue is $22,089,095.
Adjusted franking account balance as at 30 June
19 Lease arrangements
(a) Finance lease commitments
Company
2019
$'000
19,495
2018
$'000
13,718
The Group leases various plant and equipment and software with a carrying amount of $288,000 (2018: $657,000)
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.
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
(b) Operating lease commitments
2019
$'000
2018
$'000
293
-
293
(5)
288
288
-
288
391
293
684
(27)
657
369
288
657
The Group leases a number of motor vehicles and premises throughout Australia. 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
to rental
adjustments in line with movements in the Consumer Price Index or market rentals.
these agreements are subject
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
20 Business combinations
(a) Summary of acquisition
2019
$'000
9,671
21,449
2,033
33,153
2018
$'000
8,851
18,113
5,818
32,782
On 2 January 2019 (Transaction Date),
the issued share capital of Comdain
Infrastructure Pty Ltd and Ayrab Pty Ltd and 100% of the issued units of the Ayrab Unit Trust (together Comdain
Infrastructure) under the terms of a Share and Unit Sale Deed (SUSD).
the Group acquired 100% of
Comdain Infrastructure provides a wide range of operations, maintenance, design and construction services to gas
and water network owners and operators in Australia. The business’ service capabilities include network assurance;
asset upgrades and replacement; engineering, design and construction of network assets; as well as specialist
electrical and mechanical instrumentation services.
44
Service Stream Limited
Notes to the consolidated financial statements
20 Business combinations (continued)
(a) Summary of acquisition (continued)
The acquisition provides further diversification to the Group’s revenue stream and Comdain Infrastructure’s service
offering is highly complementary to the Group’s Energy & Water business, strengthening the Group's market position
in the utilities sector.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Cash consideration paid
Ordinary shares issued
Total purchase consideration
Assets and liabilities acquired
Cash and cash equivalents
Trade and other receivables
Accrued revenue
Inventories
Other assets
Plant and equipment
Customer contracts / relationships
Trade and other payables
Provisions
Current tax liabilities
Deferred tax asset
Deferred tax liability on customer contracts / relationships
Net identifiable assets acquired
Add: goodwill
Net assets acquired
Fair value at
2 Jan 2019
$'000
82,789
70,422
153,211
Fair value at
2 Jan 2019
$'000
37
23,489
27,795
1,997
2,086
17,167
79,872
(61,550)
(11,493)
(2,907)
4,433
(23,962)
56,964
96,247
153,211
The accounting for the acquisition is provisional and will be finalised in the next accounting period. In completing the
purchase price allocation, management has been required to make judgements relating to the fair value of assets and
liabilities, in particular the valuation of certain liabilities.
(i)
Cash consideration
Cash consideration comprised $91,690,154 paid on the Transaction Date net of a refund of ($8,901,391)
received in June 2019 arising from Working Capital and Income Tax Liability adjustments in accordance with
the relevant mechanisms prescribed in the SUSD.
(ii)
Ordinary shares issued
40,189,126 ordinary shares were issued to the sellers of Comdain Infrastructure as scrip consideration,
determined by dividing $68,000,000 by $1.6920 per share in accordance with the relevant mechanisms
prescribed in the SUSD.
The value ascribed to these ordinary shares for the purpose of the purchase consideration is $70,422,039
based on a share price of $1.7523 being the volume-weighted average price of Service Stream’s ordinary
shares on the Transaction Date.
(iii)
Acquired receivables
The fair value of acquired trade receivables is $23,334,000. The gross contractual amount
receivables due is $23,941,000, of which $607,000 is expected to be uncollectible.
for trade
(iv)
Revenue and profit contribution
Comdain Infrastructure contributed revenues of $160,222,000, EBITDA of $11,118,270 and profit before tax
of $3,442,485 to the Group from the Transaction Date to 30 June 2019.
45
Service Stream Limited
Notes to the consolidated financial statements
20 Business combinations (continued)
(a) Summary of acquisition (continued)
If the acquisition had occurred on 1 July 2018, consolidated pro-forma revenue and profit for the year ended
30 June 2019 would have been revenues of approximately $340,000,000, EBITDA of approximately
$18,900,000 and profit before tax of approximately $3,410,000 respectively. These amounts have been
calculated using Comdain Infrastructure’s results and adjusting them for:
•
•
•
differences in the accounting policies between the group and the acquired subsidiaries,
an estimate of the additional depreciation and amortisation that would have been charged assuming
the fair value adjustments to plant and equipment and intangible assets had applied from 1 July 2018,
and
an estimate of the additional amortisation of customer contracts and customer relationships that would
have been charged from 1 July 2018.
(v)
Acquisition-related costs
Acquisition-related costs of $2,473,000 are included in the consulting and temporary staff as well as in the
employee salaries and benefits fees line item in the consolidated statement of profit or loss and in operating
cash flows within the statement of cash flows.
(b) Purchase consideration - cash outflow
Cash outflow with respect to the acquisition
Cash consideration paid
Less: Cash acquired
Net outflow of cash - investing activities
There were no acquisitions in the year ending 30 June 2018.
