SERVICE STREAM LIMITED 2020 ANNUAL REPORT Annual General Meeting
The Annual General Meeting of Service Stream Limited
will be held as a virtual meeting which will conducted online on
Wednesday 21 October 2020, 10.00am
Service Stream Limited
ABN 46 072 369 870
Annual report for the financial year ended
30 June 2020
Service Stream Limited ABN 46 072 369 870
Annual Report
for the year ended 30 June 2020
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 24
Page 25
Page 26
Page 27
Page 28
Page 29
Page 68
Page 69
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 Australian dollars.
Service Stream Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Level 4, 357 Collins Street Melbourne VIC 3000.
A description of the nature of the consolidated entity's operations and its principal activities is included in the review of
operations and financial performance on pages 4 to 11, which is not part of these financial statements.
The financial statements were authorised for issue by the Directors on 18 August 2020. 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 2020, and in order to comply with the provisions of
the Corporations Act 2001. The Directors report is 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 brings to the Board extensive commercial and operational expertise, and strategic leadership gained in
the telecommunications, utilities, infrastructure and technical services industries. He has spent over 25 years as a
senior executive, director and owner of businesses within these sectors. Brett has specific experience in service
delivery, contract management, business development, health, safety & environment, corporate finance and mergers &
acquisitions.
Brett is an experienced company director and has experience in governance and compliance, reporting and investor
relations. His current directorships include not-for-profit and several private businesses that operate predominantly in
the utilities and services sector.
Brett is a member of the Sustainability, Safety, Health & Environment Committee.
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), MAICD.
Leigh Mackender joined Service Stream Limited when it acquired AMRS (now Energy & Water) in February 2008, and
has worked predominantly within the telecommunications, utilities and infrastructure industries, through roles in both
private and public businesses. Prior to being appointed Managing Director, Leigh had executive responsibility for the
Energy and Water division’s national operations. Leigh has specific expertise in strategic leadership, development and
implementation of business strategy, operational and financial management, commercial negotiations, client service
and business development. He also has extensive experience in health, safety & environment, governance and
compliance, investor relations, mergers & acquisitions, technology, human resources and remuneration practices.
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 brings to the Board extensive commercial and operational expertise developed from senior executive
roles at Concrete Constructions, Telstra Corporation and nbn co, where he was the Chief Operating Officer. He has
specific experience in strategic leadership, large scale infrastructure and construction, telecommunications technology,
health, safety & environment, risk management and human resources.
Greg has served on numerous Boards throughout his executive career and has experience in governance and
compliance, corporate finance and mergers & acquisitions.
Greg is Chairman of the Sustainability, Safety, Health & Environment Committee, a member of the Audit and Risk
Committee, and was a member of the Remuneration and Nomination Committee until 30 June 2020.
1
Greg is currently a non-executive director of OptiComm Limited and has held no other listed company directorships in
the last three years.
Service Stream Limited
Directors' report
Tom Coen
Non-Executive Director
Term of Office: Non-Executive Director since February 2019.
Qualifications: GAICD.
Tom Coen brings to the Board extensive commercial and operational expertise following a 35-year career at Comdain
Infrastructure where he served as Managing Director and Chairman. He has specific experience in strategic
leadership, civil construction, contract and project management, health, safety & environment, and joint ventures
across the utilities, engineering and infrastructure services industries, particularly in the water and gas sectors.
Tom has served on numerous Boards throughout his executive career and has experience in governance, compliance
and reporting.
Tom is a member of the Sustainability, Safety, Health and Environment Committee, and from 1 July 2020, the
Remuneration and Nomination Committee.
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
Term of Office: Chairman from November 2010 to February 2015, Non-Executive Director since March 2015.
Qualifications: B. Tech. (Civil Eng.) (Adel), Grad. Diploma (Bus. Admin.), SAIT, FIEAust, MAICD.
Peter Dempsey brings to the Board extensive construction and development expertise following a 40-year career in
those industries. He spent 30 years at Baulderstone, including five years as Managing Director. He has specific
expertise in engineering, strategic leadership, health, safety & environment, corporate finance, mergers & acquisitions
and human resources.
Peter has extensive experience as a company director gained across ASX listed and private companies over the last
15 years. His relevant sector experience includes engineering, construction, utilities and telecommunications. Peter’s
experience includes Board leadership, governance and compliance, risk management, reporting and remuneration
practices.
Peter is Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee.
Peter is currently a Non-Executive Director of Monadelphous Limited and has held no other listed company
directorships in the last three years.
Deborah Page AM
Non-Executive Director
Term of Office: Non-Executive Director since September 2010.
Qualifications: B Ec (Syd), FCA, FAICD, Member CEW.
Deborah Page brings to the Board extensive financial expertise from her time at Touche Ross/KPMG including as a
Partner, and subsequently from senior finance and operating executive roles with the Lendlease Group, Allen, Allen &
Hemsley and the Commonwealth Bank. She has specific experience in corporate finance, accounting, audit, mergers
& acquisitions, capital markets, insurance and joint venture arrangements.
Deborah has extensive experience as a company director gained across ASX listed, private, public sector and
regulated entities since 2001. Her relevant sector experience includes telecommunications, utilities,
insurance,
renewables and infrastructure. Deborah’s experience includes Board leadership, governance and
technology,
relations and health, safety &
risk management,
compliance,
environment.
remuneration practices,
technology,
investor
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 and Pendal Group Limited. During the last three
years, Deborah held a listed company directorship with GBST Holdings Limited (retired as entity delisted in November
2019).
2
Service Stream Limited
Directors' report
Raelene Murphy
Non-Executive Director
Term of Office: Non-Executive Director from November 2015 to October 2019.
Raelene Murphy held the role of Non-Executive Director from November 2015 to her retirement from the Company on
23 October 2019.
Directors' shareholdings
The following table sets out each Director’s relevant interest in shares and rights in shares of the Company as at the
date of this report.
Service Stream Limited
Fully paid ordinary shares
Performance rights
Directors
Number
Number
B Gallagher
G Adcock
T Coen
P Dempsey
D Page
L Mackender 1
3,299,673
50,000
38,444,918
1,050,000
443,293
1,100,700
-
-
-
-
-
238,544
1 As L Mackender is a Director of the Company, the issuance of performance rights under the FY20 LTIP Tranche was approved by shareholders at
the Company's Annual General Meeting on 23 October 2019.
Remuneration of key management personnel
Information about the remuneration of key management personnel
is set out in the remuneration report of this
Directors' report, on pages 14 to 22. The term 'key management personnel' refers to those persons having authority
and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly,
including any Director (whether executive or otherwise) of the consolidated entity.
Performance rights granted to Directors and senior management
During and since the end of the financial year, the following performance rights were granted to Directors and to the
five highest remunerated officers of the Group as part of their remuneration:
Director and senior
executives
Number of rights
granted
Number of ordinary
shares under rights
Service Stream Limited
L Mackender
R Grant 1
J Ash
P McCann
K Smith
238,544
-
75,114
76,776
106,903
497,337
238,544
-
75,114
76,776
106,903
497,337
1 During the year, R Grant retired from the role of Chief Financial Officer and did not participate in the FY20 LTIP Tranche.
Company secretaries
Chris Chapman
Qualifications: LLB BA (Politics) and GAICD.
Chris Chapman was appointed General Counsel
in-house
experience having held senior legal positions at large private and listed construction and infrastructure businesses.
Chris was appointed Company Secretary in February 2019.
for the Group in August 2015. Chris has significant
3
Service Stream Limited
Directors' report
Vicki Letcher
Qualifications: BLaw, BCom (major in Accounting), CA, FGIA FCIS.
Vicki Letcher joined Service Stream Limited in June 2010 and was appointed Company Secretary in August 2012 until
her resignation from the company on 29 July 2020.
Principal activities
Service Stream is a provider of essential network services,
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.
including access, design, build,
Review of operations and financial performance
Financial overview
1.000
$'000
Revenue
EBITDA 1
1.000FY20
1.000FY19
1.000
Change
929,133
852,178
76,955
9.0% ▲
105,588
89,543
16,045
17.9% ▲
Depreciation & amortisation
(20,673)
(8,801)
(11,872) 134.9% ▼
Amortisation of customer contracts / relationships
(11,005)
(7,425)
(3,580)
48.2% ▼
EBIT
Net financing costs
Income tax expense
Net profit after tax
Statutory EPS (cents)
73,910
73,317
593
0.8% ▲
(3,445)
(1,202)
(2,243) 186.6% ▼
(21,150)
(22,256)
1,106
(5.0%) ▲
49,315
49,859
(544)
(1.1%) ▼
12.13
13.09
(0.96)
(7.4%) ▼
Dividends declared per share (cents)
9.00
9.00
-
-
1.000
Adjusted profitability 2:
EBITDA from Operations
EBITDA from Operations %
Adjusted EBIT (EBITA)
Adjusted NPAT (NPATA)
Adjusted EPS (cents)
108,115
93,266
14,849
15.9% ▲
11.6%
10.9%
87,442
84,465
58,787
57,663
0.7%
2,977
1,124
▲
3.5% ▲
1.9% ▲
14.46
15.14
(0.68)
(4.5%) ▼
1Earnings before interest, tax, depreciation and amortisation.
2Adjusted for relevant non-operational expenditure and amortisation of customer contracts / relationships. Refer to
reconciliation between IFRS and non-IFRS financial information for further details on page 5.
The Group’s FY20 results include the impact from the application of AASB 16 Leases with effect from 1 July 2019.
FY19 prior year comparatives have not been restated in line with the transitional arrangements permitted by the
Standard.
Group results
Group revenue improved by 9.0% to $929.1 million from $852.2 million with Telecommunications reporting a net
decrease of 7.7% and Utilities revenue increasing by 45.3%.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 17.9% from $89.5 million to
$105.6 million. This includes a $10.3 million benefit from the adoption of AASB 16. Earnings growth was achieved
across both the Telecommunications and Utilities segments. EBITDA from Operations excludes $2.5m of
non-operational expenditure associated with the integration of Comdain Infrastructure and assessment of M&A
opportunities.
4
Service Stream Limited
Directors' report
Depreciation & amortisation expense increased by $11.9 million to $20.7 million, with $9.5 million of the increase due
to depreciation on capitalised right of use assets from the adoption of AASB 16. The balance of the increase was
largely due to the full year impact of Comdain Infrastructure.
Amortisation of customer contracts / relationships expense relates to the Techsafe (2017) and Comdain Infrastructure
(2019) acquisitions. The increase from FY19 of $3.6 million is primarily due to a full year impact from the amortisation
of Comdain Infrastructure customer contracts / relationships. This non-operational expense is excluded from the
calculation of Adjusted Profitability metrics EBITA and NPATA.
Group earnings before interest and tax (EBIT) was $73.9 million, an increase of $0.6 million on FY19. This is due to
the aforementioned increases in EBITDA, offset by the higher depreciation & amortisation expense.
The Group’s net financing costs increased by $2.2 million to $3.4 million, with $0.9 million of the increase due to the
adoption of AASB 16, and the balance reflective of the full-year impact of the debt facilities established to fund the
Comdain Infrastructure acquisition.
Tax expense for the year was $21.2 million, which is an effective tax rate of 30.0%.
Group net profit after tax (NPAT) decreased from $49.9 million, to $49.3 million, however NPATA which excludes
non-operational items and the amortisation of customer contracts / relationships expenses increased by $1.1 million
from $57.7 million to $58.8 million. Within this result the net impact from the adoption of AASB 16 was a net reduction
of $0.1 million to NPAT.
Adjusted earnings per share (Adjusted EPS) reduced from 15.1 cents to 14.5 cents due to the full year impact of
shares issued as part of the Comdain Infrastructure acquisition.
A final dividend of 5.0 cents per share (fully franked) has been declared in respect of FY20, taking total FY20 dividends
to 9.0 cents per share (fully franked), which is consistent with total FY19 dividend of 9.0 cents per share (fully franked).
Reconciliations between IFRS and non-IFRS financial information
$'000
Reported EBITDA
Add-back adjustments:
- Due diligence costs on potential acquisitions
- Acquisition costs (Comdain)
- Integration costs (Comdain)
EBITDA 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) 1
1.000
FY20
1.000FY19
105,588
89,543
1,312
-
1,215
-
2,473
1,250
108,115
93,266
49,315
49,859
2,527
11,005
3,723
7,425
(4,060)
(3,344)
58,787
57,663
Avg number of shares on issue (millions)
406.647
380.877
1.000
Statutory EPS (cents)
Adjusted EPS (cents)
1Adjusted net profit after tax.
12.13
14.46
13.09
15.14
5
Service Stream Limited
Directors' report
Impact to the Group from COVID-19 pandemic
Service Stream provides essential infrastructure services to gas, electricity, water and telecommunications network
owners and operators nationally. To date, these industries have been allowed to continue operations under various
lock-down restrictions imposed to manage the pandemic. Although there have been some negative impacts to Service
Stream’s operations from the pandemic, demand for essential network services has remained firm, and the Group’s
earnings to date have not been significantly impacted. Servicing these networks is core to the Group’s strategy, with
exposure to these sectors providing a solid revenue base and sustained resilience through the pandemic and
subsequent economic recession.
To date, restrictions on people movement have not had a significant impact on the Group’s field-based operations. The
Group has implemented appropriate safety and hygiene protocols and procedures designed to minimise the risk of any
spread of the COVID-19 virus. The majority of our office-based staff have moved to working from home arrangements
with the company’s IT infrastructure and other support networks capable of supporting these arrangements effectively.