21 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
Increase / (decrease) in tax balances & other tax adjustments
1
Movement in working capital:
Decrease in trade and other receivables
Increase in accrued revenue
(Increase) / decrease in other assets
(Increase) / decrease in inventories
(Decrease) / increase in trade and other payables
Increase in provisions
Decrease in lease incentives
Net cash inflow from operating activities
(c) Debt reconciliation
Borrowings
Finance lease
Debt as at 30 June
2019
$'000
82,789
(37)
82,752
2018
$'000
73,698
73,698
2018
$'000
41,107
(181)
(165)
9,445
6,932
(3,478)
5,600
(11,529)
235
521
27,748
4,176
(734)
79,677
2019
$'000
60,000
288
60,288
46
2019
$'000
70,809
70,809
2019
$'000
49,859
(409)
(81)
16,226
7,873
3,546
12,425
(15,820)
(2,635)
(3,826)
(10,286)
3,382
(731)
59,523
2018
$'000
-
657
657
Cash flows
60,000
(369)
59,631
Service Stream Limited
Notes to the consolidated financial statements
22 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 Board on a regular basis.
(b) Categories of financial instruments
Financial assets at amortised cost
Cash and cash equivalents
Accrued revenue
Trade and other receivables
Financial liabilities at amortised cost
Finance lease
Borrowings
Trade and other payables
2019
$'000
2018
$'000
70,809
125,988
54,385
251,182
288
60,000
161,737
222,025
73,698
82,373
43,321
199,392
657
-
110,474
111,131
The Group 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 its floating rate
borrowings and short-term cash investment activities.
The Group has managed its interest rate risk during the year in part 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 net cash balance
at 30 June 2019,
to a $105,210 per annum
unfavourable impact to profit before tax (2018: $736,975 unfavourable).
the Group’s sensitivity to interest rate risk would be equivalent
(d) Credit risk management
Credit risk of the Group arises predominately from outstanding receivables and unbilled accrued revenue to its
customers. Refer below for details of the Group's impairment of financial assets assessment.
The Group will not recognise revenue until it is considered to be highly probable. Historically unbilled accrued revenue
leads to a high level of recoverability.
Receivable balances are monitored on an ongoing basis and the Group has a policy of only dealing with creditworthy
counterparties and where appropriate, obtaining 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.
Impairment of financial assets
The Group has two types of financial assets that are subject to the expected credit loss model:
•
•
Trade receivables; and
Accrued revenue (contract assets) relating to its customer contracts.
While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the expected credit loss
is immaterial.
47
Service Stream Limited
Notes to the consolidated financial statements
22 Financial instruments (continued)
(d) Credit risk management (continued)
Trade receivables and contract assets
The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and contract assets.
The expected loss rates on trade receivables are based on the payment profiles of sales over a period of 12 months
and the corresponding historical credit losses experienced within this period.
When applying the impairment requirements of AASB 9 to contract assets, the Group recognises that the aging of
accrued revenue is not indicative of its recoverability profile, rather the ability to complete work in progress and/or
pending customers' approval
the Group
assessed that the accrued revenue balance carries a similar expected loss profile as those trade receivables aged as
current. Applying the associated expected loss rate to the accrued revenue balance results in an immaterial
impairment loss.
in order to invoice. Under the expected credit
loss principle adopted,
On that basis, the loss allowance as at 30 June 2019 was determined as follows.
30 June 2019
Expected loss rate
Gross carrying amount - trade receivables
Less allowance
Current
$'000
> 30 days
$'000
> 60 days
$'000
> 90 days
$'000
> 120 days
$'000
0.06%
45,121
27
0.61%
4,058
25
2.55%
1,876
48
8.19%
1,070
88
9.19%
284
26
The closing loss allowances for trade receivables as at 30 June 2019 reconcile to the opening loss allowances as
follows:
Opening balance1
Additional provision recognised
Receivables written off during the year as uncollectible
Unused amount reversed
Closing balance
2019
$'000
136
166
(38)
(51)
214
1 No change was recognised on the allowance opening balance upon adoption of AASB 9, refer to note 32(a).
(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
overdraft facilities and syndicated funding lines.
Included in note 22(e)(ii) are details of the financing facilities available to the Group at 30 June 2019.
48
Service Stream Limited
Notes to the consolidated financial statements
22 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
-
2.06%
-
(288)
(60,000)
(161,737)
(288)
(62,349)
(161,737)
(191)
(3,618)
(161,737)
(97)
(6,572)
-
-
(12,958)
-
-
(39,201)
-
-
(222,025)
(224,374)
(165,546)
(6,669)
(12,958)
(39,201)
-
-
-
(657)
(110,474)
(657)
(110,474)
(183)
(110,474)
(111,131)
(111,131)
(110,657)
(186)
-
(186)
(288)
-
(288)
-
-
-
Term loan
Bank guarantees
Bank overdraft
Cash advance
$'000
$'000
$'000
$'000
60,000
-
60,000
-
-
-
42,525
17,475
60,000
19,319
10,681
30,000
-
40,000
40,000
-
5,000
5,000
-
30,000
30,000
-
25,000
25,000
2019
Financial liabilities
Finance lease
Borrowings
Trade and other payables
1.000
2018
Financial liabilities
Finance lease
Trade and other payables
(ii) Financing facilities
Amount used
Amount unused
Balance at 30 June 2019
1.000
Amount used
Amount unused
Balance at 30 June 2018
The Group's financing facilities are due to expire on 30 September 2021.
Under the terms of the Group’s Syndicated Facility Agreement, the term loan is required to be repaid by $3.0 million at
the end of each calendar quarter, except that no repayment is required at the end of a calendar quarter where the
most recent compliance certificate reports that the Group's net leverage ratio is less than a specified hurdle. The net
leverage ratio per the compliance certificate as at 30 June 2019 was less than the specified hurdle meaning that no
repayment will be required at 30 September 2019. Under the Interpretation of AASB 101 Presentation of Financial
Statements, the Group does not have the unconditional right to defer payment of these quarterly instalments, and has
therefore classified the $9.0 million aggregate pertaining to the subsequent three calendar quarter-ends over the next
12 months as current borrowings.
Financial guarantees provided in the normal course of business are shown above. Based upon current expectations
as at 30 June 2019, the Group considers that it is more likely than not that such amounts will not be payable under
these arrangements.
49
Service Stream Limited
Notes to the consolidated financial statements
23 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.
The Group is subject
to various financial debt covenants under its Syndicated Facilities Agreement regarding
minimum levels of equity, gearing, fixed charge cover and borrowing base; all of which are regularly monitored and
reported upon. The Group has complied with the financial debt covenants of its borrowing facilities during the 2019
and 2018 financial reporting periods.
24 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 2019 (FY19). 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
FY17 1
3 years
FY18 2
3 years
FY19 3
3 years
September 2019
September 2020
September 2021
1 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.
2 The FY18 LTIP targets, from base of 7.78 cps are: Year 1: 8.56 cps, Year 2: 12.42 cps, Year 3: 14.40 cps.
3 The FY19 LTIP targets, from base of 11.29 cps are: Year 1: 12.42 cps, Year 2: 14.40 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
50
Service Stream Limited
Notes to the consolidated financial statements
24 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
FY17 LTIP
853,073
14 September 2016
FY18 LTIP
665,889
14 September 2017
FY19 LTIP
812,893
21 September 2018
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
Relative TSR hurdle - 81.8 cps September 2021 1 July 2018 -
30 June 2021
EPS hurdle - 139.1 cps
Fair value of performance rights
The FY19 LTIP performance rights with the relative TSR hurdle vesting condition have been valued by an
independent expert using a Monte-Carlo simulation. The FY19 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
FY17 LTIP
FY18 LTIP
FY19 LTIP
Share price at
grant date
Expected
life
Volatility
Risk-free
interest rate
Dividend yield
Vesting date
$0.850
$1.480
$1.774
2.87 years
2.87 years
2.87 years
50%
45%
35%
1.37%
1.91%
2.06%
4.00%
4.80%
5.90%
September 2019
September 2020
September 2021
51
Service Stream Limited
Notes to the consolidated financial statements
24 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
2019
2018
Number of
rights
Grant date
weighted avg FV
$
Number of
rights
Grant date
weighted avg FV
$
3,130,497
836,231
(1,548,419)
(86,454)
2,331,855
0.538
1.104
0.243
0.893
0.924
4,562,526
767,765
(1,930,951)
(268,843)
3,130,497
0.290
1.091
0.162
0.609
0.538
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 FY17 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 FY19 financial statements.
As at 30 June 2019, 812,893 performance rights granted under the FY17 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
(FY19 Tranche) and one year (FY18 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 forfeited their entitlement to participate in both the
LTIP and the Short Term Incentive Plan (STIP). ESBIP operated 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 was 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 set out their rights and obligation under the plan, and provided
details regarding the number of rights that would 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 would convert into one ordinary share of Service
Stream Limited on vesting. No amounts were paid or payable by the participant on receipt of the performance rights,
and the performance rights carried neither rights to dividends nor voting rights.
The FY19 ESBIP performance rights were subject to service and performance criteria being:
A
B(i)
B(ii)
The participant must have been an employee at the latter of the date on which the Company released its
results for the financial year ending 30 June 2019 or otherwise determined that the vesting conditions have
been satisfied; and
at least 10% growth in earnings per share (EPS) for the performance period was 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)
FY19
1 year to 30 June 2019
20 August 2019
30 June 2021
11.29
Performance rights will vest to the extent that the participant remained employed by the Company on the vesting date
and to the extent that the Company’s performance over the relevant period satisfied the vesting conditions.