The Group’s balance sheet, cash flow and liquidity remain very strong. Service Stream has not drawn upon JobKeeper
or other government support packages. The business has continued to pay our suppliers and contractors as and when
due, and has not entered into any factoring arrangement of its working capital. The nature of the Group’s customers,
which includes government enterprises and large private sector corporations, is such that the risk of default of
receivables is low. Due to uncertainty at the time, the Group did seek payment deferral on a limited number of
leaseholds at the onset of the pandemic with some of the concessions granted remedied by 30 June 2020. The Group
also sought and received a $5.0 million income tax payment deferral from the Australian Tax Office as part of its initial
response to managing potential risks from the COVID-19 pandemic. This amount will be paid in Q1 FY21.
The impacts to earnings to date are described below:
•
•
•
•
•
•
Increased costs to support specific safety-related protocols across business operations. This includes additional
including operating distinct shifts across our warehouse
expenditure on protective equipment and hygiene,
operations with additional cleaning incurred between each shift;
Customer determined moratoriums on electricity and gas disconnections (and subsequent
impacting meter reading operations;
Reduced residential land development activity (new housing estates);
Deferral of proactive maintenance activities by asset owners to ensure networks remain available to consumers
working from home;
Delays in projects due to availability of client-supplied free-issue materials; and
Deferral of some projects due to travel and access restrictions across remote locations.
reconnections)
At this point in time, and on the basis that the Utilities and Telecommunications sectors will continue to be classified as
essential services, it is not expected that COVID-19 will have a material adverse impact to the carrying value of the
Group’s assets.
Although impacts to the Group’s operations to date have not been significant, the evolution of the pandemic and any
escalation of the government’s response, including but not limited to, increased restriction of workforce movement,
increased safety protocols, and/or reduction in demand from the Group’s customers may further negatively impact the
Group’s operations.
6
Segment Results
1.000
$'000
1.000FY20
1.000FY19
1.000
Change
Service Stream Limited
Directors' report
Telecommunications
544,170
589,388
(45,218)
(7.7%) ▼
Utilities
384,083
264,284
119,799
45.3% ▲
Eliminations, interest & other revenue
880
(1,494)
2,374
Total Revenue
1.000
929,133
852,178
76,955
9.0% ▲
Telecommunications
83,125
77,096
6,029
7.8% ▲
Utilities
30,810
22,538
8,272
36.7% ▲
Unallocated corporate costs
(5,820)
(6,368)
548
EBITDA from Operations
108,115
93,266
14,849
15.9% ▲
Non-operational costs
(2,527)
(3,723)
1,196
EBITDA
1.000
105,588
89,543
16,045
17.9% ▲
Telecommunications
15.3%
13.1%
2.2%
Utilities
EBITDA margin
8.0%
8.5%
(0.5%)
11.4%
10.5%
0.9%
▲
▼
▲
Telecommunications
The Group’s Telecommunications segment 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 and Telstra.
•
•
During the year, the business successfully concluded and demobilised design and construct (D&C) operations with
nbn under the Multi-Technology Integrated Master Agreement (MIMA) and Design and Construction Master
Agreement (DCMA) contracts.
During the year, the Network Maintenance and Restoration Activities (NMRA) agreement with nbn was extended
to June 2021, with a potential further extension to December 2021. The Operations & Maintenance Master
Agreement (OMMA) was extended to December 2020, and the Company is currently in negotiation with nbn for a
further 6-month term extension to the end of June 2021, with a further option for nbn to extend for another 6
months.
Telecommunications’ financial performance in FY20 improved over the prior year, delivering revenue of $544.2 million
and an EBITDA of $83.1 million (15.3% margin), compared with revenue of $589.4 million and EBITDA of $77.1 million
(13.1% margin) in the prior year.
Revenue decreased by $45.2 million (7.7%) compared to FY19 due to:
•
•
conclusion of nbn D&C activities following the successful completion of the program during H2 FY20 resulting in
revenue reduction of $89.1 million;
increase in revenue associated with nbn activation and maintenance activities, despite COVID-19 reducing some
operations & maintenance (O&M) activities; and
• Wireless revenue was lower than FY19, due to the slow ramp-up of 5G expenditure by mobile carriers and
COVID-19 impacts delaying the commencement of some project works.
Telecommunications' EBITDA was $83.1 million, an increase of 7.8% against prior year:
•
EBITDA margin grew to 15.3% and was aided by the adoption of AASB 16, the profitable wind-up of nbn D&C
operations and favourable O&M work mix.
Utilities
The Group’s Utilities segment provides a wide range of specialist metering, new energy, inspection & compliance,
operations, maintenance, design & construction services to utility network owners and operators and other customers
in Australia.
•
During the year, Comdain Infrastructure, as a 30% partner in the Delivering for Customers (D4C) Joint Venture,
secured a 10-year asset management agreement with Sydney Water. This contract was successfully mobilised
during H2 FY20 with operations commencing on 1 July 2020. D4C’s revenue from service delivery is expected to
be in the order of $200 million per annum.
7
•
There has been strong demand for utility services and projects, despite delays to some commencements in H2
FY20 due to COVID-19 restrictions and client-initiated delays.
Utilities achieved further growth in FY20, delivering revenue of $384.1 million and an EBITDA of $30.8 million (8.0%
margin) compared with revenue of $264.3 million and EBITDA of $22.5 million (8.5% margin) in the prior year.
Revenue increased by $119.8 million (45.3%) compared to FY19:
Service Stream Limited
Directors' report
The increase was largely due to the inclusion of Comdain Infrastructure for the full year;
•
• Metering services revenue was flat against the prior year, which was a good outcome noting COVID-19 related
reduced activity due to the moratorium on electrical and gas disconnections and reduced residential
land
development activity; and
Lower revenue from New Energy due to fluctuating volumes across commercial solar and battery storage work
programs.
•
Utilities' EBITDA was $30.8 million, an increase of 36.7% against prior year:
•
The EBITDA margin reduction of 0.5% was due to work-mix and inclusion of a full year of lower margin Comdain
Infrastructure operations.
Cashflow and Financial Position
1.000
$'000
FY20
1.000FY19
1.000Change
Reported EBITDA
105,588
89,543
16,045
+/- non-cash items & change in working capital
(19,142)
(9,840)
(9,302)
OCFBIT 1
EBITDA to OCFBIT 1 conversion %
Net interest and financing paid
Income taxes paid
Operating cashflow
86,446
79,703
6,743
81.9%
89.0%
(7.1%)
(3,586)
(1,366)
(2,220)
(25,177)
(18,814)
(6,363)
57,683
59,523
(1,840)
Capital expenditure (net of proceeds from sales)
(6,485)
(9,416)
2,931
Business acquisitions (net of cash acquired)
-
(82,752)
82,752
Free cashflow
Dividends paid
Principal elements of lease payments
Lease incentives received
Purchase of shares (net of costs)
Proceeds from borrowings
Net increase / (decrease) in cash
Net cash 2
51,198
(32,645)
83,843
(36,303)
(29,816)
(6,487)
(9,655)
(369)
(9,286)
4,164
(741)
-
4,164
(59)
(682)
-
60,000
(60,000)
8,663
(2,889)
11,552
19,472
10,521
8,951
1Operating cashflow before interest & tax.
2Net cash at 30 June 20 excludes lease liabilities arising from the application of AASB 16 Leases.
Cash Flow
Cash flow from operations for the year was $57.7 million compared to $59.5 million in FY19, with key components
being:
•
•
Operating cash flow from operations before interest and tax (OCFBIT) was $86.4 million, representing an 81.9%
cash flow conversion rate which is consistent with the Group’s long-term cash flow conversion target;
Net interest and financing cash outflows were $3.6 million, $2.2 million higher than FY19 due to the full year
impact of increased debt facilities and debt drawn for the Comdain Infrastructure acquisition; and
8
Service Stream Limited
Directors' report
•
Tax paid of $25.2 million was $6.4 million higher than FY19, with the increase due to payment of the Comdain
Infrastructure stub tax return, and adjustment for final FY19 tax payable against the Group’s tax instalment regime
over FY19. The Group received a $5.0 million tax payment deferral from the Australian Tax Office as part of its
initial response to managing potential risks from the COVID-19 pandemic. This amount will be paid in Q1 FY21.
Net investing cash outflows were $6.5 million and comprised:
•
•
$7.8 million of capital expenditure investment in technology and plant & equipment. The IFS ERP implementation
across Comdain Infrastructure was placed on hold due to COVID-19, and is due to recommence in Q1 FY21;
offset by
$1.3 million of proceeds from the sale of minor assets.
Net financing outflows for the year were $42.5 million and included:
•
•
•
•
Payment of leases of $9.7 million, which are now reported outside of cash flow from operations following the
adoption of AASB 16;
$36.3 million paid in dividends, an increase of $6.5 million over the previous year;
Lease incentives of $4.2 million were received in relation to the renewal of rental arrangements of the Group’s
corporate offices in Melbourne; and
$0.7 million expended to acquire shares in Service Stream Limited to satisfy the Group's obligation under certain
share-based incentive arrangements.
Financial position
The financial position of the Group improved during the year, with Net Assets at 30 June 2020 of $321.8 million
compared to $307.8 million at 30 June 2019. At 30 June 2020, Current Assets exceeded Current Liabilities by $69.2
million (30 June 2019: $48.9 million).
Net cash and financing facilities
•
•
•
•
The Group ended the year with Net Cash (excluding lease liabilities) of $19.5 million, an increase of $9.0 million
against the prior period end. Net Cash at 30 June 2020 comprised cash of $79.5 million less borrowings of $60.0
million;
Bank guarantee utilisation at year-end of $36.7 million, as compared to $42.5 million at the prior year end;
The Group’s finance facilities at 30 June 2020 comprised a Term Loan of $60.0 million (drawn: $60.0 million), cash
advance lines totalling $45.0 million (drawn: nil) and overdraft facilities totalling $40.0 million (drawn: nil); and
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.
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, other assets, trade
& other payables and provisions) at 30 June 2020 was a net asset position of $12.7 million. The closing balance
represents an increase of $20.9 million from the prior year’s closing net liability balance of $8.2 million, and is
predominantly due to the cessation of the nbn D&C activities;
Plant and equipment at 30 June 2020 was $15.2 million compared to $20.1 million at 30 June 2019;
Intangibles at 30 June 2020 were $313.2 million compared to $323.6 million with the decrease primarily
attributable to amortisation of customer contracts/ relationships, net of additional capitalised IT software; and
Right-of-use assets and liabilities recognised in respect of AASB 16 of $29.1 million and $33.4 million respectively.
•
•
•
Overall Group strategy, prospects and risks
The financial performance of the Group further improved during the year, and the Group has continued to deliver on its
strategic plan in line with the Board’s expectations.
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.
In the Telecommunications segment, the securing of the OMMA and NMRA contract extensions continues to position
the company well as the leading service provider in this segment, with further future prospects in 5G design and
construction opportunities.
In the Utilities segment, the Board notes the positive progress achieved with the integration of Comdain Infrastructure
and its continued strong future prospects including securing a major ten-year Sydney Water contract as part of the
D4C consortium, in joint venture with Lendlease Services, John Holland and WSP Australia.
9
Service Stream Limited
Directors' report
The achievement of the Group’s business objectives may be impacted by the following risks:
COVID-19
pandemic
The COVID-19 pandemic has created an unprecedented level of uncertainty. Although impact to
the Group’s operations to date have not been significant, the evolution of the pandemic and any
escalation of
limited to, increased restriction of
workforce movement,
increased safety protocols, and reduction in demand from the Group’s
customers may further negatively impact the Group’s operations.
the government’s response, including but not
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 and
Telstra is a natural consequence of operating in this market in Australia.
Customer
demand
Contract
management
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.
The acquisition of Comdain Infrastructure which provides a range of operations, maintenance,
design and construction service to gas and water network operators in Australia has assisted with
diversifying the Group’s revenue base and managing this risk.
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.
Many of the Group’s customer contracts do not contain volume commitments and are therefore
dependent on the customer’s demand requirements which can change at any time. The rate of
adoption of new technology by the Group’s customers, such as 5G technology, can also provide
variability against expected future earnings. Whilst Management and the Board take a balanced
view on the level of customer demand that
is expected to arise when forecasting financial
performance, there is a risk that the level of customer demand may change over time.
In addition, the potential variability in 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 Group’s 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 well-established Group Commercial function is now in place, reporting directly to
the Managing Director. Group Commercial is responsible for the development and maintenance of
a Bid Management Framework in respect of winning new business and a Commercial
Health-Check Program in respect of existing business, and generally for ensuring that sound
contract management disciplines are embedded across the Group.
Renewal of
customer
contracts
in renewing and extending the majority of all customer
Whilst the Group has been successful
contracts that have recently expired, the renewal of contracts remains a risk that Management and
the Board continues to actively monitor and manage.
Service Stream operates in a limited number of market segments in which there are relatively few
competitors. Management and the Board are therefore particularly conscious of the risks related to
the loss of business to competitors either through their ability to potentially leverage more
cost-effective business platforms or as a consequence of their potential adoption of loss-leading
strategies to maintain or increase market share.
the Group did not
During FY20,
in securing
extensions of its contracts with nbn co. The Group was also successful in winning a number of new
contracts across the Telecommunications and Utilities segments.
lose any major contracts and was successful
The Group is currently tendering for a number of material contracts, which includes:
• nbn Unify Networks (NMRA replacement) for a term of 4 years + 2x2 year options; and
• nbn Unify Services (OMMA replacement) for a term of 4 years + 2x2 year options.
The Board is confident that the Group’s superior performance and consistency of service delivery
will underpin successful award of those contracts, but failure to do so would have a material impact
on the Group.
10
Service Stream Limited
Directors' report
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.
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 FY20, 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 market leading IT-related platforms which
assist with the engagement, deployment, daily management and retention of the Group's 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
During FY20,
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 ensure that funds are sufficient and made available to
maintain fit-for-purpose system applications and infrastructure, and that
IT investments are
appropriately prioritised and undertaken effectively as part of the Group’s annual strategic planning
process.