52
Service Stream Limited
Notes to the consolidated financial statements
24 Share-based payments (continued)
(b) Executive Share-based Incentive Plan (ESBIP) (continued)
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
FY19 ESBIP
4,500,000
31 August 2018
148.7 cps
20 August 2019
1 July 2018
Fair value of ESBIP performance rights
The FY19 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
Share price at
grant date
Expected
life
Volatility
Risk-free
interest rate
Dividend yield
Vesting date
FY19 ESBIP
$1.757
0.87 years
35%
1.54%
5.28%
20 August 2019
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
2019
2018
Number of
rights
Grant date
weighted avg FV
Number of
rights
Grant date
weighted avg FV
4,500,000
4,500,000
(4,500,000)
4,500,000
1.326
1.487
1.326
1.487
5,150,000
4,500,000
(5,150,000)
4,500,000
0.825
1.326
0.825
1.326
Included in the balance as at 30 June 2019 are rights which have reached their vesting date and both the service and
performance criteria 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 FY19 financial statements.
53
25 Subsidiaries
Details of the Company’s subsidiaries at 30 June 2019 are as follows:
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)
Service Stream Nominees Pty Ltd (ii) (iii) (iv)
Service Stream Operations Pty Ltd (ii) (iii)
TechSafe Australia Pty Ltd (ii) (iii) (iv)
TechSafe Management Pty Ltd (ii) (iii) (iv)
Ayrab Pty Ltd (ii) (iii) (iv)
Comdain Infrastructure Pty Ltd (ii) (iii) (iv)
Comdain Civil Constructions Pty Ltd (ii) (iv)
Comdain Civil Constructions (QLD) Pty Ltd (ii) (iv)
Comdain Services Pty Ltd (ii) (iv)
Comdain Asset Management Pty Ltd (ii) (iv)
Comdain Gas (Aust) Pty Ltd (ii) (iv)
Comdain Services (AMS) Pty Ltd (ii) (iv)
Comdain Corporate Pty Ltd (ii) (iv)
Comdain Assets Pty Ltd (ii) (iv)
Service Stream Limited
Notes to the consolidated financial statements
Country of
incorporation
Ownership interest
2019
%
2018
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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.
26 Deed of cross guarantee
The parties to a deed of cross guarantees for the Group as listed in note 25 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.
54
Service Stream Limited
Notes to the consolidated financial statements
27 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) Key management personnel compensation
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
2019
$
3,171,193
156,342
71,230
4,549,607
7,948,372
2018
$
2,641,617
144,057
47,884
4,061,041
6,894,599
1 The fair value of performance rights issued under the ESBIP and LTIP, allocated on a pro-rata basis to the current financial year.
The compensation of each member of the key management personnel of the Group is set out in the remuneration
report.
(b) Other transaction with key management personnel of the Group
During the period, Tom Coen had a beneficial interest in three of the commercial properties and Peter Coen had a
beneficial interest in one commercial property that the Group occupied. Total rental income paid to the landlord is
approximately $367,500 across the three premises (2018: nil). The terms of the lease have been reviewed and are at
arm’s length.
28 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 32
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
Non-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 income
2019
$'000
73
256,318
256,391
1,395
-
1,395
2018
$'000
49
169,821
169,870
3,415
-
3,415
254,996
166,455
276,221
2,475
(23,700)
254,996
203,609
(6,212)
(30,942)
166,455
2019
$'000
37,519
37,519
2018
$'000
43,814
43,814
55
Service Stream Limited
Notes to the consolidated financial statements
28 Parent entity information (continued)
(c) Determining the parent entity financial information
(i)
Investment in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of Service Stream Limited.
Dividends received from associates are recognised in the parent entity's profit or loss when its right to receive
the dividend is established.
(ii)
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 25 and 26, and the
parent entity guarantees to certain clients in relation to subsidiary contract performance obligations.
(iii)
Share-based payments
The grant by the Company of shares over its equity instruments to the employees of subsidiary is treated as
a capital contribution to that subsidiary. The fair value of employee services received, measured by reference
to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary
undertakings, with a corresponding credit to equity.
29 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.
30 Events after the reporting period
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.
31 Remuneration of auditors
Audit and review of the financial report
Review of income tax return
Services relating to the acquisition of Comdain Infrastructure
Review of executive long-term incentive plan
Tax advice and other services
2019
$
682,000
21,000
144,000
60,180
25,000
932,180
2018
$
315,000
27,000
-
-
59,640
401,640
The auditor of Service Stream Limited is PricewaterhouseCoopers.
32 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, except for the change in
accounting requirements of AASB 9 and AASB 15, which is effective from 1 July 2018. 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 20 August 2019.
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.
56
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(a) Basis of preparation (continued)
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:
•
•
Instruments. This Standard replaces AASB 139 Financial
AASB 9 Financial
Instruments: Recognition and
Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments,
including a new expected credit loss model for calculation of impairment on financial assets. It also carries
instruments from AASB 139. The Group has
forward guidance on recognition and de-recognition of financial
applied AASB 9 retrospectively, but has elected not
the
comparative information provided continues to be accounted for in accordance with the Group's previous
accounting policy.
to restate comparative information. As a result,
To assess for any expected credit losses under AASB 9, there is consideration around the probability of default
upon initial recognition of the asset, the subsequent consideration as to whether there have been any significant
increases in credit risk on an ongoing basis at each reporting period. To assess whether there is a significant
increase in credit risk the Group compares the risk of a default occurring on the asset as at the reporting date with
the risk of default as at the date of initial recognition. There were no adjustments recognised upon transition.
AASB 15 Revenue from Contracts with Customers replaces AASB 118 and is based on the principle that revenue
is recognised when control of a good or service transfers to a customer. The Group adopted the new accounting
standard in the financial year using the modified retrospective approach. There were no adjustments recognised
upon transition.
Management has undertaken 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, Energy & Water and Comdain Infrastructure 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 15,
and AASB 118. The key revenue types that were assessed under AASB 15 for each of the Group's operating
segments were as follows:
(a) 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.
(b) Network Construction provides turnkey services associated with engineering, design and construction
in the telecommunication sector. Key revenue components include design, construction and overhead
allowances.
(c) Energy and Water provides a range of new energy services, meter
inspection and
compliance services to electricity networks owners and regulators. Key revenue components include
ticket of work and minor projects.
reading,
(d) Comdain Infrastructure provides a wide range of operations, maintenance, design and construction
services to gas and water network owners and operators in Australia. Key revenue components
include ticket of work, design and construction projects and cost reimbursement contracts.
Early adoption of standards
The Group has not elected to early adopt the Standards and Interpretations issued but not yet effective. Refer to note
32(z).
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 33.
57
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(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 impairment of the asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Group.
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 generating unit (or groups of cash generating units). An impairment
is
recognised 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 determined based on the nature of the business activities undertaken by the Group and by
reference to the structure of 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. Where
operating segments have been assessed as bearing similar economic characteristics and being similar in terms of
each of the aggregation criteria set out in AASB 8 Operating Segments including the nature of services, the type of
customers and the method by which services are provided, they may be aggregated into a single reportable segment.
Details of the Group’s segment reporting is set out in note 2.
(e) Revenue recognition
The Group has four distinct revenue streams, being (i) revenue from the provision of ticket of work services, (ii)
revenue from the delivery of projects, (iii) revenue from cost reimbursable contract and (iv) revenue from overhead
recovery.
Ticket of work services
Ticket of work services are repetitive, high volume tasks performed by the Group such as the provision of:
•
•
•
•
operations and maintenance services to the owners and operators of
networks including customer connections and service assurance;
telecommunications, gas and water
specialist metering, in-home and new energy services in respect of electricity, gas and water networks;
inspection, auditing and compliance services to electricity network owners and regulators, government entities
and electrical contractors; and
contact centre services and workforce management support for key contracts.
58
32 Significant accounting policies (continued)
(e) Revenue recognition (continued)
The benefits provided to customers under this category of work type do not transfer to the customer until the
completion of the service and as such revenue is recognised upon completion (At point in time).
Service Stream Limited
Notes to the consolidated financial statements
Project delivery
Project works relate primarily to:
•
turnkey services associated with the engineering, design and construction of
infrastructure projects in the
telecommunications and utilities sectors. Service capability includes program management, site acquisition, town
for projects in wireless and fixed-line
planning, design, engineering and construction management
telecommunications networks, and gas and water utilities networks; and
• minor work services such as asset remediation, augmentation and relocation.
The benefits provided to customers under this category of work transfer to the customer as the work is performed and
as such revenue is recognised over the duration of
the project based on percentage complete. The Group’s
performance obligation is fulfilled over time and as such revenue is recognised over time (Over time).
Percentage complete is measured according to the proportion of contract costs incurred for work performed to date
relative to the estimated total contract costs, except where this would not be representative of the stage of completion.
Where this is the case, stage of completion is measured on a milestone basis.
As work is performed on the assets being constructed they are controlled by the customer and have no alternative
use to the Group, with the Group having a right to payment for performance to date. Project revenue earned is
typically invoiced monthly or in some cases on achievement of milestones. Invoices are paid on standard commercial
terms, which may include the customer withholding a retention amount until finalisation of the construction.
Where recognised project revenues exceed progress billings, the surplus is shown in the consolidated balance sheet
as an asset, under accrued revenue. Where progress billings exceed recognised revenues, the surplus is shown 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.
When it is probable that total contract costs will exceed total contract revenue, the expected loss (onerous) is
recognised as an expense and provisions as set out in note 16.
Cost reimbursable
The Group recognises revenue (and its associated margins) on all direct, indirect and overhead related costs, as
prescribed under the cost reimbursable contract.
The work performed has no alternative use for the Group and there is an enforceable right to payment, including a
profit margin, when the costs are incurred, as such revenue is recognised over time (Over time).
Overhead recovery
Certain customer contracts allow for the recovery of specified overhead costs.
The benefits provided to the customer under this revenue stream are simultaneously received and consumed by the
customer and as such revenue is recognised over the period the services are provided (Over time).