During FY20, the Group has further expanded 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 19 to the financial
statements and further set out below:
Per share (cents)
Total amount ($'000)
Franked
Payment date
Final
2020
Interim
2020
Final
2019
5.00
20,4011
100%
4.00
16,299
100%
5.50
22,384
100%
1 October 2020
19 March 2020
2 October 2019
1 This is the estimated total amount of dividend to be paid in respect of the current shares on issue at 30 June 2020.
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.
11
Service Stream Limited
Directors' report
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.
Environmental regulation
Other than compliance with general obligations under Federal and State environmental
laws and regulations, the
Group's operations are not subject to any particular or significant environmental regulation under a Commonwealth,
State or Territory law.
Shares under performance rights
Details of unissued shares under performance rights at the date of this report are:
Series
Class of shares
Exercise price of
right
FY18 LTIP Tranche
Ordinary
FY19 LTIP Tranche
Ordinary
FY20 LTIP Tranche
Ordinary
$0.00
$0.00
$0.00
Vesting date
September 2020
September 2021
September 2022
Number of shares
under rights
614,932
731,108
1,078,007
2,424,047
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)
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
D Page
R Murphy 2
L Mackender
Meetings of Committees
Remuneration
and
Nomination
Sustainability,
Safety,
Health &
Environment
Audit and
Risk
Term of
Directorship
4
4*
4#
4*
4
4
1
4*
4
4*
4
4*
4
4
1
4*
4
4
4
4
4*
4*
1
4
10 years
4 years
1 year
10 years
10 years
4 years
6 years
Board
meetings
161
15
15
15
16
16
5
16
* Attended as Standing Invitee.
1 The number of board meetings held during the year comprised eleven regular monthly meetings, and five unscheduled meetings that related to
large contract tender submissions.
2 R Murphy retired from the Company on 23 October 2019.
# G Adcock was appointed as a member of the Audit and Risk Committee on 20 November 2019. He attended three meetings in the financial year
as a committee member and another as standing invitee.
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.
12
Service Stream Limited
Directors' report
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.
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 33 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 33 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 24 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 4th edition
ASX Corporate Governance Principles and Recommendations. Service Stream is materially 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 18 August 2020 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 18 August 2020 and has been approved by the Board.
13
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 2020 (FY20). 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
Peter Dempsey
Deborah Page AM
Raelene Murphy (retired 23 October 2019)
Executive Director
Leigh Mackender
Senior Executives
Linda Kow (appointed 4 May 2020)
Robert Grant (retired 4 May 2020)
John Ash 1
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director
Chief Financial Officer
Chief Financial Officer
Executive General Manager, Network Construction
Peter Coen (resigned 28 January 2020)
Executive General Manager, Comdain Infrastructure
Shannon Laffey (appointed 28 January 2020)
Acting Executive General Manager, Energy & Water
Paul McCann 2
Kevin Smith
Executive General Manager, Comdain Infrastructure
Executive General Manager, Fixed Communications
1 J Ash resigned from his position as the Executive General Manager, Network Construction effective 6 July 2020.
2 P McCann was the Executive General Manager of Energy & Water until 27 January 2020, before becoming the Executive General Manager of
Comdain Infrastructure on 28 January 2020.
2 Role of the Remuneration and Nomination Committee
The Board’s Remuneration and Nomination Committee (RNC)
reviewing and making
recommendations to the Board on the remuneration arrangements for the Non-Executive Directors, the Managing
Director and the executive management team including the Senior Executives. Information on the RNC’s role and
responsibilities is contained in its charter, which is available on the Group’s website at www.servicestream.com.au.
is responsible for
Whilst the RNC periodically seeks independent advice from external consultants on various remuneration-related
matters to assist in performing its duties and making recommendations to the Board, no external consultants were
engaged by the Group during the financial year.
3 Executive remuneration policy and framework
Remuneration policy and principles
The Board, through the RNC, reviews the remuneration packages of all KMP on an annual basis. Remuneration
packages are set and reviewed with due regard to current market rates and are benchmarked, where relevant, against
comparable industry salaries.
The objectives of the Group's remuneration policy are to ensure that the Group:
•
•
•
Attracts, retains and motivates talented employees;
Aligns employee activities to the achievement of business objectives;
Creates a high performance culture that delivers shareholder value;
• Maintains fair, equitable and affordable rates of pay for all employees, based on their performance and the
markets in which the Group operates;
•
Encourages, recognises and rewards individual, team and group performance on the basis of ability-to-pay and
alignment with shareholder returns; and
14
Service Stream Limited
Directors' report
•
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 potential remuneration components that apply to the Managing Director and Senior
Executives who are in the KMP position for the entire financial period.
Fixed remuneration
Incentive remuneration
Managing Director: 44% of total remuneration
Senior Executives: 53% of total remuneration
Managing Director: 56% of total remuneration
Senior Executives: 47% of total remuneration
> Fixed salary set by reference to appropriate
benchmark information and individual performance
> Performance hurdle linked to annual EPS target and
Relative Total Shareholder Return (TSR) under a Long-Term
Incentive Plan (LTIP)
> Includes
non-monetary benefits
superannuation
and
salary-sacrificed
> Cash bonus paid under the Short-Term Incentive Plan
(STIP)
Full details of each component payable to all KMPs are set out in section 5 of this remuneration report.
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 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)
EBITDA 1 ($'000)
Net profit after tax ($'000)
Earnings per share (cents)
Dividends per share 2 (cents)
Share price 30 June ($)
2016
2017
2018
2019
438,940
501,810
632,946
852,178
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
2020
929,133
105,588
49,315
12.13
9.00
1.91
1 Earnings before interest, tax, depreciation and amortisation.
2 Franked to 100% at 30% corporate income tax rate.
The overall
performance and growth prospects of the Group.
level of key management personnel compensation takes into account the size, complexity, financial
5 Managing Director and Senior Executive remuneration
Fixed remuneration
Fixed remuneration consists of base compensation and statutory superannuation contributions. Executives may also
elect to have other benefits provided out of their fixed remuneration, including additional superannuation and the
provision of a motor vehicle.
Incentive remuneration
During the financial year ended 30 June 2020, Managing Director and Senior Executives incentive remuneration
consisted of participation in the Group’s LTIP and STIP as set out in the table below.
15
Summary of incentive plan participation
Service Stream Limited
Directors' report
L Mackender
L Kow 2
R Grant 3
J Ash
P McCann
P Coen 4
K Smith
S Laffey
LTIP
Yes
-
-
Yes
Yes
-
Yes
Yes
2020
STIP
Yes
-
-
Yes
Yes
-
Yes
Yes
ESBIP 1
Yes
n/a
Yes
-
Yes
-
Yes
n/a
2019
LTIP
-
n/a
-
Yes
-
-
-
n/a
STIP
-
n/a
-
Yes
-
Yes
-
n/a
1 Details of the Group’s Executive Share Based Incentive Plan (ESBIP) that operated in FY19 was disclosed in the FY19 annual report.
2 L Kow was appointed as Chief Financial Officer with effect from 4 May 2020, and was not eligible to participate in the FY20 LTIP and FY20 STIP.
3 During the period, R Grant retired from the role of Chief Financial Officer and did not participate in the FY20 LTIP and FY20 STIP.
4 P Coen was appointed as Executive General Manager, Comdain Infrastructure with effect from 2 January 2019, and resigned on 28 January 2020
and forfeited his entitlements to the FY20 LTIP and FY20 STIP.
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 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.
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 FY20 are subject to service and performance criteria
being:
A
B
C
The participant must be an employee at the conclusion of the performance period; and
80% of the performance rights granted with respect to the FY20 tranche will vest where the Group’s adjusted
earnings per share (Adjusted EPS) achieves the target as set by the Board of Directors. For FY18 and FY19
tranches, 50% of the performance rights granted will vest where the Group’s earnings per share achieves an
annual growth of 10% or more over the performance period, commencing with growth from an agreed base EPS;
and
20% of the performance rights granted with respect to the FY20 tranche (50% for FY18 and FY19 tranches) will
vest where 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.
16
Why was this performance condition chosen?
The Board considered the Adjusted EPS and TSR hurdles to be appropriate measures on the basis that they were
relevant measures of increase in shareholder value, after adjusting for non-operational expense and both outcomes
are highly correlated with the effectiveness of LTIP participants. In addition, Adjusted EPS was calculated based on
the figures in the financial statements after giving effect for Board approved non-operational costs, whilst TSR
performance was independently assessed by third-party experts.
Service Stream Limited
Directors' report
STIP
What is the STIP and who participates?
Eligible employees invited to participate in the STIP have the opportunity to earn an annual lump sum cash-based
incentive payment through the achievement of pre-determined goals established with both the 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 Performance 1
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.
17
Summary of grants under ESBIP and LTIP
Balance at
1 July 2019
Number
Granted as
compensation
Vested
Forfeited
Balance at
30 June 2020
Number
Number
Number
Number
Fair value
when
granted 2
$
Value of
shares at
vesting
$
Service Stream Limited
Directors' report
L Mackender
FY19 ESBIP
FY20 LTIP 3
Total
R Grant
FY19 ESBIP
Total
J Ash
FY17 LTIP
FY18 LTIP 1
FY19 LTIP
FY20 LTIP 5
Total
S Laffey 4
FY20 LTIP
Total
P McCann
FY19 ESBIP
FY20 LTIP
Total
K Smith
FY19 ESBIP
FY20 LTIP
Total
Plan
FY17 LTIP
FY18 LTIP
FY19 LTIP
FY20 LTIP
1,000,000
-
1,000,000
700,000
700,000
123,411
90,299
81,140
-
294,850
-
-
650,000
-
650,000
650,000
-
650,000
-
(1,000,000)
238,544
-
238,544
(1,000,000)
-
-
-
-
-
75,114
(700,000)
(700,000)
(123,411)
-
-
-
-
-
-
-
-
-
-
-
-
1,487,100
2,760,000
238,544
524,838
n/a
238,544
-
-
-
90,299
81,140
1,040,970
1,932,000
76,774
98,530
89,618
312,230
n/a
n/a
n/a
(75,114)
-
161,876
75,114
(123,411)
(75,114)
171,439
13,262
13,262
-
-
-
(650,000)
76,776
-
76,776
(650,000)
-
(650,000)
106,903
-
106,903
(650,000)
-
-
-
-
-
-
-
-
13,262
13,262
-
76,776
76,776
-
106,903
106,903
28,581
n/a
966,615
165,458
1,794,000
n/a
966,615
230,384
1,794,000
n/a
Grant dates
Vesting dates
14 September 2016 13 September 2019
14 September 2017
September 2020
21 September 2018
September 2021
18 September 2019
September 2022
FY19 ESBIP
31 August 2018
20 August 2019
1 The relevant number of shares will be issued to the participants after the release of these FY20 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 2020 in line with each of the tranche's performance
periods.
3 As L Mackender is a Director of the Company, the issuance of performance rights under the FY20 LTIP Tranche was approved by shareholders at
the Company's Annual General Meeting on 23 October 2019, with relative TSR hurdle valued at $1.311 and EPS hurdle at $2.422.
4 S Laffey was appointed Acting Executive General Manager, Energy & Water on 28 January 2020 and such only the FY20 LTIP Tranche has been
included.
5 J Ash resigned from his position as the Executive General Manager, Network Construction effective 6 July 2020, and forfeited his eligibility from
participating in the FY20 LTIP Tranche.
18
Service Stream Limited
Directors' report
Performance outcomes
The table below sets out the details of the percentage performance achieved against the applicable share plans,
where the rights under the plan either vested or the assessment of the achievement of the relevant performance
hurdles were assessed in the current financial year.
Plan
FY17 LTIP 1
FY18 LTIP 2
FY19 ESBIP 1
Grant date
Vesting date
Fair value of each
performance right at
grant date
% of performance
hurdles achieved % of rights vested
14 September 2016
13 September 2019
62.2 cents
100%
100%
14 September 2017
September 2020
109.1 cents
To be determined
To be determined
31 August 2018
20 August 2019
148.7 cents
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 FY20 results.
Service agreements
The table below sets out the main terms and conditions of the employment contracts of the Managing Director and
Senior Executives.
Title
Managing Director
Notice periods and termination payments
> 6 months either party (or payment in lieu)
> Immediate for serious misconduct or breach of contract
> Statutory requirements only for termination with cause
Chief Financial Officer and other Senior Executives
> 1 to 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
The remuneration arrangements of the Managing Director and a small number of other key executives were reviewed
during the year to coincide with the cessation of Service Stream’s ESBIP. Participation in the ESBIP was conditional
on each invited Executive agreeing to forgo participation in the STIP and LTIP applicable to that five-year period.
During that period, the Group delivered a Total Shareholder Return of 1441%, with the participating Executives’ total
remuneration reflective of this.
In line with the Group’s policy to periodically review its remuneration framework, Service Stream’s Board of Directors
engaged external remuneration consultants to perform a broad review of the Company’s executive arrangements
encompassing appropriate levels of
fixed and at risk remuneration. These revised remunerations arrangements
applied to the FY20 year, and were expected to be lower in value than the previous legacy arrangement.
19
Service Stream Limited
Directors' report
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
2020
878,997
427,500
2019
529,469
50,0001
L Kow 2
R Grant 3
2020
94,202
2020
888,826
-
-
2019
464,300
50,0001
J Ash
2020
365,445
22,655
2019
365,415
84,117
P Coen 4
2020
513,648
-
2019
262,816
20,625
S Laffey 5
2020
111,882
11,258
-
-
-
-
-
-
-
-
-
-
21,003
104,857
174,946
1,607,303
63%
37%
20,531
18,228
1,487,100
2,105,328
27%
73%
3,417
81
17,732
29,651
-
-
97,700 100%
936,209 100%
0%
0%
20,531
14,078
1,040,970
1,589,879
31%
69%
21,003
12,008
55,541
476,652
84%
16%
20,531
10,272
88,307
568,642
70%
30%
17,502
10,191
-
227
-
-
531,150 100%
293,859
93%
0%
7%
8,895
11,808
9,764
153,607
86%
14%
P McCann
2020
393,815
47,250
24,384
21,003
35,301
55,153
576,906
82%
18%
2019
298,847
-
24,384
20,531
15,602
966,615
1,325,979
27%
73%
K Smith
2020
528,997
179,506
2019
376,548
-
-
-
21,003
68,939
76,795
875,240
71%
29%
20,531
12,823
966,615
1,376,517
30%
70%
Total
2020 3,775,812
688,169
24,384
131,558
262,645
372,199
5,254,767
80%
20%
2019 2,297,395
204,742
24,384
112,846
71,230
4,549,607
7,260,204
35%
65%
1 These amounts represent one-off discretionary cash bonuses approved by the Board in respect of Service Stream's acquisition of Comdain
Infrastructure.
2 L Kow was appointed as Chief Financial Officer with effect from 4 May 2020, and was not eligible to participate in FY20 LTIP and FY20 STIP.
3 During the year, R Grant retired from the role of Chief Financial Officer and did not participate in the FY20 STIP & FY20 LTIP Tranche. Included in
his salary and fees is a retention bonus amounting to $400,000.
4 P Coen was appointed as Executive General Manager, Comdain Infrastructure with effect from 2 January 2019, resigned on 28 January 2020 and
forfeited his entitlements to the FY20 LTIP and FY20 STIP.
5 S Laffey was appointed Acting Executive General Manager, Energy & Water with effect from 28 January 2020.
20
Service Stream Limited
Directors' report
6 Non-Executive remuneration
Overview
Aggregate fees approved by shareholders
The current maximum aggregate fee pool for the Non-Executive Directors is $1,000,000 as approved by shareholders.
Board and committee fees (inclusive of superannuation where applicable) are included in the aggregate pool.
Promote independence and objectivity
Non-Executive Directors are remunerated only by way of fixed fees (inclusive of superannuation where applicable). To
receive any performance related
preserve independence and impartiality, Non-Executive Directors do not
compensation.
Regular reviews of remuneration
Fees are reviewed annually,
independent remuneration advisor.
taking into account comparable roles and market data provided by the Board’s
Non-Executive Directors' remuneration
B Gallagher
G Adcock 1
T Coen 2
P Dempsey
R Murphy 3
D Page
Total
Year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Board and
Committee fees
Super
Total
182,648
17,352
200,000
146,119
13,881
160,000
125,000
113,734
-
125,000
4,266
118,000
107,763
10,237
118,000
44,901
4,266
49,167
118,721
11,279
130,000
107,763
10,237
118,000
39,333
118,000
124,361
-
-
39,333
118,000
5,639
130,000
114,155
10,845
125,000
697,826
44,507
742,333
644,672
43,495
688,167
1 Since December 2018, G Adcock's remuneration 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 was paid to Wealth For Toil Pty Ltd, a company in which Mrs Murphy has a beneficial interest, up to the date of her
retirement.
21
7 Shareholdings of key management personnel
Service Stream Limited
Directors' report
Received on
vesting of
performance
rights
(Disposed)/
acquired
during the
year
Balance at
1 July
Balance at
date of
appointment
Balance at
date of
resignation
Balance at
30 June
No.
No.
No.
No.
No.
No.
3,150,986
50,000
38,444,918
1,000,000
20,000
409,268
-
-
-
-
-
-
148,687
-
-
50,000
-
34,025
1,050,000
1,000,000
(949,300)
-
-
-
-
-
-
-
-
-
-
70,000
1,000,000
700,000
(1,200,000)
-
-
123,411
-
-
-
1,138,522
2,036,998
650,000
(1,250,000)
650,000
(205,068)
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)
-
-
-
-
-
-
-
38,444,918
-
-
-
-
-
-
-
-
-
-
-
-
(20,000)
-
-
-
(500,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,299,673
50,000
38,444,918
1,050,000
-
443,293
1,100,700
70,000
-
123,411
-
538,522
2,481,930
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
2020
Non-Executives
B Gallagher
G Adcock
T Coen
P Dempsey
R Murphy
D Page
Executives
L Mackender
L Kow
R Grant
J Ash
S Laffey
P McCann
K Smith
1.000
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
8 Voting and comments made at the Company's 2019 Annual General Meeting
The Company received 97% of “yes” votes on its Remuneration Report for the 2019 financial year.
22
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
18 August 2020
Leigh Mackender
Managing Director
18 August 2020
23
Auditor’s Independence Declaration
As lead auditor for the audit of Service Stream Limited for the year ended 30 June 2020, I declare that to the
best of my knowledge and belief, there have been:
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
(a)
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Service Stream L imited and the entities it controlled during the period.
Trevor Johnston
Partner
PricewaterhouseCoopers
Melbourne
18 August 2020
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
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
2020
$'000
2019
$'000
3
4
6
5
7
927,951
1,182
929,133
(217,726)
(499,801)
(54,513)
(9,448)
(7,193)
(2,002)
(15,843)
(12,163)
(31,678)
(3,548)
(4,753)
70,465
(21,150)
49,315
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
Total comprehensive income for the year
0
Profit attributable to the equity holders of the parent
0
Total comprehensive income attributable to equity holders of the parent
49,315
49,859
49,315
49,315
49,859
49,859
Earnings per share
Basic (cents per share)
Diluted (cents per share)
8
8
12.13
12.09
13.09
12.89
Notes to the financial statements are included on pages 29 to 67
25
Consolidated balance sheet
at 30 June
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
Right-of-use assets
Intangible assets
Total non-current assets
Total assets
LIABILITIES
1
Current liabilities
Trade and other payables
Provisions
Borrowings
Lease liabilities
Current tax liabilities
Total current liabilities
Non-current liabilities
Deferred tax liability (net)
Provisions
Borrowings
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
1
Capital and reserves
Contributed equity
Reserves
Retained earnings
Total equity
Service Stream Limited
Notes
2020
$'000
20191
$'000
20
9
10
11
12
13
15
14
16
17
21
15
7
7
17
21
15
18
79,472
39,204
6,259
101,801
4,520
231,256
15,156
29,090
313,179
357,425
70,809
54,385
8,868
125,988
7,448
267,498
20,119
-
323,550
343,669
588,681
611,167
103,055
29,458
9,000
9,900
10,670
162,083
23,807
6,531
51,000
23,464
104,802
162,131
36,995
9,000
288
10,136
218,550
28,045
5,808
51,000
-
84,853
266,885
303,403
321,796
307,764
314,741
(11,109)
18,164
297,757
2,475
7,532
321,796
307,764
1 The 30 June 2019 balance sheet has been restated to reflect the final fair value of the purchase price allocation balances of Comdain
Infrastructure, which was acquired on 2 January 2019. Refer to note 27.
Notes to the financial statements are included on pages 29 to 67
26
Consolidated statement of changes in equity
for the financial year ended 30 June
Service Stream Limited
Balance at 1 July 2018
Profit for the period
Total comprehensive income for the year
Equity-settled share-based payments, inclusive of tax adjustments
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
Profit for the period
Total comprehensive income for the year
Equity-settled share-based payments, inclusive of tax adjustments
Issue of shares (net of transaction costs)
Acquisition of treasury shares
Issue of treasury shares to employees
Dividends paid
Balance at 30 June 2020
Contributed
equity
Employee
equity-
settled
benefits
reserve
Retained
earnings
Total
$'000
$'000
$'000
$'000
217,281
-
1,651
-
(12,038)
49,859
206,894
49,859
-
-
70,363
1,777
(1,777)
9,640
473
-
49,859
49,859
10,464
-
-
-
(9,640)
-
-
-
-
-
10,464
70,363
1,777
(1,777)
-
-
(30,289)
(29,816)
297,757
2,475
7,532
307,764
-
-
-
14,604
(15,345)
-
-
1,761
-
-
15,345
(15,345)
49,315
49,315
49,315
49,315
-
-
-
-
1,761
14,604
(15,345)
-
2,380
-
(38,683)
(36,303)
314,741
(11,109)
18,164
321,796
Notes to the financial statements are included on pages 29 to 67
27
Consolidated statement of cash flows
for the financial year ended 30 June
Cash flows from operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Cash generated from operations
Interest received
Interest and facility costs paid
Income taxes paid
Net cash provided by operating activities
20
Cash flows from investing activities
Payments for plant and equipment
Proceeds on the sale of plant and equipment
Payment for intangible assets
Payments for businesses
Net cash used in investing activities
Cash flows from financing activities
Purchase of shares (net of transaction costs)
Payment for share issue costs
Lease incentives received
Principal elements of lease payments
Dividends paid
Proceeds from borrowings
Service Stream Limited
Notes
2020
$'000
2019
$'000
1,028,079
942,053
(941,633)
(862,350)
86,446
79,703
103
(3,689)
(25,177)
57,683
(2,185)
1,336
(5,636)
-
(6,485)
(741)
-
4,164
(9,655)
(36,303)
-
697
(2,063)
(18,814)
59,523
(3,581)
452
(6,287)
(82,752)
(92,168)
-
(59)
-
(369)
(29,816)
60,000
Net cash (used in)/provided by financing activities
(42,535)
29,756
Net increase/(decrease) in cash held
Cash at the beginning of the year
Cash at the end of the period
8,663
(2,889)
70,809
79,472
73,698
70,809
20
Notes to the financial statements are included on pages 29 to 67
28
Service Stream Limited
Notes to the consolidated financial statements
for the year ended 30 June 2020
Notes to the consolidated financial statements
1 General information
Section A: Business performance
Section B: Operating assets & liabilities
2 Segment information
Page 30
9 Trade and other receivables
3 Revenue from contracts with customers
Page 32
10
Inventories
4 Other income
5 Finance costs
Page 34
11 Accrued revenue
Page 34
12 Other assets
6 Other expense items
Page 34
13 Plant and equipment
7
Income tax expense
Page 35
14
Intangible assets
8 Earnings per share
Page 37
15 Leases
16 Trade and other payables
17 Provisions
Section C: Capital and financing
Section D: Group structure
18 Contributed equity
19 Dividends
20 Notes to the statement of cash flow
21 Financial instruments
22 Capital risk management
23 Share-based payments
Page 44
Page 45
Page 46
Page 46
Page 49
Page 50
24 Subsidiaries
25 Deed of cross guarantee
26 Joint operations
27 Business combinations
28 Related party transactions
29 Parent entity information
Section E: Unrecognised items
Section F: Other
30 COVID-19 impact
31 Contingent assets and liabilities
32 Events after the reporting period
Page 56
Page 56
Page 56
33 Remuneration of auditors
34 Significant accounting policies
35 Critical accounting judgements
Page 30
Page 38
Page 38
Page 38
Page 39
Page 39
Page 40
Page 42
Page 43
Page 44
Page 53
Page 53
Page 53
Page 54
Page 54
Page 55
Page 56
Page 57
Page 67
29
Service Stream Limited
Notes to the consolidated financial statements
Notes to the financial statements
for the financial year ended 30 June 2020
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
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,
fixed-line
installation, design and construction services to the owners of
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 includes 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.
During the period, the Group's call centre function was transferred from the Utilities to Telecommunications reportable
segment in order to enhance the provision of customer support and field scheduling services of nbn operations. The
segment reporting is based on this revised segment structure for the first time in this annual financial report. To enable
comparisons with prior period performance, historical segment information for the prior reporting period ended 30 June
2019 has been restated.
Information regarding the reportable segments is presented below.
30
2 Segment information (continued)
(b) Segment revenues and results
Telecommunications 1
Utilities 1
Total of all segments
Other income
Eliminations 1
Unallocated
EBITDA 2
Depreciation of plant and equipment
Depreciation of right-of-use assets
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
Service Stream Limited
Notes to the consolidated financial statements
Segment revenue
Segment EBITDA
2020
$'000
544,170
384,083
928,253
1,079
(302)
2019
$'000
589,388
264,284
853,672
522
(2,713)
103
697
929,133
852,178
2020
$'000
83,125
30,810
113,935
(8,347)
105,588
(6,204)
(9,467)
(5,002)
(11,005)
2019
$'000
77,096
22,538
99,634
(10,091)
89,543
(4,547)
-
(4,254)
(7,425)
73,910
73,317
(3,445)
(1,202)
70,465
72,115
(21,150)
(22,256)
49,315
49,859
1 The prior year comparatives have been restated to reflect the change in the composition of the reportable segments, including eliminations of
intra/inter-segment transactions.
2 Earnings before interest, tax, depreciation and amortisation.
(c) Segment assets and liabilities
Telecommunications 1
Utilities 1
Total of all segments
Unallocated
Consolidated
Segment assets
Segment liabilities
2020
$'000
162,062
345,944
508,006
80,675
588,681
2019
$'000
192,507
335,030
527,537
83,630
611,167
2020
$'000
70,867
81,037
151,904
114,981
266,885
2019
$'000
113,744
111,545
225,289
78,114
303,403
1 The prior year comparatives have been restated to reflect the change in the composition of the reportable segments, including eliminations of
intra/inter-segment transactions.
31
2 Segment information (continued)
(d) Other segment information
Telecommunications 1
Utilities 1
Total of all segments
Unallocated
Consolidated
Service Stream Limited
Notes to the consolidated financial statements
Depreciation and
amortisation
Additions to non-current
assets
2020
$'000
5,175
19,707
24,882
6,796
31,678
2019
$'000
1,804
9,701
11,505
4,721
16,226
2020
$'000
2,035
5,027
7,062
8,349
15,411
2019
$'000
1,190
2,249
3,439
6,429
9,868
1 The prior year comparatives have been restated to reflect the change in the composition of the reportable segments, including eliminations of
intra/inter-segment transactions.