Variable consideration
It is common for contracts to have variable considerations such as variations, performance bonuses or penalties and
other performance constraints related KPIs. The expected value of revenue is only recognised when the uncertainty
associated with the variable consideration is subsequently resolved, or when it becomes highly probable. The Group
assesses the variable consideration to be included in the transaction price periodically. This assessment involves
judgements and is based on all available information including historical performance and any variations that are
entered into.
Contract assets and liabilities
AASB 15 uses the terms 'contract asset' and 'contract liability' to describe what is commonly known as 'accrued
revenue' and 'income in advance'. Trade receivable represent receivables in respect of which the Group's right to
consideration is unconditional subject only to the passage of time. Contract assets represent the Group's right to
consideration for services provided to customers for which the Group's right remains conditional on something other
than the passage of time. Contract liabilities arise where payment is received prior to the work being performed.
Contract assets and contract liabilities are recognised and measured in accordance with this accounting policy.
59
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(e) Revenue recognition (continued)
Contract fulfilment costs
Costs incurred prior to the commencement of a contract may arise due to mobilisation/site set-up costs, feasibility
studies, environmental impact studies and preliminary design activities as these are costs incurred to fulfil a contract.
Where these costs are expected to be recovered, they are capitalised and amortised over the course of the contract
consistent with the transfer of service to the customer. Where the costs, or a portion of
these costs, are
reimbursement by the customer, the amount received is recognised as deferred revenue and allocated to the
performance obligations within the contract and recognised as revenue over the course of the contract.
Financing components
The Group does not expect to have any contracts where the period between the transfer of the promised goods or
services to the customer represents a financing component. As a consequence, the Group does not adjust any of the
transaction prices for the time value of money.
Warranties and defect periods
Construction and services contracts generally include defect and warranty periods following completion of the project.
These obligations are not deemed to be separated performance obligations and therefore estimated and included in
the total costs of the contracts. Where required, amounts are recognised accordingly in line with AASB 137 Provision,
Contingent Liabilities and Contingent Assets.
Revenue in the comparative period is recognised when the amount of revenue can be reliably measured and when it
is probable that the future economic benefit will flow to the entity. The Group base its estimates on historical results,
taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Revenue from construction contracts in the comparative period is recognised in accordance with the accounting policy
set out in note 32(f).
(f) Revenue accounting policies applied until 30 June 2018
(i) 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 below.
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.
(ii) 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.
60
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(f) Revenue accounting policies applied until 30 June 2018 (continued)
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.
(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 lower of the lease’s fair value at inception or 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
Equity-settled share-based payments to executives and Directors are measured at the fair value of the equity
instrument at the grant date. Details regarding the determination of the fair value of the equity instruments are set out
in note 24.
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.
61
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(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.
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.
62
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(k) Business combinations (continued)
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 liabilities 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.
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: 4 - 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 and customer relationships acquired in a business combination are initially recognised at their fair
value at the acquisition date, which is regarded as their cost.
Software, customer contracts and customer
accumulated amortisation and any impairment losses.
relationships have finite lives and are carried at cost
less any
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 1 to 11 years for customer contracts and 11 years for customer relationships.
(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.
63
32 Significant accounting policies (continued)
(n) Impairment of tangible and intangible assets excluding goodwill (continued)
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.
Service Stream Limited
Notes to the consolidated financial statements
In assessing
The recoverable amount
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
(i) Classification
From 1 July 2018, the Group classifies its financial assets and liabilities in the following measurement categories:
those to be measured subsequently at fair value (either through OCI or through profit or loss), and
those to be measured at amortised cost.
•
•
The classification depends on the entity’s business model for managing the financial assets and liabilities and the
contractual terms of the cash flows.
For assets and liabilities measured at fair value, gains and losses will either be recorded in profit or loss or OCI.
(ii) Recognition and derecognition
Commonly purchases and sales of financial assets are recognised on trade-date, the date on which the Group
commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or have been transferred and the Group has transferred substantially all the risks
and rewards of ownership.
(iii) Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at
fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit
or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at
FVOCI are not reported separately from other changes in fair value.
(iv) Impairment
From 1 July 2018, the Group assesses, on a forward-looking basis, the expected credit losses associated with its
financial assets carried at amortised cost and FVOCI. The impairment methodology applied depends on whether
there has been a significant increase in credit risk.
64
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(q) Financial instruments (continued)
(iv) Impairment (continued)
For trade receivables and contracts assets, the group applies the simplified approach permitted by AASB 9, which
requires expected lifetime losses to be recognised from the date of initial recognition, see note 22(d) for further
details.
(v) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid
on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the
extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised
as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled
or expired. The difference between the carrying amount of a financial
liability that has been extinguished or
transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities
assumed, is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
(vi) Accounting policies applied until 30 June 2018
The Group has applied AASB 9 retrospectively, but has elected not to restate comparative information. As a result,
the comparative information provided continues to be accounted for in accordance with the Group’s previous
accounting policy.