(e)
Information about major customers
In the current reporting period, there was one customer (2019: two customers) which contributed more than 10% of the
Group’s revenue. The relevant revenue by segment is shown below:
Largest customer
Second largest customer 1.0002020: Not applicable (2019: Telecommunications $96.9 million).
1.0002020: Telecommunications $442.7 million (2019: Telecommunications $463.3 million).
No other single customer contributed 10% or more of the Group’s total revenue in 2020 and 2019.
3 Revenue from contracts with customers
(a) Revenue from contracts with customers
Revenue
2020
$'000
927,951
927,951
2019
$'000
850,959
850,959
(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 2020
Segment revenue
Fixed
Communications
Network
Construction
Energy &
Water
Comdain
Infrastructure Other
Total
$'000
$'000
$'000
$'000
$'000
432,494
111,676
96,096
288,131
-
$'000
928,397
Intra / Inter-segment revenue
-
-
(144)
-
(302)
(446)
Revenue from contracts with customers
432,494
111,676
95,952
288,131
(302)
927,951
Timing of revenue recognition
At point in time
Over time
380,164
52,330
432,494
-
111,676
111,676
87,893
56,957
483
525,497
8,059
231,174
95,952
288,131
(785)
(302)
402,454
927,951
32
3 Revenue from contracts with customers (continued)
(b) Disaggregation of segment revenue (continued)
Service Stream Limited
Notes to the consolidated financial statements
30 June 2019
Segment revenue
Intra / Inter-segment revenue
Revenue from contracts with customers
Timing of revenue recognition
At point in time
Over time
Fixed
Communications 1
$'000
Network
Construction
$'000
Energy &
Water 1
$'000
Comdain
Infrastructure Other 1
$'000
$'000
215,255
104,175
160,222
-
Total
$'000
861,416
381,764
(7,631)
374,133
313,405
60,728
374,133
-
(113)
-
(2,713)
(10,457)
215,255
104,062
160,222
(2,713)
850,959
-
89,371
19,271
116
422,163
215,255
14,691
140,951
(2,829)
428,796
215,255
104,062
160,222
(2,713)
850,959
1 The prior year comparatives have been restated to reflect the change in the composition of the reportable segments, including eliminations of
intra/inter-segment transactions.
(c) Assets and liabilities related to contracts with customers
Revenue recognised that was included in contract liability balance at the beginning of the period
2020
$'000
2019
$'000
37,703
27,726
Revenue (reversed) / recognised from performance obligations satisfied in previous periods
(596)
644
(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 17.
33
4 Other income
Gain on disposal of assets
R&D tax incentives
Interest revenue
Other
5 Finance costs
Interest expense: leases
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
6 Other expense items
(a) Depreciation and amortisation expense
Depreciation of plant and equipment
Depreciation of right-of-use assets
Amortisation of software
Amortisation of customer contracts / relationships
(b) Employee benefit expense
Post-employment benefits plans
Equity-settled share-based payments
(c) Operating lease rental expenses
Minimum lease payments
Service Stream Limited
Notes to the consolidated financial statements
2020
$'000
411
136
103
532
2019
$'000
422
81
697
19
1,182
1,219
2020
$'000
939
1,029
35
823
434
3,260
288
3,548
2020
$'000
6,204
9,467
5,002
11,005
31,678
16,359
2,004
18,363
2019
$'000
21
817
51
579
262
1,730
169
1,899
2019
$'000
4,547
-
4,254
7,425
16,226
11,905
7,873
19,778
-
-
10,875
10,875
Notes
13
15
14
14
From 1 July 2019, the Group has recognised right-of-use assets for these leases, except for short-term leases, refer to
notes 15(b) and 34(a) for further information.
34
Service Stream Limited
Notes to the consolidated financial statements
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
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
2020
$'000
24,852
(3,702)
21,150
2020
$'000
70,465
21,140
(41)
-
51
2019
$'000
22,855
(599)
22,256
2019
$'000
72,115
21,635
(24)
556
89
21,150
22,256
3,702
24,852
(14,182)
10,670
599
22,855
(15,561)
7,294
30.01%
30.86%
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
AASB 16
Adoption
Timing
difference
related to
prior
periods 1
Charged to
income
Charged to
equity
Closing
balance
2020
$'000
$'000
$'000
$'000
$'000
$'000
Temporary differences
Trade and other receivables
Accrued revenue
Trade, other payables and provisions
Share issue costs
Employee benefits
Plant and equipment
554
(25,686)
6,188
97
13,491
(154)
Customer contracts / relationships
(23,088)
-
-
-
-
-
-
-
Right of use assets
Lease liabilities
Other
-
-
(9,293)
9,293
(182)
-
(82)
4,022
1,328
(2,309)
-
(27)
-
-
-
-
(183)
(3,126)
(243)
-
-
-
-
331
3,301
566
716
310
-
-
-
-
-
290
(21,664)
5,207
70
9,939
177
(19,787)
(8,727)
10,009
679
553
(28,045)
-
-
(184)
779
3,702
(243)
(23,807)
1 The prior period timing difference arose from a true-up of deferred tax and tax payable position at balance date to the subsequent tax return
lodgement date.
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
Plant and equipment
Customer contracts
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
-
-
-
-
-
-
-
-
-
227
303
1,971
-
2,043
-
(23,962)
294
(19,124)
554
(25,686)
6,188
97
13,491
(154)
(23,088)
553
(28,045)
Deferred tax assets and liabilities have been set-off by the Company and are presented in the balance sheet 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 24. 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
2020
Cents per
share
12.13
12.13
2019
Cents per
share
13.09
13.09
12.09
12.09
12.89
12.89
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
2020
$'000
49,315
49,315
1
2020
No.'000
2019
$'000
49,859
49,859
2019
No.'000
406,647
380,877
1,134
5,963
407,781
386,840
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
Other receivables
Trade
receivables
Expected
credit loss
Total
Trade
receivables
Expected
credit loss
Total
2020
$'000
32,211
2,975
1,220
200
946
37,552
2020
$'000
(146)
(65)
(244)
(74)
(440)
(969)
2020
$'000
32,065
2,910
976
126
506
36,583
2,621
39,204
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
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, then 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 21(d).
10 Inventories
Inventories
2020
$'000
6,259
6,259
2019
$'000
8,868
8,868
Inventories recognised as an expense during the year ended 30 June 2020 amounted to $54,513,000 (2019:
$37,196,000). 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 (2019: nil).
11 Accrued revenue
Accrued revenue
2020
$'000
101,801
101,801
2019
$'000
125,988
125,988
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 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
which has historically resulted 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 34(f)
revenue recognition. Details about the Group's impairment policy and assessment of the loss allowance are provided
in note 21(d).
Accrued revenue has decreased during the year predominantly due to the conclusion of nbn design and construction
activities.
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.
38
12 Other assets
Work in progress
Prepayments
Financing facility establishment costs
Other
13 Plant and equipment
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
1.000
Year Ended 30 June 2020
Opening net book value
Additions
Disposals 1
Depreciation charge
Closing net book value
1.000
At 30 June 2020
Cost
Accumulated depreciation
Net book value
1 Disposals are net of accumulated depreciation.
Service Stream Limited
Notes to the consolidated financial statements
2020
$'000
-
3,947
332
241
4,520
2019
$'000
789
5,837
571
251
7,448
Leasehold
improvements
$'000
Plant and
equipment
$'000
Motor
vehicles
$'000
Total
$'000
1,279
1,075
548
(22)
(1,155)
1,725
11,633
(9,908)
1,725
1,725
6
-
(599)
1,132
9,892
(8,760)
1,132
2,227
8,640
2,998
(8)
(2,393)
11,464
29,854
(18,390)
11,464
11,464
2,179
(839)
(3,345)
9,459
30,129
(20,670)
9,459
442
7,452
35
-
(999)
6,930
9,763
(2,833)
6,930
6,930
-
(105)
(2,260)
4,565
8,110
(3,545)
4,565
3,948
17,167
3,581
(30)
(4,547)
20,119
51,250
(31,131)
20,119
20,119
2,185
(944)
(6,204)
15,156
48,131
(32,975)
15,156
39
14 Intangible assets
Year Ended 30 June 2019
Opening net book value
Acquisition through business combination
Additions
Disposals
Amortisation charge
Closing net book value
At 30 June 2019
Cost 1
Accumulated amortisation
Net book value
1.000
Year Ended 30 June 2020
Opening net book value
Additions
Amortisation charge
Closing net book value
1.000
At 30 June 2020
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
14,621
-
6,287
(46)
(4,254)
16,608
42,937
(26,329)
16,608
16,608
5,636
(5,002)
17,242
4,512
25,310
-
-
(4,945)
24,877
32,209
(7,332)
24,877
-
(6,045)
18,832
48,541
(31,299)
32,209
(13,377)
17,242
18,832
-
54,562
129,698
100,285
148,831
180,157
6,287
(46)
(11,679)
-
-
-
-
-
229,983
323,550
229,983
-
359,691
(36,141)
229,983
323,550
323,550
5,636
(16,007)
229,983
313,179
229,983
-
365,295
(52,116)
229,983
313,179
-
-
(2,480)
52,082
54,562
(2,480)
52,082
-
(4,960)
47,122
54,562
(7,440)
47,122
24,877
52,082
229,983
1 The cost of goodwill represents the net carrying value at balance date.
(a)
Impairment tests for goodwill
Goodwill is monitored by management at an operating segment level. The goodwill allocation is presented below.
Fixed Communications
Network Construction
Energy & Water
Comdain Infrastructure
(b) Significant estimates
2020
$'000
27,691
43,759
58,248
100,285
229,983
2019
$'000
27,691
43,759
58,248
100,285
229,983
The Group tests whether goodwill is subject to any impairment on an annual basis. The Group's operating segments
and cash generating units (CGUs) 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
projections based on financial
forecasts covering a four-year period. These forecasts are based on historical
performance combined with management’s expectations of future performance based on prevailing and anticipated
market factors.
40
Service Stream Limited
Notes to the consolidated financial statements
14 Intangible assets (continued)
(c) Key assumptions used for value-in-use calculations (continued)
Acknowledging that there have been changes in the observable markets over the years, an independent valuation
expert was engaged during the period to perform a WACC rate review for the Group. From the review undertaken,
they concluded that:
(i)
(ii)
The majority of the risks and assumptions embedded across the 4 CGUs are the same, and therefore a single
discount rate can be applied across all 4 CGUs; and
There are observable differences in the market that justify the reduction in WACC rates adopted by the Group
from the prior period. These primarily relates to a reduction in the observed 10-year Australian Government
Bond rate (the ‘risk free’ rate) and a reduction in the Company’s asset beta and post-tax cost of debt.
The Group have adopted a nominal discount rate in this year’s impairment calculation in line with the underlying
financial forecast assumptions. In prior period a real discount rate was used in line with the underlying financial
forecast assumptions adopted in the impairment models at that time.
Cash flows beyond the next four-year period have been extrapolated where relevant using a 2.5% per annum nominal
growth rate (FY19: 0% per annum real growth rate). A pre-tax discount rate of 12.9% nominal for each CGU (FY19
pre-tax discount rate: 12.9% real for Fixed Communications, Network Construction and Energy & Water and 13.6%
real for Comdain Infrastructure) 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 forecast period from a base of FY20 is 0%. 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 wireless telecommunication carriers in
Australia and the forecast compound average annual nominal revenue growth over the forecast period from a
base of FY20 is 19%. This assumes existing wireless contracts are extended, new contracts are awarded and
margins remain stable. No cash flows have been included for the nbn design and construction activities.
(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 forecast period from a base of FY20 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, battery storage, 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 forecast period
from a base of FY20 is 12%. This assumes existing contracts are extended, new contracts are awarded and
margins remain stable.
The recoverable amount of all CGUs is sensitive to changes in customer contractual arrangements. Should any
material contracts not be renewed, material tenders not be won, or volumes assigned from contracts be lower than
expected it will result in a reduction to the recoverable amount and may result in an impairment.
41
15 Leases
(a) Amount recognised in the balance sheet
The balance sheet shows the following amounts relating to leases:
Properties
Motor vehicles
Equipment
Total right-of-use assets
1.000
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
Service Stream Limited
Notes to the consolidated financial statements
30 Jun 2020
$'000
23,066
1 Jul 2019
$'000
27,462
4,486
1,538
29,090
9,900
23,464
33,364
3,227
288
30,977
5,789
25,188
30,977
On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been
classified as operating leases under the principles of AASB 117 Leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 July 2019.
The Group's weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 2.9%.
Additions to the right-of-use assets during the 2020 financial year were $6,677,000.
(b) Amounts recognised in the profit or loss
The statement of profit or loss shows the following amounts relating to leases:
Depreciation of right-of-use assets
Properties
Motor vehicles
Equipment
Interest expense (included in interest expense and other finance costs)
Expense relating to short-term leases (included in the occupancy and motor vehicle expenses)
The total cash outflow for leases in 2020 was $10,594,000.
(c) The Group's leasing activities and how these are accounted for
2020
$'000
7,488
1,889
90
9,467
939
1,458
The Group leases various properties, equipment and motor vehicles. Rental contracts are typically made for fixed
periods of two to five years but may have extension options as described in (ii) below. Lease terms are negotiated on
an individual basis and contain a wide range of different terms and conditions.
Until the 2019 financial year, leases of properties, equipment and motor vehicles were predominantly classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) were
charged to profit or loss on a straight-line basis over the period of the lease.
From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the
leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost.
The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
•
•
•
•
amounts expected to be payable by the Group under residual value guarantees;
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payments that are based on an index or a rate; and
the exercise price of a purchase option if the Group is reasonably certain to exercise that option.
42
Service Stream Limited
Notes to the consolidated financial statements
15 Leases (continued)
(c) The Group's leasing activities and how these are accounted for (continued)
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the
Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds
necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
•
•
•
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease incentives received; and
any initial direct costs.
(i) Variable lease payments
There are no variable lease payments requiring estimations.
(ii) Extension and termination options
Extension and termination options are included in a number of properties, equipment and motor vehicles leases across
the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of
extension and termination options held are exercisable only by the Group and not by the respective lessor.
(d) Significant estimates
In determining the lease term, management consider all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise a termination option. Extension options or periods after termination
options are only included in the lease term if the lease is reasonably certain to be extended or not terminated. Potential
future cash outflows of approximately $40,800,000 (undiscounted) have not been included in the lease liability
because it is not reasonably certain that the leases will be extended or not terminated.
16 Trade and other payables
Trade creditors 1
Sundry creditors and accruals
Goods and services tax payable
Income in advance
2020
$'000
45,092
41,186
3,103
13,674
103,055
2019
$'000
52,723
60,124
6,057
43,227
162,131
1 Typically, no interest is charged by trade creditors. The Group has financial risk management policies in place to ensure that all payable 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 decreased during the year predominantly due to the conclusion of nbn design and construction
activities.
43
17 Provisions
Current
Employee benefits 1
Provision for contractual obligations 2
Provision for onerous contracts 3
Provision for contractual disputes 4
Non-current
Employee benefits 1
Service Stream Limited
Notes to the consolidated financial statements
2020
$'000
2019
$'000
19,210
9,490
65
693
29,458
6,531
6,531
16,471
16,340
1,541
2,643
36,995
5,808
5,808
35,989
42,803
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 with its various customers.
3 The provision for onerous contracts represents best estimation on loss-making projects where total cost is expected to exceed total revenue.
4 The provision for contractual disputes represents the present value of an estimate for the future outflow that may be required 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. These assurance-type warranties are accounted
for in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
(a) Movement in provision
Balance at 1 July 2019
Charged / (credited) to profit or loss
Additional provisions recognised
Unused amounts reversed
Amounts used during the year
Balance at 30 June 2020
(b) Significant estimates
Contractual
obligations
$'000
Onerous
contracts
$'000
Contractual
disputes
$'000
16,340
1,541
2,643
910
(6,496)
(1,264)
9,490
33
-
(1,509)
65
-
(1,950)
-
693
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.
18 Contributed equity
Fully paid ordinary shares
Treasury shares
1.000
Number of shares
Share capital
2020
No.'000
408,026
-
408,026
2019
No.'000
401,620
-
401,620
2020
$'000
314,741
-
314,741
2019
$'000
297,757
-
297,757
44
18 Contributed equity (continued)
(a) Fully paid ordinary shares
Balance at 1 July 2018
Issue of shares
Dividend reinvestment plan
Consideration for business combination (net of transaction costs)
Balance at 30 June 2019
Issue of shares
Dividend reinvestment plan
Balance at 30 June 2020
Service Stream Limited
Notes to the consolidated financial statements
Number of
shares
'000
360,210
1,006
215
40,189
Share
capital
$'000
225,144
1,777
473
70,363
401,620
297,757
5,353
1,053
14,604
2,380
408,026
314,741
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 23.
(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 a first-in-first-out basis.
Balance at 1 July 2018
Acquisition of treasury shares (average price: $1.77 per share)
Shares issued under employee share schemes
Balance at 30 June 2019
Acquisition of treasury shares (average price: $2.73 per share)
Shares issued under employee share schemes
Balance at 30 June 2020
Number of
shares
'000
Share
capital
$'000
(5,322)
(1,006)
6,328
-
(5,629)
5,629
-
(7,863)
(1,777)
9,640
-
(15,345)
15,345
-
19 Dividends
Recognised amounts
Fully paid ordinary shares
Interim dividend
Unrecognised amounts
Fully paid ordinary shares
Final dividend 1
1 The FY19 final fully-franked dividend was paid on 2 October 2019.
2020
Cents per
share
2019
Cents per
share
4.00
4.00
3.50
3.50
2020
Cents per
share
2019
Cents per
share
2020
$'000
2019
$'000
16,299
16,299
2020
$'000
14,049
14,049
2019
$'000
5.00
5.00
5.50
5.50
20,401
20,401
22,384
22,384
45
Service Stream Limited
Notes to the consolidated financial statements
19 Dividends (continued)
In respect of current year's earnings, an interim dividend of 4.00 cent per share franked to 100% at 30% corporate
income tax rate was paid to the holders of fully paid ordinary shares on 19 March 2020. In addition, on 18 August
2020, the Directors declared a fully-franked final dividend of 5.00 cents per share to the holders of fully paid ordinary
shares in respect of the financial year ended 30 June 2020, to be paid to shareholders on 1 October 2020. 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 15 September 2020 and the total dividend estimated to be paid in respect
of the current shares on issue is $20,401,000.
Company
2020
$'000
38,763
2019
$'000
29,631
Adjusted franking account balance at 30 June
20 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 disposal of non-current assets
R&D tax incentives
Depreciation and amortisation
Equity-settled share-based payments expense
(Decrease) / increase in tax balances & other tax adjustments
1
Movement in working capital:
Decrease in trade and other receivables
Decrease / (increase) in accrued income
Decrease / (increase) in other assets
Decrease / (increase) in inventories
Decrease in trade and other payables
(Decrease) / increase in provisions
Net cash provided by operating activities
2020
$'000
79,472
79,472
2020
$'000
49,315
(411)
(136)
31,678
2,004
(3,782)
15,181
24,187
2,928
2,609
(59,076)
(6,814)
57,683
(c) Debt reconciliation
$'000
Borrowings
Lease liabilities
Debt at 30 June
21 Financial instruments
(a) Overview
2019
60,000
288
60,288
AASB 16
Adoption
Additions /
Remeasurement
-
30,977
30,977
-
7,590
7,590
Net Cash
flows
-
(5,491)
(5,491)
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)
(11,017)
3,382
59,523
2020
60,000
33,364
93,364
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.
46
21 Financial instruments (continued)
(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
Lease liabilities
Borrowings
Trade and other payables
Service Stream Limited
Notes to the consolidated financial statements
2020
$'000
2019
$'000
79,472
101,801
39,204
220,477
33,364
60,000
103,055
196,419
70,809
125,988
54,385
251,182
288
60,000
162,131
222,419
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
to a $194,720 per annum
at 30 June 2020,
unfavourable impact to profit before tax (2019: $105,210 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
had led 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.
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.
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. This historical loss rate is adjusted to
reflect current and forward-looking information affecting the ability of specific customers to settle their receivables. The
nature of the Group’s customers, which includes government enterprises and large private sector corporations, is such
that the risk of default of receivables is low. To date, the Group have not observed or expect to see material decline on
its customers’ ability to pay as a result of the COVID-19 pandemic. Accordingly, no additional expected credit loss
allowance pertaining to COVID-19 have been included.
47
Service Stream Limited
Notes to the consolidated financial statements
21 Financial instruments (continued)
(d) Credit risk management (continued)
When applying the impairment requirements of AASB 9 to contract assets, the Group recognises that the ageing of
accrued revenue is not indicative of its recoverability profile, rather the ability to complete work in progress and/or
pending customers' approval in order to invoice. Under the expected credit loss principle adopted, the Group assessed
that the accrued revenue balance carries a similar expected loss profile as those trade receivables aged as current,
before adjusting for any specific forward-looking factors. Applying the associated expected loss rate to the accrued
revenue balance results in an immaterial impairment loss.
On that basis, the loss allowance as at 30 June was determined as follows.
Current
$'000
> 30 days
$'000
> 60 days
$'000
> 90 days
$'000
> 120 days
$'000
Total
$'000
30 June 2020
Expected loss rate 1
Gross carrying amount - trade receivables
Loss allowance 1
0.45%
32,211
146
2.17%
2,975
65
19.99%
1,220
244
36.88%
200
74
46.51%
946
440
37,552
969
Current
$'000
> 30 days
$'000
> 60 days
$'000
> 90 days
$'000
> 120 days
$'000
Total
$'000
30 June 2019
Expected loss rate
Gross carrying amount - trade receivables
Loss allowance
0.06%
45,121
27
0.61%
4,058
25
2.55%
1,876
48
8.19%
1,070
88
9.19%
284
26
52,409
214
1 The increase in expected loss rates and loss allowance is due to specific factors included in the current period's assessment.
The loss allowances for trade receivables at 30 June 2020 reconciles to the opening loss allowances as follows:
Opening balance
Additional provision recognised
Receivables written off during the year as uncollectible
Unused amount reversed
Closing balance
(e) Liquidity risk management
2020
$'000
214
783
(28)
-
969
2019
$'000
136
166
(38)
(50)
214
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 21(e)(ii) are details of the financing facilities available to the Group at 30 June 2020.
(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.
48
Service Stream Limited
Notes to the consolidated financial statements
21 Financial instruments (continued)
(e) Liquidity risk management (continued)
(i) Liquidity and interest rate risk tables (continued)
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
2.78%
0.94%
-
(33,364)
(60,000)
(103,055)
(35,081)
(60,744)
(103,055)
(5,519)
(3,282)
(103,055)
(5,134)
(6,261)
-
(8,983)
(51,201)
-
(15,445)
-
-
(196,419)
(198,880)
(111,856)
(11,395)
(60,184)
(15,445)
-
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)
Term loan
Bank guarantees
Bank overdraft
Cash advance
$'000
$'000
$'000
$'000
60,000
-
60,000
60,000
-
60,000
36,660
8,340
45,000
42,525
17,475
60,000
-
40,000
40,000
-
40,000
40,000
-
45,000
45,000
-
30,000
30,000
2020
Financial liabilities
Lease liabilities
Borrowings
Trade and other payables
1.000
2019
Financial liabilities
Lease liabilities
Borrowings
Trade and other payables
(ii) Financing facilities
Amount used
Amount unused
Balance at 30 June 2020
1.000
Amount used
Amount unused
Balance at 30 June 2019
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 2020 was less than the specified hurdle meaning that no
repayment will be required at 30 September 2020. 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.
Performance guarantees provided in the normal course of business are shown above. Based upon current
expectations as at 30 June 2020, the Group considers that it is more likely than not that such amounts will not be
payable under these arrangements.
22 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.
49
22 Capital risk management (continued)
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 2020 and 2019
financial reporting periods.
Service Stream Limited
Notes to the consolidated financial statements
23 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 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.
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 2020 (FY20). 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
The participant must be an employee at the conclusion of the performance period;
80% of the performance rights granted with respect to the FY20 tranche will vest where the Group’s adjusted
earnings per share (Adjusted EPS) achieves the target as set by the Board of Directors. For the FY18 and FY19
tranches, 50% of the performance rights will vest where the Group’s earnings per share achieves an 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
FY18 1
3 years
FY19 2
3 years
FY20 3
3 years
September 2020
September 2021
September 2022
1 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.
2 The FY19 LTIP targets, from base of 11.29 cps are: Year 1: 12.42 cps, Year 2: 14.40 cps, Year 3: 13.34 cps.
3 The FY20 LTIP targets, Year 1: 15.02 cps, Year 2: 13.65 cps, Year 3: not yet determined.
Subject to the following proportional vesting:
Percentage of performance rights that vest
0%
40%
Proportional vesting
FY20 EPS target
Below PY Adjusted EPS 1
At PY Adjusted EPS 1
Greater than PY Adjusted EPS 1
and less than 100%
FY18 & FY19 EPS target
Below 75%
At 75%
Greater than 75% and less
than 100%
100%
100% of target and above
100% and above
1 Where the previous year's Adjusted EPS is less than the current year's Adjusted EPS target.
50
Service Stream Limited
Notes to the consolidated financial statements
23 Share-based payments (continued)
(a) Long-Term Incentive Plan (LTIP) (continued)
C
20% of the performance rights granted (50% for FY18 and FY19 tranches) will vest where the Group’s total
shareholder return (TSR) over the performance period is such that it would rank at or above the 75th percentile
(full achievement) or the 50th percentile (pro-rata achievement) of a relevant peer group of companies being
those comprising the ASX 200 Industrials index, as detailed below:
Percentage of performance rights that vest
0%
50%
Proportional vesting
100%
TSR ranking
Below the 50th percentile
At the 50th percentile
Above the 50th percentile but below the 75th percentile
75th percentile or above (top quartile)
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
FY18 LTIP
614,932
14 September 2017
Relative TSR hurdle - 92.5 cps September 2020
FY19 LTIP
731,108
21 September 2018
Relative TSR hurdle - 81.8 cps September 2021
FY20 LTIP 1
1,078,007 2 18 September 2019
Relative TSR hurdle - 128.4 cps September 2022
EPS hurdle - 139.1 cps
EPS hurdle - 125.8 cps
EPS hurdle - 237.3 cps
Performance
period
1 July 2017 -
30 June 2020
1 July 2018 -
30 June 2021
1 July 2019 -
30 June 2022
1 As L Mackender is a Director of the Company, the issuance of performance rights under the FY20 LTIP Tranche was approved by shareholders at
the Company's Annual General Meeting on 23 October 2019, with relative TSR hurdle valued at $1.311 and EPS hurdle at $2.422.
2 J Ash resigned from his position as the Executive General Manager, Network Construction effective 6 July 2020, and forfeited his eligibility from
participating in the FY20 LTIP Tranche.