Classification
Until 30 June 2018, the Group classified its financial assets and liabilities in the following categories:
•
•
•
financial assets at fair value through profit or loss,
loans and receivables, and
available-for-sale financial assets.
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, a shorter period, to the net
carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as
at FVTPL.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an
active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment. Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the recognition of interest would be immaterial.
65
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(q) Financial instruments (continued)
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.
(vii) 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 amount of the obligation under the contract, as determined in accordance with AASB 137 Provisions,
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
financial liabilities.
liabilities are classified as either financial
liabilities at fair value through profit or loss (FVTPL) or other
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial
interest expense recognised on an effective yield basis.
liabilities are subsequently measured at amortised cost using the effective interest method, with
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs.
To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
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
66
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(r) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, less loss allowance. See note 9 for further information about the Group's accounting for
trade receivables and note 22(d) for an assessment of the Group's impairment methodology.
(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 Group'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.
(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.
67
Service Stream Limited
Notes to the consolidated financial statements
32 Significant accounting policies (continued)
(x) Earnings per share (continued)
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 16 Leases (effective from annual reporting period beginning on or after 1 January 2019).
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 2019, the Group had non-cancellable operating lease
commitments of $33.2 million as disclosed in note 19 of the financial statements.
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.
If AASB 16 was adopted from 1 July 2018 and the cost model was applied subsequently:
•
•
EBITDA would have increased by approximately $10.1 million due to lower lease charges to motor
vehicle expense and occupancy expense, whilst Depreciation would have increased by approximately
$10.0 million and Interest Expense would have increased by approximately $1.1 million, resulting in a
minor adverse impact to net profit before tax and earnings per share; and
Leasehold assets on the balance sheet as at 30 June 2019 would have increased by approximately
$30.2 million representing the present value of the Group’s motor vehicle and property leases, with
lease liabilities increasing by approximately $31.2 million.
33 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 32.
The areas involving a higher degree of judgement or estimates are:
•
•
•
•
•
Recognition of revenue from contracts with customers - note 3(d);
Estimation of current tax payable and deferred tax balances - note 7(e);
Testing of goodwill for impairment - notes 14(b) and 14(c);
Estimation of provision for contractual obligations, contractual disputes and onerous contracts - note 16(b); and
Estimation of fair value of assets and liabilities in business combination - note 20(a).
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.
68
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 2019 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 25 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 26.
Note 32 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
20 August 2019
Leigh Mackender
Managing Director
20 August 2019
69
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)
(b)
giving a true and fair view of the Group's financial position as at 30 June 2019 and of its
financial performance for the year then ended
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 2019
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive income 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.
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.
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.
Materiality
For the purpose of our audit we used overall Group materiality of $3.61 million, which represents
approximately 5% of the Group’s profit before tax.
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 chose Group profit before tax because it is a generally accepted benchmark for profit making companies.
We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit Scope
The Group operates across Australia in its key operating segments being Fixed Communications, Network
Construction, Energy & Water and Comdain Infrastructure, 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 Queensland.
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
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. We communicated the key audit matters to the
Audit and Risk Committee.
Key audit matter
How our audit addressed the key audit matter
Goodwill impairment assessment
(Refer to note 14) $225.9 million
The Group’s goodwill is required by Australian
Accounting Standards to be tested annually for
impairment at the cash generating unit (CGU) level.
The CGUs which have goodwill allocated are: Fixed
Communications ($27.7 million), Network
Construction ($43.8 million), Energy & Water ($58.2
million) and Comdain Infrastructure ($96.2 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.
Discounted cash flow models (the impairment models)
are used by the Group to assess potential impairment
in each CGU. The recoverable amount is estimated
using a four year forecast based on the Board approved
business plan for Fixed Communications, Network
Construction, Energy & Water and Comdain
Infrastructure. The significant estimates relate to
revenue and EBITDA assumptions along with the
discount rate applied to the forecast cash flows within
the model.
We assessed whether the Group’s identification of
CGUs was consistent with our knowledge of the
operations, internal reporting lines and the level of
integration of the newly acquired business.
We compared the FY19 forecast with the actual
FY19 results to assess the accuracy of forecasting.
Where there were any deviations from forecast, we
assessed how these were considered in forecasts
used in the impairment models.
We checked that the four year forecasts used in the
impairment models were based on the Board
approved business plan.
We assessed the assumptions and methodology
used in the impairment models, in particular,
those relating to revenue, EBITDA and discount
rates. To do this we:
o
assessed the discount rate adopted with the
assistance of PwC valuation experts;
evaluated the underlying cash flow
assumptions in the impairment models 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; and,
considered the sensitivity of the calculations
by varying key assumptions within a
reasonably possible range.
o
o
o
We considered the adequacy of the Group’s
disclosures on goodwill impairment.
Key audit matter
How our audit addressed the key audit matter
Revenue recognition
(Refer to note 3 and 32 (e)) $851.0 million
The Group adopted a new revenue accounting policy
during the year due to the mandatory introduction of
Accounting Standard AASB 15 Revenue from Contracts
with Customers. The new policy is disclosed in Note 32
(e).