Fair value of performance rights
The FY20 LTIP performance rights with the relative TSR hurdle vesting condition have been valued by an independent
expert using a Monte-Carlo simulation. The FY20 LTIP performance rights with the Adjusted 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, the share price at grant date and expected price
volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the option and
the correlations and volatilities of the peer group companies. 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
FY18 LTIP
FY19 LTIP
FY20 LTIP
FY20 LTIP - CEO
Share price at
grant date
Expected
life
Volatility 1
Risk-free
interest rate
Dividend yield
Vesting date
$1.480
$1.774
$2.600
$2.650
2.87 years
2.87 years
2.78 years
2.69 years
45%
35%
30%
30%
1.91%
2.06%
0.82%
0.72%
4.80%
5.90%
4.04%
3.96%
September 2020
September 2021
September 2022
September 2022
1 The expected volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes in
future volatility due to publicly available information.
51
Service Stream Limited
Notes to the consolidated financial statements
23 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
2020
2019
Number of
rights
Grant date
weighted avg FV
$
Number of
rights
Grant date
weighted avg FV
$
2,331,855
1,315,056
(853,073)
(369,791)
2,424,047
0.924
2.163
0.622
1.776
1.573
3,130,497
836,231
(1,548,419)
(86,454)
2,331,855
0.538
1.104
0.243
0.893
0.924
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 FY18 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 FY20 financial statements.
As at 30 June 2020, 614,932 performance rights granted under the FY18 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
(FY20 Tranche) and one year (FY19 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 RNC. The number of performance rights offered to
participating executives was endorsed by the RNC 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.
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
2020
2019
Number of
rights
Grant date
weighted avg FV
Number of
rights
Grant date
weighted avg FV
4,500,000
-
(4,500,000)
-
1.487
-
1.487
-
4,500,000
4,500,000
(4,500,000)
4,500,000
1.326
1.487
1.326
1.487
The relevant number of shares for the FY19 tranche has been delivered to the participants during the year.
52
24 Subsidiaries
Details of the Company’s subsidiaries at 30 June 2020 are as follows:
Name of entity
Parent entity
Service Stream Limited
Subsidiaries
Service Stream Holdings Pty Ltd (i)
Service Stream Fixed Communications Pty Ltd (i)
Service Stream Mobile Communications Pty Ltd (i)
Service Stream Customer Care Pty Ltd (i)
Radhaz Consulting Pty Ltd (i)
Service Stream Infrastructure Services Pty Ltd (i)
Service Stream Energy & Water Pty Ltd (i)
Service Stream Nominees Pty Ltd (i)
Service Stream Operations Pty Ltd (i)
TechSafe Australia Pty Ltd (i)
TechSafe Management Pty Ltd (i)
Ayrab Pty Ltd (i)
Comdain Infrastructure Pty Ltd (i)
Comdain Civil Constructions Pty Ltd (i)
Comdain Civil Constructions (QLD) Pty Ltd (i)
Comdain Services Pty Ltd (i)
Comdain Asset Management Pty Ltd (i)
Comdain Gas (Aust) Pty Ltd (i)
Comdain Services (AMS) Pty Ltd (i)
Comdain Corporate Pty Ltd (i)
Comdain Assets Pty Ltd (i)
Service Stream Limited
Notes to the consolidated financial statements
Country of
incorporation
Ownership interest
2020
%
2019
%
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
100
100
100
100
100
100
100
100
100
100
(i)
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.
25 Deed of cross guarantee
The parties to a deed of cross guarantee for the Group as listed in note 24 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.
26 Joint operations
The Delivering for Customers (D4C) is an unincorporated jointly controlled entity between Comdain Infrastructure Pty
Ltd, Lendlease Services Pty Ltd, John Holland Pty Ltd and WSP Australia Pty Ltd. This arrangement was established
on 18 December 2019. The principal place of business of the joint operation is in Australia.
Comdain Infrastructure Pty Ltd is a wholly owned subsidiary of Service Stream Holdings Pty Ltd. It holds a 30% direct
interest in D4C.
The Joint Venture Deed in relation to the D4C requires unanimous consent from all joint venture parties for all relevant
activities. The four partners have direct rights to the assets of the partnership and are jointly and severally liable for the
liabilities incurred by the partnership. In accordance with AASB 11 Joint Arrangements,
this entity is therefore
classified as a joint operation and the group recognises its direct right to the jointly held assets, liabilities, revenues and
expenses as described in note 34(c).
53
Service Stream Limited
Notes to the consolidated financial statements
27 Business combinations
Year ended 30 June 2019 acquisition
On 2 January 2019, the Group acquired 100% of 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). Fair values of acquired
assets and liabilities as at acquisition were reported on a provisional basis in the prior year's financial statements and
have been adjusted within the twelve-month measurement period as outlined below.
The final fair values of the assets and liabilities of Comdain Infrastructure as at acquisition date are as follows:
Purchase consideration at fair value
Cash and cash equivalents
Trade and other receivables
Accrued revenue
Inventories
Other assets
Plant and equipment
Customer contracts
Trade and other payables
Provisions
Current tax liabilities
Deferred tax asset
Deferred tax liability on customer contracts
Net identifiable assets acquired
Add: goodwill
Net assets acquired
Provisional fair
value
$'000
Adjustments to
provisional fair value
$'000
Final fair value
$'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
-
-
-
-
(42)
-
-
-
(4,401)
-
405
-
(4,038)
4,038
37
23,489
27,795
1,997
2,044
17,167
79,872
(61,550)
(15,894)
(2,907)
4,838
(23,962)
52,926
100,285
153,211
In completing the provisional purchase price allocation in the prior financial period, management was required to make
judgements relating to the fair value of certain liabilities. During the financial year, management has finalised its
assessment over these uncertain liabilities, most notably those relating to employment related obligations, onerous
contracts and project WIP, which are reflected in an adjustment to provisions.
The 30 June 2019 balance sheet and relevant notes within the financial statements have been restated to reflect the
final adjustments to fair value detailed above.
28 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 payments 1
2020
$
5,186,191
176,065
262,645
372,199
5,997,100
2019
$
3,171,193
156,341
71,230
4,549,607
7,948,371
1 The fair value of performance rights issued under the LTIP are 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.
54
Service Stream Limited
Notes to the consolidated financial statements
28 Related party transactions (continued)
(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 also had a
beneficial interest in one of these commercial properties that the Group occupied. Total rental income paid to the
landlord is approximately $580,000 across these three properties (2019: $367,500). At the onset of the COVID-19
pandemic, the Group sought and received payment deferrals from its related parties in relation to these properties with
$195,000 timing benefit remaining at balance date. The terms of the leases have been reviewed and are at arm’s
length with the duration of lease for one property expiring in December 2024 and the other two properties expiring in
August 2025.
29 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 34 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
1 The 30 June 2019 financial position has been restated to reflect the re-classification of tax related balances.
(b) Financial performance
Profit for the year
Total comprehensive income
2020
$'000
134
273,794
273,928
10,668
-
10,668
20191
$'000
73
262,400
262,473
7,477
-
7,477
263,260
254,996
293,205
(11,108)
(18,837)
263,260
276,221
2,475
(23,700)
254,996
2020
$'000
43,546
43,546
2019
$'000
37,519
37,519
(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 24 and 25, and the parent
entity guarantees to certain clients in relation to subsidiary contract performance obligations.
55
Service Stream Limited
Notes to the consolidated financial statements
29 Parent entity information (continued)
(c) Determining the parent entity financial information (continued)
(iii)
Share-based payments
The grant by the Company of shares over its equity instruments to the employees of subsidiaries 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.
30 COVID-19 impact
The Group provides essential infrastructure services to gas, electricity, water and telecommunications network owners
and operators nationally. To date, these industries have been allowed to continue operations under various lock-down
restrictions imposed to manage the pandemic. Although there have been some negative impacts to Service Stream’s
operations from the pandemic, demand for essential network services has remained firm. In addition, the Group’s
balance sheet, cash flow and liquidity have not been materially impacted.
The impacts to earnings to date are described below:
•
•
•
•
•
•
Increased costs to support specific safety-related protocols across business operations. This includes additional
including operating distinct shifts across our warehouse
expenditure on protective equipment and hygiene,
operations with additional cleaning incurred between each shift;
Customer determined moratoriums on electricity and gas disconnections (and subsequent
impacting meter reading operations;
Reduced residential land development activity (new housing estates);
Deferral of proactive maintenance activities by asset owners to ensure networks remain available to consumers
working from home;
Delays in projects due to availability of client-supplied free-issue materials; and
Deferral of some projects due to travel and access restrictions across remote locations.
reconnections)
Servicing the Utilities and Telecommunications networks is core to the Group’s strategy, with exposure to these
sectors providing a solid revenue base and sustained resilience through the pandemic and subsequent economic
recession. In relation to the Group’s operations, restrictions on people movement have not had a significant impact on
the Group’s field-based operations. The Group has implemented appropriate safety and hygiene protocols and
procedures designed to minimise the risk of any spread of the COVID-19 virus. The majority of our office-based staff
have moved to working from home arrangements with the company’s IT infrastructure and other support networks
capable of supporting these arrangements effectively.
At this point in time, and on the basis that the Utilities and Telecommunications sectors will continue to be classified as
essential services, it is not expected that COVID-19 will have a material adverse impact to the carrying value of the
Group’s assets.
31 Contingent assets and liabilities
The Group is not aware of any material contingent assets and liabilities at balance date that have not been disclosed in
these financial statements (2019: nil).
32 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.
33 Remuneration of auditors
Audit and review of the financial report
Other assurance services
Review of income tax return
Services relating to the acquisition of Comdain Infrastructure
Services relating to the GST Streamline Assurance Review
Review of executive long-term incentive plan
Tax advice and other services
The auditor of Service Stream Limited is PricewaterhouseCoopers.
2020
$
693,000
60,000
33,000
12,250
142,837
-
48,000
989,087
2019
$
682,000
-
21,000
144,000
-
60,180
25,000
932,180
56
Service Stream Limited
Notes to the consolidated financial statements
34 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 16, which is effective from 1 July 2019. 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 18 August 2020.
Compliance with IFRS
The consolidated financial statements of the Group also comply with International Financial Reporting Standards as
issued by the International Accounting Standard Board.
New and amended standards adopted by the Group
The Group adopted AASB 16 retrospectively from 1 July 2019 and has not restated comparatives for the prior
reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019.
Changes in accounting policy
On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been
classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were measured at the
present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 July
2019. The Group's weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was
2.9%.
Impact on profitability and earnings per share
(i)
EBITDA has increased by $10.3 million with immaterial impact to earnings per share for the period ending 30 June
2020 as a result of the adoption of AASB 16.
(ii) Practical expedients applied
In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:
•
•
•
•
•
the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
reliance on previous assessments on whether leases are onerous;
the accounting for operating leases with a remaining lease term of less than twelve months as at 1 July 2019 as
short-term leases;
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;
and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the
lease.
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date the Group relied on its assessment made applying AASB
117 Leases and Interpretation 4 Determining whether an Arrangement contains a Lease.
(iii) Operating lease commitments
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
2020
$'000
-
-
-
-
2019
$'000
9,671
21,449
2,033
33,153
57
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(a) Basis of preparation (continued)
(iii) Operating lease commitments (continued)
From 1 July 2019, the Group has recognised right-of-use assets for these leases, except for short-term leases, refer to
reconciliation below (iv) and note 15(b) for further information.
(iv) Measurement of lease liabilities
Operating lease commitments at 30 June 2019
Discounted using Group's incremental borrowing rate at date of initial application
Add: finance lease at 30 June 2019
Less: short-term leases recognised on straight-line basis as expense
Add: contracts reassessed as leases
Lease liability recognised at 1 July 2019
Of which were:
Current lease liabilities
Non-current lease liabilities
1 Jul 2019
$'000
33,153
29,771
288
(448)
1,366
30,977
5,789
25,188
30,977
(v) Measurement of right-of-use assets
The associated right-of-use assets for property leases were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance
sheet as at 30 June 2019. There were no onerous lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
Early adoption of standards
The Group has not elected to early adopt the Standards and Interpretations issued but not yet effective.
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 35.
(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.
the asset
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
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.
58
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(c) Joint arrangements
Under AASB 11 Joint Arrangements investments in joint arrangements are classified as either joint operations or joint
ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal
structure of the joint arrangement. The Group has a joint operation in place during the year.
Joint operations
The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share
of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial
statements. Details of the joint operation is set out in note 26.
(d) 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-rate on the basis of the carrying amount of each asset in
the cash generating unit (or groups of cash generating units). An impairment loss recognised for goodwill is recognised
immediately in the profit or loss and is not reversed in a subsequent accounting period.
On disposal of the relevant cash generating unit, the attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
(e) 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.
(f) 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.
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).
59
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(f) Revenue recognition (continued)
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
planning, design, engineering and construction management
for projects in wireless and fixed-line
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 is recognised as an
expense and onerous contract provision as set out in note 17.
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 assets and contract liabilities to describe what the Group refers to as accrued
revenue and income in advance respectively. 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.
60
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(f) 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 reimbursed 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 separate 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.
(g) Leases
Until 30 June 2019, 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.
Lease income from operating leases where the group is a lessor is recognised in income on a straight-line basis over
the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the
underlying asset and recognised as expense over the lease term on the same basis as lease income.
(h) Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long
service leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of employee short-term benefits are measured at their nominal values using the
remuneration rate expected to apply at the time of the settlement.
Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated
future cash outflows in respect of services provided by employees up to reporting date. Expected future payments
falling due more than 12 months after the end of the reporting period are discounted using corporate bonds market
yields. Remeasurements as a result of employment status and changes in actuarial assumptions are recognised in
profit or loss.