Revenue from provision of ticket of work services
involves a high volume of transactions and is
recognised once services or activities have been
completed.
Revenue recognition in relation to the delivery of
projects is complex because it is based on the Group’s
estimates of:
the stage of completion of the contract activity;
total forecast contract revenue and costs;
the probability of customer approval of variations
and claims; and,
project completion dates.
This is a key audit matter because of its significance to
profit, the high volume of revenue transactions
associated with ticket of work services and the
judgment required in recognising revenue from the
delivery of projects.
For selected revenue streams we evaluated the group’s
processes and controls with respect to the recognition
of revenue.
For revenue from the provision of ticket of work
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.
For revenue from the delivery of projects, we:
obtained an understanding of the terms and
conditions of a sample of contracts;
assessed, for a sample of contracts, the Group’s
estimates of total contract revenue and forecast
contract costs and evaluated the percentage of
completion based on actual costs incurred to date;
assessed, for a sample of contracts, the accrued
revenue or income in advance balance at 30 June
by assessing the amounts billed up to 30 June
2019 relative to the revenue recognised to that
date;
assessed the group’s forecasting accuracy by
comparing actual costs incurred relative to the
forecast of those costs;
tested a sample of transactions by sighting
evidence of milestone completion; and,
performed retrospective analysis of a selection of
incomplete projects at year end to assess the
allocation of revenue between periods.
Recoverability of accrued revenue
(Refer to note 11) $126.0 million
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
For all 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 to these segments.
Key audit matter
How our audit addressed the key audit matter
revenue balance at 30 June 2019 is $126.0 million.
Payment claims may be rejected by customers 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. To address this risk, an assessment is
made regarding the revenue that is highly probable of
not reversing and revenue not meeting this criteria is
not recognised.
The recoverability of accrued revenue is a key audit
matter because judgement is required to evaluate
whether revenue is highly probable of being recovered.
Business Combinations / Acquisition
Accounting
(Refer to note 20) $153.2 million
On 2 January 2019 the Group acquired Comdain
Infrastructure for a total considerations of $153.2
million, as described in note 20 of the financial report.
The accounting for the acquisition is a key audit matter
because it is a significant transaction in the year given
the financial and operational impacts on the Group. In
addition, the Group made complex judgements when
accounting for the acquisition, including:
identifying all assets and liabilities of the newly
acquired business and estimating the fair value of
each asset and liability for initial recognition by the
Group, particularly the customer contracts and
relationships. The Group was assisted by an
external valuation expert in this process.
The accounting for the acquisition is provisional at the
time of authorisation of the financial report.
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;
assessed that revenue had not been accrued if it
was considered that it was not highly probable of
being recovered; and,
assessed the group’s key assumptions such as the
long term average claim rejection rate which we
compared to actual experience, including recent
trends.
We also performed sample testing over individual
accrued revenue balances to test the Group’s
entitlement to the accrued revenue balances.
Assisted by PwC valuation experts in aspects of our
work, our procedures included the following, amongst
others:
evaluating the identification of the assets and
liabilities acquired against the requirements of
Australian Accounting Standards, key transaction
agreements, our understanding of the business
acquired and selected legal correspondence;
assessing the fair values of the acquired assets and
liabilities recognised, including:
o
considering key assumptions used in
estimating the fair values of customer
contracts and relationships;
considering the discount rates used in
estimating the fair value of customer contracts
and relationships in light of the specific assets
being valued;
considering the valuation methodologies
applied against the requirements of Australian
Accounting Standards; and,
assessing the competence and capability of the
group’s experts.
o
o
o
considering the adequacy of the business
combination disclosures in light of the
requirements of Australian Accounting Standards.
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 2019, but does not include the
financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other
information we obtained included the directors’ report. We expect the remaining other information to
be made available to us after the date of this auditor's report.
Our opinion on the financial report does not cover the other information and we do not and will not
express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
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 on the other information that we obtained prior to the date of
this auditor’s report, 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.
When we read the other information not yet received, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the directors and use our
professional judgement to determine the appropriate action to take.
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 the 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 15 to 23 of the directors’ report for the
year ended 30 June 2019.
In our opinion, the remuneration report of Service Stream Limited for the year ended 30 June 2019
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
20 August 2019
Service Stream Limited
ASX Additional Information
ASX Additional Information
for the financial year ended 30 June 2019
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 16 August 2019
Category (size of holding)
1-1,000
1,001- 5,000
5,001-10,000
10,001-100,000
100,001+
Holders
1,129
1,924
971
1,338
138
5,500
B. There are 5,500 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 183.
D. The names of the substantial shareholders listed in the holding company’s
register, and their shareholdings (including shareholdings of their
associates), as at 16 August 2019 are:
Shareholder
Thorney International Pty Ltd (1)
Thorney Opportunities Ltd (1)
Comdain nominees Pty Ltd
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