Termination benefits are payable when employment is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits
when it is demonstrably committed to either terminating the employment of current employees according to a detailed
formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to
encourage voluntary redundancy where applicable.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional
right to defer settlement for at least 12 months after the reporting period, regardless of when the actual settlement is
expected to occur.
(i) Share-based payments
the equity
Equity-settled share-based payments to executives and Directors are measured at
instrument at the grant date. Details regarding the determination of the fair value of the equity instruments are set out
in note 23.
the fair value of
61
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(i) Share-based payments (continued)
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period. At the end of
each reporting period the Group revises its estimate of the number of equity instruments expected to vest. The impact
of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
(j) Taxation
Current tax
The income tax expense for the period is the tax payable on the current period's taxable income based on the
applicable income tax rate for each jurisdiction adjusted by any changes in the deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted by the end
of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in
which applicable tax regulations are subject to interpretation. It establishes provisions where appropriate on the basis
of amounts expected to be paid to the tax authorities.
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, 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.
62
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(k) Business combinations (continued)
Goodwill
is initially measured at cost, being the excess of the aggregate of the consideration transferred and the
amount recognised over the net identifiable assets acquired. 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.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those
provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised to
reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the amounts recognised as of that date.
(l) Plant and equipment
Plant and equipment, leasehold improvements and motor vehicles are stated at cost less accumulated depreciation
and impairment. Cost includes expenditure that is directly attributable to the acquisition. In the event that settlement of
all or part of the purchase consideration is deferred, cost is determined by discounting the amount payable to their
present value as at the date of acquisition.
Depreciation is calculated on a straight-line basis so as to write-off the net costs or other revalued amount of each
asset over its expected useful life to its estimated residual value. Depreciation methods, estimated useful lives and
residual values are reviewed at the end of each annual accounting period, with the effect of any changes recognised
on a prospective basis.
Plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of plant and equipment
is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in
profit or loss.
The following estimated useful lives are used in the calculation of depreciation:
Leasehold improvements: 2 - 7 years
Plant and equipment: 1 - 10 years
•
•
• Motor vehicles: 5 - 10 years
(m) Intangible assets
Costs incurred in developing products or systems and costs incurred in acquiring software and licences that will
contribute to future period financial benefits through revenue generation or cost reduction are capitalised as software.
Any costs associated with maintaining this software 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 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 relationships have finite lives and are carried at cost
amortisation and any impairment losses.
less any accumulated
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 3 to 8 years for software, 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
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.
is not possible to estimate the recoverable amount of an individual asset,
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.
63
34 Significant accounting policies (continued)
(n) Impairment of tangible and intangible assets excluding goodwill (continued)
Service Stream Limited
Notes to the consolidated financial statements
The recoverable amount
In assessing
value-in-use, the estimated future cash flows are discounted to their present value using the pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
the fair value less costs of disposal and value-in-use.
is the higher of
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss unless the relevant asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.
(o) Inventories
Inventories are stated at the lower of cost and net realisable value. Costs are assigned to inventories by the method
most appropriate to the particular class of inventory, with the majority being valued on a first in, first out basis. The
inventory balance is comprised of purchased inventory, the cost of which is determined after deducting rebates and
discounts.
(p) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount
of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation
at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount
of the receivable can be measured reliably.
(q) Financial instruments
Financial assets and financial
provisions of the instrument.
liabilities are recognised when a Group entity becomes a party to the contractual
(i) Classification
The Group classifies its financial assets and liabilities in the following measurement categories:
•
those to be measured subsequently at fair value (either through other comprehensive income (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, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through
profit or loss (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 fair
value through other comprehensive income (FVOCI) are not reported separately from other changes in fair value.
(iv) Impairment
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
34 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 21(d) for further details.
(v) Borrowings
Borrowings are initially 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) Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Financial guarantee liabilities
A financial guarantee is a contract that requires the issuer of the guarantee to make a specified payment to the holder
of the guarantee in the event that it suffers a loss due to the guarantee drawer’s failure to make payment or otherwise
satisfy its contractual obligations under an agreement with the holder. The drawer of the guarantee is required to
reimburse the issuer for any loss suffered in satisfaction of the guarantee obligation to the holder.
Financial guarantee liabilities are initially measured at their fair values and are subsequently measured at the higher of:
•
•
the obligation under the contract, as determined in accordance with AASB 137 Provisions,
the amount of
Contingent Liabilities and Contingent Assets; and
the amount initially recognised, less where appropriate, cumulative amortisation recognised in accordance with the
revenue recognition policies.
Financial liabilities
Financial
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 liabilities are subsequently measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net
carrying value on initial recognition.
De-recognition of financial liabilities
The Group de-recognises financial
otherwise expire. The difference between the carrying amount of
consideration paid or payable is then recognised in profit or loss.
liabilities only when the Group’s obligations are fully discharged, cancelled or
liability de-recognised and the
the financial
65
Service Stream Limited
Notes to the consolidated financial statements
34 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,
the Group's impairment
less loss allowance. See note 21(d) for an assessment of
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.
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
66
Service Stream Limited
Notes to the consolidated financial statements
34 Significant accounting policies (continued)
(x) Earnings per share (continued)
•
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.
35 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 34.
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 uncertainties and judgements made in relation to lease accounting - note 15(d);
Estimation of provision for contractual obligations, contractual disputes and onerous contracts - note 17(b); and
Estimation of fair value of assets and liabilities in business combination - note 27.
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.
67
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 2020 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 24 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 25.
Note 34 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
18 August 2020
Leigh Mackender
Managing Director
18 August 2020
68
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 2020 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 2020
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (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
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 audit focused on where the Group made
subjective judgements; for example,
significant accounting estimates involving
assumptions and inherently uncertain future
events.
•
For the purpose of our audit we used overall
Group materiality of $3.5 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.
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) $230.0 million
The Group is required by Australian Accounting
Standards to test goodwill 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 ($100.3 million).
The CGUs are tested for impairment using a discounted
cash flow model.
In undertaking impairment testing, the following
assumptions require estimation:
expected cash flows, as taken from Board
approved budgets and strategic plans,
including assumptions regarding extending
existing and winning new contracts
discount rates used to discount the estimated
cash flows
the long term growth rate to be applied to the
forecast cash flows in the terminal year.
This was a key audit matter because of the level of
estimation required by the Group in determining the
assumptions used to perform the impairment testing.
Revenue recognition
(Refer to note 3 and 34 (f)) $928.0 million
For the year ended 30 June 2020, the Group
recognised $928.0 million of revenue from contracts
with customers.
Revenue from provision of ticket of work services
involves a high volume of transactions and is
We assessed whether the Group’s identification of
CGUs was consistent with our knowledge of the
operations and internal reporting lines.
We compared actual historical results to budget to
assess the level of the Group’s accuracy in forecasting
cash flows.
We checked that the four-year forecasts used in the
impairment models were based on the Board approved
budgets and strategic plans.
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:
evaluated the reasonableness of the Group’s
discount rate assumptions with the assistance
of PwC valuation experts
evaluated the underlying cash flow
assumptions in the impairment models for key
customer contracts with reference to historical
results and expected project pipelines, and
considered external industry information
evaluated the reasonableness of the Group’s
long term growth rate based on relevant
external market data
tested the calculations in the model for
mathematical accuracy.
We considered the adequacy of the Group’s disclosures
on goodwill impairment in light of the requirements of
Australian Accounting Standards.
We evaluated the design and implementation of
relevant key internal controls over the recognition of
revenue.
For revenue from the provision of ticket of work
services, amongst other procedures and for a sample of
transactions, we obtained evidence of completed
subcontractor claims and/or work orders and
compared the revenue amount recognised to the
Key audit matter
How our audit addressed the key audit matter
recognised at a point in time once services or activities
have been completed.
contracted rate with the customer for the type of
service.
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 costs, and
variable consideration.
This was a key audit matter because of its significance
to profit, the high volume of revenue transactions
associated with ticket of work services and the
estimation required in recognising revenue from the
delivery of projects.
Recoverability of accrued revenue
(Refer to note 11) $101.8 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
revenue balance at 30 June 2020 was $101.8 million.
Judgement was required in order to determine if
accrued revenue will be recoverable. This included
considering the nature of transactions and the aging of
claims. Only revenue that is highly probable of not
reversing can be recorded.
The recoverability of accrued revenue was a key audit
matter because judgement was required to evaluate
For revenue from the delivery of projects, amongst
other procedures and for a sample of contracts, we:
obtained an understanding of the terms and
conditions of contracts
obtained an understanding, and agreed to
supporting documents, the estimates of total
contract revenue and forecast contract costs
and evaluated the percentage of completion
based on the actual costs incurred to date
assessed the Group’s forecasting accuracy by
comparing historical actual costs incurred
relative to the forecast of those costs
assessed the accrued revenue or income in
advance balance at 30 June by assessing the
amounts billed up to 30 June 2020 relative to
the revenue recognised to that date
considered the status of projects to assess the
allocation of revenue to the periods before and
after 30 June 2020.
For all categories of revenue our procedures included
identifying a sample of journal entries impacting
revenue based on specific criteria and obtaining source
documents to determine the journals were reasonable.
We evaluated the aging of accrued revenue to identify
areas of higher risk. Whilst each segment has aged
accrued revenue balances, the Fixed Communications
segment had the most significant balance. We therefore
directed the majority of our audit effort to that
segment.
We performed the following procedures, amongst
others, in relation to the recoverability of accrued
revenue:
for a sample of accrued revenue transactions,
we obtained evidence to assess if the work had
been completed and the Group was entitled to
the accrued revenue balance
assessed the reliability of accrued revenue
aging reports by obtaining source documents
and using the date of the transaction to verify
Key audit matter
How our audit addressed the key audit matter
whether revenue is highly probable of not reversing.
the aging of the amount
assessed the long-term average claim rejection
rate which we compared to actual experience,
including recent trends
for claims that reached an outcome
subsequent to 30 June 2020 we obtained
evidence of the outcome.
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 2020, 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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of
our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 14 to 22 of the Directors’ report for the
year ended 30 June 2020.
In our opinion, the remuneration report of Service Stream Limited for the year ended 30 June 2020
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
18 August 2020
Service Stream Limited
ASX Additional Information
ASX Additional Information
for the financial year ended 30 June 2020
Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere
in this report.
A. Distribution of Shareholders Number as at 17 August 2020
Category (size of holding)
1-1,000
1,001- 5,000
5,001-10,000
10,001-100,000
100,001+
Holders
2,943
3,966
1,809
2,076
137
10,931
B. There are 10,931 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 552.
D. The names of the substantial shareholders listed in the holding company’s
register, and their shareholdings (including shareholdings of their
associates), as at 17 August 2020 are:
Shareholder
Comdain nominees Pty Ltd
FIL Limited
Thorney Opportunities Ltd(1)
Tiga Trading Pty Ltd(1)
Jasforce Pty Ltd (as trustee for the Alex Waislitz Retirement Plan)(1)
Waislitz Charitable Corporation Pty Ltd (as trustee for the Waislitz Family
Foundation)(1)
Ordinary
%
38,444,918
23,853,483
6,396,590
15,432,787
316,000
9.42%
5.85%
1.57%
3.78%
0.08%
177,500
0.04%
(1)
The Company treats Thorney Opportunities Ltd, Tiga Trading Pty Ltd, Jasforce Pty Ltd (as trustee for the Alex Waislitz Retirement Plan) and Waislitz Charitable
Corporation Pty Ltd (as trustee for the Waislitz Family Foundation) with an aggregated holding of 5.47%, as associated entities as defined in the Corporations Act.
E. Voting Rights
The voting rights attached to each class of equity security are as follows:
Ordinary shares
Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or
by proxy has one vote on a show of hands.
Options
These securities have no voting rights.
F. Net Tangible Assets
The net tangible assets per security is $0.0211 (2019: ($0.0393))
G. 20 Largest Shareholders as at 17 August 2020 - Ordinary Shares
Service Stream Limited
ASX Additional Information
Name of 20 largest shareholders in each class of share
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
COMDAIN NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
UBS NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
RUBI HOLDINGS PTY LTD
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
NETWEALTH INVESTMENTS LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MR KEVIN ASHLEY SMITH
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
CRISTATUS PTY LTD
MACKENDER HOLDINGS PTY LTD
CITICORP NOMINEES PTY LIMITED
MR KEVIN ASHLEY SMITH
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
MR ASHLEY HAYNES
Ordinary
shares Fully
paid number
of shares
held
100,939,482
47,137,196
38,444,918
30,897,568
23,808,536
17,921,517
8,740,019
6,000,000
5,658,203
4,377,423
3,918,687
1,715,381
1,500,000
1,370,894
1,050,000
1,000,000
963,172
953,002
900,089
890,081
% Held
24.74
11.55
9.42
7.57
5.84
4.39
2.14
1.47
1.39
1.07
0.96
0.42
0.37
0.34
0.26
0.25
0.24
0.23
0.22
0.22
298,186,168
73.08
Service Stream Limited
Corporate Directory
Corporate Directory
Directors
Brett Gallagher
Leigh Mackender
Greg Adcock
Tom Coen
Peter Dempsey
Deborah Page AM
Company Secretary
Chris Chapman
Registered Office
Level 4
357 Collins Street
Melbourne Victoria 3000
Tel: +61 3 9677 8888
Fax: +61 3 9677 8877
www.servicestream.com.au
Bankers
Australia & New Zealand Banking Group
HSBC Bank Australia Limited
Share Registry
Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
Tel: 1300 850 505 (within Australia)
+61 3 9415 4000 (outside Australia)
Fax: +61 3 9473 2500
Auditor
PricewaterhouseCoopers
Service Stream Limited
ABN: 46 072 369 870
Level 4, 357 Collins Street, Melbourne, Victoria 3000
www.servicestream.com.au
SERVICE STREAM LIMITED 2020 ANNUAL REPORT